Boeing finalizes $5.3 billion deal with US navy for F/A-18 jets
Tuesday, September 28, 2010 at 06:45PM
By Andrea Shalal-Esa
WASHINGTON (Reuters) - Boeing Co (BA.N) has finalized a $5.3 billion four-year agreement with the U.S. Navy to build 124 F/A-18 fighter jets and electronic attack planes, a deal that will generate savings of over $600 million.
The deal, announced on Tuesday by Boeing and the Pentagon, calls for the company to deliver 66 F/A-18 "Super Hornet" fighters and 58 EA-18G airframes designed for electronic attack to the Navy from 2012 through 2015.
The Pentagon said the multiyear agreement was on fixed-price terms, with an incentive fee -- terms that will limit the government's liability in the event of any cost overruns.
Boeing also won a $249 million contract for logistics support for the F/A-18 fighters, which operate worldwide from the decks of 11 Navy aircraft carriers --- including ongoing missions in Afghanistan.
Boeing said the agreement would generate more than $600 million in savings by allowing Boeing and its suppliers to plan further ahead and buy materials in bulks, making production more efficient than under a single year contract.
The contract is based on a price of about $42.7 million per airplane, excluding their engines and other government-furnished equipment.
This is the third multiyear agreement Boeing has signed with the Navy for the F/A-18 fighter program. The company said the first two agreements, which each spanned five years, saved about $1.7 billion in total. It said it had delivered every one of the planes on schedule and on budget.
"Procurement of these 124 aircraft through a multiyear contract takes advantage of the full efficiencies of Boeing's production and supplier operations, which will generate more than $600 million in cost savings for U.S. taxpayers," said Kory Matthews, vice president of Boeing F/A-18 and EA-18 programs.
The Navy said in May that it planned to proceed with a third multiyear agreement after securing a 10 percent price cut that satisfied top Pentagon leaders.
The contract is good news for Boeing, securing steady revenues for the company at a time when U.S. defense spending is expected to flatten or decline, and the Pentagon is investing less in new aircraft programs.
The F/A-18 fighter also remains in demand from foreign buyers and Boeing is bidding in fighter competitions around the world.
The United Arab Emirates recently asked the U.S. government for technical information about the plane, after ending earlier exclusive talks with France's Dassault about the Rafale fighter, according to sources familiar with the issue.
The U.A.E.'s interest in the F/A-18, first reported by Defense News earlier this month, could be a significant blow to French hopes of securing an agreement with the Gulf country.
Boeing spokesman Damien Mills declined comment on any approach by the U.A.E., but said any international customers that bought airplanes during the years covered by the newest multiyear deal with the Navy would gain synergies from lean production techniques and cost reduction initiatives.
Boeing and its backers in Congress had strongly pushed for a third multiyear contract because it gives the company a more stable funding source and shores up jobs in local economies.
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