Boeing may abandon plans to sell its aerial refueling tanker internationally if it loses its protest of a U.S. Air Force decision to buy $40 billion worth of tankers from a competitor, The Wall Street Journal reported Wednesday [subscription].Boeing's Mark McGraw, the executive in charge of the program, told The Journal that Boeing had counted on the Pentagon to provide enough volume to make an international tanker business viable.
In February, Northrop Grumman (NYSE: NOC) and partner European Aeronautic, Defence & Space (EADS), parent of Airbus, beat out Boeing, the Air Force's only supplier of the aircraft for half a century; the Air Force recently announced that it continues to support that decision. Boeing protested the award to the Government Accountability Office, which must make its recommendation to the Pentagon by Thursday.
Boeing's (NYSE: BA) shares were virtually unchanged on the news in Wednesday mid-day trading, gaining eight cents to $74.43. Northrop Grumman rose $1.03 to $72.09 and EADS fell 46 euro cents to 13.57 euros on the Paris Exchange.
Economies of scale underscored
C. Leonard Bauer, independent stock analyst, told BloggingStocks Wednesday that while some critics may interpret Boeing's stance as hardball tactics in response to the USAF's contract award to Northrop, the economies of scale of tankers suggest otherwise.
"It's not a case of 'convenient facts' for Boeing. The reality is they need the Air Force's business to spread costs over enough planes to make tanker production profitable," Bauer said. "Boeing cannot quickly fill an order gap by selling more tankers to Europe, Asia, or Latin America. It would take a decade or longer to make-up for a loss of the Air Force business, orders that are needed to create sufficient economies of scale in the program, which speaks directly to Boeing's point."
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Reader Comments (Page 1 of 1)
6-18-2008 @ 4:50PM
Kent said...
If the airforce were smart, they'd split the contract even though inconvenient from a logistics standpoint between Boeing and Grumman/EADS. I have no proof, but something smells in Denmark when the USAF decided to go with Grumman, especially with the former Sec of the AF Wynn. I had a bad feeling about him, but it is only an opinion.
6-20-2008 @ 1:54AM
PRECIVITO said...
LOOKS LIKE THEY COUGH MCCAIN, AGAIN WITH HIS HANDS IN THE COOKIE JAR. HE SHOULD HAVE LEARNED TO STAY OUT OF TROUBLE AFTER THE LINCOLN BANK KEATING FIVE MESS.