The Biz Buzz

Get the most up-to-date news, insights and analysis of Tacoma, Pierce County and South Puget Sound business.

NOTICE: The Biz Buzz has moved.

With the launch of our new website, we've moved The Biz Buzz.
Visit the new section.

Did Boeing low-ball the tanker contract?

Post by John Gillie / The News Tribune on June 29, 2011 at 3:06 pm |
June 29, 2011 3:06 pm

What price did Boeing pay to ensure that it finally won the decade-long contest to build the next Air Force aerial tanker earlier this year?

The answer to that question is becoming clearer as the company faces the reality of actually designing the tanker version of its 767 commercial airliner.

The company recently told the Air Force that costs are rising. But under the fixed-price deal that Boeing agreed on to win the deal, the company could be stuck with paying $300 million out of its own pocket for the contract for development of the tanker and the delivery of the first 18 of those planes.

Boeing underbid its rival Airbus by some 10 percent on the tanker contract shutting down Airbus’s plans to build a new factory in Mobile, Ala. to build the tankers, militarized versions of its A-330 passenger jet.

Even if Boeing loses money on the first phase of the contract, it could still make money on the follow-on phases to build 161 more of the KC-46 tankers. That contract will be production, not design and development, so the leaner Boeing can make its production process, the more likely the company can make money on the whole deal.

“We expect to make money on the KC-46 tanker program,” Boeing spokesman Bill Barksdale told Aviation Week.

Boeing could receive additional contracts for the tankers both from the Air Force and from foreign governments who want to take advantage of the development work the U.S. is funding for the tanker program.

The tanker will be built in Boeing’s Everett plant.

*
The News Tribune now uses Facebook commenting on selected blogs. See editor's column for more details. Commenters are expected to abide by terms of service for Facebook as well as commenting rules for thenewstribune.com. Report violators to webmaster@thenewstribune.com.