Boeing wins $1.9 billion contract for planes in Pentagon’s year-end spending surge
By Brendan McGarry,
Boeing, the world’s biggest aerospace company, won the largest Pentagon contract in September as military awards surged in the final month of the government’s fiscal year.
The Sept. 21 contract for P-8 maritime patrol planes was valued at $1.9 billion. It topped a list of more than 670 awards the Defense Department announced in September, with a combined potential value of $44.9 billion, according to government contract data.
The month’s total rose 70 percent from the $26.5 billion in 380-plus awards disclosed in August, reflecting the traditional end-of-year rush to complete deals. Still, the value of weapons awards and other contracts most relevant to military vendors lagged from the previous year, according to Michael Lewis, an analyst at Lazard Capital Markets.
The “year-end budget flush was not as strong as some companies had expected,’’ he wrote in a Sept. 30 note to clients. “Budget uncertainty is the primary culprit.’’
Procurement offices remain in flux, pending the outcome of the Nov. 6 presidential election and the debate over $1.2 trillion in automatic budget cuts scheduled to begin Jan. 2 under last year’s deficit-reduction legislation, Lewis said.
Lockheed Martin, the world’s biggest defense contractor, won the second-largest contract announced last month, a $1.85 billion deal with the U.S. Air Force to upgrade 145 of Taiwan’s F-16 fighter jets. The improvements are the “most advanced’’ and include new radar, global-positioning and radar systems, Jeff Babione, a Lockheed vice president, said in a release.
AmerisourceBergen, a drug distributor based in Chesterbrook, Pa., received the third- and fourth-largest awards in September. The two agreements with the Defense Logistics Agency were among five that totaled $3.6 billion, the most awarded to any single company during the month. The work involves supplying Tricare, the Pentagon’s health program.
A unit of Royal Dutch Shell, based in the Hague, Netherlands, received the fifth-largest award, a $1.36 billion agreement from the Defense Logistics Agency for fuel. It was one of more than a dozen energy awards totaling more than $5 billion.
Lazard’s Lewis analyzed Pentagon contracts that excluded fuel or drugs and those deals without immediate funding. That subset of agreements totaled $19.1 billion in September, a 13.4 percent decline from the same month a year ago, he wrote.
‘Weigh on shares’
Weaker demand for contractors’ products and services may “weigh on shares’’ through the end of the year, Lewis said. He has a neutral rating on seven defense companies, including Bethesda-based Lockheed and Falls Church-based General Dynamics.
Boeing will supply the U.S. Navy with 11 P-8s under the terms of the deal, bringing the number of production aircraft on contract to 24, according to Charles Ramey, a company spokesman. The work under the latest agreement is scheduled to be completed by May 2015.
The Navy plans to spend a total of $34.4 billion through 2018 on 122 of the P-8 Poseidon planes, according to a December 2011 Pentagon document. The aircraft are designed to replace Lockheed’s P-3 Orion aircraft, which are used to hunt submarines and collect intelligence.
Boeing won a competition in 2004 to build a replacement for the Navy’s fleet of the 1960s-era, propeller-driven P-3s made by Lockheed. Boeing’s P-8 twin-engine plane is based on its 737 commercial aircraft.
Boeing also may sell as many as 75 of the planes overseas, Ramey said in a telephone interview. The company in January plans to deliver the first of eight planes to India, he said. Australia also has expressed an interest in buying the aircraft, he said.
“There are definitely other countries that we’ve had conversations with,’’ said Ramey, who declined to identify the nations. “We see a market out there.’’
The P-8 aircraft will support the Pentagon’s strategic shift to the Asia-Pacific region. The Navy will deploy the first squadron to the region in late 2013, according to Lieutenant Courtney Hillson, a Pentagon spokeswoman.
— Bloomberg Government