Saving Boeing's C-17

The aerospace giant has taken to the social networking sites to drum up congressional funding support for the military transport plane.
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SEATTLE (TheStreet) - In its battle to save the C-17 military transport airplane, Boeing (BA) - Get Report has discovered some new weapons.

Facebook is one; YouTube is another. The aircraft maker has been using both since early this month, when it stepped up lobbying on behalf of the C-17, which the Obama administration considers superfluous to the nation's defense.

"This is the first time Boeing has really engaged in this type of personal networking," said Jackie Ferko, a communications specialist in the company's Washington office, who is presiding over the effort. "The results have been fantastic so far."

The aircraft is critically important to Boeing, providing about 8% to 10% of the revenue of Integrated Defense Systems, Boeing's defense unit, said Broadpoint Amtech analyst Peter Arment. "It would be difficult to replace," he said. Boeing's $61 billion in 2008 revenue was evenly split between commercial and defense aircraft. The cost of a C-17 ranges between $175 million and $230 million.

Ferko said about 8,700 people have visited the Web site,

c17foramerica.com

and about 4,400 have signed an online petition to Congress. Additionally, the Facebook site has about 400 fans and nearly 1,000 viewers have watched YouTube videos of a recent C-17 rally in Long Beach, Calif.

"Facebook is just another way to reach people, especially people in the Facebook generation," said Ferko, who is 29. "They say, 'Oh, wow, look at this video from C-17,' and the next thing you know you've got more and more of a following. On the Facebook site, we want people to post messages, share their stories with their families and their friends, because we are talking about livelihoods here, not just airplanes."

Possibly as soon as next week, the Senate will consider the fiscal year 2010 defense appropriations bill, now pegged at $636 billion. Afterwards, a House and Senate conference committee will reconcile details. Last week, the Senate Appropriations Committee approved $2.5 billion in funding for 10 more C-17s. Earlier, the House had approved its defense appropriations bill with funding for three aircraft.

Boeing's C-17 offensive was triggered when Defense Secretary Robert Gates said in April the Obama administration needed to pare money from the budget.

So far, the administration has tentatively succeeded in eliminating four proposed aircraft projects: a presidential helicopter, built by

Lockheed Martin

(LMT) - Get Report

a program to provide a second engine type -- made by

General Electric

(GE) - Get Report

and Rolls Royce - for Lockheed's F35 fighter jet, a combat search and rescue helicopter and the extension of the Lockheed F22 fighter jet beyond 187 aircraft.

"They have knocked all of these politically popular, congressionally supported programs, out of the box," said Richard Aboulafia, a consultant with the Teal Group in Fairfax, Va. "The C17, which is the most popular, is the one possible holdout.

"There is already an enormous level of political and union support," Aboulafia said. "And using YouTube and Facebook, anything that makes this even more of an organic effort, is a clever strategy."

Since 1993, Boeing has delivered 189 C-17s to the Air Force. It has contracts for 16 more, and the 2009 supplemental budget, signed by President Obama, has funding for eight more, which means that at least 213 aircraft will be sold domestically.

"We're good through July 2011," said Boeing spokesman Jerry Drelling. Additionally, 17 aircraft are in service internationally, with an 18th scheduled to be delivered to a consortium of 12 nations on Thursday. A single international order is pending, and Boeing is currently negotiating a contract for four more with United Arab Emirates. "Each order extends the line by about three weeks," Drelling said.

The aircraft has 700 suppliers in 44 states and accounts for 5,000 jobs in Long Beach and 25,000 throughout the supplier base. "The industrial base is spread throughout the country, and some very powerful Democrats are supportive," said Arment.

This is not a great time for defense shares.

"We are no longer ramping up a big defense budget" so that defense spending "is now growing at the rate of inflation," Arment said. "It doesn't have the same earnings momentum as the cyclicals."

As Macquarie Securities analyst Rob Stallard said, in a report issued Wednesday, "owning a defense stock is an economic recovery is hardly a recipe for outsized returns."

Stallard reduced his EPS estimates for Lockheed and lowered his target price to $90 but reiterated an outperform rating, saying the shares are attractively priced and Lockheed remains his "preferred name in the defense sector." Lockheed was trading Wednesday morning at $75.77, up 7 cents.

As for Boeing, it ought to benefit because it is half defense and half commercial aviation, but the latter is weighed down by questions surrounding the long delayed 787. Arment has a neutral rating on the shares, which were trading Wednesday morning at $52.01, down 6 cents.

-- Written by Ted Reed in Charlotte, N.C.

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