Cost Increases Come As Company Risks Losing C-130 Contract
Business is booming for Boeing right now... as long as you're
talking about commercial aircraft, where the aerospace manufacturer
still enjoys relatively brisk sales and a 1,002-order book for 2005
to work from. Building all of those aircraft does cost money,
however... which is why, on Thursday, Boeing announced an average
price increase of four percent on the list prices of its commercial
airliners.
According to a posting on the Boeing website, the price
increases range from a low of three percent on the 737-600 series,
to a high of 5.2 percent for the 777-200ER widebody. By family, the
increases for 737s range from three percent to 4.9 percent; for
747s from 4.7 percent to five percent; for 767s from four percent
to 4.7 percent; and for 777s from 3.6 percent to 5.2 percent.
Prices for Boeing's still-in-development 787 Dreamliner have also
gone up, from 4.4 percent to 4.9 percent.
Boeing says that price increase reflects a rise in costs of
manufactured parts needed to build its planes -- a plausible
excuse, especially considering the rising prices for titanium right
now. However, while the commercial market is likely to absorb the
increase (and, let's face it... airlines rarely pay sticker price
on planes, anyway), over on its defense side Boeing is also facing
increased costs... and the US government is less likely to pay.
Bloomberg reports an independent analysis commissioned by the US
Air Force suggests the cost of a lucrative contract to modernize
electronics on C-130 transports has mushroomed to 130 percent above
estimates... and, as ANN first reported in
February, that the contract is now in danger of being
cancelled.
There are now some hard numbers to back that up. According to
the analysis, the C-130 modernization program's cost has grown to
$1.5 billion, from $670 million. What's worse, costs could
eventually reach as high as $2.86 billion. The first plane to be
delivered under the program is now scheduled for delivery in 2009
-- a year later than planned -- and the program has been cut to 423
aircraft from 519.
"The program was the product of an aggressive campaign by Boeing
to expand its defense business beyond traditional products and
customers and into aircraft upgrades but it was won under
questionable circumstances and performance has been uneven at
best," Loren Thompson, a defense analyst for the Lexington
Institute, told Bloomberg.
Instead of shelling out the money to upgrade existing C-130s --
some of which are already 45 years old -- it could prove cheaper in
the long run for the military to purchase new C-130s from Lockheed
Martin. The cancellation of the contract would be a blow to
Boeing's already-struggling defense and aerospace
division, the company's largest.
In response to the analysis, Boeing C-130 program manager Mike
Harris said the company and its subcontractors have been surprised
by problems caused by aircraft that are in worse condition than
expected when initial estimates were made.
Harris added that Boeing's performance has rebounded since the
analysis was performed.