October 1, 2016 by Paul Ausick
Last Wednesday, the
chairman of the U.S. Senate Foreign Relations Committee confirmed that the
Obama administration had approved the sale of more than 100 Boeing Co. (NYSE:
BA) military aircraft to Qatar and Kuwait. The sale has been in the hopper for
more than two years.
According to the
reports, Boeing is selling 72 F-15E Strike Eagles to Qatar and up to 40 F/A-18
E/F Super Hornets to Kuwait. Lockheed Martin Corp. (NYSE: LMT) received
authorization to sell up to 19 F-16s to Bahrain. The Boeing transactions are valued
at more than $7 billion, if all options are exercised, while the Lockheed deal
could be worth up to $5 billion for the jets alone. Adding in long-term
maintenance and support, the deals could be worth $20 billion over their terms.
While this was good news
for both companies, it was particularly welcome to the 15,000 employees at
Boeing’s St. Louis defense plants. It is not too much of a stretch to say that
the St. Louis production lines faced permanent closure by the end of the decade
if the Qatari and Kuwaiti deals had fallen through.
Boeing builds two Super
Hornets and EA-18G Growlers per month in St. Louis. The sale to Kuwait extends
the production line for the Super Hornets into the 2020s, according to Boeing’s
vice president for the two programs, Dan Gillian, who noted, “We would have
ended production in 2016, now we’re confident about building airplanes into the
20s.”
The F-15 sales to Qatar
extend the life of that production line beyond its previously expected
shut-down date in early 2019.
What saved the fighter
production lines? Politics. It’s an election year and this is exactly the sort
of news that incumbents running for re-election love to take credit for.
Qatar also may be about
to boost Boeing’s fortunes in its commercial aircraft division. The country’s
state-owned airline, Qatar Airways, is said to be near an agreement with Boeing
to order at least 30 of the company’s wide-body 777 and 787 passenger jets. The
deal would be worth about $6.7 billion, according to sources cited at Bloomberg
News.
Bloomberg also cites
Richard Aboulafia, an aerospace analyst at the Teal Group, who said:
From a producer
standpoint, [the order is] badly needed. From a customer’s, it doesn’t make
sense unless it comes at the expense of another order.
Aboulafia is referring
to Qatar Airways’ backlog of orders for the Airbus A350, which the European
maker has been unable to deliver on time as a result of supplier problems.
Boeing needs to beef up its wide-body orders as
we enter the final quarter of the year.
Original post: 247wallst
The deal was
struck because Qatar would buy US commercial jets in exchange for the fighters. Everything is about politics!
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