Two Foreign Arms Deals for Boeing to Cushion Future U.S. Defense Cuts

by: Matthew Potter
June 13, 2011

Category: Boeing, Business Line, California, Companies, Congress, Contract Additions, Contract Awards, Department of Defense, Events, Federal Budget Process, India, logistics, Military Aviation, production program, Services, States, Taiwan, U.S. Air Force, United States | RSS 2.0

Boeing (BA) is one of the largest exporters in the U.S. as it provides commercial aircraft for many foreign airlines. It is also one of the biggest defense contractors building satellites, aircraft, as well as doing services and IT work for the military and other government departments.

Because of their many overseas sales Boeing gets a great deal of support from the U.S. Export-Import Bank. The company is currently receiving about $15 billion in loan guarantees from the bank which are used to help finance purchases by these foreign commercial customers. Boeing in fact received 63% of all guarantees from the government entity in 2010.

Despite this business Boeing like all of U.S. defense contractors is facing the potential for major cuts and reductions in overall defense spending by the United States. This means that there may be fewer tankers, transports or other products purchased from them. Boeing did receive the new KC-46A tanker contract last year but this offsets the end of the C-17 production for the Air Force and work on the F-22 and other programs. The Air Force is also looking at moving a great deal of their logistic support back to their own depots and away from commercial providers. This too may affect Boeing’s bottom line.

Recently thought the company got some good news in winning two contracts with other countries for military hardware. India announced that it had decided to buy ten C-17 strategic transports. This is especially helpful as it extends the life of the production line for that aircraft. The U.S. decision to not purchase more had put a date certain when the last transport would roll off of the line.

Taiwan also decided this week to purchase thirty AH-64 Apache attack helicopters. These will be the most current version, the Block III. No value for the contract was given but it will be several hundred million dollars.

The C-17 contract has a value of $4.1 billion and now the Taiwan contract will provide work and revenue for Boeing that will be used to offset potential cuts in U.S. arms purchases. Certainly if the Army is faced with major budget reductions which are certainly possible as the U.S. looks at reducing its annual deficits Apache production is one place that may be cut. The draw down in Afghanistan and Iraq which saw heavy use of the helicopter as well may affect Army force structure decisions.

All defense contractors want to sell their products to as many customers as possible. They also want their governments to support them. Boeing certainly is receiving this kind of support as are most U.S. contractors trying to sell products overseas. Of course this support may get too ambitious and enthusiastic leading to situations like in France where Thales and the government now owe millions in fines for paying bribes to Taiwanese officials to secure a new naval vessel program. Boeing will probably see more attempts at these types of contracts over the next several years as the world’s armament industry adjusts to the end of the U.S. budget splurge.

Article first published as Two Foreign Arms Deals for Boeing Cushion Future U.S. Defense Cuts on Technorati.

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