Bad week for Boeing gets worse
Only two business days went by after Boeing lost the $40bn KC-X tanker contract to Northrop Grumman when word came down from the Pentagon’s top procurement official, John Young, that the military doesn’t need any more Boeing C-17 transports. This Reuters report sums up the situation nicely.
Boeing has been struggling to keep this program alive while competing for the tanker award. It’s been selling C-17s in ones and twos, hoping that the Air Force would increase its order beyond the 189 contracted for. Not so, says Young. It’s another blow to Boeing.
(A side note: the C-17 is built entirely in the USA at a production rate similar to that of the proposed KC-45 program. Boeing claims 25,000 direct and indirect jobs attributable to the C-17. Boeing claims 44,000 US jobs for its KC-767AT program, which has fewer airplanes (179) than the C-17 program, a similar production rate and less US content (the fuselage is built in Japan, the tail in Italy and other components in the UK). This is one reason why we doubted Boeing’s job claims about the KC-767AT. Another reason was that in 2001 when Boeing delivered 36 767 passenger airplanes annually, a rate two-three times that proposed for the tanker, Boeing claimed 22,000 jobs associated with the 767 program. Finally, Boeing’s claim did not square with the US Department of Commerce formula for figuring jobs created by a program. All the rhetoric by politicians today relies on the Boeing 44,000 jobs claim, which in our view simply is grossly over-inflated.)
By the way, Young used to work for the US Senate committee chaired by Alaska Sen. Ted Stevens. Stevens is the senator who inserted the provision in a 2001 appropriations bill that started the plan for Boeing to lease 100 KC-767s to the USAF. From there the tanker scandal erupted, sending two Boeing executives to jail (including the former Air Force procurement officer Boeing hired after she greased the skids for that 2001 deal). Boeing CEO Phil Condit resigned over the scandal, as did an Air Force official.
The loss of the KC-X contract and the C-17 business is not likely to be all for Boeing in the coming weeks. We have solid information that more bad news is coming in The Boeing Co., and it won’t be too long before it’s public.
Meantime, here are two interesting news stories of the many about the tanker. Click the links for the full report.
Four days after the U.S. Air Force handed a $40 billion contract for aerial tankers to Northrop Grumman and EADS, the Pentagon’s acquisition chief fired back at critics of the controversial deal. Additionally, John Young warned the ongoing backlash against the controversial deal should not drive jilted lawmakers to place restrictions on buying military items from foreign suppliers.
The $35 billion KC-45 aerial tanker deal has attracted a lot of attention and commentary lately, as one might expect. It has also attracted a lot of lobbying dollars – again, as one might expect. While the Pentagon hopes it can keep a lid on the program’s planned costs, it’s an absolute certainty that the lobbying bill will grow quite a bit before all is said and done.