On Wednesday, the U.S. Air Force awarded Boeing Co. (NYSE: BA) one dollar less than $600 million to complete new preliminary design requirements for Air Force One, the presidential fleet of two 747-8 aircraft. The award was a modification to the existing contract for the new airplanes and “supplements work already taking place and the [Air Force One] contract, including risk reduction activities and the acquisition of two commercial Boeing 747-8 aircraft.”
The original contract was awarded in January 2015 and became a controversy even before President Trump took office. Last December the president tweeted out his displeasure with the reported $4 billion cost to manufacture the two planes. Since then, Air Force officials have made some adjustments, including acquiring two 747-8s that were never delivered to their intended customers and eliminating the in-flight refueling requirement for the Air Force One.
The Air Force agreed not to disclose the purchase price of the two planes, but the list price for one 747-8 is $378.5 million, which works out to $757 million for two. Assuming a standard discount of around 35% for the planes, the cost to a commercial customer would be around $251 million per plane. The Air Force is certainly paying less than that.
The program executive officer, Major General Duke Richardson, told Defense News that contract award marks “the next major step forward toward ensuring an overall affordable program.” In a statement to reporters, the Air Force added:
Those [cost-saving] opportunities identified will be reviewed to ensure mission capabilities are not degraded. The entire preliminary design effort will keep a focus on affordability. … The Air Force is committed to working with Boeing to ensure the [Air Force One] program meets presidential airlift mission requirements, as well as the president’s affordability expectations.
Once the design work is completed, Boeing and the Air Force will negotiate a further amendment to the cost-plus-award-fee contract for the new planes. That deal will include “incorporating a mission communications system, electrical power upgrades, a medical facility, an executive interior, a self-defense system, and autonomous ground operations capabilities.”
Boeing stock closed up about 0.6% on Wednesday at $241.93 in a 52-week range of $126.34 to $246.94. The consensus 12-month price target is $253.20.