NATO Is Boffo for Boeing

It isn't Avon knocking. It's Bulgaria, Estonia, Finland, Hungary, Lithuania, the Netherlands, Norway, Poland, Romania, Slovenia, Sweden, and the United States. And they're not selling makeup. They're buying airplanes.  

They all chipped in Wednesday to buy a couple of C-17 "Globemaster III" military transport planes from Boeing (NYSE: BA  ) -- even Finland and Sweden, which aren't actually part of the NATO alliance that will be using the planes.

And why is this important?
Because Boeing has engaged in a delicate dance of brinkmanship with Congress for the past two years, requesting that the government buy additional C-17s and threatening to switch off production of the plane if it doesn't get more orders. Hanging in the balance are revenues at C-17 parts suppliers such as Honeywell (NYSE: HON  ) , Goodrich (NYSE: GR  ) , and United Technologies (NYSE: UTX  ) .

At times, it has seemed that Congress would cave to Boeing's demands. At other times, Boeing appeared to be the one making concessions. Ultimately, Boeing still hopes to get funds for as many as 220 C-17s, and to shut out Lockheed Martin's (NYSE: LMT  ) bid to provide upgraded C-5 "Galaxy" transports to the Air Force in lieu of C-17s.

And here's the thing: The more C-17s that Boeing can sell abroad, the more it's able to hedge against the risk that Congress won't come through with the money. Boeing bet big, for example, in locking down contracts with titanium suppliers like Titanium Metals (NYSE: TIE  ) and Allegheny Technologies (NYSE: ATI  ) . If Congress drops the ball, Boeing will need buyers like the NATO consortium to pick it up.

And they will
I think. Boeing should be able to count on NATO buying its C-17s for two reasons:

  1. Georgia. Up until now, NATO has bridged the gap between "need" and "want" on military air transport by chartering Russian-built An-225 and An-124 aircraft when it needed to haul something truly huge. But whom do you call when you need to move, say, a batch of main battle tanks to keep the Russians at bay?
  2. Europe's homegrown solution to this problem, the Airbus A400M transport, has encountered serial production delays.

For both these reasons, I suspect the C-17 order was inevitable -- and just the first of many.

For further Foolishness on the C-17 saga, read:

Fool contributor Rich Smith owns shares of Boeing. The Motley Fool has a disclosure policy.


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