The encyclopedia · Engineering & Operations · Operational decision · 2018–2026
Boeing took a fixed-price deal to build Air Force One — it has eaten $3B in losses
Boeing took a fixed-price deal to convert two 747-8s into the next Air Force One. It has absorbed over $3 billion in losses; first delivery slipped to 2028.
Boeing · 2026-07
What happened
The U.S. Air Force is replacing its ageing VC-25A Air Force One with two converted Boeing 747-8s, designated VC-25B. Boeing is doing the conversion under a firm, fixed-price contract — it agrees a price up front and absorbs any cost overruns itself. The work is among the most complex aircraft conversions in the world: a flying command post with secure communications, defensive systems and self-contained power, built as a one-off.
The fixed price has proven ruinous. By 2024 Boeing had reported roughly $2.8 billion in charges on the program; on 28 July 2026, during a quarterly earnings call, it announced a further $280 million loss, pushing its out-of-pocket losses past $3 billion. Boeing said the latest charge was driven by an investment in additional production and certification resources, including a shift from FAA to military certification, which chief executive Kelly Ortberg said would help mitigate risk during certification and flight tests.
The schedule has slipped just as badly: the original goal was to deliver the first aircraft by December 2024, but Boeing now expects first delivery in 2028, with the second around mid-2029. Each quarter's charge is the same admission — that the work costs more than the price Boeing fixed. The structural error was the contract itself: a firm, fixed-price bid on a first-of-its-kind machine transferred all the unknowns to Boeing, and the unknowns on Air Force One turned out to be the whole story.
Why it happened
- A firm, fixed-price contract transfers all cost-overrun risk to the builder; on a routine, repeatable build that is a fair trade, but the VC-25B was a one-off conversion of unprecedented complexity.
- First-of-its-kind work is defined by its unknowns, and a fixed price assumes those unknowns are small; on Air Force One they were the bulk of the job, so the price could not hold.
- Boeing kept adding resources to protect the schedule and certification, and because the contract was fixed-price, each added investment became a loss it absorbed, not a cost the customer shared.
- Moving from FAA to military certification, and the demands of a flying command post, added work that a price set for a simpler conversion could not cover.
The lesson
A fixed-price contract puts every unknown on the builder. On a one-off machine like Air Force One, the unknowns dominate — so Boeing has paid $3 billion for risk it assumed but could not price.
Aftermath
Boeing still anticipates first delivery in 2028 and frames the extra spending as protecting the schedule and reducing certification risk. The U.S. government's own estimate of the program's total acquisition cost has climbed from about $6.3 billion in 2018 to roughly $6.6 billion in 2025. For Boeing the lesson is an old one in defense contracting, learned again at enormous expense: a fixed-price bid wins the contract by promising certainty the builder cannot give, and on a first-of-its-kind program the overruns do not disappear — they simply move onto the builder's books.
Sources
- The War Zone: Boeing has now eaten $3B in Air Force One cost overruns
- Defense Daily: Boeing takes $280 million charge on Air Force One in second quarter
- Aviation Week: Boeing claims defense progress despite VC-25B charge
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