Did Bush and McCain give the $100 billion tanker project to Airbus?
Posted by: in Products and ServicesFiled under: Products and services, Boeing Co (BA), Politics, Northrop Grumman (NOC)
Despite excellent earnings from Boeing Co. (NYSE: BA) yesterday, a bit of a shadow still hangs over the company. That’s because in February the Air Force awarded a $100 billion contract for in-flight refueling craft — known as tankers — to EADS’s Airbus and Northrop Grumman (NYSE: NOC). Boeing is currently challenging this award. But an interview I did for my book on Boeing suggests that Boeing will not win this contract because George W. Bush and John McCain want to award the contract to Bush’s new friends: France’s Nicolas Sarkozy and Germany’s Angela Merkel.
I got this theory from a veteran Wall Street analyst who covers the aircraft industry. He suggested that Boeing lost the Tanker bid because John McCain — who is ranking member on the Senate Armed Services Committee — had the Air Force change the specifications for the tanker bid so Airbus and Northrop would be able to field a competitive bid. My source noted that the one problem with the change was that the Air Force did not inform Boeing about it.
After the bid was awarded to Airbus, it became clear that the original specifications had changed from a small, 767-sized craft to a medium-sized 777 one. During the review process, my source contends that Boeing asked the Air Force if the 767-sized craft was what it wanted. Boeing also told the Air Force that it would be happy to bid with a different model if the Air Force wanted. But the Air Force told Boeing that it still wanted the 767-sized craft.
My source also pointed out — as I posted last month — that McCain’s top finance staff members for his presidential run were lobbyists for Airbus. But my source mentioned that Airbus paid them hundreds of thousands of dollars a year. He also recommended that President Bush got involved in the decision. My source thinks that Bush awarded the contract to Airbus because he wanted to curry favor with Sarkozy and Merkel — both countries are part of Airbus.
My source believes that the Air Force won’t split this contract between two vendors and that Boeing won’t win its appeal of the award. He said that the impact of the lost contract isn’t apt to be significant over the next five years. The tanker would have added “only” $1 billion a year for the next five years and then $2.5 billion to $3 billion in the early 2010s.
But here’s the good news. He thinks that Boeing will deliver the 787 Dreamliner in the fourth quarter of 2009 and that starting then it will begin to show annual earnings per share growth of 25% to 30%. This is a large step up in growth which he attributes to Boeing’s $346 billion backlog. And without the 787 delays, which he thinks will cost Boeing $3 billion in penalty payments, Boeing’s 2009 earnings guidance would have been 20% higher.
Since Boeing trades at a relatively low P/E of 15.6, this analyst thinks the stock is a bargain. Even Bush and McCain can’t keep a good company down.
Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter. He’s writing a book about Boeing and has no financial interest in the securities mentioned.
Entries (RSS)