Boeing Shares Tumble on 737 MAX Delays, Pentagon ICBM Contract Retreat
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Boeing Co (BA) - Get Report shares slumped to a six-week low Thursday after the troubled planemaker said it would no longer bid for an Air Force contract to build a replacement for the Minuteman III intercontinental ballistic missile program.
Boeing's departure from the bidding process,which was first reported by the sector-focused Inside Defense, leaves aerospace and defense rival Northrop Grumman (NOC) - Get Report as the sole competitor for the Pentagon's Ground Based Strategic Deterrent contract, which was last estimated to cost between $85 billion and $100 billion and is expected to be awarded by the end of next year.
Boeing shares were further pressured by the extended grounding of its 737 MAX aircraft and the impact it's having on U.S. commercial carries. Southwest Airlines (LUV) - Get Report said Thursday it isn't likely to return the plane into its fleet until next year, while American Airlines (AAL) - Get Report said the grounding will clip its full-year earnings by around $400 million.
"After numerous attempts to resolve concerns within the procurement process, Boeing has informed the Air Force that it will not bid Ground Based Strategic Deterrent (GBSD) Engineering and Manufacturing Development (EMD) under the current acquisition approach," Boeing said in statement reported by multiple media outlets. "We've evaluated these issues extensively, and determined that the current acquisition approach does not provide a level playing field for fair competition."
Boeing shares fell 3/7% to close at $348.09 Thursday, falling to the bottom of the Dow Jones Industrial Average.
By contrast, Northrop Grumman shares closed 3.4% higher at $354.72 each and have gained nearly 45% so far this year.
Boeing's second quarter Defense, Space and Security revenues were pegged at $6.612 billion, an 8% increase from the same period last year and a figure that represents nearly half of the group's top line. The division also has a $64 billion order backlog, around 70% of which comes from the U.S. Defense Department.
Boeing said Wednesday that its loss for the three months ending in June came in at $5.82 per share, compared to a profit of $3.33 per share over the same period last year, after booking a charge of nearly $5 billion linked to the grounding of its flagship 737 MAX aircraft, the company's most profitable plane. Group revenues, Boeing said, were pegged at $15.8 billion.
Boeing said last week that the 737 MAX charge would reduce its second quarter earnings and revenue by a collective $5.6 billion, calling it an estimate of "potential concessions and other considerations to customers" owing to the 737 MAX grounding, as well as production delays, following two deadly crashes over a six month period that killed 346 people.
Boeing also said 737 production costs had increased by around $1.7 billion in the second quarter, and could likely compress margins for the flagship carrier going forward, but sees regulatory approval for the aircraft's return to service in the U.S. and elsewhere early in the fourth quarter.