Analyst: Boeing's tanker market position hinges on Air Force decision

EVERETT — There's a lot riding on the U.S. Air Force tanker contract for the Boeing Co.

Boeing's shares in the global tanker market will plummet over the next decade to less than 5 percent should the company fail to win the U.S. contest against EADS, said Michel Merluzeau, an analyst with Kirkland-based G2 Solutions.

“A lot of countries are waiting on the KC-X to make their decision” on future orders, Merluzeau said during a luncheon hosted today by the Economic Development Council of Snohomish County at the Everett Golf and Country Club.

The Air Force's aerial refueling contest pits Boeing's 767-based tanker against EADS' tanker, which is based on an Airbus A330 jet. EADS is the parent company of Airbus.

The Air Force is expected to announce a winner in that contest in November, though another analyst, Scott Hamilton with Leeham Co., suggested last week that the tanker decision likely will be delayed into 2011.

The contract replacing 179 of the Air Force's tankers is valued at roughly $35 billion. But the global tanker market is worth more than $44 billion, Merluzeau said.

By 2020, he expects 273 tankers will be delivered to customers around the world.

Should EADS lose the U.S. Air Force contest, the European company still would win roughly 20 percent of the tanker market, Merluzeau said.

Of EADS' A330-based tanker, “that's a good aircraft, that's a really good aircraft,” he said.

On the commercial side, Merluzeau sees fairly stable aircraft deliveries through the end of 2020. Boeing will deliver fewer single-aisle aircraft than will Airbus near the end of the decade.

Merluzeau doesn't see a strong business case for Boeing to offer new engines on its 737. Instead, Boeing will wait and introduce an all-new single-aisle aircraft. Airbus, on the other hand, can improve its A320 enough with new engines to pursue that option in the near term.

Boeing's deliveries will pick up in 2012 as the company begins to ramp up deliveries on its 787. But Boeing's 777 will be challenged by Airbus' A350.

“The A350 is going to give (Boeing) a real headache,” Merluzeau said.

The analyst expects Boeing to upgrade its 777 rather than come out with an all-new aircraft.

“There is available technology coming out of the 787 program that could be passed onto the 777,” he said. Incorporating those advances will make the 777 a “compelling product.”

Michelle Dunlop: 425-339-3454; mdunlop@heraldnet.com.