It looks like Boeing's decision earlier this year to protest the U.S. Department of Defense's award of an aerial refueling tanker contract constituted a savvy corporate tactic. Government auditors first ordered a rerun of the competition, and then today U.S. Secretary of Defense Robert Gates delayed the $35 billion award contest, saying there isn't enough time to complete the contest fairly, by the end of the Bush Administration, the Pentagon announced.
"Over the past seven years the process has become enormously complex and emotional -- in no small part because of mistakes and missteps along the way by the Department of Defense," Secretary Gates said in a statement. "It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment."
Gates added that the 'cooling off' period will allow the next administration to objectively review the military requirements and craft a new acquisition strategy for the refueling tanker.
Boeing: more time to refine new bid
Stock Analyst C. Leonard Bauer said the above is a downside / upside decision for Boeing (NYSE: BA), but he's emphasizing the latter.
"At the outset, the initial reaction among investors probably will be negative, because some had hoped for a Boeing contract win in the revised bidding round by January," Bauer said. "But the upside is, Boeing will now have more time to hone its aerial refueling tanker design and bid, which should make Boeing's bid that much stronger. In that sense, time is on Boeing's side." Bauer added that he does not have a rating on or own shares in Boeing or any defense contractor.
Boeing's shares closed down $2.31 to $61.71, dropping 3.6% Wednesday. However, it should be noted that the tanker contest was not the only issue affecting Boeing's shares. A key machinists union remains on strike at Boeing, idling 27,000 machinists and most manufacturing work on jetliners.
The European Union-based European Aeronautic Defense & Space company (FR: EADS) and Northrop Grumman (NYSE: NOC) won the first tanker contract February 29, but on June 19 auditors from the U.S. Governmental Accountability Office upheld Boeing's protest, saying the U.S. Air Force made significant errors in awarding the contract, Bloomberg News reported.
Bauer said he expects Boeing to win the new refueling tanker competition. "Both sides now have an opportunity to revise designs. Boeing will have an opportunity to increase its tanker's fuel capacity, which had a 205,000 pound fuel capacity, 45,000 pounds less than EADS' tanker," Bauer said. "I expect Boeing to close that gap with its new bid in 2009."
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Reader Comments (Page 1 of 1)
9-11-2008 @ 9:40AM
marc said...
Ok, what is it with you people? First Boeing tries and probably was successful at defrauding the government and tax payers in the, actual (Joseph Lazzaro, do some research or go choke on a turd), first contract that was awarded to Boeing, for which nobody was held responsible for but the contract was re-bid. Then, when Boeing should have been barred from bidding on another government contract for several years because they tried to defraud America, they lose the bid to a far more superior tanker that can be built cheaper and whine about it while waving the flag in front of the drooling masses to have the bidding re-opened. Then they said "oops, sorry, we don't want to bid on this contract right now". Now, conveniently, the bidding is halted until the next presidency? What happened to the urgency of the tankers that was whined about before?
Not only did Boeing defraud the Government, America, and you and me as tax payers; but now they have cost us millions more in delays and made our military vulnerable because they want to game the system in their favor. Man, I hate mind numbingly dumb people; it's frustrating that there are so many of them!
9-11-2008 @ 3:09PM
B Griffith said...
Its really amazing to read what some people think that Boeing Aircraft should be punished for things which happened via the us gov that lead to the past problem! (On the other hand that's kind of the general "Pound of Flesh", middle American madness thought process you expect from those who don't understand the real need of the Air Force's everyday needs!) However, being first hand to the missions of the United States Air Force Refueling Wing, In no F_ _kin way can Airbus industries today produce the "Correct" mission refueling aircraft to meet the actual REAL WORLD Air Refueling and cargo needs of our Refueling wing. Right now, the only aircraft we have who really meets the balanced field requirements and necessary mach cruise speeds, low fuel burn thus long range is the KC-10. The KC-10 is extremely limited in numbers and too old to keep in its mission day to day as the parts supply is very limited (Thanks to the Federal Gov) In fact the parts for the KC-7 (Boeing 707) is very plentiful. The reason for this is too numerous to list. To produce a replacement for the KC-10 that is less in every performance factor of the REAL WORLD USE of the Air refuelers mission is just Stupid, Stupid, Stupid! To listen to a "know-nothing" such as this person "marc" has posted, clearly shows why we are facing big tactical problems on every corner which is people running their know-mouth on subjects they have zero knowledge to the real world needs and requirements. Beyond any doubt whatsoever, Boeing needs to be allowed to bid and likely Boeing will in fact be the manufacturer to be awarded the task to produce the next line of air tankers.