A controversial tweet from Donald Trump has caused concerns about the future of Air Force One.  The President Elect tweeted —

The President Elect appears to be coming down hard on one of the key companies he supports for job creation and international trade, likely as a show of force to reduce the budget for the airplane.

The reality of the situation is that Air Force One isn’t just any 747.  It needs to operate as an airborne command post, communication center, be protected from electromagnetic pulses from nuclear blasts,  incorporate missile defense systems, be capable of airborne refueling, and operate in extremes, whether polar cold or desert hot, using internal systems.  None of those are standard on a commercial 747, and are very high cost items.  The current 747-200s, long out of production, are 30 years old and becoming more difficult to maintain.  Clearly, replacements are needed and have been planned.  The question now is whether the deal will be re-negotiated, or the project scope changed.

Boeing responded to the tweet with the following statement:

“We are currently under contract for US$170 million to help determine the capabilities of these complex military that serve the unique requirements of the President of the United States. We look forward to working with the U.S. Air Force on subsequent phases of the program allowing us to deliver the best planes for the President at the best value for the American taxpayer.”

Our view is that US$170 million for a feasibility study is quite high, given what Boeing already knows about Air Force One, having build the last few airplanes.  They already know what the key requirements are, and the price for what is essentially a capabilities assessment is about the same as what you could purchase a 747-8i for in today’s market.  That seems excessive, given the institutional knowledge Boeing should possess.  But since the last Air Force One program was completed 30 years ago, there is a lot of technology catch-up, and most of the senior people involved in the first program are likely to be retired.  But an element of the process that looks like re-inventing the wheel may have the President-Elect upset.

Yes, there are new threats and new countermeasures.  But Boeing Military has dealt with them on other programs and military aircraft.  The 747-8 on which Air Force One will be based is still a 747, with better performance and economics than earlier models, and will still need to be custom-designed to accommodate the requirements of a Commander in Chief under threat.  And Boeing knows the 747 better than anyone.

The Bottom Line:

We can’t see Donald Trump going for an Airbus A380 for Air Force One, so Boeing will ultimately get the contract.  The question is will Trump shave off 5-10% of the contract in re-negotiations, or will he ask for the original three airplanes originally requested instead of the two included in the $4B contract price?  The latter seems  quite possible, even though Boeing is the only domestically sourced choice available for this mission.  But knowing so, has Boeing estimated its costs knowing there isn’t a viable alternative?

The author of “The Art of the Deal” is unlikely to take on agreements without challenging them, and this is his first shot across the bow of the defense industry to tighten their belts and deliver better value.  The more important question is what the next targets might be, with the under performing and high cost F-35 program a potential candidate for the same agenda. The tone in Washington is changing, and remember that the President-Elect did say he wants to be unpredictable.

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