Boeing Gets $600 Million Contract for Air Force One
The U.S. Air Force has awarded Boeing a $600 million contract to purchase and design the two 747-8s that will comprise the nation's Air Force One fleet.
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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.
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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.
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Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.
He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.
