U.S. Defense Budget Contains a $100 Million Gift for Boeing

By Markets Fool.com


Deploying flares, the A-10 dodges another bullet in Congress. IMAGE SOURCE:NORTHROP GRUMMAN.

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It's a fact of life that some of the our military's toughest fights don't take place on the battlefield against U.S. foes, but in Congress.

Take the A-10 Thunderbolt II close-air-support fighter-bomber, for example. U.S. troops on the ground love the A-10 "Warthog," but back home in Congress, the Air Force has been trying to kill the program for years.

A-10 supporters in Congress have responded by trying to block efforts to retire the plane, necessitating a fight to find funds to keep the aircraft flying every year the National Defense Authorization Act comes up for renewal. And this year, they appear to have won a significant victory.

Ride, McSally, ride (to the rescue!)

As reported last week by Save the A-10, a page dedicated to organizing the effort to maintain funding for the Warthog, U.S. Rep. Martha McSally, R-Ariz., has succeeded in adding an amendment to the 2017 defense budget that will secure the plane's future for another year. Specifically, McSally, a former A-10 combat pilot herself, won approval of provisions to:

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  • Fully fund "flight hours, pilot training, fuel, maintenance and ammunition" for the A-10 in 2017.
  • Forbid the Air Force from retiring any of its A-10s this year.
  • Pay Boeing $100 million to upgrade the wings on older A-10s, extending their expected service life by another 30 years or more.

Skin in the game

Note that last point. Securing these funds for Boeing is crucial, because it will give Boeing skin in the game in the debate over the A-10's future, and an interest in lobbying for the plane's survival.

Here's why that matters. Currently, Northrop Grumman and Lockheed Martin , the twin members of the Pentagon's A-10 "Prime Team," are the companies whose interests are most tied to the future of the aircraft.

Unfortunately for fans of the A-10, Northrop Grumman, which owns the intellectual property on the A-10, is the junior partner on this team, while Lockheed Martin, which leads the team, is genuinely conflicted. Lockheed stands to earn a lot more money from seeing the A-10 retired and selling the Air Force brand new F-35 fighter jets at $138 million a pop than by lobbying Congress to keep the A-10 alive.

Of course, viewed in that light, Lockheed Martin seems to have more to gain from seeing just one A-10 retired than Boeing stands to win through McSally's amendment. But overall and across the fleet, Boeing's A-10 wing replacement contract is worth a combined $2 billion to the company if completed in full. And the longer A-10s keep flying, the more time there will be for Boeing to replace additional wings and win additional funding for the wing replacement project.

What it means to Boeing

Precisely how much work remains to be done on Boeing's wing replacement project is unclear. The "$2 billion" figure dates to a contract originally awarded back in 2007, and much work has already been done on it. Still, the effort is clearly ongoing -- in 2013, Boeing won a follow-on award for $212 million to replace 56 A-10 wing sets. At Boeing's 9.8% pre-tax profit margin at its Military Aircraft division, that one was worth close to $21 million in profit -- and McSally's amendment should be worth close to another $10 million.

Are these big numbers in the context of Boeing's $97 billion revenue stream? No. But they're probably big enoughto justify a bit of lobbying to hold on to.

The article U.S. Defense Budget Contains a $100 Million Gift for Boeing originally appeared on Fool.com.

Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 288 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.