Military
Boeing Takes Hit on Tanker, Faces Less Competition for New Training Jet
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It’s another good news/bad news day for Boeing Co. (NYSE: BA). First the bad news: During its earnings conference call on Wednesday, the company said it took a fourth-quarter charge on its KC-46A Air Force tanker program. The charge this time is $201 million, bringing the company’s total charges for the new tanker to more than $2 billion.
The good news is that the team of Raytheon Corp. (NYSE: RTN) and Italy’s Leonardo have pulled out of the competition to supply the U.S. Air Force with a new training jet. The two “partners” apparently cannot agree on the business terms of their partnership. Leonardo had earlier tried to partner with General Dynamics Corp. (NYSE: GD), but that deal, too, couldn’t get past business differences.
Boeing CEO Dennis Muilenburg said the charge to the KC-46A was related to costs for implementing previously identified changes to initial production of the aircraft. He also said that some of work is taking longer than expected in labor hours, and that is raising the costs.
Boeing was supposed to deliver the first 19 planes on the fixed-price contract valued at $2.8 billion by August of this year. That deadline has been pushed out to January 2018.
In the competition for the new Air Force training jet, the T-X, the Raytheon/Leonardo team’s withdrawal leaves four teams still in contention for the $16 billion contract the Air Force sent out for bid in December. Boeing is partnering with Saab on a clean-sheet design, and Lockheed Martin Corp. (NYSE: LMT) has teamed up with Korea’s KAI for a modified version of KAI’s T-50. Northrop Grumman Corp. (NYSE: NOC), BAE Systems and L3 Technologies Inc. (NYSE: LLL) combine for the third remaining team, and privately held Sierra Nevada has teamed with Turkish Aerospace Industries.
Another bid is possible from Textron Inc. (NYSE: TXT), but the company has not yet tossed its hat into the ring. For that matter, Leonardo has reportedly left the door open to submitting a proposal on its own. Without a U.S. partner, however, the company’s chances of winning the contract are slim.
Boeing’s stock traded up 1.5% Thursday morning, at $169.80 in a 52-week range of $102.10 to $169.88, a new high posted this morning. The 12-month consensus price target on the stock is $161.70.
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