Health Check Revamps Ailing Boeing Defense Strategy

Boeing’s defense and space business is shrinking. After adjusting for inflation, annual revenue is down almost one-fifth since 2015.

But that is OK with Ted Colbert, the CEO of Boeing Defense, Space and Security (BDS). In fact, the unit’s annual sales totals may not be low enough yet.

“There is a possibility that the revenue could continue to shrink,” Colbert said in a July 9 interview. “But we want it to be healthy revenue. That is the most important thing in this industry, to have healthy revenue and support the mission of our customers.”

By “healthy,” Colbert means he wants BDS to chase reliably profitable ventures, not risky bets on fixed-price contracts, which now constitute 15% of the unit’s sales portfolio and account for $13.4 billion in combined reach-forward losses since 2014.

But the path to a healthy portfolio remains long and perilous. Across-the-board delays mean three of the five fixed-price BDS programs—MQ-25, T-7 and VC-25B—remain mired in costly developmental-phase discoveries for at least 2-4 more years. The KC-46 program continues to work on fixing a deficient remote vision system and refueling boom, even as heightened regulatory pressure slows deliveries of the baseline 767-2C. Meanwhile, NASA’s Starliner faces intense public scrutiny as Boeing works to resolve concerns about faulty thruster software amid the first crewed spaceflight to the International Space Station.

In the medium term, profitable growth might depend on attracting sales of new programs, such as the Orca, a candidate to become the U.S. Navy’s first extra-large uncrewed undersea vehicle in production. Otherwise, Boeing must sell derivatives of existing programs, such as a light attack version of the T-7 trainer or a reconnaissance-strike variant of the MQ-25 uncrewed carrier-based refueler.

 In the meantime, BDS bet heavily on Next-Generation Air Dominance (NGAD) programs by the Air Force and Navy, breaking ground this year on construction of a highly secure, $1.8 billion Advanced Combat Aircraft Facility complex in St. Louis, even as both contracts remain up for grabs.

“In order for us to be attractive to our customer, we’ve got to demonstrate the capacity and capability to deliver on their mission,” Colbert said. “And that is what that’s all about. It is definitely a big investment.” Citing security rules, he declined to confirm whether the facility will support NGAD work.

But Air Force and Navy officials have backtracked on both programs. In March, the Navy proposed a 70% cut in NGAD program funding for fiscal 2025-28. Air Force leaders followed suit three months later, warning of deep spending cuts and shifting requirements for their NGAD program in the fiscal 2026 budget cycle.

Colbert attributed the programmatic changes solely to budgetary pressures, not a change in the performance requirements. “I think our customer has a challenge with regard to obviously funding and prioritization. And I think the message they’re sending is exactly that,” he said. “We know our adversaries have invested tremendously in some of these areas. So I have a hard time thinking our customer would want to be at a disadvantage.”

In the meantime, Boeing plans to stay in the competition to develop a new generation of Collaborative Combat Aircraft for the Air Force and Navy despite losing a bid to participate in development of the Increment 1 system. The Air Force will allow other companies to bid for the procurement phase of Increment 1, but Colbert declined to confirm whether BDS plans to make an offer. “I’ll pull up a little bit and just say autonomy is important to the future,” he said.

With few firm opportunities to develop new military platforms on the horizon, Boeing also plans to seek growth as a subcontractor. BDS already supplies seekers to Lockheed Martin on the Patriot Advanced Capability-3 system and satellite buses to payload integrators.

Moreover, Boeing recently announced an agreement to acquire Spirit Aero-Systems, an aerostructures supplier the OEM had spun off in 2005. It remains unclear, however, if the final deal will allow Boeing to take over Spirit’s role as a subcontractor on the Northrop Grumman B-21.

“I can’t speak to it at this point because the deal is not done,” Colbert said. “And it’s frankly up to Spirit and their customers to decide what they do until it becomes ours.”