End looks near for Boeing 767

EVERETT – The Boeing Co. says the odds are getting longer of winning a U.S. Air Force tanker contract before the company runs out of 767s to build.

The prospects for the current program have diminished, the company said in an annual report filed with the federal Securities and Exchange Commission.

Tanker timeline

December 2001 – Congress approves a plan to lease 100 KC-767s for the Air Force.

November 2003 – Congress amends the deal to lease 20 and buy 80.

Nov. 24, 2003 – President Bush signs the deal; Boeing fires chief financial officer Mike Sears and former Pentagon official Darleen Druyun for improprieties during negotiations.

Dec. 1, 2003 – Boeing chief executive Phil Condit quits.

May 2004 – Defense Secretary Donald Rumsfeld puts the tanker deal on hold.

September 2005 – A competing tanker concept is offered by EADS and Northrop Grumman.

January 2006 – A study calls for a new contract competition.

February 2006 – Boeing warns that time is running out for the 767 line.

In the report, Boeing said it’s “reasonably possible” that it will make a decision on ending 767 production this year.

“It really depends on what it has always depended on,” corporate spokesman Todd Blecher said. “As long as customers want them, we’ll build them.”

The warning to investors was prudent, Teal Group analyst Richard Aboulafia said. “Many companies have taken a hit believing Air Force tanker plans to be firmer than they are.”

Sales of 767s have dwindled as Boeing works to get its replacement, the 787, off the ground. Executives warned last year that they were near the point of shutting down the Everett assembly line where the planes are built.

The key to the future is an order from the U.S. Air Force for military versions of the plane. In 2002, Boeing and the Pentagon negotiated terms on 100 KC-767 aerial refueling tankers, but that deal collapsed amid a procurement scandal that sent two company executives to jail and forced former chief executive Phil Condit to resign.

The program seemed ready to fold, but orders from airlines rebounded in 2005. Boeing entered the year with a backlog of 30 767s on the books , enough at recent rates to keep production going until late 2008.

On Wednesday, Boeing added to that, announcing that it had taken a firm order for one 767 from an unidentified customer.

But Tuesday’s SEC filing shows the 767 is still living on borrowed time.

“We are continuing to pursue market opportunities for additional 767 sales,” Boeing said. Even so, a decision to end production “is still reasonably possible.”

Aboulafia said there are a couple of factors working against the 767 tanker.

As Boeing notes in the regulatory filing, the military has a big shopping list but a limited checkbook. That likely puts the Air Force tankers in competition with C-17 cargo jets – also built by Boeing, in California.

The C-17 program also is nearing its end, but it has strong support in Congress, which is likely to provide money for more, Aboulafia said.

At the same time, the Air Force is hinting that it would like a bigger jet than the 767, such as Boeing’s 777 or Airbus’ A330 or A340, for a combined tanker-transport role, Aboulafia said.

If that’s the case, he said, Boeing’s best bet is to lobby the Air Force to order tankers based on the 777 freighter.

Finally, Aboulafia said, the 777 tanker is a newer and better plane than the 767.

Given all that, “there are many good reasons to give up the ghost, or prepare to give up the ghost” on 767 tankers, he said.

Boeing has not set a deadline for making the decision, said Bill Barksdale, a spokesman with the company’s military and defense division, in St. Louis.

“We’re not going to go to them and give them a timeline,” he said. “When the Air Force comes down with its requirement, whatever it’s for … we’re going to look at the family of platforms we’ve got … and we’re going to make a business case decision on what we’re going to offer.”

Reporter Bryan Corliss: 425-339-3454 or corliss@heraldnet.com.

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