Dive Brief:
- Boeing must impose disciplined risk management in its contracting, an area that lost focus in recent years, new CEO Kelly Ortberg said Wednesday. Boeing has “no magic bullet” to solve its portfolio of unprofitable contracts, Ortberg said on his first quarterly call as CEO. The company will “have to work our way through some of those.”
- Boeing’s Defense, Space & Security business lost $2.4 billion in the quarter, posting a negative 43% operating margin. The company is saddled with multiple programs on which it loses money due to fixed-price contracts. In the third quarter, Boeing took $2 billion in charges on four programs: the T-7A training fighter, the KC-46A refueling tanker, the Starliner commercial crew transport vehicle and the MQ-25 drone program.
- In July, Boeing agreed to plead guilty to a felony charge of conspiring to defraud the U.S. as part of a resolution with the Justice Department stemming from two fatal crashes of 737 Max airplanes. A federal judge is reviewing the agreement, and has told Boeing and the government to provide him more information by Friday on their respective diversity, equity and inclusion programs.
Dive Insight:
“Clearly, we have some difficult contracts in our defense business but we have to do a better job of executing on the things that we can control,” Ortberg told analysts on a conference call Wednesday to discuss his strategy for returning Boeing to profitability, possibly in 2026.
Last month, Ortberg ousted the head of the defense unit, Ted Colbert, as one of his first major changes in the role. The fixed-price contracts, which predated Colbert, have cost Boeing billions in recent years due to delays and the need to redo work on various programs. The Starliner space vehicle to fly NASA astronauts, for example, has cost Boeing more than $1.6 billion in the past eight years as the company was forced to cover expenses for major software redesign and other changes.
Boeing is “not looking around the corner enough on these programs,” Ortberg said, in terms of analyzing future risks and not just what the current problems with a particular defense or space program may be.
“We signed up for some things that are problematic,” he said, without specifically naming any of the troubled fixed-price programs. Boeing is working to become “really focused on our bidding proposal activity” and “putting discipline on that to better understand the risk we’re taking on.”
The solution will be to work through the current commitments “and get better execution in the future,” Ortberg said. “We know how to run these programs, we have just lost a little bit of discipline.”
In response to a Citigroup analyst’s question about Boeing’s ability to end some programs and walk away, Ortberg said, “I don’t think that’s a viable option to us, even if we wanted to.”
Many of the programs are for Boeing “core customers” that need a particular defense or space capability over long-term periods, he said, without identifying any customers or programs. “Walking away isn’t an answer to this.”
Last year, former Boeing CEO David Calhoun said the company would “never” again agree to a fixed-price contract after it works through those currently vexing its balance sheet.
Ortberg assumed the top Boeing job in August as the company seeks to revamp its culture and regain the trust of its commercial aircraft and government customers after years of problematic craftsmanship and the fatal crashes of two new 737 Max aircraft.
More than 33,000 Boeing aircraft production workers on the West Coast have been on strike for more than a month, seeking an improved contract. The employees were voting Wednesday on a revised offer from the company.
Boeing entered the fourth quarter with a $511 billion backlog of orders.
