Boeing's Bad Luck Continues: Incompetence Overcomes Headwinds

Boeing (NYSE: BA) is finally close to being out from under the years of delays of the launch of its flagship Dreamliner. Supplier, labor, and poor technical coordination caused half a dozen delays while customers threatened cancellations and asked for rebates.

But, the 787 is about to go into late stage flight trials and has not experience any problems in earlier testing.

Boeing thought it had a very large piece of defense business from the US government locked up. It would have complemented the new success of its commercial aircraft operations. That’s all changed.

Boeing’s major rival EADS “said it will bid in the $35 billion contest to build aerial refueling tankers for the U.S. Air Force in a challenge to Boeing Co., the sole provider since the 1950s,” according to Bloomberg. Boeing believed, at least for a time, that when it blocked earlier bids from Northrop Grumman (NOC) and EADS by getting prominent Senators to question the bidding process, that it would have no trouble keeping the contract for  itself.

EADS’ move  shows that it plans to continue its global challenge to Boeing’s most profitable markets. That challenge has largely been confined to commercial aviation over the last thirty years, but EADS has shown a recent appetite to enter the lucrative defense aircraft business.

EADS will be up against a “not created here” barrier in the US.  Congressmen will insist that EADS will move manufacturing jobs overseas while Boeing would maintain jobs in the US. There is no reason to believe that is true. EADS can make employment pledges. And, parts of many Boeing plans are made by overseas suppliers like Rolls Royce.

The battle between EADS and Boeing has made it to the highest level trade and antitrust groups on both sides of the Atlantic and the tanker bid is likely to further irritate that situation. EADS says that Boeing can compete in the global markets because the US favors it for many aerospace projects. Boeing makes the same claim about EADS and its government owners in Europe.

The decision on the Air Force tanker contract may end up having little to do with competence. Politics may simply push that issue out of the way.

Douglas A. McIntyre