Recs

8

Boeing Confesses It's Scared

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

I can sum up my reaction to Boeing's (NYSE: BA  ) comments during yesterday's analyst conference call in three words. Keep reading if you want to know what those three words are.

1. "Duh"
Asked about the approaching deadline for submitting a bid on the Air Force's KC-X Tanker Project, Boeing CEO Jim McNerney responded as follows: "I really want to win it, and the chances ... are very high we're going to bid." What's strange here is that Boeing would even suggest that the chances of its bidding are anything less than 100%.

With analysts positing a $35 billion price tag on this first, 179-plane installment of the Air Force's tanker fleet overhaul, it seems axiomatic that Boeing would want to win this one. 

2. "Wow!"
According to McNerney, and contrary to everything that everyone else (including yours Fool-y) has said, there's a very real chance that Boeing will lose this thing, which would mark Boeing's second loss in a row to Europe-based EADS on the KC-X bid. McNerney warned that EADS will bid "aggressively," setting up "a dangerous situation for Boeing."

You see, according to Chicago-based Boeing, the substantial subsidies EADS has received from European Union governments gives EADS extra room to maneuver, reducing costs and possibly allowing EADS to underbid Boeing on the fixed-price KC-X contract.

Also, as I've pointed out in recent weeks, the rapidly devaluing euro (the currency in which EADS pays many expenses) relative to the U.S. dollar (the currency in which it would get paid if it wins KC-X) sets up an attractive proposition for EADS. Unlike Boeing, which sources its 767-derived tanker parts primarily from U.S. suppliers such as Honeywell (NYSE: HON  ) , Spirit AeroSystems (NYSE: SPR  ) , and United Technologies (NYSE: UTX  ) , EADS may be able to use its European supply chain to further reduce costs on KC-X. To put this in perspective, according to The Seattle Times, about half of EADS' Airbus' expenses are paid in euros.

In this context, you could even say that Northrop Grumman's (NYSE: NOC  ) jumping ship has become a net positive for EADS. Which brings me to my third and final monosyllabic proclamation, in response to the 10-year-old question: Will Boeing win KC-X?

3. "Yes"
Call me an optimist, but in the end I believe Boeing's national security argument, raised last week, will ultimately win it this contest, regardless of cost. Toss in Congress' overwhelming support for Boeing, expressed in last week's House vote, and the odds still seem to favor Boeing's winning.

Please take our Motley Poll then scroll down to explain your vote in the comments section on this page.

Take the Motley Poll

If EADS does offer a better bid, should the Pentagon give it the contract?

Best Odds in the Universe!
If you're interested in a 98.79% chance at beating the market... and a 70.84% chance at DOUBLING the market's return – Motley Fool Supernova could be just what you're looking for. And get this: We arrived at these odds from 10,000 random back-tested portfolios composed of Motley Fool Co-founder David Gardner's personal stock picks.

It's why David recently handpicked a small team of world-class portfolio managers. You see, he thinks these odds can get even better! And he'd like to prove it to you...

Simply enter your email address. And the answer to the question everybody is asking will be delivered to your inbox!

Spirit AeroSystems Holdings is a Motley Fool Hidden Gems selection. Fool contributor Rich Smith does not own shares of any company named above. Check out his latest stock recommendations on Motley Fool CAPS. The Motley Fool has a disclosure policy.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2010, at 6:42 PM, tjertz1 wrote:

    Consideration should also be given to Government Revenue generated from taxation of US Citizens working a Boeing Program (US Citizens on Boeing Program > US Citizens on EADs Program) and the additional jobs generated from their income spent in the US; this will reduce overall net cost of the program

  • Report this Comment On June 04, 2010, at 7:10 PM, jasonhad wrote:

    It's my money - I want American workers to build it - the Europeans don't give a damn about us, just about our money. They screwed up the A400M (the military transport) which is years behind and billions over budget - and which they refused to allow Lockheed to bid on because they wanted to support their aerospace industry. We should do exactly the same.

  • Report this Comment On June 05, 2010, at 6:51 PM, mswswalt wrote:

    Our government stated an open and fair competition. If Boeing's offer isn't the best then it shouldn't win competition.

  • Report this Comment On June 05, 2010, at 9:10 PM, GR81TIM wrote:

    1. Boeing also receives tax credits/subsidies. So don't let them fool you.

    2. The nat'l security argument is a moot point considering EADS already builds helicopters for the military.

    3. This plane will be built in America using American labor.

    "By Americans, for Americans

    EADS North America’s commitment to provide the American warfighter with the only world-class aerial refueling tanker actually flying today also will create high-value aerospace jobs for American workers. Built here in the U.S., the KC-45 will create and support tens of thousands of jobs across the country.

    Our state-of-the-art tanker aircraft will be built in Mobile, Alabama, at the country’s newest aviation production center, where we also will produce a commercial freighter based on the same platform, for a combined production of as many as 40 aircraft annually.

