Absence of New Orders Drive Boeing to Terminate C-17 Line by 2009

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Boeing [NYSE: BA] announced today it is stopping procurement of parts for any new C-17s not under contract or firmly committed. This move is expected to cause significant workforce reductions beginning in early 2008, leading to complete shutdown of the production line in mid-2009, should no further orders be received for the aircraft..

Boeing is on contract for 190 U.S. Air Force C-17s, and independent analysis shows a requirement for at least 222 of these aircraft. Based on the 34-month lead time necessary to build a C-17, Boeing needed a commitment now to avoid a break in production. The Department of Defense did not request funding for new C-17s in the Fiscal Year 2008 budget, released in early February. Consequently, maintaining the C-17 supply base and production line at current production rates will require funding for up to 16 C-17s when Congress finalizes the FY2008 budget. Boeing is on contract to design, build, deliver and support the 190 U.S. Air Force C-17s. Additional orders and commitments from the United Kingdom's Royal Air Force, the Royal Australian Air Force, Canada's Department of National Defence, and other international customers, mean C-17 production will continue until mid-2009.

"We had hoped to keep the production line active and viable to protect this important national asset affordably while the U.S. government completed its decision process on the future of the C-17 program, especially in light of current concerns over the aging C-5A fleet" Said Dave Bowman, vice president and C-17 program manager. Last year, Boeing made a similar announcement which resulted in the conclusion of several expected orders from NATO, the US and Canada. Boeing claims it accepted significant risk and used company resources to fund the supply base and production line for the 22 aircraft ordered until mid-August. Boeing said it decided to take this risk because of significant international customer interest and the Air Force's designation of additional C-17s as the number one priority on its FY2007 Unfunded Priorities List (UPL). This year, the Department of Defense has not requested funding for new C-17s in the FY2008 defense budget, new international interest is significantly less than it was a year ago and the Air Force has identified only two C-17s on its FY2008 UPL.

According to Aviation Week, the orders NATO committed to in 2006 have not materialized yet, dur to German and French opposition. Potential orders from Sweden are also lagging behind, due to funding problems. In the US, deputy Defense Secretary Gordon England said Pentagon planners would re-examine their C-17 requirements in light of President Bush's call to grow the Army and Marine Corps by 92,000. However, he maintained that with more than 190 C-17s authorized now, the DOD has enough C-17s when coupled with C-5s.



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