Boeing Rolls the Dice

Ten months ago, I described an apparent game of chicken between globe-striding airplane maker Boeing (NYSE: BA  ) and the U.S. government. Faced with the prospect that the Feds wouldn't order more C-17 "Globemaster III" cargo planes than they already had, management announced the beginning of an orderly shutdown on production of the plane.

Citing the 34-month lead time from plane order to parts production to assembly to delivery of the planes, Boeing warned that without sufficient firm orders in hand, it couldn't bear the risk that future orders would fail to materialize. Having ordered and paid to have all the necessary parts produced to provide for the military's needs, Boeing is worried it would get stuck with the bill when those orders never came through. At the time, I argued that Boeing was just bluffing -- crying wolf, if you will, in order to ratchet up pressure on Congress to appropriate $2 billion in funds for the fiscal 2008 budget, and order at least 10 more C-17s.

It was a high-stakes bluff (if it was a bluff), and it didn't affect just Boeing. Parts suppliers including Honeywell (NYSE: HON  ) , Goodrich (NYSE: GR  ) , United Industrial (NYSE: UIC  ) , and United Technologies (NYSE: UTX  ) would be affected by a shutdown in production. On the other side of the equation, removing C-17s from the military's price list would bolster rival Lockheed Martin's (NYSE: LMT  ) chances of selling more C-130 transports in their stead, should the need arise. The parts suppliers were probably disappointed, therefore, when Boeing doubled down on its bluff (?) in March, beginning the production shutdown as its hoped-for orders failed to materialize.

Well, the parts makers can now heave a sigh of relief, and Lockheed one of regret -- Boeing just caved. According to press reports out yesterday, management has agreed to restart parts production and begin taking the steps necessary to build the 10 planes that Congress still has not ordered. Boeing says it feels confident that those orders will eventually come through -- perhaps in 2009. In fact, it expects as many as 30 orders from the U.S. Air Force alone, and hopes this will enable "production [to] continue well into the next decade."

But for the time being, Boeing will just have to wing it.

Find further Boeing-related Foolishness in:

• Boeing's Brinksmanship
• Cowboys and Indians
• Boeing's Goings-On: Fool by Numbers

Fool contributor Rich Smith does not own shares of any company named above.