Flighty
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Boeing And Northrop To Merge?

Sun Sep 12, 2010 7:29 pm

Something is up. Boeing has been saying for months they are hot to merge with somebody. Now the chatter suggests it is Northrop Grumman.

http://articles.latimes.com/2010/sep...1/business/la-fi-northrop-20100911

While this would make "sense," there is no way the government should allow it. Boeing can charge higher prices after it removes a competitor. But they could collaborate now just fine. The article says that Boeing wants technology for unmanned aircraft. (And absorbing your competition is always nice).

I think one of the reasons weapons tend to go over budget is when there are too few competitors competing for the job. This gives a sense of comfort to the primary contractor that he can stretch development out an extra 10 years. I am not a military guy but I do have some background in industrial organization (= monopolies etc).
 
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kc135topboom
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RE: Boeing And Northrop To Merge?

Sun Sep 12, 2010 9:35 pm

Boeing cannot charge higher prices, with or with buying up NG. Government contracts dictate the amount of profit, usually 10%-15%, the KC-X contract allows up to a 12% profit.

This will be no different than when LM bought out GD's aircraft division.

Boeing would not be interested in NG's shipbuilding division.

This is a smart move on Boeing's part because if the KC-X program falls flat again, they can propose adding the KC-135Es to the E-8C reengine program.
 
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par13del
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RE: Boeing And Northrop To Merge?

Sun Sep 12, 2010 10:56 pm

The government allowed NG to buy a large amount of ship building capacity which they now want to sell after running it into a shambles, other than nuclear ships. Destroyer building is limited to what two ship yards nationally with any additional capacity already or on the way to being lost, look at the current ship building programs.

Caveat being that the nation did allow their civil aviation industry to be consolidated into one company, then the government gave their support for an off the shelf tanker competition, so anything is possible. Those who think Boeing is a price "stuffer" would love this as it would almost ensure that any project Boeing bids on would have foreign competition to keep them honest.  
Quoting Flighty (Thread starter):
I think one of the reasons weapons tend to go over budget is when there are too few competitors competing for the job.

When I was looking for a new car I first checked my availabe funds, accepted that I needed a loan, worked out how much I could afford monthly, then with that information in hand went shopping at the various auto dealers looking for the best deal.
This may be why folks have this notion about competition keeping prices low and ensuring that the better product is selected.

Except, none of these companies are designing any products - the government pays - doing any R&D - the government pays - building prototypes - the government pays - and the list goes on, but somehow someway we call what is taking place now with military projects a competition.
 
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bikerthai
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 2:05 pm

The Northrop I've dealt with are the Electronics Operations in Baltimore and the Aircraft Mod group in Melbourne FL. Bunch of sharp guys. Just wished that their management didn't run interference when dealing with us. I guess that's how they keep their profit margin up.

Uses to be that Boeing got out of the Electronic Box operation because it was not part of their Core Competency. I guess all the mergers got rid of that idea.

How would that merger impact the operations in Alabama?

How long ago was this talk taking place an did it have any thing to do with NG pulling out of the Airbus Tanker cooperation?

Opinion:
As for competition, there is no real direct competition in the UAV arena between Boeing and NG. Boeing is strong with the smaller UAV where as NG have the larger UAV market. With the proposed merger the two remaining competitors will be LM and Boeing/NG combination for the larger UAV's. There are plenty of competitions for the smaller UAV's.

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kc135topboom
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 2:15 pm

The USAF benefitted a good deal when Boeing took over MDD and the C-17 program.
 
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bikerthai
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 3:12 pm

Quoting KC135TopBoom (Reply 4):
The USAF benefitted a good deal when Boeing took over MDD and the C-17 program

And so did Boeing, the C-17 gave Boeing a strong Military Airlift presence (other than the C-40).

And the C-17 benefited from having an international sales staff with strong links to the "commercial" side. Just think of all the work offsets that Boeing can offer in order to sale a C-17 compared to what the old MD could offer.

It's win, win, win . . .

bikerthai
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474218
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 5:32 pm

Quoting Flighty (Thread starter):
Something is up. Boeing has been saying for months they are hot to merge with somebody. Now the chatter suggests it is Northrup Grumman.



Since the Justice Department blocked a Lockheed Martin/Northrop Grumman merger in 1998, I would think there would a lot of pressure to also prevent a Boeing/Northrup Grumman merger!
 
