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Air Force One Deal Has Cost Boeing Another $766 Million (businessinsider.com) 138

Posted by msmash from the closer-look dept.
schwit1 shares a report: Boeing lost $766 million in Q3 on the project to build Air Force One aircraft. It increases Boeing's total losses on the two jets to $1.9 billion since the build began. Boeing bears the cost of any delays under a deal struck with the Trump Administration. schwit1 adds some commentary: "All government contracts should be like this. Cost savings are yours to keep. Cost overruns are yours to eat."
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Air Force One Deal Has Cost Boeing Another $766 Million More

Air Force One Deal Has Cost Boeing Another $766 Million

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  • fixed-price deal (Score:5, Insightful)

    by YrWrstNtmr ( 564987 ) on Tuesday November 01, 2022 @04:08PM (#63016371)
    More govt contracts should be done like this.

    • Yep, but only if perfect information is available. The problem with governments is they are insanely complex with requirements that cover a stupid amount of edge cases. Many overruns are due to identifying these edge cases on the run.

      Careful what you wish for, in the end you do want a functioning product, not the bare minimum which meets the wording of a (often poorly) written contract after which the company washes their hands of it.

      • A contract is a contract is a contract. If the government made everything that they wanted written clearly, it's on the contractor to use their own expertise to make correct estimates. The government doesn't have the needed expertise. It's not the duty of the government to do that anyways.

        • That is the parent post point. The government does not always (or even usually) write the contracts so that the need is clearly and correctly defined.

          • Re: fixed-price deal (Score:4, Insightful)

            by Gavagai80 ( 1275204 ) on Tuesday November 01, 2022 @05:22PM (#63016693) Homepage

            If the government fails to correctly define the requirements, then the government can renegotiate the contract to add the corrections at a newly negotiated price. Nothing wrong with that. Letting the contractor unilaterally charge more than the contract said without writing up a new contract, well, there's definitely things wrong with that.

            • Well thats kind of what happens.

              The majority of govt contracts i've seen are on fixed price dealios. What inevitably happens though is the govt (and sometimes the contractor) realises that something about the plan is cooked or a third party event changes something (Ie a supplier goes belly up and the product doesnt exist no more) and so things go into negotiation for a variation on contract. And THATS where things start getting expensive.

              Most contractors who wish to stay contractors tend to avoid asking to

        • I guarantee you the contract doesn't carry all the specs necessary to build a plane. Especially not a completely unique one.

          • Why would Boeing build a completely unique plane? Why would they not just outfit whichever big jet the president needs?
            Making them build a completely unique new jet seems like the sort of thing a King demands.

            • Re: (Score:2)

              by jonwil ( 467024 )

              Its not a brand new from-scratch plane, its a standard 747-8 (or rather 2 of them that were built and never delivered to their original customers). But its unique in that it has all sorts of modifications that are far outside what normally goes into a 747-8.

              When Boeing sells a jet to an airline, the things that go into that plane are usually standard and the price is well known and established (seats cost x, loos cost x, IFE costs x, coffee makers cost x etc) but for Air Force One, a lot of things are going

              • When Boeing sells a jet to an airline, the things that go into that plane are usually standard and the price is well known and established (seats cost x, loos cost x, IFE costs x, coffee makers cost x etc) but for Air Force One, a lot of things are going in there that Boeing doesn't have much experience with and therefore its difficult for them to price these things accurately.

                It doesn't matter, it's their obligation to get it right. If it ended up being much cheaper than they thought, do you think they'd give anything back?

                Plus (unlike the typical airline order) the requirements are probably being changed during production (which adds costs).

                If they change, then that is a material change to the contract, and Boeing is allowed to renegotiate the price. Trust me, if this happened, Boeing would have done so.

              • That's what I don't understand, how can you spend that much money on a plane? Midde-eastern potentates regularly get much fancier aircraft customised for them for much, much less than this [wonderfulengineering.com], and you can't justify the rest of the cost difference by saying it's all NSA-designed comms gear and similar.

                • These are the same people who built a nav system that literally flew planes into the ground, then lied about it.

                  I leave it to the reader to figure out how people like that could fuck up estimates on refitting 2 already built 747s with fancy presidential shit.