    EADS in America

    EADS North America is proud of its track record of providing the American military with superior, made-in-America aircraft, on schedule and on budget. We currently supply the U.S. Army and Navy with the American-produced, highly successful UH-72 Lakota helicopter, recognized by the Defense Department as one of just five model acquisition programs.

    Overall, EADS contributes more than $11 billion annually to the U.S. economy, and supports more than 200,000 American jobs through an expansive network of suppliers and services."

    http://www.kc45now.com/american-made/built-here.asp

  • Report this Comment On June 06, 2010, at 1:17 PM, busterbuddy wrote:

    Rather than vote I decided to post comment. Look at the history of the Tanker Contract and Boeing's actions. Boeing has acted, from the very beginning, like it can't win head to head with anyone on cost related to the Tanker. Say what you want but Northrop Grumman won heads over heals in a pretty good competitive process. At this point it is very obvious that those in power just want to give the tanker to Boeing. But winning the Tanker deal has been pushed to the CEO level of Boeing. And the full Force of Boeing's ability to bring forth the political/marketing will has been put into the Tanker contract. But lets not forget that CFO went to jail because of deals with Government officials related to the Boeing Tanker.

    Boeing Bid the wrong tanker because they assumed, wrongly, that it didn't matter. Doesn't matter anymore and that is why Northrop Grumman decided not to bid. Notice Lockheed didn't bid or try either. Wonder why? I'm ashamed of the way Boeing has acted during the entire, over 10 years of trying to get a tanker bid done. I'm ashamed at the Defense Department for its actions. Truth of the matter, open the competition up and fly the planes. Ever wonder why that was not a solution?

  • Report this Comment On June 06, 2010, at 6:15 PM, ConcernedTexan wrote:

    I am not impressed with EADS comments or the above post. I understand Boeing had issues.

    I do not believe that EADS is all that innocent.

    I do not think we should be using US taxer payer dollars to help a heavily subsidized corporation build a plant in the US.

    EADS claims the plant will benefit the US by generating 40 planes a year. The fact is those jobs will be somewhere in the US no matter who wins.

    I would rather keep the profits in the US.

    The A380 will be a money loser for the next 5 years. At the end of the five years, the project will still be a disaster financially.

    If Boeing took on such a project, it could spell doom for the company. EADS gets to benefit from loans that do not have to be repaid if the project is a dud.

    Boeing did not bid the wrong plane in the last go around. Political meddling changed the requirements after the RFP was put out to bid. The criteria changed. Boeing could have put forth a 777 based tanker.

    I do not believe for one minute the EADS proposal is a low risk solution. The Australian MRTT is too big and does not meet the US requirements.

    We do not need more transport aircraft.

    The US has as much right in defense contracts to favor our industries and the Europeans did when they undertook A400M.

    I do not believe in giving Boeing a blank check. But giving this contract to EADS is just plain foolish.

  • Report this Comment On June 11, 2010, at 3:39 PM, Aislabie wrote:

    Clearly EADS has the best plane and just as clearly Boeing will win.

    The last time this went around (older heads may recall) the Air Force had its arm twisted to buy DC-10 Extenders as Douglas gagged on the collapse of their DC-10 market after it was grounded following crashes.

    As you can read from that time the costs ran way ahead and many times there was attempts to kill the deal, but the "jobs are at risk" threat constantly sent worried congressman back to voting more money.

    Illinois and Washington have far more national clout than Alabama so its sealed up for Boeing.

    The A400M is an interesting sideline but the alternatives were either Hercules or C-17. Neither are ideal; Herc is too small and slow, C-17 is too expensive to operate and too large for many air forces, although fine for the UK's RAF (the turboprop A400M is horrendous to develop/buy but relatively cheaper to operate). The A400M range is going to save bootfuls of air refuelling costs.

    Europe has bought gazillions of US aircraft and is set to go on doing so (not least in UAVs), buying the best tanker plane for the US Air Force would not seem to be out of line - but as I said above - there is not one chance in a hundred of Boeing losing.

    The "who is dirtier than who" in subsidies and trade rules is not especially convincing for either side. For US folk you might want to review the Jones Act which flat out prohibits public transport vehicles imported for transport within US borders. Exceptions have been granted, often for aircraft, but check out buses, barges, ferries etc. Subsidy by prohibition is often the most expensive.

Add your comment.

Compare Brokers

Fool Disclosure

DocumentId: 1200822, ~/Articles/ArticleHandler.aspx, 2/11/2012 2:58:48 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 12,801.23 -89.23 -0.69%
S&P 500 1,342.64 -9.31 -0.69%
NASD 2,903.88 -23.35 -0.80%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

2/10/2012 4:00 PM
BA $74.95 Down -0.95 -1.25%
The Boeing Company CAPS Rating: ***
SPR $24.43 Up +0.27 +1.12%
Spirit AeroSystems… CAPS Rating: ****
UTX $83.50 Down -0.28 -0.33%
United Technologie… CAPS Rating: ****
HON $59.33 Down -0.56 -0.94%
Honeywell Internat… CAPS Rating: ****
NOC $59.81 Down -0.40 -0.66%
Northrop Grumman C… CAPS Rating: ***

Advertisement