You got to know when to hold 'em, know when to fold 'em
Know when to walk away, know when to run
You never count your money, when you're sittin' at the table
There'll be time enough for countin', when the dealin's done
-- Kenny Rogers, 1978
Boeing rolls the dice…
As you know, Lockheed Martin
…and bets on black
Yesterday, the Pentagon agreed. To fill the gap of not-yet-built-F-35s, it will acquire a mix of 124 Boeing F/A-18 Super Hornets and EA-18G Growlers from Boeing. The catch: The Pentagon wants a fixed-price contract for $5.3 billion, which poses Boeing with a bit of a gamble. According to Boeing, a fixed-price long-term contract on these planes will save taxpayers $600 million. However, a fixed-price contract also puts the onus on Boeing to squeeze out efficiencies to maintain a respectable profit margin on the contract.
Now granted, if Boeing's able to build 'em for cheaper than the $5.3 billion price tag; fine and dandy -- it can "keep the change." But if it cannot -- if it really does need more to build 'em to spec -- then this deal could turn into a money-loser for Boeing.
"Better you than me"
If Boeing's taking a gamble on this contract, though, I fear it's nothing compared to what subcontractors like Northrop Grumman
True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.