Boeing’s defense unit has finally returned to profitability after battling almost $5 billion in losses last year, though company leadership maintains cautious optimism amid ongoing program challenges.
At a Glance
- Boeing’s Defense, Space & Security unit reported no losses in Q1 2025, a dramatic turnaround from $4.9 billion in losses last year
- Progress on the Air Force’s T-7 trainer and VC-25B presidential jets (Air Force One) has helped stabilize the division
- Boeing has won the transformational Next Generation Air Dominance fighter jet contract with favorable cost-plus terms
- The company is divesting non-core assets, including parts of its Jeppesen digital aviation business for $10.55 billion
- Global trade tensions with China remain a significant challenge for Boeing’s commercial business
Defense Unit Returns to Profitability
Boeing’s beleaguered defense segment has finally stopped the financial bleeding that plagued it throughout 2024. The Defense, Space & Security unit reported no losses in the first quarter of 2025, marking a significant turnaround from the staggering $4.9 billion in losses reported last year. This return to the black represents a critical milestone for the aerospace giant, which has been working diligently to address cost overruns and delays on several major defense programs that have damaged both its bottom line and reputation with military customers.
CEO Kelly Ortberg has taken a measured approach to the positive financial results, acknowledging progress while emphasizing that significant work remains. The company’s defense segment has struggled with fixed-price development contracts on programs like the T-7 Red Hawk trainer aircraft, the KC-46 Pegasus tanker, and the VC-25B presidential transport aircraft (better known as the future Air Force One). These programs required Boeing to absorb cost overruns rather than passing them on to taxpayers, resulting in billions in losses.
Progress on Key Military Programs
The T-7 trainer program represents one of Boeing’s most challenging fixed-price development contracts. The company has absorbed over $1 billion in losses after underbidding the program and facing subsequent delays. However, recent developments show signs of improvement. Boeing has completed two incentive milestones on the T-7 program as part of a revised agreement with the Air Force, indicating that the program is beginning to stabilize. These achievements are critical stepping stones toward full production and delivery of the advanced training aircraft.
“I’m not claiming victory here yet. We’ve got a lot of work to do on the [estimates to complete] on a lot of these programs, but I do think our discipline, cost risk management and active management with our customers to get to a win-win on these programs is helping. Obviously, our goal here is to get our defense business back up to a high-single-digit [margins] kind of performing business. And there’s no reason, I see, we can’t do that.” – Kelly Ortberg.
Efforts are also underway to accelerate the VC-25B program, which will replace the aging Air Force One fleet. Current timelines suggest delivery might extend to 2028 or 2029, far beyond the original schedule. Boeing is working closely with the Air Force to find ways to deliver the presidential aircraft earlier while maintaining necessary safety and quality standards. The program has faced numerous challenges, including supply chain issues and technical difficulties, which have contributed to the extended timeline.
Next Generation Fighter Jet and Strategic Divestments
A major bright spot for Boeing’s defense business is winning the Air Force’s Next Generation Air Dominance (NGAD) sixth-generation fighter jet contract. This program represents the future of American air combat capability and is viewed as a transformational accomplishment for Boeing. Unlike the troublesome fixed-price development contracts of the past, the NGAD contract is structured as a cost-plus incentive fee deal, which significantly reduces Boeing’s financial risk while providing incentives for efficient performance.
“Clearly, we haven’t come off our strategy of ensuring we’re entering into the appropriate contract type for the appropriate type of work. So I wouldn’t worry that we’ve signed up to undo risk like we’ve done in some of our past fixed price programs, but that’s about all I can say on that right now.” – Kelly Ortberg.
As part of its broader financial recovery strategy, Boeing is selling non-core parts of the company. A significant move in this direction is the sale of portions of its Jeppesen digital aviation solutions business for $10.55 billion. This divestment helps Boeing focus on its core aerospace manufacturing while generating needed capital for its ongoing recovery efforts. CEO Ortberg has indicated that more sales of non-core assets are likely in the future as the company continues to streamline operations and strengthen its financial position.
Challenges Ahead
Despite the positive turnaround in its defense segment, Boeing faces significant headwinds from global trade tensions. China has halted acceptance of new Boeing aircraft due to tariffs and trade disputes between the United States and China. This development threatens Boeing’s commercial aviation business at a time when it’s working to recover from the 737 MAX crisis and other production challenges. The Chinese market represents a critical growth opportunity for Boeing’s commercial aircraft, making these tensions particularly concerning.
The KC-46 tanker program continues to face challenges as well. Deliveries have been halted due to the discovery of structural cracks, though Boeing maintains these do not pose a safety risk. This setback adds to the program’s troubled history, which has included technical issues with the refueling system and other components. Boeing continues to work with the Air Force to address these issues and resume deliveries as quickly as possible.
While the return to profitability for Boeing’s defense segment represents an important milestone, the company’s leadership remains appropriately cautious about the road ahead. The combination of improved program performance, strategic contract structures for new programs, and thoughtful divestment of non-core assets provides a foundation for continued recovery of this American aerospace leader.
