Sunday, February 15, 2004

Converting jets could bring Boeing billions

By Allison Linn
The Associated Press

SEATTLE - At a time when airliner orders are scarce, Boeing Co.'s commercial jet operation could soon find that one of its largest customers is a very familiar business: the company's own defense division.

Virtually every Boeing commercial model since the dawn of the jet age has found a use as a military plane. Among them:

• The model 707 and variations have been used as the basis for AWACS radar and aircraft control planes, reconnaissance and battlefield radar aircraft.

• The 727 has been used by the National Guard as a transport.

• The 737 has been used as a transport and as an airborne classroom for navigators. Boeing hopes to sell it to the U.S. Navy.

• The 747 has been used as the National Airborne Operations Center, the "doomsday" plane It also is the current Air Force One.

• The 757 is used as an Air Force transport.

Boeing is in fierce competition with rival Lockheed Martin for a U.S. Navy contract to build between 115 and 150 marine-patrol planes. Boeing's entry is based on a conversion of the company's 737 commercial jet for military use.

That decision, which might not be made until early summer, comes as Boeing is waiting to hear whether it will be able to move forward with its deal to supply 100 airborne tankers to the U.S. Air Force, based on a conversion of its 767 passenger jet.

Taken together, this could mean billions of dollars for Boeing, at a time when its commercial airplane division badly needs the business.

These aren't the first instances of Boeing using its commercial planes for military purposes. Throughout its history, Boeing has "militarized" its commercial designs for everything from bombers to tankers, radar planes to Air Force One.

But Boeing's defense operation says winning the Navy contract would be an important step toward what could be a big shift: making Boeing's defense unit one of Boeing Commercial Airplanes' largest customers.

"Certainly, if you look at the potential going forward and what the military has expressed interest in, we're easily talking more than 200 airplanes," Boeing spokesman Randy Harrison said.

That symbiotic relationship would provide a boost for the commercial side, which has suffered considerably amid hard times for airlines. Boeing received orders for 250 airplanes total in 2003, according to its Web site. Boeing received 600 airplane orders in 2000.

Another big win for defense also would further Boeing's plan of diversifying itself beyond making passenger jets, once the cash cow of its operations.

Analysts stress that neither Boeing's commercial nor its defense unit would be badly hurt if the company doesn't get the Navy contract based on the 737s.

Losing the 767 tanker contract could have much greater consequences. Through the end of January, Boeing had a backlog of 824 orders for its 737s, but only 25 pending orders for 767s.

"There's very little demand in the commercial market for that aircraft, and the likelihood is that (the 767) line would have to close without the government contract," said Paul Nisbet, an analyst with JSA Research.

Boeing's proposal for a Multi-Mission Maritime Aircraft based on the company's 737-700 is by no means a slam dunk.

Lockheed's proposal calls for a new aircraft based on its P-3 Orion, a propeller plane that has been used by the Navy since the 1960s. It argues that its system is both cost-effective and time-proven.

Nisbet calls Boeing the "dark horse" in this race. He believes the Navy may be leaning toward Lockheed, contending that its airplane can fly lower and slower than the 737 and therefore may serve the Navy's surveillance needs better.

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