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Boeing's Brilliant Bluff

Payload of a C-17 Globemaster III transport aircraft, in tons? 85.45.

Number of months' lead-time needed to build one? 34.

Cost per plane? $200 million.

The value of a good bluff? Priceless.

A little over a month ago, we published a column in this space describing Boeing's (NYSE: BA  ) plans to shut down its production lines for the C-17 strategic airlifter. I made the argument that Boeing was playing a game of political chicken with the good folks up on Capitol Hill, who were unwilling to spend $2 billion to purchase the 10 additional planes that Boeing said would be necessary in order to keep its assembly lines running. (And for the record, I got a very polite note from Boeing's PR department in response to that piece, assuring me that bluffing Congress was the furthest thing from their minds.)

Well, intentional or not, Boeing's bluff worked. On Friday last week, the news broke: a joint House-and-Senate conference committee, working out the details of the fiscal 2007 defense appropriations budget, has penciled in $2.1 billion to fund all 10 C-17s, up seven from the three planes it had previously recommended buying.

So, "a billion here, and another billion there" -- we're just over the cusp of spending "real money" at this point. One wonders what made Congress dig out its wallet and ante up the cash. As I said last month, and as I'll repeat now, I believe Boeing's victory was one part threat and another part reality:

  • First, Boeing warned that the longer it took Congress to come around to its way of thinking, the more it would cost to restart the production lines at its C-17 parts manufacturers. As it turned out, funding was found in record time (by Congressional standards), with last week's news coming just one month after Boeing threw down the gauntlet in August.
  • Second, Congress recognizes that if it wants to move main battle tanks in a hurry, then until General Dynamics (NYSE: GD  ) teaches its Abrams tanks to swim underwater, it really has only three options: load them on C-17s, load them on an aging fleet of Lockheed Martin (NYSE: LMT  ) C-5 Galaxies, or try to rent a Ukrainian An-124 Ruslan or An-225 Cossack.

As of Friday, Congress seems inclined to go through Door No. 1 (no word yet on whether the President will agree, or even whether the full Congress will vote to authorize the cash). Next up, we'll see if Lockheed Martin can get funding for the upgrades it's seeking on its Galaxy fleet -- rendering the opening of Door No. 3 unnecessary.

For more on this story, see "Boeing's Brinksmanship."

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

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10/21/2016 4:03 PM
BA $135.63 Down -0.21 -0.15%
Boeing CAPS Rating: ****
GD $150.18 Down -0.53 -0.35%
General Dynamics CAPS Rating: ****
LMT $230.52 Down -1.31 -0.57%
Lockheed Martin CAPS Rating: ****