The Boeing Company
) has declared that it will no longer produce C-17 Globemaster
III military cargo jet and will therefore close the C-17 final
assembly facility in Long Beach, Calif. in 2015. A lack of
sufficient orders led the company to take this decision. The
threat of sequestration has created significant planning
difficulties for customers and the entire aerospace industry,
thereby leading to a decline in the order book.
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The company in the past has delivered 257 C-17s at a cost of
about $311 million each. This includes 223 jets to the U.S. Air
Force and the remaining 34 to Australia, Canada, India, Qatar,
the United Arab Emirates, the United Kingdom and the 12-member
Strategic Airlift Capability initiative of North Atlantic Treaty
Organization and Partnership for Peace nations.
Boeing will continue to offer after-delivery support to the
worldwide C-17 fleet through 2017 as part of the C-17 Globemaster
III Integrated Sustainment Program Performance-Based Logistics
agreement. The company will also continue the production of the
last 22 C-17s at the rate of 10 C-17s per year. Of these 22, 7
are for the Indian Air Force, 2 for another international
customer, while 13 have not yet been sold.
Since its first flight in 1991, C-17 has continued to support
airlifting of troops and large cargo, precision airdrop of
humanitarian supplies and lifesaving aeromedical missions.
The company expects this announcement to result in a charge of
less than $100 million. However, it indicated that this will not
impact its 2013 financial guidance. The company plans to begin
the reduction of the C-17 workforce in 2014. However, it intends
to assist these employees in their job search.
Though the C-17 is considered as one of the world's most capable
airlifter with supreme readiness and cost effectiveness, this
decision would not affect the company's position severely. We
note that Boeing is one of the major players in the defense
business, which accounts for approximately half of its top line.
Its other products like the F/A-18 fighter jet and its
carrier-based version EA-18G Growler, P-8A Chinook helicopter,
Apache and Osprey rotorcraft, and the brigade combat team
modernization program would help in offsetting the adverse
impact. The company presently retains a short-term Zacks Rank #3
Among the stocks worth considering in the space are
Lockheed Martin Corp.
Alliant Techsystems Inc.
Northrop Grumman Corp.
). While Lockheed and Alliant Techsystems hold a Zacks Rank #1
(Strong Buy), Northrop Grumman carries a Zacks Rank #2 (Buy).