Pentagon Rejects Boeing Cargo Jet In Favor Of C-17

The Pentagon has decided to order another 80 McDonnell Douglas Corp. C-17 cargo planes, a decision that could bring the St. Louis-based company close to $20 billion during the next several years.

The company’s stock surged 2-5/8 to 85-1/8, near its record high, just hours before the Pentagon announced the recommendation taken by its Defense Acquisition Board (DAB). Defense Secretary William Perry has endorsed the board’s decision. The stock closed up 2-1/4 at 84-3/4.

The Pentagon has already spent roughly $13 billion for 40 C-17s, which are assembled in Long Beach, Calif. Twenty-two are stationed at Charleston Air Force Base in South Carolina. The rest are under construction.

In addition to McDonnell Douglas, United Technologies Corp., which supplies the four engines which power each C-17, and Northrop Grumman Corp., the largest subcontractor to McDonnell Douglas for the C-17, also stand to be big winners.

The acquisition board’s decision is a blow to Seattle’s Boeing Co., which tried to convince the Pentagon to cut its C-17 order to about 32 and buy 30 Boeing 747 cargo planes. Rather than buy 747s, the Pentagon said it would study future uses for the jumbo jet.

Boeing’s allies in Congress could press for the Pentagon to buy 747s next year when lawmakers vote on new funds for cargo planes.

Boeing’s stock was unchanged at 69-3/8. Several analysts expected investors’ reaction to be somewhat muted, because many already expected the Pentagon to order 80 more McDonnell Douglas C-17s.