Trump's Air Force One slam could force changes to the replacement program

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President-elect Donald Trump's comments slamming Boeing's new Air Force One 747 airplane's $4 billion cost as being too high is being challenged by some analysts who also maintain the aircraft is absolutely necessary and worth it.

Still, pressure from Trump could lead to changes in the program such as farming out integration work on the communications gear and other advanced systems on board the new Air Force One jumbo jets to a company other than Boeing. That would presumably mean Boeing would deliver the plane without all the special defensive and other equipment required for the 747 to operate as a flying command post during emergencies and wartime.

"This is being targeted because it's high profile, not because it's high dollar," said Chris Higgins, a Morningstar defense analyst in Chicago.

On Tuesday morning, the President-elect tweeted: "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!"

Higgins called the roughly $4 billion cost of the two presidential replacement jumbo jets "kind of peanuts" compared with larger big-ticket programs in the Air Force portfolio, including the F-35 joint strike fighter program from Lockheed Martin, as well as Boeing's $80 billion aerial tanker program and Northrop Grumman's B-21 long-range strike bomber reported to cost tens of billions of dollars.

"It's not a matter of if it will be replaced, but when," said Higgins. "They can continue to operate the current ones and extend their life. But it becomes more and more costly to do so given how old they are."

Higgins noted that Trump as a candidate also made unfavorable comments about the F-35, which is a program that includes purchases from all major branches of the U.S. military as well as key allies. "[Trump] seems in some of the comments that he's making to favor more spending on troops and manpower and readiness than on high-end military hardware."

The Air Force has a little less than $3 billion budgeted for research and development (R&D) of the two new 747 Presidential jumbo jets through 2021 under the current budget request, or a figure above earlier budget estimates of $1.65 billion. Also, there's believed to be nearly $800 million planned for procurement of the presidential planes so that would put the latest cost at roughly $4 billion.

"There might be cost overruns one day but there haven't been so far," said Richard Aboulafia, a senior aviation analyst at the Teal Group in Virginia.

Boeing hasn't even started building the new Air Force One wide-body jet models known as 747-8, which would replace two 747-200s that date back to the early 1990s. Both of the current 747s used to fly the president are approaching the end of their 30-year life span.

Boeing issued a statement Tuesday that seemed to imply it may be flexible on terms of the Air Force One program.

"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," Boeing said in a statement. "We look forward to working with the U.S. Air Force on subsequent phases of the program allowing us to deliver the best planes for the president at the best value for the American taxpayer."

A source told CNBC late on Tuesday that Boeing called the Trump transition team after the tweets, to say that the price of Air Force One could be cut if the specifications were lowered.

Trump's transition team didn't respond to requests for further comment earlier in the day. The Air Force also declined comment when contacted.

Aboulafia suggested that Trump's comments may reflect a "misunderstanding of what a president needs and what a president does. It [Air Force One] has the ability to direct and manage war in wartime and survive a war. It is an incredibly complex and expensive aircraft."

Trump personally owns a Boeing 757 luxury jet that is outfitted with opulent amenities but analysts said that aircraft would require extensive and expensive upgrades to compare with the current model of Air Force One planes featuring technology that can serve as a military command post and offer midair refueling capabilities.

Boeing's 747-8 aircraft — the largest model in the iconic 747 series — costs around $379 million each. With two 747s, that would get a total price tag of about $758 million just to procure two of the commercial jetliner versions of the planes. The actual cost in the current budget request is for $2.7 billion in R&D costs for the two replacement Air Force One 747 aircraft.

"I'm skeptical about how much development do they really need to do for this (Air Force One replacement program)," said Dan Grazier, a former Marine Corps captain and defense industry expert at the Project On Government Oversight, a Washington watchdog group.

"It's not like they're designing a brand new plane from the ground up. They already have the design, they already build 747s, and they have them in service."

"There will be some upgrades and things like that but I would be skeptical too if I was looking at this program from President-elect Trump's view," Grazier added. "That does seem excessive that they need to spend that much money to further develop a plane already flying."

Meantime, others say the newer Air Force Ones will be more efficient from a fuel perspective and maintenance standpoint. Moreover, it will have newer equipment and the latest defensive technology that will provide added safety for future presidents. The current Air Force One plane was used by President Bush during 9/11 as a command post when the U.S. was under attack by terrorists.

Boeing, an aerospace giant known for its jumbo jets and tech prowess in building previous Air Force Ones, would seem to be the obvious choice to supply new presidential planes but the U.S. government could decide buy the two 747 jumbo jets from the Chicago-based manufacturer and then move the integration and installation work to another company.

The integration work would involve the missile defense systems capabilities on board the aircraft, special communications and electronic equipment, cutting-edge avionics and advanced technology that allows the plane to serve essentially as a flying Oval Office.

Air Force One sits on the tarmac at Joint Base Andrews outside Washington, D.C., U.S., on Tuesday, Dec. 6, 2016.
Kevin Dietsch | Pool | Bloomberg

Yet splitting the integration work outside Boeing might be difficult since the aerospace giant knows the aircraft well, having manufactured it and building previous Air Force Ones. Also, taking the integration work to another company might not lower the cost.

Back in 2009, the presidential Marine One helicopter replacement program generated headlines when the cost of brand new VH-71 Kestrel helicopters from Lockheed Martin ballooned from $6 billion to $13 billion. It ultimately led to the cancellation of the program by President Obama. The new Marine One, based on Lockheed's Sikorsky S-92, will instead be based on existing helicopter technology.

The controversy surrounding the new Air Force One planes comes amid softening demand for Boeing's iconic 747 aircraft and uncertainty surrounding the future of the presidential replacement program could threaten jobs at the manufacturer's aerospace facilities in Washington state. In particular, analysts suggested the jobs of engineers working on defense-type aircraft could be at risk.

At present, one of the largest confirmed orders for 747-8 model planes is 14 planes from United Parcel Service for $5.3 billion. That single deal for cargo jets has been held out as one that will keep thousands of jobs for the 747 program's commercial program. Prior to that, the aging 747 plane had seen reduced orders due to more demand for newer models.

There are a total of 558 of the Boeing 747 airplanes flying today, with 292 of them for cargo purposes and the remainder largely for passenger service. Most of the new commercial aircraft orders Boeing has been seeing recently are for the 737 narrow-body model and new 787 Dreamliner, a wide-body plane.

"From our perspective, given a largely sold out 747 position to 2019 and its limited commercial margin along with any spending spanning into the next decade, the impact to Boeing's outlook is likely limited, particularly in the next 1-2 years," Morgan Stanley equity analyst Rajeev Lalwani said in a research note Tuesday.

Indeed, last year Boeing delivered just over 760 commercial airplanes and this year has a target to deliver 745 to 750 aircraft so the potential loss of two replacement Air Force Ones may not be significant from a financial standpoint, according to analysts. More importantly, they suggest the presidential aircraft is a symbol of prestige for the U.S. manufacturer around the globe.