Let me be clear. The American taxpayer is arguably the worst client in the world.
For weeks, the financial press has been hyperventilating over Boeing’s announcement that the delivery of the two new Air Force One aircraft will be delayed by another four years. The media is obsessed with the timeline, painting the company as somehow incompetent just because the planes won't be ready until 2028. But what the mainstream reporting consistently misses is the devastating human cost of this delay: a $280 million charge to Boeing’s second-quarter earnings.
Imagine the sheer indignity of having to dial into a Q2 earnings call and explain to the street why your aerospace company lost a quarter of a billion dollars trying to build a plane it originally designed in 1968. The street was looking for a clean print this quarter. Instead, Boeing’s executive leadership was forced to absorb a massive financial hit, all because of a toxic, outdated concept known as a "fixed-price contract."
In 2018, Boeing agreed to a $3.9 billion fixed-price deal to modify two 747-8s into the new VC-25B presidential aircraft. A "fixed-price" contract, for those of you who don't spend your mornings reading 10-K filings, is a predatory government mechanism where a company is expected to deliver a product for the exact amount of money they explicitly offered to deliver it for. It is an archaic, anti-business trap that leaves absolutely no runway for the natural macroeconomic headwinds of forgetting how to run your own supply chain.
I was having lunch with a prominent defense analyst at Le Diplomate last week, and we both agreed that holding a corporation to a legally binding financial agreement is basically regulatory overreach. How was Boeing supposed to know that custom-building a flying nuclear command center with advanced missile defense systems would cost money?
It is frankly toxic to expect a modern aerospace company to accurately predict the cost of assembling an aircraft we have been manufacturing since the Johnson administration.
The customer in this scenario—the United States Air Force—needs to take a hard look in the mirror. When you order a bespoke flying fortress, you have to expect a little scope creep. You cannot simply hand a defense contractor a multi-billion-dollar check and then rudely expect them to hand you an airplane at the agreed-upon time. That is not how shareholder value is created.
Four years is a completely reasonable period of time to spend right-sizing the delivery window. In the grand scheme of things, what is four years? It’s a single presidential term. It’s the time it takes for an executive's initial stock options to vest. It is barely enough time to form a committee to locate the instruction manual for the 747's wiring harness.
Yet the public continues to focus on the trivial inconvenience to the Commander-in-Chief. Oh, the humanity. The President will have to continue commuting to global summits in the current VC-25A models, which only possess standard countermeasures and slightly older leather seats. Meanwhile, Boeing executives are doing the actual hard work of navigating a brutal earnings cycle while being publicly shamed for a minor $280 million accounting reality.
We need to stop punishing our defense contractors for taking a creative approach to project management. The next time you hear someone complain about the Air Force One delay, I want you to think about the real heroes: the C-suite bravely facing down analysts on a Tuesday morning to explain why another nine figures evaporated into the Seattle rain. They are the ones truly navigating through turbulence.