Boeing's Audacious Allies

Supporters of the planemaker cry foul when it loses a U.S. military contract to a foreign rival, but 70% of its commercial Dreamliner is made overseas

by Judith Crown and Keith Epstein

When is globalization a bad word? To Boeing (BA) backers, it's when the competition—a consortium led by European Aeronautic Defence & Space (EADS) and Northrop Grumman (NOC)—wins the battle for a lucrative U.S. Air Force contract for airborne-refueling planes. Ever since the Air Force announced its decision on Feb. 29, Americans from Seattle to Capitol Hill have railed about lost jobs and the risks of foreign-made military assets.

But what about when Boeing wins a big contract? You don't hear many complaints then, despite the fact that large portions of the parts and labor in its commercial planes come from overseas—70% of Boeing's new 787 Dreamliner and 60% of other models are made outside the U.S. Even many of Boeing's military planes have many foreign parts in them. Key portions of the fuselage and tail on the airborne-refueling plane Boeing wanted to build for the Air Force would have involved non-U.S. companies.

That far-flung supplier network is necessary to stay competitive, Boeing says. However, it can create headaches for the manufacturer, too. Boeing has been struggling to reassess its 787 delivery schedule since January, an effort that the company reaffirmed on Mar. 7 is ongoing. Analysts believe that means the first delivery of 787s to customers will be pushed back to the third quarter of 2009, from the current target of early in the first quarter. One reason: Problems with completing center and rear fuselages of the plane at a plant operated in South Carolina by an alliance of Italy's Alenia Aeronautica and Vought Aircraft Industries of Texas.

Lost Jobs in an Economic Downturn

Getting all the 787 parts and components to the sub-assemblers at the right time has turned out to be more challenging than anticipated, says Cai Von Rumohr, an aerospace analyst at Cowen & Co. (COWN) "What was supposed to be their salvation now works against them." He says Boeing had projected deliveries of 109 Dreamliners in 2009. "I'm assuming 55, but that number could be 45."

A large military contract raises entirely different issues of nationality, of course. Foreign contractors have long complained they face long odds of landing the most lucrative and prestigious awards. Similar issues of U.S. jobs and national security were raised in 2005 when a contract for 28 helicopters for the President was awarded to a team consisting of Lockheed Martin (LMT) and the Italian company AgustaWestland, a unit of Finmeccanica (SIFI.MI), instead of the U.S. favorite, Sikorsky, a division of United Technologies (UTX).

Today, Boeing's champions are crying foul that the Air Force awarded a $40 billion-plus contract for aerial refueling tankers to a foreign rival, EADS (EAD.PA), albeit in partnership with the domestic Northrop. Some of them argue the Pentagon should have considered the cost in U.S. jobs during an economic downturn, not just military capability and cost. "I have talked about the dismay Boeing workers felt in my home state of Washington," Senator Patty Murray (D-Wash.) said in a speech on the Senate floor on Mar. 7. She added that she also worries about "the ability to control our national security once we've effectively turned over control of our military capability and technology to a foreign government."