PARIS AIR SHOW NEWS: Boeing Defense CEO Sees Better Days Ahead for Beleaguered Company

By Stew Magnuson
KC-46A Pegasus

Air Force photo

PARIS — The president of Boeing Defense, Space and Security sounded an optimistic note the evening prior to the Paris Air Show as the company struggles to emerge from years of high-profile program delays which resulted in the aerospace giant’s profits tumbling and its reputation greatly diminishing.

Along with the company’s woes in the commercial domain with the 737 Max, the defense side of the business has not fared better over the last decade, with delays to the Air Force’s KC-46A Pegasus aerial refueling tanker and the T-7A Red Hawk jet fighter trainer.

Both programs are now on track, the company’s president and CEO Ted Colbert told reporters June 18 at a press briefing.

“We’ve got a lot of work to do across the programs,” he said, which includes the company’s aircraft with fixed-price contracts, the T-7A and the KC-46A.

A supplier quality issue with the center fuel tank is the latest bad news surrounding the KC-46A.

“We haven’t resumed deliveries yet. We will resume as soon as that issue is resolved,” he said. That would be in the second half of the fiscal year, he added.

Boeing is responsible for paying all expenses above the KC-46A’s $4.9 billion cost ceiling and has taken some $6.8 billion in charges since it was awarded the program in 2011.

Colbert steadfastly declined to speculate on whether the company will incur any further charges on the Pegasus program in the year’s second quarter, only saying in terms of profitability, the next period would look a lot like the first quarter.

Boeing reported a loss of $212 million in the first quarter against revenues of $6.5 billion, which reflected the Air Force’s $245 million pre-tax charge for failing to deliver on the KC-46A tanker’s fixed-price contract. The refueling boom was a major reason for the delays.

Colbert said the company is receiving positive feedback from the operators of the KC-46As that have been delivered, including the remote refueling boom that connects the tanker to receiving aircraft.

“It is doing well in the field and in the theater. It is operational, performing and ready,” he said. The exception is that it still cannot refuel A-10 Warthogs, he noted. Seventy-two of a planned fleet of 179 KC-46As have been delivered.

The T-7A program  in which Boeing is partnering with Sweden’s SAAB  has also suffered delays, but the Air Force recently released it to fly sometime this summer, he said.

“We’re excited about moving forward with the program,” he said. The pilot ejection system was a previous cause of delays, but that issue has been solved, he said. “In the end, it’s going to be a strong program.”

That history prompted one company executive to say recently that fixed-price contracts for Boeing were a thing of the past. The company currently has seven major programs using this contract vehicle. But what if the customer demands it? Colbert was asked.

The lesson learned is that fixed-price deals for big developmental programs is not the best contract vehicle, he said.

“In general, there is a recognition that doing fixed-price development programs with very, very complex capabilities or capabilities that require a lot of maturity from an engineering and manufacturing perspective can be very, very challenging,” he said.

He couldn’t speak for the government, and acknowledged that fixed-price contracts may not completely go away. But Boeing is working with the acquisition community and the Pentagon to explain this point of view, and he believed that “smarter heads will prevail.”

As for those seven programs, the company will just have to keep plugging away at the developmental problems, and it will get beyond them, he predicted. “They are getting healthier and healthier over time,” he added.

In the future, Boeing will be taking a realistic look at contracts with its customers, including being “massively transparent” about costs, schedule, workforce and all the other inputs that go into a program that will result in different looking contracts, but ones that will allow the company to have a “fair shake and a healthy business,” he said.

Meanwhile, Boeing has taken several steps to put it back on the path of profitability and respectability, including corporate restructuring and implementing lean manufacturing processes to make it more efficient.

The company is also seeing better days with labor and workforce issues in terms of hiring and addressing shortages, he said.

“I would say our stability with the workforce has improved dramatically ... the churn in the organization has slowed down. The attrition has slowed down, our acceptance rates are very high,” he said. A stable workforce is another factor that will help improve the company’s performance, he noted.

As for turning the company’s overall performance around, Colbert said it is not going to happen overnight. “It just takes time. We can’t do it fast enough for ourselves and our customers, but we believe we have the right actions in progress,” he said.


Topics: Air Power, Global Defense Market

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