Oroka
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 6:27 pm

It could happen. Boeing absorbing NG would kill the EADS bid for the KC-X, and there are a few powerful people who would back anything that would keep EADS out of the tanker bid, even if it means buying up NG.
 
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par13del
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 6:29 pm

Quoting 474218 (Reply 6):
Since the Justice Department blocked a Lockheed Martin/Northrop Grumman merger in 1998, I would think there would a lot of pressure to also prevent a Boeing/Northrup Grumman merger!

Based on the popularity of Boeing it might be the reverse, they might support it as a measure to keep Boeing honest.
Boeing's PR staff are really not doing them any favours.  
 
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pylon101
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 6:58 pm

Wow. If they merge, the volume of military contracts will make expenses spent on 787 look like patty cash.
The civil and military devision of Boeing is quite formal even today.

To make it all work better it would make sense do the reverse: to split Boeing civil aviation devision and the defence devision.

Anyway such changes should not be performed under pressure of the crisis.
 
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Tugger
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 7:04 pm

Quoting Oroka (Reply 7):
It could happen. Boeing absorbing NG would kill the EADS bid for the KC-X, and there are a few powerful people who would back anything that would keep EADS out of the tanker bid, even if it means buying up NG.

No, it wouldn't have any effect on the tanker bid. Northrop Grumman is not participating in the KC-X bid this round. EADS-NA is doing it.

Tugg
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bikerthai
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 7:09 pm

Quoting pylon101 (Reply 9):
To make it all work better it would make sense do the reverse: to split Boeing civil aviation devision and the defence devision.

Splitting the Boeing IDS and Boeing Commercial Division, while making the individual companies smaller, makes no sense from a Regulatory Stand point. The split up companies do not compete with each other.

Better to take away portions of the combined companies that would adversely impact competitiveness. I.E. any part of pre-NG/Boeing companies that when merge would eliminated any competition would be sold/spinned off.

I've experienced first hand the competitiveness advantage of having both Commercial and Military design teams in one company and the cross-pollination resulting from it. Boeing would be foolish to forfeit this advantage. EADS is the only other company that can boast the same benefit at the same level (all the in-fighting aside  ).

bikerthai

edited for spelling . . .

[Edited 2010-09-13 12:11:13]
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pylon101
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 7:29 pm

I didn't mean it would be ever done.

Actually technology flow is not a problem. All patents and technologies taken from fed contracts are eventually owned by the U.S. Access to that REAL NATIONAL TREASURE is controlled by feds.

I wouldn't insist on that but I heard for many times that auditing Boeing is an impossible task.
Pumping money from the military division to the civil one may be a reality.
Theoretically tax payers money should not go to the civil aviation division.
Does it happen or not? Well, it may happen.
Same relates to EADS, of course.
 
Flighty
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 7:39 pm

Quoting pylon101 (Reply 12):
I wouldn't insist on that but I heard for many times that auditing Boeing is an impossible task.

Of course, Boeing has already shown they are going from a commercial power, to a political power. That's where I think Boeing has already gotten too big for the good of the marketplace.

Quoting KC135TopBoom (Reply 1):
Boeing cannot charge higher prices, with or with buying up NG. Government contracts dictate the amount of profit, usually 10%-15%, the KC-X contract allows up to a 12% profit.

As said above, I don't think MBAs have any problem moving cost allocations around. They can make 80% variable profit and claim it was 12%. Easy to do... why "trust" them anyway. The thorn in my shoe is that Boeing already behaves like it is some sort of equal peer of the US government (or the USAF). They are just a vendor. To see them get bigger (say a Boeing-Lockheed merger) would be unthinkable. They would control the Pentagon IMO. Just as drug companies control the FDA... regulatory capture, and financial enticements.
 
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par13del
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 8:16 pm

Quoting Flighty (Reply 13):
The thorn in my shoe is that Boeing already behaves like it is some sort of equal peer of the US government (or the USAF). They are just a vendor.

Boeing has had staff members convicted and thrown in jail, what about the other vendors, is Boeing worse than NG, LM, or Bell? What in Boeings track record makes them so bad?

Quoting Flighty (Reply 13):
Of course, Boeing has already shown they are going from a commercial power, to a political power. That's where I think Boeing has already gotten too big for the good of the marketplace.

