Trump on Boeing's Air Force One contract: 'Cancel order!'

[December 07, 2016]  By Andrea Shalal and Amy Tennery

WASHINGTON/NEW YORK (Reuters) - U.S. President-elect Donald Trump urged the government on Tuesday to cancel an order with Boeing Co for a revamped Air Force One - one of the most prominent symbols of the U.S. presidency - saying costs were out of control.

It was the latest example of Trump using his podium, often via Twitter messages, to rattle companies and foreign countries as he seeks to shake up business as usual in Washington. Trump, who takes office on Jan. 20, took aim at what he called cost overruns even though the plane is only in development stages.

"Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!" Trump said on Twitter. It was not immediately clear what prompted the timing of his complaint.

Trump, who has vowed to use his skills as a businessman to make good deals that benefit American taxpayers, then made a surprise appearance in the lobby of Trump Tower in New York, where he amplified his comments.

"The plane is totally out of control. I think it's ridiculous. I think Boeing is doing a little bit of a number. We want Boeing to make a lot of money but not that much money," he told reporters.

Boeing, which has built planes for U.S. presidents since 1943, has not yet begun building the two replacements for the current Air Force One planes, which are scheduled to be in service by 2024.

Boeing has not yet been awarded the money to build the proposed replacements.

"We are currently under contract for $170 million to help determine the capabilities of these complex military aircraft that serve the unique requirements of the President of the United States," the company said in a statement.

Boeing Chief Executive Dennis Muilenburg called Trump after his remarks and they had a constructive dialogue, sources familiar with the conversation told Reuters. Muilenburg told Trump the cost of the airplane could be lowered if the U.S. Air Force changed its requirements and the issue would likely be resolved without a major dispute, the sources said.

NOT A 'VANILLA' JUMBO JET

The Air Force, which operates the presidential planes, announced in January 2015 that Boeing's 747-8 would be used to replace the two current presidential planes.

The planes can fly direct from Washington to Hong Kong, 1,000 miles (1,600 km) farther than the current Air Force One. They are designed to be an airborne White House able to fly in worst-case security scenarios, such as nuclear war.

President Barack Obama, who flew on the aging Air Force One to Tampa, Florida, on Tuesday, has called the plane one of the best perks of the presidency.

His spokesman, Josh Earnest, told reporters on board that the contracting arrangements for replacements were "rather complicated" and said the recommendations for upgrades had been made by national security experts.

The budgeted costs for the replacement program are $2.87 billion for the fiscal years 2015 through 2021, just on research and development, testing and evaluation, according to budget documents seen by Reuters.

The current Air Force plan envisions extensive modifications to a Boeing 747-8 plane, adding military avionics and advanced communications to a self-defense system.

"Of course it’s not like buying a vanilla Boeing jumbo jet," said defense consultant Loren Thompson, who has close ties to Boeing and other companies.

Air Force One sits ready for boarding on the tarmac at Joint Base Andrews in Washington U.S. December 6, 2016, the same morning that U.S. President-elect Donald Trump urged the government to cancel purchase of Boeing's new Air Force One plane saying it was "ridiculous" and too expensive. REUTERS/Kevin Lamarque

A March 2016 report from the Government Accountability Office, the investigative arm of Congress, estimated the cost of the overall program at $3.21 billion, including the purchase of two aircraft.

But the GAO estimated the costs for research and development would be lower, at just under $2 billion. If the GAO report used the same Air Force estimate for research and development, then its estimate would be around $4 billion.

Boeing shares dipped after Trump's tweet but closed up 0.1 percent at $152.24.

LATEST BROADSIDE

Trump's broadside against Boeing comes as Washington's business lobbyists are bracing for a wild ride.

A New York real estate developer, Trump took aim at big corporations during his campaign, saying that they often harmed ordinary Americans by sending jobs abroad.

Since winning the Nov. 8 election, he has taken credit for pushing United Technologies Corp and Ford Motor Co to backtrack on outsourcing plans.

Trump’s attack on Boeing was the main topic of discussion at the annual luncheon of the Aerospace Industries Association, where the group’s chief executive, Dave Melcher, urged the new administration to promote trade and bolster the high-paying manufacturing jobs that the $143 billion-a-year sector offers.

Industry executives say they are seeing willingness from the Trump team to take another look at export controls that limit exports of U.S. weapons. But in the short term, his tweets and comments on Boeing put defense contractors on notice.

"The chilling effect on industry is huge, if you are a contractor," said Franklin Turner, a partner specializing in government contracts at law firm McCarter & English.

Boeing relies on the U.S. military and other arms of the federal government for a significant share of its defense, space and security business which is worth $30 billion a year.

The company clashed during the past year with Republicans in Congress over the Export-Import Bank, a federal program Boeing uses to finance sales to certain overseas customers. Boeing executives have also been outspoken supporters of the Trans-Pacific Partnership trade deal with Asia, which Trump opposed.

(Additional reporting by Timothy Gardner, Emily Stephenson, Mike Stone, Susan Heavey, Andrea Shalal and Doina Chiacu in Washington; Ayesha Rascoe aboard Air Force One; Steve Holland, Alana Wise, Jeffrey Dastin, and Lewis Krauskopf in New York; Writing by Roberta Rampton and Amanda Becker; Editing by Alistair Bell and Peter Cooney)

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