Change Could Be A Boon To Boeing Commercial Aircraft

Within the coming year, Boeing Commercial Aircraft sales reps could see their travel reduced considerably from going around the world to going across the parking lot. The client: Boeing's defense operation.

Boeing is locked in another epic competition with Lockheed-Martin for a contract to send the Navy up to 150 maritime patrol aircraft. Lockheed's entry is a variant of the P-3 Orion, a design that's been in use since the 1960s. Lockheed says that aircraft is time-tested and well-proven on maritime patrol and sub-hunting missions.

Boeing's idea: sell 'em a modified version of the 737. Boeing insiders say, if the deal goes through -- and if the USAF doesn't cancel the embattled plan to lease and purchase 100 converted 767s for the tanker fleet, Boeing could find a majority of its defense aviation contracting involves turning civil aircraft for military applications.

"Certainly, if you look at the potential going forward and what the military has expressed interest in, we're easily talking more than 200 airplanes," said Boeing spokesman Randy Harrison.

That would be a big plus for the commercial division, which has fallen behind Airbus in worldwide deliveries. In the meantime, Boeing's defense business has surpassed its sale of civilian aircraft, growing ten percent last year. While commercial deliveries plummeted last year -- taking in $22.4 billion -- the company's defense business has grown to almost $27.4 billion.

But the military marketing effort at Boeing has been marked by the scent of scandal. The government has penalized Boeing for stealing Lockheed secrets leading to the Evolved Expendable Launch Vehicle (EELV) contract. Lockheed is suing Boeing over stolen proprietary information on the project that Lockheed says allowed Boeing to win the USAF contract.

Now, the government has extended for another three months its investigation into a possible conflict of interest involving Boeing's sale and lease of 100 767 converts to be used as aerial tankers. The probe centers on a former USAF official who oversaw the tanker deal and later ended up as a Boeing VP. The VP and CFO have been fired.

While losing the Navy deal -- a contest in which Boeing's proposal convert 737-700s into aircraft that spend hours at a time loitering over possible sea targets -- may not be a bad blow to Boeing, losing the tanker deal could have dire consequences. Since 9/11, demand for 767s -- the platform proposed by Boeing in the tanker deal -- has dropped dramatically. "There's very little demand in the commercial market for that aircraft, and the likelihood is that (the 767) line would have to close without the government contract," said Paul Nisbet, an analyst with JSA Research. If the tanker contract goes through, it could keep the 767 line open for another 20 years, he said.

The maritime patrol deal, on the other hand might indeed be a long shot. "A 737 is not typically the plane you want for loitering low over the ocean, so it's a bold interpretation of what the Navy might need," Nesbit said.

FMI: www.boeing.com