If they had this political power why have they not used it to get their most recent projects rammed through.
Failed to win the F-22 contest
Failed to get their "enhanced F-15SE" considered by the USAF
They lost the tanker bid to jail, politicians and the preferences of the USAF.
Their Chinook won the USAF CSAR competition but had it sent back to bid, I think twice
They cannot get additional C-17's funded while the USAF is touting the needed cargo capability of the KC-30

I'm sure other's can name a few more, but if Boeing is going after political capital it may be because they believe they are getting shafted?
 
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bikerthai
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 8:24 pm

Quoting pylon101 (Reply 12):
I heard for many times that auditing Boeing is an impossible task.

I heard the same thing as far as trying to audit the "Commercial Portion" of a Military contract. I.E. Boeing is very protective of the cost data with respect to the commercial airframe prior to handing it over for Military conversion. Even the US Gov. have a tough time getting a handle on this. The Military portion of the contract, however convoluted the book keeping, is in full disclosure to the US government.

Boeing is a long way from being comparable to the dug companies, or the Oil companies. Boeing, LM, and other Defense group have to get together as one single Lobby and make profits 10-100 times what they are making now to be properly be in the same league,.

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kc135topboom
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RE: Boeing And Northrop To Merge?

Mon Sep 13, 2010 9:31 pm

Quoting Flighty (Reply 13):
Quoting KC135TopBoom (Reply 1):
Boeing cannot charge higher prices, with or with buying up NG. Government contracts dictate the amount of profit, usually 10%-15%, the KC-X contract allows up to a 12% profit.

As said above, I don't think MBAs have any problem moving cost allocations around. They can make 80% variable profit and claim it was 12%. Easy to do... why "trust" them anyway. The thorn in my shoe is that Boeing already behaves like it is some sort of equal peer of the US government (or the USAF).

Boeing is also a publicly traded company,and has had many FEC audits.
 
MarSciGuy
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RE: Boeing And Northrop To Merge?

Tue Sep 14, 2010 12:48 am

Quoting KC135TopBoom (Reply 16):

Quoting Flighty (Reply 13):
Quoting KC135TopBoom (Reply 1):
Boeing cannot charge higher prices, with or with buying up NG. Government contracts dictate the amount of profit, usually 10%-15%, the KC-X contract allows up to a 12% profit.

As said above, I don't think MBAs have any problem moving cost allocations around. They can make 80% variable profit and claim it was 12%. Easy to do... why "trust" them anyway. The thorn in my shoe is that Boeing already behaves like it is some sort of equal peer of the US government (or the USAF).

Boeing is also a publicly traded company,and has had many FEC audits.

FEC? or SEC?
"There weren't a ton of gnats there where a ton of gnats and their families as well!"
 
Flighty
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RE: Boeing And Northrop To Merge?

Tue Sep 14, 2010 3:56 am

Quoting marsciguy (Reply 17):
FEC? or SEC?


Yes, and Boeing has their own auditors and then hires some too. Im not going around claiming Boeing are all crooks, only that they are sharp businesspeople. At any company they can move costs around. This isn't criminal, it is pretty normal. Usually it's for minimizing your tax bill or smoothing earnings from year to year. But, if you had to claim 12% profit margin for a program, you can manufacture that number also. Companies have a good amount of freedom. There is a pretty good book on this topic called Financial Shennanigans by Howard Schilit. Actually there is a new edition this year that I'd like to pick up. It clarified for me how companies do what we expect them to -- use every bit of the law to make money, even things that are, well, dishonest... but legal.

People get upset about corporations sometimes out of reflex and I don't want to go down condemning a good business. I commend their business skills. My question is, is the government awake watching the store. It's interesting, and fun to track the possible motivations on all sides.
 
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bikerthai
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RE: Boeing And Northrop To Merge?

Tue Sep 14, 2010 1:52 pm

Quoting Flighty (Reply 18):
only that they are sharp businesspeople.

LOL,

I'd say NG and LM has sharper business people. Just look at their profit margins vs. Boeing over the last few years 

bikerthai
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pylon101
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RE: Boeing And Northrop To Merge?

Fri Sep 17, 2010 8:23 pm

Thanks, Flighty. I will be in US in a month and will buy this book.
The issues raised would be applicable to actually any country and any big business.

We, a.netters, try to avoid "thin ice" themes.
Like Lockheed and its civil program or DC-MD-BA and many others.
Those are just too big for the forum.

But getting more knowledge is...always good.

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