Air Force One: how Boeing’s prestige project became its albatross
Aerospace group reworked presidential aircraft after former president’s tweets, but then took $1.1bn in charges
Air Force One is a flying symbol of American power. But for its maker, the presidential aircraft is becoming an albatross.
Boeing has recorded more than $1.1bn in costs due to production delays for the two modified 747-800 jumbo jets, which were ordered to replace the 1980s-era versions currently used by the US president, including a $660mn charge in the first quarter of 2022. Since 2018 Boeing has recorded roughly $4.4bn in charges across an array of defence contracts, according to Financial Times calculations.
Company executives now acknowledge the trouble began when Donald Trump took to Twitter as US president-elect in 2016 to claim that Air Force One “costs are out of control”, vowing to “cancel order!”.
That pushed company executives into a new $3.9bn deal to build the aircraft, which even after a subsequent revision to $4.3bn was well below the original $5bn cost estimate.
The deal was “a very unique moment, a very unique negotiation, a very unique set of risks that Boeing probably shouldn’t have taken”, Dave Calhoun, chief executive since 2020, said during an April earnings call. “But we are where we are.”
Air Force One is not the only military aircraft programme facing cost overruns, however, suggesting Trump is not the sole culprit for Boeing’s woes.
The company’s $4.4bn in defence charges since 2018 span an array of defence contracts including the KC-46A refuelling tanker, the T-7A Red Hawk pilot trainer, the MQ-25 unmanned aircraft and the Starliner space capsule.
Like Air Force One, all are fixed-term development contracts, meaning that any cost overruns are Boeing’s to shoulder.
Calhoun, whose predecessor Dennis Muilenburg negotiated the Air Force One deal, has said fixed-price contracts have been disproportionately vulnerable to supply chain bottlenecks, personnel losses tied to Covid-19 and inflation. He has told investors that he “will have a very different philosophy with respect to fixed-price development”.
He cannot immediately change course. Boeing’s defence arm, which brings in more revenue than its more visible commercial aircraft business, generated 68 per cent of its 2021 sales from fixed-price contracts.
The risks of fixed-price contracts are particularly acute for Air Force One. The aircraft are highly customised, with a 4,000 square feet interior that features a presidential suite; cabins for senior staff, Secret Service personnel and press; a medical suite equipped to be an operating theatre; and sophisticated electronics and communications equipment. The planes must also be able to refuel in mid-air.
Originally expected to be delivered in 2024, the aircraft are now forecast to be completed at the end of 2026, according to the Air Force. There was “obviously quite a significant delay”, Andrew Hunter, the Air Force’s top civilian acquisition official, told Congress in May.
While taxpayers will not be on the hook for additional costs for the new planes, Hunter said the Air Force would request additional funding “to sustain the existing aircraft” which were delivered in 1990. The Air Current, an industry publication, has reported quiet dissatisfaction with Boeing among Pentagon officials.
“We continue to make steady progress on the [Air Force One] programme, while navigating through some challenges,” Boeing said. “It’s an honour to be entrusted with this responsibility and we take particular pride in this work. Our focus is on delivering two exceptional Air Force One aeroplanes for the country.”
The setbacks for Air Force One are part of a company-wide spate of production delays. Deliveries of non-military planes such as the wide-body 777X and 787 Dreamliner have been held back, while the 737 Max has a backlog of orders after two fatal crashes led to its grounding.
But Air Force One remains a special case. Requests from the Air Force can change over time. Working on the project requires a high security clearance, meaning the pool of available staff is smaller than for a typical defence contract. Much was outside of Boeing’s control when the pandemic hit and workers got sick, said Nicolas Chaillan, a former Air Force chief software officer who helped oversee the Air Force One programme.
Boeing also terminated subcontractor GDC Technics, which was hired to install the jets’ interiors, in April 2021 for “failure to meet contractual obligations”. This accounted for about one year of delays. GDC Technics filed for bankruptcy protection soon after, and the companies have sued one another.
The Air Force has not blamed Boeing. In a statement, it said the delays were due to “impacts from the Covid-19 pandemic, interiors supplier transition, manpower limitations, wiring design timelines, and test execution rates”.
Prestige projects like Air Force One are generally not expected to generate a profit — their value is an enhanced reputation for the producing company. Defence contractors regularly submit bids below actual costs needed to complete a contract to secure the tender, Chaillan said.
Delays were “very common” for defence contracts, said Cynthia Cook, director of the Defense-Industrial Initiatives Group at the Center for International and Strategic Studies. But Boeing has had more delays than its defence contractor rivals, said Cai von Rumohr, an analyst at Cowen.
In the past 15 years, Boeing has received $324.5bn in Pentagon contracts, second only to Lockheed Martin, which won $547.7bn, according to the CSIS. But even though Lockheed contracts were worth far more, Boeing has taken more charges in recent years: since 2018, Lockheed has reported about $400mn in charges, 11 times less than Boeing.
“I think they did feel a sense of desperation” after losing “lots” of money on the KC-46A tanker and getting beat on “other, bigger contracts” such as the Pentagon’s two most important fighter programmes, the F-22 and F-35, which both went to Lockheed, said von Rumohr. The Air Force One bid became “a must win”.