Boeing Tries to Find a Graceful Exit for the C-17

(MoneyWatch)  The C-17 Globemaster III is the Air Force's primary strategic transport aircraft, and has been a regular earner for Boeing (BA) since the first squadron became operational in early 1995. The company has received the benefit of Congress adding aircraft to the planned buys; this has kept production going longer then originally planned.

In the first budget submitted by the Obama Administration, the C-17 was not funded, but Congress added funding for 10 more in 2010, arguing that even if the Air Force didn't need them, there is always a use for such air-borne workhorses.

The 2011 budget also provided no new money for the C-17. It is expected that this will stand and the ten ordered last year will be the last ones for the United States. Boeing has been able to sell the aircraft to some overseas customers, including Britain, Canada and the U.A.E. The aircraft is also in competition for several other foreign contracts.

In the recently released Aircraft Investment Plan provided to Congress by the U.S. Armed Forces the plan is to have a force of 223 C-17 and 91 C-5 transports. The Air Force recently received C-17 number 195 and that means another twenty-eight remain to enter service.

Boeing has begun the process of slowing down their production line from 15 in 2009 to 13 in 2011 to stabilize at 10 a year in 2011. It hopes a gradual decline in production will protect jobs and keep suppliers going, while Boeing tries to line up more overseas orders.

The downside of this strategy is higher prices. Because the aircraft will be built in smaller quantities, the price breaks will be lower for Boeing and its support contractors. There also will be fewer aircraft over which to spread overhead costs. One way to make up for this is to start reducing the workforce. The production is estimated to support 5,000 jobs in Long Beach, CA which is one of the reasons Congress has been keeping the line going. Boeing has made it clear that once the production of the aircraft ends the plant will have to be shut down. There is no other work for it.

Another hope Boeing is that the U.S. may want more C-17s as the C-5 reaches the end of its useful life. But this does not look likely: The Air Force is looking adding new avionics and engines to upgrade the C-5 into the C-5M Super Galaxy. The plan is to modernize at least 52 of the existing C-5 force. If this is successful their life will be extended and the C-17 will not be required.

All programs must end sometime, but the process is always traumatic. Boeing is just trying to find the best way to deal with it.

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