The New York Times reports that Boeing Co. (NYSE: BA) has lost a $40 billion deal for airborne tankers that refuel fighter jets for the Air Force. The winning suppliers are Northrop Grumman (NYSE: NOC) and EADS, the parent of Boeing's arch rival, Airbus.The deal, which puts a critical United States military contract partially into the hands of a European company, calls for spending up to $40 billion to replace the Air Force's aging aerial tanker fleet of 535 Boeing 707s and DC-10s.
This comes as a major blow to Boeing. Its CEO, James McNerney, had been brought into his position in 2005 to clean up the company after several significant ethics problems -- including a deal to hire the Air Force's second ranked weapons buyer, Darleen A. Druyun, her daughter and son-in-law in return for steering the tanker contract and billions of dollars of other Air Force business to Boeing. Soon after joining Boeing at a $250,000-a-year post, Druyun and Michael Sears, Boeing's former CFO, pleaded guilty in the scandal and received prison terms.
Since I am working on a book on Boeing, I was very focused on this contract award. A win would have been a big benefit to shareholders after McNerney's efforts to cure Boeing of its ethics problems. The loss of this contract -- which could total $100 billion -- is a big setback.
Boeing's stock fell $2.01 during the market today and an additional $2.68 after hours.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter











Reader Comments (Page 1 of 1)
2-29-2008 @ 7:21PM
Retired USAF said...
This is an insult to the US Citizens and Military. Our own government is expecting us to spend tax rebates on American made products to help our own economy; in addition what happened to the "Buy American Act".
I work for a company that has to account for all material that goes into products that we manufacture and sold to the US Military.
Now, not only are we going to send our tax dollars to Europe, we will lose well paying jobs with Boeing and all the other companies here in the states that will be part of the domino effect.
Sure sounds like our buyers did not consider that our government get back tax dollars from our citizens working here in the US, we get nothing back from the money going to Europe.
2-29-2008 @ 7:43PM
Claude Foutch said...
As a stockholder, resident of Washington state, taxpayer and former military guy, I take serious humbrage at this decision and want the US Senate and House of Representatives to overturn it. Here we are, America the worlds defender of freedom and the Air Force wants to do its job with foreign made products? And they want to give this project to the EU that just decided to fine one of America's best companies $1.34 billion? What about all of those jobs in 30 of our United States? What about all those 400 companies and all their employees that need high paid work? The middle class is much in the press and on all the talk shows lately but this is exactly what is happening to America: WE ARE HOLLOWING IT OUT in every single industrial area. No, this contract must be rescinded!
2-29-2008 @ 11:18PM
Merrill Haug said...
How can this congress do such a thing since they in effect are now subsadizing Boeings passenger plane competition also. Talk about killing american business.
3-01-2008 @ 12:13AM
BoffoMega said...
Oddly the exchange rate could add additional costs to this project. There must be more to this story than just cozying up with the Europeans.
3-01-2008 @ 1:44AM
Gary H said...
This is a sad day for America as a whole. One more time government has found a way to outsource our jobs to the Europeans. The middle class is taking the brunt for what the U.S. Air force has done. Most of this airplane that being contracted for by Grumman is being assembled in Europe by EADS. Only the final assembly is being done in Alabama. A few smaller subcontracts are to be let here in the United States, but in no way does the job gain through Grumman replace the number of worker's being laid-off by Boeing and its subcontractors; nor does it replace the earnings of the people who did that work. personally, I think that the U.S. Congress should overturn this contract. In no way should a foreign company build Air Force planes for our strategic defense when an American contractor is available.
3-01-2008 @ 3:37AM
steve said...
it wasnt long ago we were against french fries, now were are going to give them tax payers money when they have not been an frend to us.
3-01-2008 @ 8:02AM
Jeff said...
Why the outrage? The 787 is assembled from parts not made in USA! The ailerons and flaps are built at Boeing Australia, and fairings at Boeing Canada Technology. The wings are manufactured in Japan, the horizontal stabilizers in Italy, the passenger doors in France and other doors (cargo, escape) in Sweden.
The point is this is the result of globalisation and if you don't like it, too bad. It's how business works now.
Furthermore, Boeing screwed up (so badly that their employees were sent to prison!) and delayed the awarding of the contract by 7 years. How much money did that cost the taxpayer?
Last time I checked, Northrop is an American company and EADS wants to build the tankers in the US. How does that cause the loss of well-paying jobs for US citizens? ""Northrop Grumman clearly provided the best value to the government," the Journal quoted Air Force acquisitions official Sue Payton as saying."
I have faith in and trust the US Air Force. Why don't you?
3-01-2008 @ 9:36AM
shani said...
Jeff, Jeff, Jeff. Wake up and actually read how much is going to be done in the United States!! VERY LITTLE!
3-01-2008 @ 12:17PM
airborne82 said...
THIS IS THE WORK OF JOHN MC CAIN HE HATES BOEING
3-01-2008 @ 5:35PM
Bob McCarty Writes said...
One man, Medal of Honor recipient Hershel "Woody" Williams, thinks the Pentagon’s snub of Boeing was a terrible decision, and I agree. Why? In part, because I trust Boeing employees -- including many friends and neighbors -- far more than I trust any individual, corporate or government interests in France or the European Union. Congress needs to revisit and reverse this decision immediately. -- BobMcCarty.com
3-01-2008 @ 6:18PM
Samuelle said...
This is the Bush Administrations's thanks for helping us with the war on terror and Iraq. Must do before he leaves office.
3-02-2008 @ 3:48AM
ray said...
jeff is right! Sorry to say, I hope that the goverment holds EAD to their promise and they produce their commercial plane here too.and spent more money here in the US
3-03-2008 @ 5:58AM
Claude said...
Airbus is subsidised by some EU countries.
The US will now recieve Tankers subsidsed by European tax payers money, maybe not such a bad deal?
3-02-2008 @ 4:08PM
jill said...
My husband works for Northrop Grumman, and we are american.
We as family members haven't been able to publicly speak about this for a couple of years, but now we are allowed to speak.
Boeing has been lazy, and has wrongly assumed that they would automatically win the contract because they are an "american" company.
This just in: Boeing just had its butt handed to it on a plate. To all of the idiots who say: "congress should repeal it." It ain't gonna happen.
The air force delayed the decision almost a year to make sure they had all of their information correct, because they knew there would be an appeal.
I get tired of listening to crybabies like the Boeing people who think they should be rewarded for an inferior product.
Wake up and smell the coffee.
3-04-2008 @ 10:35PM
Dick Wheelock said...
Anything that infuriates Pugetropolis must be good. more than fity percent, by law, of the KC45 muct be "made in USA". Ultra liberal Pugetroplis can go to h..l they got what they deserve.
3-05-2008 @ 11:01PM
ottohedrick said...
to Jill,
No doubt you drive a Japannese car, and do so because you say
Americans can't make it as good.
Maybe some of us Americans don't think you do your job good enough either.
3-06-2008 @ 10:09AM
ottohedrick said...
to Jill,
No doubt you drive a Japannese car, and do so because you say
Americans can't make it as good.
Maybe some of us Americans don't think you do your job good enough either.