Boeing’s defense business continues to grapple with substantial challenges, as it faces another year of billion-dollar losses. The defense unit reported $1.7 billion in losses in 2023, largely attributed to supplier errors and high manufacturing costs associated with programs such as the next Air Force One and NASA’s Starliner capsule. This comes on the heels of a $4.4 billion loss in 2022, and despite efforts to address the issue, the unit’s performance has not significantly improved. In fact, losses in 2023 alone surpass the cumulative losses from all years since 2014. Unlike its defense contractor counterparts, Boeing’s defense unit is constrained by fixed-price development contracts that force the company to bear the brunt of cost overruns. Boeing executives are implementing new measures to enhance execution and bring the unit to positive margins by 2025-2026, but analysts are questioning why it took so long to address the issue.
Boeing’s struggles in the defense sector stand in contrast to other defense contractors like Lockheed Martin, General Dynamics, and RTX, which have seen increased revenues due to heightened demand resulting from global geopolitical events. Boeing’s fixed-price contracts, which make up 15% of its defense program revenue, have become a financial burden, especially considering unforeseen cost increases due to factors such as the MAX crisis and inflation. Despite Boeing’s reluctance to enter into new fixed-price contracts for development, existing projects, including Air Force One and the MQ-25 program, continue to experience cost overruns. In the face of these challenges, Boeing’s defense segment is shifting its focus towards securing future contracts for next-generation fighter jets and cutting-edge drones.