          • They're only obligated to build what the contract calls for. Nothing more, nothing less. So long as they've made good on their end, they're good.

      • Re: (Score:2)

        by tlhIngan ( 30335 )

        Yep, but only if perfect information is available. The problem with governments is they are insanely complex with requirements that cover a stupid amount of edge cases. Many overruns are due to identifying these edge cases on the run.

        Careful what you wish for, in the end you do want a functioning product, not the bare minimum which meets the wording of a (often poorly) written contract after which the company washes their hands of it.

        Actually, most government contracts ARE fixed price. Even military ones.

        Th

    • Re: (Score:2)

      by fermion ( 181285 )
      So the total for the quarter appears to be 2.8 billion dollars in loses. This stems from a culture of waste at the aerospace companies. No oversight, no one saying stick to the contract.

      Lockheed Martin which has a more traditional contract for the F-35 originally bid about 200 billion but has changed the US tax payer nearly 2 trillion. This is over the lifetime, so not all of it is waste, but certainly not why the military claimed.

      But the reality is these contracts are not in the corporations of the con

      • I'd like to see more detail behind your figures...

        In 2001, the JSF program was forecast to cost $200Billion for *acquisition* (ie R&D and purchase) - that had more than doubled to $406Billion by 2017. But this includes things that Lockheed are not responsible for, including costs and changes related to the engine design (which was a separate contract within that $200Billion figure) which necessitated airframe changes.

        The "nearly 2 trillion" figure was, as you say, for lifetime operational costs - howe

        • Anyway no company could bear a risk as large and uncertain as the JSF program. None. The truth is nobody knows how hard it will be to do something for the first time, although some estimates are credible than others. People assume going over implies waste, but it can also be over-optimism in the bidding, or simply that a novel problem was unforseably difficult. In a huge project it is almost always all 3.

          • See the Marine One contest for this - it wasnt until after the DoD and various parties changed specs that it was discovered the chosen platform simply couldn't perform the duty, so after hundreds of millions spent on it, the project was cancelled and sent back out to bids.

      • So the total for the quarter appears to be 2.8 billion dollars in loses. This stems from a culture of waste at the aerospace companies. No oversight, no one saying stick to the contract.

        Definitely not all of them. The one I work for has eliminated literally tons of waste.

    • Re: (Score:2)

      by gweihir ( 88907 )

      Not really. The problem is that this will affect quality. In this specific case, the customer will likely be very careful to make sure they get what they contracted, but in other cases the supplier will just deliver crap. Remember that in other cases, the deal will go to the cheapest bidder. The cheapest bidder is usually trying to do it cheaper than possible.

      Not that I have a solution for this problem. It is market failure all over.

    • No, they shouldn't. If they are like this, companies will stop bidding. And that is bad.

      We used to send debtors to prison. When we stopped doing that, business exploded. That's because people were more willing to take risks when the downside wasn't as harsh. The spreading of risk through things like shares is one of the smartest inventions of humanity.

      The issue is who should take the risk? If we make it very easy for companies to form and get the talent they need, then we can pass the risk to investors. The

    • Re: (Score:2)

      by tragedy ( 27079 )

      More govt contracts should be done like this.

      Like what exactly? I'm trying to figure this deal out. This is a $3.9 billion dollar deal for two customized Boeing 747-800s. So that's $1.95 billion a piece. Obviously prices vary, but the listed price for one of these planes normally is about $415 million. So, this is about 4.7X the price of a typical Boeing 747-800. Or, regular price plus 3.7X the regular price for customization. The publicly described aspects of that customization are just basic internal layout and decorating stuff, hardly something tha

  • Most cost over runs are just ways companies and increase the cost to the consumer/government/taxpayer. Let the savings go to the company, the over runs go to the company.

  • You caused the cost overruns (Score:5, Informative)

    by Retired Chemist ( 5039029 ) on Tuesday November 01, 2022 @04:23PM (#63016431)
    If the delays and overruns with are the fault of the company, they should pay. If it is because the government (or anyone else you have a contract with) keeps changing what they want, then they should pay. That is basic equity. The party responsible bears the costs.

