Boeing’s $4 billion jet contract tops monthly deals as total number of awards declines
By Brendan McGarry,
Boeing, the world’s biggest aerospace company, won the U.S. military’s largest contract last month as the value of deals fell by almost half from October.
The Nov. 2 award to upgrade F-15 fighter jets for Saudi Arabia totals $4 billion and includes $1.84 billion in previously announced funding, according to the Air Force. It topped a list of more than 250 contracts the Defense Department announced last month, with a combined potential value of $21 billion.
November’s total dropped 44 percent from the $37.4 billion in contracts disclosed in October, the first month of the government’s fiscal year. The first quarter is typically the slowest time of year for contracting, said Dan Gordon, former head of federal procurement for the Obama administration. The “fiscal cliff” debate may have also contributed to the slide, he said.
“I would certainly expect contracting officers and agencies to be cautious in awarding contracts because of the high level of uncertainty,’’ Gordon, now a dean at George Washington University Law School in Washington, said in a telephone interview. They are “not going to want to commit money unnecessarily.’’
The foreign military sale helped Boeing land defense contracts estimated at $5.34 billion last month, the most of any company. Delta Dental of San Francisco received the second-largest award and a subsidiary of Battlespace, a closely held company based in Arlington, received the third largest.
Congress and President Obama have failed so far to agree on a way to avert the fiscal cliff, a combination of spending cuts and tax increases set to begin in January.
The automatic reductions, known as sequestration, would take effect Jan. 2 and cut $52.3 billion from the Defense Department’s fiscal 2013 budget request of $614 billion, according to the Pentagon comptroller.
Boeing is “still hopeful’’ that a solution to the country’s financial challenges will be found before next year, Dennis Muilenburg, president of the company’s defense unit, said at a Credit Suisse investor conference in New York last month.
Even with the expected cuts to the Pentagon’s budget, Boeing sees a $2.9 trillion global defense market in the next decade, Muilenburg said.
Boeing’s sole-source agreement with the Air Force to upgrade 70 F-15 aircraft already in the Saudi inventory was expanded from the previous announcement to include radar equipment, said Lori Moore, a spokeswoman for the Chicago-based company.
The contract is part of a $60 billion proposed U.S. arms sales to Saudi Arabia that also include 84 new F-15s made by Boeing, satellite-guided bombs and night-vision goggles.
The foreign military sales program authorizes Pentagon departments and agencies to buy weapons and equipment for other nations and international organizations. Countries approved to participate pay with their own funds or with money provided by U.S.-sponsored assistance programs.
“Boeing has been anticipating declining U.S. defense budgets for several years and has been making the changes necessary to compete and grow in this environment,’’ Moore said in an e-mail. “International sales is part of that growth strategy.’’
Boeing is the Pentagon’s second-largest contractor, with $20.6 billion in contracts in fiscal 2011, according to a Bloomberg Government ranking of the top 200 contractors. Lockheed Martin, the world’s largest defense contractor, led with $36.4 billion.
In October, the Defense Department increased hardware payments 7.8 percent to $13.7 billion from the same month last year, Carter Copeland, an analyst at Barclays in New York, wrote in a Nov. 19 note to clients, citing Treasury Department figures.
The rise was a possible indication that “contracting officers are attempting to spend as much money as possible before the sequestration deadline,’’ he wrote. “We’ll have to wait and see how the November and December outlays play out before we wholeheartedly endorse this conclusion.’’
Delta Dental won a Tricare Management Activity contract estimated at $2.55 billion to provide dental insurance coverage to military retirees, Medal of Honor recipients, and their eligible survivors and dependents. Because enrollment is voluntary and participants pay all premiums, no government funds are obligated on the contract, the announcement said.
Battlespace Flight Services, majority owned by Battlespace, won a $950 million award from the Air Force to maintain MQ-1 Predator and MQ-9 Reaper drones made by San Diego-based General Atomics Aeronautical Systems.
— Bloomberg Government
Tony Capaccio in Washington and Susanna Ray in Seattle contributed to this article.