For the past few months, I've questioned if Boeing
When aggressiveness bites you back
The possibility of a cost increase on Boeing's tanker contract was first disclosed at this year's Paris Air Show. Ash Carter, head of Pentagon acquisitions, was referring to the projected $300 million cost overrun when he said, "It's not our problem because it's a fixed contract, and it was written with protections for the taxpayer."
With continuing talks of defense budget cuts, and projects like Lockheed Martin's
Although Boeing is maintaining that it's not yet over budget and "expects to make money on this program," Boeing tanker spokesman Bill Barksdale admitted that the Boeing's bid on the tanker contract was "aggressive."
Carter responded to Boeing's statement by saying that Boeing has decided to absorb a loss on the EMD contract, but expects to make up for it on the production side. What does all this likely mean? Yup, Boeing is over budget on the tanker -- no surprise there -- and will be forced to absorb the cost because of the nature of the contract. However, Boeing is hoping international sales of the tanker will offset that loss.
While it doesn't surprise me that Boeing will go over budget on the tanker contract, it's a little surprising that there's already talk of being over budget, and this brings to mind bigger questions:
- At this stage in the game, is it likely to think that Boeing will be able to stick with being just $300 million over budget, or is it plausible to think that the KC-46 tanker is headed for further turbulence down the runway?
- Boeing already has a reputation for underbidding contracts. If it goes way over budget on such a high-profile contract, how will this affect the chances of it being awarded future contracts?
Will it fly?
Although Boeing may still be able to pull off a win with its tanker contract, because of Boeing's past performance, I'm remaining skeptical. Add in Boeing's recent downturn in stock price, and it appears I'm not the only one. This is of course great news for Boeing's competitors Northrop Grumman
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Fool contributor Katie Spence owns shares of Northrop Grumman. She does not own shares of any other company mentioned above. The Motley Fool owns shares of Textron, L-3 Communications Holdings, Northrop Grumman, Lockheed Martin, and General Dynamics. Motley Fool newsletter services have recommended buying shares of L-3 Communications Holdings.
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