    • The party responsible bears the costs.

      Indeed. A challenge is that in complex development programs often the responsibility is debatable. I've had a good experience with a cost-with-incentive program that shared the savings and overruns from an agreed target cost. It aligned the interests of both parties, so we spent little time arguing about who was responsible and more focused on getting the project done.

      Fundamentally, cost control is about fighting off scope creep, then focus on getting the work done efficiently. Contention between cus

    • Re: (Score:2)

      by ebonum ( 830686 )

      Agreed. The hard part is keeping out the lowest bidder who is highly skilled in the art of jacking up the price once the government has taken the bate.

    • That's correct, and is the reason that projects have cost overruns, namely due to change orders. Contracts are generally written so that change orders incur additional costs. If you specify the work to be done more carefully, then you decrease the chances of change orders.

  • Maybe Boeing should just back out of the deal and make the President take the bus.

    Of course that's not likely to happen, there's plenty of airplanes in the USAF inventory to act as a transport for POTUS, it just won't be as luxurious or convenient. I'm pretty sure that Boeing knew they'd lose money on the deal just so they could remain the plane that POTUS flies around the world. If the cost gets to be too much then let USAF find a different supplier.

    The problem appears to have happened from two things.

  • - Extra large gold-plated toilet
    - Golf course
    - Shredder
    - Big Screen TV for Hannity Tonight
    - 7 giant portraits of himself
    - KFC
    - McDonalds
    - AI activated Twitter terminal
    - Large makeup room
    - Laser show for both inside & out
    - Private sleeping quarters for Putin

  • That's the art of the deal (Score:5, Funny)

    by magzteel ( 5013587 ) on Tuesday November 01, 2022 @04:40PM (#63016503)

    Apparently the first president to own an airline knew how to negotiate an advantageous deal with an aircraft manufacturer.

    • Too bad he didn't know how to negotiate an advantageous deal when he sold that airline.

    • Yup, how to run his business into the ground, I guess that's what you want for the US as well.

    • Re: (Score:2)

      by mjwx ( 966435 )

      Apparently the first president to own an airline knew how to negotiate an advantageous deal with an aircraft manufacturer.

      More the opposite. Boeing forgot how to negotiate and were trounced by a fool.

      Initially Boeing thought that they could take a haircut on the AF1 project playing up to Trumps vanity, then be in like Flynn on loads of other pork barrel contracts. The pork barrel contracts never eventuated and the tangerine twat is out of power so Boeing has realised they made a fools bargain and are trying to renegotiate.

      Admittedly I've not read the contract, but it seems Boeing is on the hook for this one.

  • QUIET YOU! NASA might hear! (Score:3)

    by nightflameauto ( 6607976 ) on Tuesday November 01, 2022 @04:44PM (#63016531)

    Can you imagine what would happen if NASA started contracting per project costs, with overruns being on the contractor? Think of the progress that could be made if the money had to actually come to something in the end, and couldn't just disappear year after year with zero output!

    • Re: (Score:3)

      by AmiMoJo ( 196126 )

      They might not get many bids. It's one thing when you just want a custom aircraft with existing technology, where all costs can be worked out before hand. It's another when you want a brand new space vehicle, using things like engines that are yet to be proven, with lots of new systems.

      NASA is also more directly involved in the development process, providing some of the engineering resources. Changes mid way through the project are expected, based on the outcome of R&D and testing.

      It's not impossible, S

      • OK, I'm not sure if I should address this seriously or not, but what the heck. I'll give it a whirl.

        The SLS is not a new development. If SpaceX isn't? Neither is the SLS. Why the cost overruns and decades long delays?

        Sure, when you're engineering something from the ground-up, there's bound to be engineering changes and R&D testing that causes setbacks, but there is literally no excuse in the universe that makes good on the cost-plus model that gives ZERO checks and balances on uncontrolled spending and

        • Re: (Score:2)

          by AmiMoJo ( 196126 )

          I'm not saying that the NASA contracts were good, just that they probably wouldn't have got much interest if all the risk was placed on the contractor. Also NASA itself wanted more involvement in the project, beyond merely specifying deliberables.

