Re:Is a Boeing Bailout Taking Shape?
by credit_guy on Sunday July 21, 2019 @09:00AM
(#20491138)
I didn't see too much light being shined. The summary of the argument is that there is a military program worth $100 BN where the only 2 allowed bidders are Boeing and Northrop. Than, based on zero evidence, he speculates that the Pentagon will grant the program to Boeing and accelerate the payments as a form of bailout for the 737-Max debacle. He doesn't really hide the details, but it's worth pointing out that:
* this procurement program was initiated in 2016 [1] (prehistory as far as 737-Max is concerned)
* the "finalists", Boeing and Northrop were selected in 2017 (again prehistory)
* the $100 BN (actually wikipedia states $86) contract is for a period of 50 years. That is less than $2BN/year. Even accelerating this program, this would be an increased revenue of the order of $0.5 BN per year (at most), and much less net income (it's a wild guess here, but I believe the Pentagon gives money upon delivery of stuff, or at least upon hitting some milestones; acceleration of cash payments must be accompanied by acceleration of deliverables).
* the actual winner of the program will be announced at the end of 2020. So all the money we are talking here must be multiplied with a probability of winning the contract, which is nowhere close to 1 (you think Northrop does not have their own lobbyists?)
* as someone correctly pointed out in the comments here, Boeing already took a charge of $5BN. That is real dollars, today dollars. Not probabilistic dollars extended over a period of 50 years.
Also, here's my own little speculation. The Minuteman missile that is being replaced was built by Boeing, but the first stage (i.e. largest part of the missile) was build by Thiokol, later acquired by Northrop [2]. I think there is a very high likelihood that in the end the money will be split between Boeing and Northrop, and not go entirely to only one of them. Another bit of supporting evidence is that in 2017 the Pentagon granted both about the same amount of money for the Phase 1 of the project (about $300 MM) (see [1] again).
* this procurement program was initiated in 2016 [1] (prehistory as far as 737-Max is concerned)
* the "finalists", Boeing and Northrop were selected in 2017 (again prehistory)
* the $100 BN (actually wikipedia states $86) contract is for a period of 50 years. That is less than $2BN/year. Even accelerating this program, this would be an increased revenue of the order of $0.5 BN per year (at most), and much less net income (it's a wild guess here, but I believe the Pentagon gives money upon delivery of stuff, or at least upon hitting some milestones; acceleration of cash payments must be accompanied by acceleration of deliverables).
* the actual winner of the program will be announced at the end of 2020. So all the money we are talking here must be multiplied with a probability of winning the contract, which is nowhere close to 1 (you think Northrop does not have their own lobbyists?)
* as someone correctly pointed out in the comments here, Boeing already took a charge of $5BN. That is real dollars, today dollars. Not probabilistic dollars extended over a period of 50 years.
Also, here's my own little speculation. The Minuteman missile that is being replaced was built by Boeing, but the first stage (i.e. largest part of the missile) was build by Thiokol, later acquired by Northrop [2]. I think there is a very high likelihood that in the end the money will be split between Boeing and Northrop, and not go entirely to only one of them. Another bit of supporting evidence is that in 2017 the Pentagon granted both about the same amount of money for the Phase 1 of the project (about $300 MM) (see [1] again).
[1]https://en.wikipedia.org/wiki/Ground_Based_Strategic_Deterre...
[2]https://en.wikipedia.org/wiki/LGM-30_Minuteman#Replacement