Air Force and Boeing’s signed $3.9 billion fixed-price contracts for Air Force One are at least two years late and over budget at $1.1 billion.

Reasons for the Delay

The US Air Force awarded the contract to The Boeing Company to design, modify, test, certify and deliver two mission-ready presidential aircraft. President Trump and Boeing Chairman, President, and CEO Dennis Muilenburg reached an agreement on the above-mentioned fixed price on February 20, 2018, and the two VC-25B, commonly known as Air Force One, were expected to be delivered by 2024.

These terms and agreements were thrown out the window when there were delivery delays. 

Boeing pointed out two reasons for the delay: The COVID-19 pandemic and the problem it had with its contractor that was supposed to complete the interior work on the two planes. Last year, reports said that Boeing canceled the contract and sued the Texas-based supplier over the delays that “have resulted in millions of dollars in damages to Boeing and threaten to jeopardize work that is of critical importance to the (US Air Force) and the president of the United States.”

Boeing said they canceled the contracts with GDC Technics “…due to their insolvency and failure to meet contractual obligations.” GDC Technics responded with a countersue, pointing the finger back at Boeing and saying that their mismanagement of the program caused such delays. In the end, the dispute was settled, and the two continued doing business.

Over the Budget

Today, the project is at $1.1 billion cost overruns that the company has to bear due to the fixed-price nature of the contract. Initially, the company’s asking price was $5 billion, but Trump thought it was “ridiculous” and tweeted on his now-suspended Twitter account,

Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!

Thus, Boeing lowered the price to $3.9 billion, which Muilenburg now regrets. He expressed this during their quarterly earnings call, saying,

“I’m just going to call Air Force One a unique moment, a unique negotiation, a unique set of risks that Boeing probably shouldn’t have taken. But we are where we are, and we’re going to deliver great airplanes. And we’re going to recognize the costs associated with it.”

A “Problematic Incentive”

But not all the expenses are paid solely by Boeing. The contract allowed them to hike the price every time Air Force asked for changes or modifications on the technical requirements that were not stated in the agreement. Air Force’s assistant secretary for acquisition, Andrew Hunter, was far from being happy about it. Hunter was the former director of the Pentagon’s Joint Rapid Acquisition Cell and is just two months into his new job, but his plate is already full.

During a roundtable with reporters at the Pentagon on June 24, reports say, he called the circumstance with Boeing a “problematic incentive.

“When you’re in this arrangement, the Air Force comes and says, ‘What we need the airplane to do is this.’ Boeing says, ‘Well, you know, our written contract doesn’t use those exact word.’

You get this dynamic where they become very focused on, ‘We need to finish, we’re going to finish what’s in the contract, anything that appears to us to be in any way, shape, or form not 100% required explicitly in the contract is an extra bill.’ And so, it doesn’t align the incentives between the government and the contractor. And that’s the challenge.“

Boeing did not respond or comment on Hunter’s statements but said they “continue to make steady progress on the VC-25B program while navigating through some challenges. It’s an honor to be entrusted with this responsibility, and we take particular pride in this work.”

Air Force One or VC-25B is the military version of the 747 airliners, specifically modified to be like an “airborne White House” that could safely fly the president during scenarios like nuclear war. It has advanced electronics and communications equipment and a self-defense system, among other differences from the standard Boeing 747.