Tanker victory spells risks for Boeing

photo Boeing

New York (AFP) Feb 25, 2011

 Boeing's triumph over European rival EADS for a major US Air Force tanker contract poses risks amid defense spending cutbacks and multiple delays to its commercial projects. The Defense Department declared Thursday Boeing the "clear winner" of a $30-plus billion contract to supply up to 179 refueling tankers to the Air Force. It is undoubtedly a major prize for the firm, but industry analysts highlighted the challenges that come with submitting what the Chicago-based firm itself called an "aggressive" bid. "Since the KC-46A is a very competitively bid fixed-price contract for both development and production phases, it carries some execution risks for Boeing," Standard & Poor's analysts said in a client note. Particularly, they said, "given the company's substantial cost overruns on some of its commercial and military programs in recent years." Moody's Investors Service said that the difficulties could start early for Boeing, in the initial development phase. "The development could distract engineering resources from other key programs including the near-term ramp-up of the B787 Dreamliner," said Robert Jankowitz, senior vice president at Moody's. The tanker contract comes as Boeing is under pressure from its new 787 Dreamliner program that is now running three years behind the original schedule. "Given Boeing's headaches getting its new passenger planes out the door, there should be concern about the company's ability to deliver the new tanker on time and on budget," said Paul Ausick of 24/7WallSt.com. And budget will be at the forefront of policymakers' minds, as the Pentagon, like other US government bodies, struggles to cut the country's massive budget deficit. "If Boeing misses deadlines and busts budgets, it's reasonable to expect that the Congress and the Pentagon will be reluctant to go ahead with the full complement of tankers," he said.