          • There's a HUGE difference between free-for-all pork contracts and "all the risk placed on the contractor." I'm sure a half-intelligent lawyer could come up with something a bit more promising for the taxpayer than, "Here's all the money you want to fuck around and do nothing with. Come back next year for more."

  • Why should the taxpayers pay when the contractor cannot fulfill their promises? Alternatively I guess that they could refund the money that the government has spent and the government could go buy the jet elsewhere. Companies have gotten too used to the government pocketbook being like a grab bag, this is good for them.
    • You just explained why sometimes the taxpayers are willing to pay extra when a contractor has cost overruns. Assuming the equipment is actually needed, getting a refund means you have to go out and bid for another contractor. If the first one wasn't totally incompetent, anybody bidding for the deal knows that somebody else just tried and failed at the original price and will certainly bid higher. Hence it might be faster and cost-effective to just renegotiate with the contractor who has already done part
  • The president of the USA flying on a 747 represents significant advertising for Boeing everywhere it travels, despite the fact that 747 production has ended. "Air Force One" is practically a legend in and of itself. That advertising has value, especially when you consider that these planes will likely be used for 25+ years. It shows confidence in Boeing coming from the highest levels of the US government. Can you imagine if the president was flying around on an Airbus instead??? What would that say abou

    • No company is going to change their purchasing choice because of who built Air Force one. I guarantee you on the down select mattix of criteria it isn't a line item.

    • Whenever a foreign aircraft is selected for a US government contract there is massive outrage from Congress - see the tanker fiasco and the Marine One fiasco. Both selections (of European designs paired with US prime contractors) caused huge amount of vitriol from US politicians just because they were not US designs.

    • Actually, it would have been significantly better for Boeing if the next AF1 was a 777. Likely better for the US as well. Functionally, it really should just be a 787-8, but that is a hard image to hold for the US.

      Boeing will come out whole, but you can be sure they will put as much of their losses as possible on AF1 in the meantime.

  • A lot of you have no idea how contracts work (Score:5, Insightful)

    by DeplorableCodeMonkey ( 4828467 ) on Tuesday November 01, 2022 @05:19PM (#63016679)

    A LOT of contractual cost and time frame overruns are caused by the government acting egregiously inefficient and indecisively. Here are some examples that I saw personally when I was a DoD software contractor:

    1. Absolutely no assistance in speeding up the clearing process for even the most in-demand employees.
    2. Absolutely no assistance in even transferring clearances between bureaucracies. This included not even going down to the security office and yelling at the workers when a transfer request would disappear into an (to the contractors) unaccountable blackhole of bureaucracy.
    3. Constantly shifting requirements that completely break previously agreed-upon decisions where a lot of money had been spent to get right to the pivot point.
    4. Infosec people who frequently go "no because I said no." I saw infosec objections that would cause an absolute o_O reaction from 99% of the commenters here like shrieking at web devs for creating a risk of a DDoS because they changed the dimensions of a div tag.
    5. Making little effort to grab other teams that were stakeholders in the process and force them into cooperating with decision points.
    6. Having to skirt the edge of infosec by quietly using common third party libraries that are battle-tested just because no security person (who can't even write hello world) has never heard of it.

    I mean I could go on and on, but this is what it's like doing software for the DoD. I can't even imagine doing something like a custom plane job for the US Government with that many stakeholders, that low of a profit margin and being required to eat costs from late deliveries which are probably caused by the contracting team barely having any SMEs on it that know WTF they really need and have the political clout to move heaven and earth to get it delivered quickly on their side.

    • Re:A lot of you have no idea how contracts work (Score:5, Informative)

      by ValentineMSmith ( 670074 ) on Wednesday November 02, 2022 @09:30AM (#63018557)

      And contractors aren't all rainbows and unicorn farts. I've seen multiple instances in my career where a contracting organization delivered software that was worse than useless: it ended out being an active danger to human life. The software was delivered, the contractor got their check, and they vanished, leaving the government to either fix it from internal assets or put yet another contract out for bid.

