British Deal With Airbus a Setback for Boeing

Britain’s Ministry of Defense said Tuesday that it will lease four C-17 military transport planes built by Boeing Co. in Long Beach, but plans to place a much larger order for a rival aircraft under development by Europe’s Airbus Industrie.

Boeing had placed high hopes that Britain would be the first international buyer of the C-17, which is now purchased only by the Air Force. The decision is a setback to Boeing’s long-term plans to establish international and commercial markets for the cargo plane.

Britain said it will buy 25 of Airbus’ planned A400M transport planes for about $5.2 billion to meet its long-term military airlift needs. Because the Airbus plane won’t be available for several years, the ministry will lease the four C-17s beginning in mid-2001, British Defense Secretary Geoff Hoon said.

George Sillia, a spokesman for Boeing’s airlift and tankers program in Long Beach, said the contract with the British government had not been signed and that he could not confirm the lease price of the planes. Each C-17 costs about $200 million, he said.

Because the Airbus transport has not yet been built, he added, Boeing executives believe they may still win larger orders for the C-17 from Britain and other overseas customers.

The British “are looking European for the moment, but the A400M has a long way to go before it actually exists,” Sillia said. “We still have the opportunity to sell C-17s internationally.”

Boeing’s military aircraft and missile unit at Long Beach employs about 9,200 people, most of them on the C-17. The company expects to finish delivery on a current 120-plane contract with the U.S. Air Force in 2004, Sillia said.

Whether the plant remains open after that depends on Boeing’s ability to win more orders for the plane, either from the Defense Department or foreign governments. The company has not yet found a launch customer for a proposed commercial version of the giant cargo plane, Sillia said.

The A400M would be available in about 2005 only if Airbus wins enough orders to start production. Airbus has estimated it needs orders for at least 200 planes. France, Germany, Italy, Turkey, Belgium and Spain also are considering purchases.

To arm their fighter planes, British defense officials also said Tuesday that they will buy air-to-air missiles worth $1.2 billion from Matra-BAE Dynamics, a French-British joint venture.

That order was a disappointment to the Tucson-based missiles unit of Raytheon Corp., although the British said they will buy missiles worth $300 million from the company because the Matra-BAE Dynamics weapons won’t be available until 2007.

Although the Clinton administration had urged the British government to buy from American companies for its long-term orders, officials sought European contractors instead, an analyst said.

“The real driver here is the politics of defense consolidation in Europe; the bottom line is that it was a political decision,” said Steve Zaloga, a senior analyst at Teal Group, an aviation consulting company in Fairfax, Va.

Boeing stock added 19 cents to $37.38 on the New York Stock Exchange.

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Bloomberg News was used in compiling this report.