Boeing’s $1.16B Apache Contract Comes Amid Budget Cuts and Uncertainty

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On the tail end of a contract for its P-8A Poseidon Navy surveillance planes, the U.S. Department of Defense has announced another deal with Boeing (NYSE:BA) worth $1.16 billion for 72 remanufactured helicopter systems, ten new Apache helicopters, six revamped crew trainers, and other logistics support, Reuters reported Tuesday.

The contract extends through June 30, 2016, according to the Pentagon’s daily digest of major weapons contracts, Reuters says. The news follows a report that the Pentagon will be buying fewer F-35 fighter jets from Lockheed Martin (NYSE:LMT) than expected, as the Navy cut its order from sixty-nine to thirty-six of the jets due to budget pressures.

Furthermore, the Navy could not order more of Boeing’s F/A-18 fighter planes, also due to budget constraints. This pushed Boeing to head to Congress directly to persuade the government to purchase more of the planes to allow Boeing to keep its F/A-18 production lines open.

The constraints hitting the Pentagon are a result of automatic budget cuts set to resume in fiscal 2016. Defense Secretary Chuck Hagel said the order cuts to the F-35 could continue if the cuts are not reversed, Reuters reports.

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For Boeing, the headaches in its defense and aerospace operations are running simultaneously with other issues in its commercial sector. While the Boeing 787 Dreamliner seems to be finding its flying legs, the earlier generation of the plane — which is heavier, less efficient, and has more limited range — has been proving difficult to sell, and the planes are now just sitting at Boeing’s facility in Washington state.

Additionally, Boeing is working with the Federal Aviation Administration on a retroactive fix for its 737 airliner, one of Boeing’s most popular planes. A lack of cockpit warnings have been attributed as a crucial factor in several accidents and crashes — many fatal — during which the plane’s airspeed was too low, and the jets crashed on their approach to the airports. Though Boeing has been ahead of the FAA in suggesting the new measures, the agency is now seeking to make them into formal regulations. Up to 1,200 planes worldwide could be eligible for the modifications.

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