Boeing Shot Down

Boeing shares tumble in aftermath of contract loss
European-U.S. team causes aerospace giant to lose grip on long-term pact
By Russ Britt, MarketWatch

LOS ANGELES (MarketWatch) -- As shares of Dow component Boeing Co. tumbled Monday upon losing a $35 billion Air Force contract, analysts wondered whether the aerospace behemoth took a body blow or a harmless jab as a result.
Loss of the fuel-tanker pact to Northrop Grumman Corporation left many analysts scratching their heads over how nation's second-biggest defense contractor in the United States came up short, and what it means for the company's future.
Investors appeared stunned that Boeing, the predominant air-refueling source to the Pentagon for more than half a century, lost a bidding war for 179 tankers designed for midair refueling of Air Force fighters and bombers. The company's shares were down more than 3% to $80.10 in recent action.
Analysts were a little concerned about Boeing's prospects, given the loss of such a major contract that it was expected to win handily.
"There aren't many individual contracts that really move the needle for prime defense contractors, but this is one exception," Citigroup's George D. Shapiro wrote in a note Sunday.
"We had already incorporated a Boeing win in our [earnings] estimates for 2009 and 2010, but are now reversing that in light of the Pentagon's decision," he said later, lowering his 2010 earnings estimate for Boeing by 5 cents a share.
Shapiro and others don't expect Boeing to take it lying down. For one, the company is expected to protest the loss of the contract. Second, Boeing could win some of the business back should the Air Force decide it needs more than 179 planes.
A comeback is a distinct possibility, since Boeing's fleet of KC-135 air tankers is aging; the planes were first put into service in 1957.
While the loss of the contract is expected to make a dent in Boeing's earnings, the company is large enough to absorb the shock, according to Jon Kutler, a defense-industry analyst and chief executive of Admiralty Partners.
"Boeing has a great backlog and is generally doing very well," he said.