      And in at least one instance I can remember, we had a two-stage project where "Yoyodyne Industries" screwed the pooch on the first half and we had to fix it. While we were fixing their problems, the contract award for stage 2 went... right back to Yoyodyne, who spent 3 months flogging us in front of our senior management, complaining that they couldn't be held responsible for contract delays when we wouldn't deliver the stage one product. And they made it stick.

      So no, in my experience private sector contractors are at least as responsible for delays and other problems and the Federal government is.

      • And in at least one instance I can remember, we had a two-stage project where "Yoyodyne Industries" screwed the pooch on the first half and we had to fix it. While we were fixing their problems, the contract award for stage 2 went... right back to Yoyodyne, who spent 3 months flogging us in front of our senior management, complaining that they couldn't be held responsible for contract delays when we wouldn't deliver the stage one product. And they made it stick.

        I saw stuff like that too, and it's still a fa

        • I don't think I'd say that my post contradicted yours. I agree with you that the feds frequently screw up badly (I no longer work in areas/projects that are actually classified, so thank Heavens I don't have to deal with that bag full of snakes). I just took exception to the way it was written, that it seemed to imply that contract staff would always deliver on time and on budget if the government wasn't so incompetent. I'd say that both sides are equally likely to be at fault.

          And as for Yoyodyne, the re

  • With all the 'contracts should work like this!', I wonder how many posters have actually worked on such contracts. Despite public perception and mythology, they are not black cheques where you simply keep charging. Every overrun means a work stop and going back to the customer to explain the problems and discussion regarding release of more funds.

    I blame, like so many things, bad reporting and memes.... people having know idea how something works but being really confident they do because everyone around

  • still trying to figure out TRump's requirements (Score:5, Interesting)

    by Locutus ( 9039 ) on Tuesday November 01, 2022 @05:26PM (#63016717)
    This was done under the Trump Presidency so they are probably still trying to figure out how to build such a plane which can still fly with everything inside coated in gold plating. They figured he was kidding when they were told of the requirement.

    BTW, Boeing CEO, Muilenburg naively believed Trump had an actual economic plan, got buddy buddy with Trump and kissed his ass and the plane contract was part of that ass-kissing.

    Wallow in your own stink dirty piggy.

    LoB

  • With inflation, by the time they deliver they'll have to change the name from Air Force One, to Air Force Nine!

  • Once of Margaret Thatcher's greatest achievements was to transfer the risk of building the Channel Tunnel entirely onto the private sector; the shareholders duly got burnt when geology made it more problematic than expected, but it got built in the end.

    By contrast the HS2 railway project that was originally sold to the government at under £40bn has subsequently ballooned in cost to over £100bn, and taxpayers remain on the hook for this. It is hard to avoid the belief that businesses, having lear

  • Fixed price doesn't always work (Score:3)

    by JoeRobe ( 207552 ) on Wednesday November 02, 2022 @07:48AM (#63018315) Homepage

    Fixed price contracting is great when the product or service can be delivered quickly and within well-defined bounds. Like "we need 6,000 toilet seats for these 25 federal buildings". Clear goals, can be delivered immediately.

    When the request is more challenging, pushes the technical edge, and/or takes a long time, the actual cost of the project can vary greatly. In this case the AF1 contract was probably started many years ago. These special planes take time to design and outfit, with uncertain lead times on components, so running late on the project isn't particularly surprising. Worse, the state of technology changes as the plane is being designed. Boeing may have provided an initial budget for the contract in 2010, for example. But since then new technology could have been developed that makes the plane safer, or more efficient, or faster, or more comfortable, etc.. Is Boeing going to deliver an AF1 in 2023 that is using all 2010 technology because they budgeted based on 2010 technology? If AF1 goes down because it didn't have the latest safety features, are American taxpayers going to be ok with "well, that's what we get with a long term fixed price contract!"? Probably not.

  • Now that would have been a great investment!

  • Reading the comments on here is almost as fun as left leaning people finding out Hitler just loved the VW beetle, and supported its creation.

  • 1. Tough.

    2. Fallout from having bad CEO and "leadership". Doesnt cause him problems, he left it for others to suffer with. Typical.

    3. Further ugly artifacts resulting from MD merger that should never have been allowed. There aren't many such obvious violations of anti-trust principles as mega-sized aviation manufacturer M&As.

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