Boeing CEO Upbeat on Pentagon Tanker Deal

Boeing Co. (BA) Chief Executive Harry Stonecipher on Friday outlined an upbeat outlook for the company's airplane and military businesses including what he forecast would eventually be a full win on the controversial air refueling tanker program.

Stonecipher, speaking at Reuters Air and Defense Summit, restated his belief that Boeing will secure a tanker contract from the U.S. military with its modified 767 aircraft because the Air Force needs it.

On the commercial side, interest in the new Boeing 7E7 (search) jetliner scheduled to fly in 2008 is particularly strong in Asia, he said. In general, he sees a rebounding economy -- a good sign for aircraft sales.

Boeing, the No. 2 manufacturer of commercial jets behind Airbus, has secured orders from All Nippon Airways and Air New Zealand. Additional customers will announce orders once they are placed, Stonecipher said.

In late afternoon New York Stock Exchange (search) trading, Boeing shares were up 77 cents, or 1.7 percent, at $46.87. Earlier the stock touched $47.00, its highest since April 2002.

The share gains have contrasted with hiring and ethics scandals -- which late last year caused the firing of Chief Financial Officer Michael Sears and the resignation of Chief Executive Phil Condit -- along with a suspension of its military rocket launch business.

"Boeing's stock is doing very well despite all these issues," said Robert Osieski, vice president for aerospace and defense banking at J.P. Morgan.

One area of risk Stonecipher identified was in its satellite businesses, particularly the Wideband Gapfiller (search), a U.S. Air Force program to increase the communications capability available to military forces in the field. "It is the biggest risk area that we have," Stonecipher said.

He added one of Boeing's issues right now is figuring what to do with all the cash that its operations are generating. The company recently announced a dividend increase and is repurchasing stock, but other than that he said there were not "any good ideas -- and that's bad."

Potential acquisition candidates are in network-centric operations and intelligence gathering, he said, declining to be more specific. He said the company would consider a large acquisition if the right opportunity came along.

U.S. Air Force acquisitions chief Marvin Sambur, who also spoke at summit, held at Reuters offices in Washington, agreed with Stonecipher's assessment that the refueling tankers are critical to the future success of the service.

"There is a risk associated with the tankers that we have right now," Sambur said. "The Air Force has a need for these tankers.

But Sambur said the U.S. military is not expected to make a decision until January after more reports are completed.

No decision will made until the Pentagon receives a comprehensive Air Force analysis of the alternatives -- a major look at other refueling options, including used aircraft -- and a mobility capability study, which are both due in November.

Asked when a decision could be expected, Sambur said, "The earliest you can hope for is after the presidential election, probably January."

Sambur insisted the Air Force was not wedded to any specific tanker deal, including the $23.5 billion deal negotiated with Boeing last year.

"I want capability," he said. "I want tankers. We will do whatever Congress and DoD (Department of Defense) tells us to do. We are not pushing the 767. We are pushing what meets our needs."

For his part, Stonecipher thinks there is no contest.

"I do not think for a moment there will be Airbus tankers in the Air Force fleet," Stonecipher said.