boeing says india jet decision `no sooner' than 2010 (update2)

by chan sue ling

may 30 (bloomberg) -- india's government will decide on its plan to buy 126 new
fighter jets for its air force ``no sooner'' than 2010, boeing co.'s defense chief
jim albaugh said today.

boeing, lockheed martin corp., saab ab, mig corp., dassault aviation sa and
european aeronautic, defence & space co., the parent of airbus sas, submitted bids
to the government on april 28 for the contract. the order may be worth $11
billion, the biggest for combat planes in 15 years in india.

asia, which contributes about $2 billion a year in defense sales for chicago-based
boeing, will account for 50 percent of international sales at the defense unit in
five to 10 years, the company said. india is spending more to buy military
aircraft, helicopters and weapons as neighboring pakistan buys aircraft from the
u.s. and china develops its own fighter planes.

international sales accounted for 7 percent of total revenue at the defense unit
five years ago, and now accounts for about 13 percent, albaugh said.

the company is protesting a u.s. air force award of a $35 billion aerial-refueling
tanker program to northrop grumman corp. and the parent of airbus sas, saying that
changes made midstream in the contest unfairly favored its european rival.

the jury is ``still out'' on the tanker decision, albaugh told reporters in
singapore today.

``there is going to be plenty of opportunities to sell 767 tankers in the event

that the protest we have is sustained and there is a recompetition and we're
fortunate enough to win that recompetition,'' he said.

boeing fell 0.02 percent to $82.11 in new york stock exchange trading yesterday.
the shares have declined 6.1 percent this year.

to contact the reporter on this story: chan sue ling in singapore

slchan@bloomberg.net.
last updated: may 29, 2008 23:30 edt
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boeing (ba) chairman and ceo jim mcnerney has taken his share of hits lately. the
ambitious 787 dreamliner is about 15 months behind schedule, and in late march,
boeing lost out on a multibillion-dollar contract to build a fleet of refueling
tankers for the u.s. air force. that deal, which is being protested, went to
northrop grumman (noc) and partner eads (eads), the european consortium that
builds the airbus and is boeing's archrival.

boeing's stumbles have caught many by surprise, primarily because mcnerney, a

disciple of former ge ceo jack welch, is held in such high regard. after a stellar
19-year career at ge, mcnerney became chairman and ceo of 3m, moving to boeing as
chairman and ceo in 2005. i talked with mcnerney on may 22 in chicago at a
conference on competitiveness sponsored by the commerce dept.

maria bartiromo

oil has climbed as high as $135 a barrel. what are the implications for the
aerospace business and boeing?
w. james mcnerney jr.

i don't see any business plans that any companies in our industry have that don't
assume a very high price of oil, because it is having a big impact. you can see
the impact on our airline customers with american airlines' (amr) announcement
about curtailing capacity. [on may 21, amr, american's parent, said it would cut
back on flights.] they've got to deal with it. and it has sort of a double-edged
impact on boeing: on the one hand, our customers are taking out inefficient
capacity because at the current price of oil, they're not making money on certain
routes. on the other, the replacement technology they need are the planes we're
building now that are 20%, 30% more efficient.

a lot of people are talking about the 787 promising 20% fuel savings. how
significant will they be?

well, 30% overall operating savings, with 20% to 22% fuel savings driven by engine
technology. also, this is the first carbon-fiber titanium airplane ever built, and
it's 20% lighter. and so the combination of engine technology and lighter
materials produces those savings and lessens the environmental footprint. two big
deals in today's economy.
boeing stock went from 100 to 75 because of delays with the dreamliner. how did
you allow that to happen?

well, i would characterize the 787 as a leading-edge innovation, all right? the
good news is we're five years ahead of our competition with an innovation that
they're having trouble duplicating, and we have market acceptance for this
airplane that has been better than any airplane ever marketed. we have almost
1,000 orders for this airplane. now on the supply-chain side, i think we ran into
some issues. we overestimated the ability of our partners to get things done with
the timing we'd all hoped for. our oversight of that environment was not as good
as it could have been. it's a big global enterprise, this 787, and we have some
problems that we've got to learn from, and we've got to do better.

do you have any regrets about the way you handled it? some people say: "look, he�s
a high-profile manager and highly regarded. how come he was so low-profile during
such an important time for the company?"

i don't think the guys in seattle [where the dreamliner is being built] would
characterize me as low-profile regarding my involvement with the 787. having said
that, you can always look back on these situations and say if i�d moved two months
earlier here or a month and a half earlier there�we probably could be in slightly
better shape.

what kind of confidence do you have that the targets you've got now for the 787
will be met?

we have a high level of confidence. we regret the stumbles we've had, particularly
the impact we've had on our customers. but i think we've got it down to an
executable plan we and our partners can implement together. it's still the most
successful introduction in aviation history. we'll get there.

i was talking with a money manager who has a position in boeing stock, and he
said: "the dollar has put enormous pressure on airbus, and yet they're outselling
boeing in the smaller end of the market." how is that possible? why haven't you
been more successful there?

