Boeing Confronts Fresh Hurdles As Lockheed Gains on U.S. Job - The Wall Street Journal 09/07/04

author: Andy Pasztor

Boeing Co.'s military-rocket business, already under criminal investigation for allegedly stealing a rival's documents, faces new technical and financial challenges.

With the U.S. aerospace giant suspended from competing for new Pentagon rocket launches since last summer, the U.S. Air Force last week took the first formal step toward awarding U.S. rival Lockheed Martin Corp. a sole-source contract to launch a big spy satellite in 2006. The contract, for which Boeing wasn't able to compete, could mean $150 million or more in revenue for Lockheed.

Chicago-based Boeing's unprofitable rocket program stands to forgo an additional $78 million in engineering support and other financial assistance from the Air Force, because the suspension is expected to remain in effect through Sept. 30, the end of the current fiscal year. After that date, the Pentagon could decide to reallocate the funds earmarked for Boeing for other uses.

As long as Boeing remains suspended, it also isn't expected to start receiving any of the $95 million allocated for similar purposes in the next fiscal year.

The latest Air Force moves have potentially broad significance for Boeing's rocket business. Boeing's rocket-launch businesses generates less than 10% of company revenue. But they are high-profile programs in which the company has invested heavily.

By awarding Lockheed Martin, based in Bethesda, Md., the 2006 launch -- which requires preliminary work to begin shortly -- the Air Force has effectively eliminated pressure to quickly reinstate three of Boeing's rocket units into its good graces. Air Force officials eventually are looking to award as many as two dozen additional rocket launches valued at as much as $4 billion. But now they can afford to put off that decision until Boeing once again is eligible to bid on such contracts.