BA Boeing Co

By Damian Paletta and Doug Cameron 

President-elect Donald Trump on Tuesday suggested the U.S. government should cancel a planned order with Boeing Co. for planes to serve as the new Air Force One, making the aircraft maker the latest company to come under scrutiny by the incoming commander-in-chief.

In a Twitter post Tuesday, Mr. Trump said the cost for a new "Air Force One" plane for future presidents was "more than $4 billion. Cancel order!"

Boeing hasn't secured deals to build the planes that would replace the current aircraft used as Air Force One, which have been in flight since the administration of George H.W. Bush. The two heavily modified 747-200 planes used by the president are due to reach the end of their planned 30-year life in 2017. This can be extended a few more years, and the Air Force has said in budget documents it wanted to have the first new jet in place by 2023 or 2024.

The company has so far received development deals worth about $170 million, it said on Tuesday, to convert the 747-8 jumbo jets that would replace the existing fleet.

"We look forward to working with the US Air Force on subsequent phases of the program allowing us to deliver the best plane for the president at the best value for the American taxpayer," Boeing said. Representatives for the Pentagon didn't immediately respond to requests for comment.

The development deals include proposed modifications to the aircraft, from sophisticated communications equipment to other upgrades such as antimissile devices, according to experts.

The $4 billion price tag Mr. Trump referenced for the cost of the new aircraft couldn't be immediately confirmed, but defense experts questioned it as the Air Force has yet to complete the requirements for a fleet of up to three jets.

"The $4 billion figure is wrong," said Loren Thompson at the Lexington Institute, a think tank part-funded by Boeing and other defense companies.

Mr. Trump's comments have deflated optimism among defense contractors that he would support higher military budgets and focus on reforming the Pentagon bureaucracy. All major U.S. defense stocks were lower in early trade, with investors concerned about the fate of other programs including a fleet of new presidential helicopters that would serve as Marine One. Lockheed Martin Corp. is the main contractor for the choppers.

"The plane is totally out of control," Mr. Trump said of the planned Air Force One deal in brief remarks in the lobby of Trump Tower in New York City.

"I think it's ridiculous," he said. "I think Boeing is doing a little bit of a number. We want Boeing to make a lot of money but not that much money."

Steven Schooner, co-director of the government procurement law program at George Washington University Law School, said "it's highly irregular for the president of the United States to become personally involved in an individual contracting action."

"As a general rule, government procurement experts on both sides, the government and the contractor-side, will be extremely anxious," he added.

Jason Miller, a spokesman for the Trump transition team, said Mr. Trump could continue to weigh in when he believes it is necessary to keep government costs down. "This really speaks to the president-elect's focus on keeping costs down across the board with regard to government spending," Mr. Miller said on a call with reporters.

The Air Force earmarked $1.65 billion between 2015 and 2019 for two replacement jets, and said it may acquire up to three, but hasn't detailed the expected cost or delivery dates for the planes.

There are specific rules about how the U.S. negotiates with federal contractors, but Boeing relies on U.S. government business for sizable sales.

The Pentagon generated sales of $18.8 billion for Boeing's defense arm in 2015, according to the company's annual report. This excludes foreign sales brokered by the defense department. Boeing was the U.S. government's second biggest federal contractor last year behind Lockheed Martin, according to federal procurement data.

The Pentagon said that while Boeing was the sole bidder to build the planes, other companies would be able to compete for maintenance and upgrade work.

This is the first time since becoming president-elect that Mr. Trump has singled out a particular government contractor in a procurement deal.

The Air Force has previously specified it needed a four-engine plane to serve as Air Force One. Airbus Group SE is the only other maker of such jets, but experts said it was unlikely to bid even if the presidential replacement program is restarted.

Boeing's 747-8 carries a list price of $378 million and uses General Electric Co. engines, but the final cost of modifications will depend on final Air Force requirements.

"The Air Force will be forced to scrub all of the [requirements] to make sure they are really necessary," said Lexington's Mr. Thompson. He predicted Boeing would reach a fixed-price deal that left it to pay for any cost overruns.

Last week, Mr. Trump appointed Jim McNerney, a former Boeing chief executive, to be on a new board of executive advisers he plans to meet with to discuss economic, regulatory, and labor issues.

Mr. Trump has used Twitter extensively throughout his presidential campaign and following the election. Tuesday's tweet is his latest rebuke to a major U.S. company. Mr. Trump has also used Twitter to hit Ford Motor Co. and United Technologies Corp.'s Carrier unit for plans to move production overseas.

Write to Damian Paletta at damian.paletta@wsj.com and Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

December 06, 2016 12:15 ET (17:15 GMT)

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