< Return to Bears pageObama administration likely to have negative impact on BA
January 20, 2009
Now that Barack Obama has taken the oath of office, it is very likely that his policies will have a negative impact on Boeing. First of all, Boeing produces the F-22 fighter jet with Lockheed Martin, Pratt & Whitney, and the US Air Force;[1] Obama is currently deciding whether or not to cut funding for the jet.[2] Because Obama has stated his intention to review the federal budget on a line-by-line basis,[3] it seems very likely that he will decide to cut the F-22 budget or shift to more competitively-priced alternatives. In light of his history of questioning the competitiveness of existing Boeing contracts,[4] this outcome seems especially likely. Other unforeseen defense-related budget cuts that will hurt Boeing seem likely, as well - Jim Albaugh, chief of Boeing Co.'s Integrated Defense Systems unit, believes the federal defense budget will dwindle because of economic pressures.[5]
In late February 2009, Obama claimed that the United States' spending on helicopter projects had "run amok" and made clear his intentions to slash budgeting for Lockheed Martin projects;[6] the president vowed to combat the "excesses of procurement,"[6] which will surely hurt BA's bottom line and does not bode well for the fate of the F-22. As predicted, Obama released his 2010 FY budget on February 26, 2009, and, while the finer details of defense spending were kept classified, it did ensure that growth in government expenditures headed towards companies like Boeing will be strictly limited and scrutinized.[7] On March 4, 2009, President Obama reaffirmed his dedication to cutting the defense budget and was quoted saying, "The days of giving defense contractors a blank check are over."[8] On March 24, 2009, he announced that his administration had already identified $40 billion in potential savings through "obvious procurement reforms," but gave no specifics[9] - the likelihood of these expenditure cuts hurting Boeing is incredibly high.
On March 30, the Government Accountability Office reported that the military's 96 biggest defense contracts (worth $1.6 trillion) were overrun by 25% or $296 billion.[10] The report is just one more reason for the Obama administration to cut expenditures that would otherwise prove lucrative for Boeing.