the fact is our sales levels are about the same in the narrow-body segment and our
sales levels in the bigger airplanes are in excess of airbus' over the last couple
of years. so i wouldn't characterize us as losing out in the narrow-body side. but
our competitor is doing a good job there.

what about the defense part of the business? you have had some losses to europe.
you've got business going to lockheed (lmt), business going to northrop.

overall our defense business is doing very well. we won 9 out of 11 competitions
last year that we were in, but we did, as you alluded to, lose a tanker
competition, which we are protesting, that [went to] an airplane made by airbus in
france. and we are protesting that decision not on the basis of where the airplane
is made and some of the political atmospherics, but on the basis of the decision
process, which we think was flawed.

what's the timing on that protest?

the gao [general accountability office] will render a decision on june 19.

you've got roughly $12 billion in cash right now. a lot of people might say:
"that's about $16 a share. we would like a high dividend or more acquisitions."
are there any plans to use that cash differently?

we are mindful of our employees first�in terms of pension plans and health-care
plans�and our investors. but you have to remember, [aerospace] is a lumpy
industry. things happen quickly. billions of dollars move this way and that. i'm a
pretty conservative manager who likes to keep probably more than enough cash
around.

can you categorically rule out a change in plans?

no, but we want to be ready. if an acquisition that makes sense comes along, we
want to move quickly. we want to have that as an advantage.

maria bartiromo is the anchor of cnbc's closing bell .

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boeing to install test hardware/ software

may 27, 2008

amy butler/aerospace daily & defense report

the u.s. air force is expecting boeing, its c-130 avionics modernization program
(amp) contractor, to install the final increment of hardware and software onto a
test aircraft in august.

a low-rate initial production review and decision is expected in november; boeing

will manufacture those units. two full-rate production contractors, however, will
be selected in the second quarter of fiscal 2012, air force officials say. boeing
lost that work after former air force acquisition chief darleen druyun admitted
she steered the amp work in boeing�s favor. losing bidders lockheed martin and l-3
communications protested boeing�s work on amp after her illegal dealings came to
light.

the request for proposals for contractors wishing to compete for the full-rate
production work is expected in the fourth quarter of fy �09. amp has been
repeatedly scaled back as a result of boeing�s problems developing the kits. so
far, two amp aircraft have executed 172 flights for a total of 512 flight hours.
though frustrated by boeing�s development work on amp, lockheed�s c-130j line is
benefiting from problems with the program. the pentagon expects to buy an
additional 47 c-130js to replace aging c-130es.

the pentagon also has decided to purchase 14 new hc and mc-130js to replace old
systems; negotiations with lockheed for this program should be complete by the end
of the year.

photo: dod

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foreign carriers' woes could hurt jetmakers
by julie johnsson | tribune reporter
june 15, 2008
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comment text size: signs that oil is starting to squeeze airlines outside the u.s.
may be worrisome for planemakers boeing co. and airbus sas.

overseas carriers qantas airways, cathay pacific airways and ryanair are looking
at parking planes, reducing capacity or deferring aircraft orders. and air-traffic
growth is starting to cool in some of the world's hottest markets: the middle
east, india and china, according to a recent research report by joseph nadol,
aerospace analyst with jpmorgan securities inc.

"there's no question it's a difficult situation," said randy tinseth, vice

president for marketing with boeing's commercial airplane division.

boeing investors are more concerned about oil prices than they are about the
delay-plagued 787 jet, especially since the company has begun to switch on power
in its first dreamliner, assuring investors that its production is getting back on
track, noted oppenheimer & co. analyst myles walton. boeing's shares have fallen
14 percent from their may high of $87.07, closing friday at $75.12.

investors are overreacting to the threat oil poses to aircraft manufacturers, said
aviation analyst paul nisbet of jsa research inc. for starters, the vast majority
of aircraft orders come from carriers in asia, europe and the middle east, which
haven't suffered the same pounding as american airlines. many foreign carriers are
heavily hedged against rising oil costs, and their fuel bills aren't exorbitant
since they aren't tied to the weak u.s. dollar.

"i don't see many of boeing's orders likely to be in jeopardy, not at this point,"
nisbet said. "they could lose several hundred and it wouldn't mean an awful lot."

boeing and airbus have thousands of orders for jets and record backlogs that equal
about seven years of production for both manufacturers. even u.s. carriers
retiring jets plan to buy the new, fuel-efficient models they have on order.
american airlines is accelerating deliveries of boeing 737s that will replace its
md-80s, said a spokeswoman.

chicago-based boeing has found other takers for the smattering of production slots
that airlines have pushed back to later years, tinseth said. boeing manages its
production very conservatively, overbooking its production schedule as insurance
against orders that are canceled.

"with this combination of overbooking and airlines willing to move forward, we've
been pretty well protected," tinseth said.
airbus' strategy, too, centers on "overbooking and very actively managing the
order book," chief operating officer john leahy said. "so far it is handing the
airline crisis well, but if the fuel price 'bubble' were to soar to $200 per
barrel, than all bets would be off."

jjohnsson@tribune.com