Trump, Boeing Reach $3.9 Billion Deal for New Air Force One

(Bloomberg) -- President Donald Trump reached an informal deal with Boeing Co. on a fixed-price contract for the new Air Force One program that will cost $3.9 billion.

White House spokesman Hogan Gidley said the agreement will save taxpayers $1.4 billion from the original estimate for buying and outfitting two presidential jets. But public estimates suggest the savings would be far less -- perhaps a few hundred million dollars, based on a speech Trump gave a year ago.

The pact helps set the stage for a modernized Air Force One program after Trump criticized its cost, threatened to cancel the order and later boasted of pushing Boeing to reduce the expense. The Air Force said it saved some money last year when the president reached a deal with the Chicago-based planemaker for two 747 jumbo jets to serve as Air Force One, taking advantage of an unusual limited-time discount on planes once bound for Russia.

“President Trump negotiated a good deal on behalf of the American people,” Boeing said in a tweet. The company’s shares rose less than 1 percent to $364.64 at the close in New York.

‘Defense-Program Theater’

Still, it’s unclear what benefit the negotiations yielded taxpayers. The president’s budget request, issued Feb. 12, called for $3.95 billion to be spent through fiscal 2023 to modify and test two Boeing 747-8 aircraft to make them “Presidential mission worthy.” The total, which includes money already spent on the program, calls for outlays of $434.1 million this fiscal year.

“They’re elevating defense-program theater to an art form,” Richard Aboulafia, an aerospace analyst at Teal Group, said of the highly unusual direct talks between the president and the second-largest U.S. defense contractor on a high-profile military program.

Much of the costs for the presidential plane come from pricey and complex modifications required to turn Boeing’s iconic hump-backed jets into the flying fortresses that ferry U.S. presidents around the world.

The planes would be outfitted with dual auxiliary power units, rather than the one electrical power system standard for commercial jets, along with a complex communications system, work and rest quarters for the first family, elevators to ease boarding, self-defense capabilities and other features, according to the budget document.

Pentagon Requirements

Negotiations to hone the program requirements, the biggest driver of expenses, are typically handled by Pentagon officials with deep expertise in the highly complex systems.

“These are very difficult requirement decisions and trade-offs that are done by seasoned professionals at the service level,” Aboulafia said.

The price tag for the replacement aircraft, and claims of savings, have varied since Trump first slammed Boeing in December 2016. “Costs out of control, more than $4 billion,” he said on Twitter at the time. “Cancel order!”

In February last year, Trump said the Air Force was “close to signing a $4.2 billion deal” and that “we got that price down by over $1 billion.” But the Air Force said at the time that it was unaware of what savings the president was referring to and that the service didn’t have an established cost estimate for the entire program.

“Anything that’s not in writing doesn’t matter when it comes to defense contracts,” said George Ferguson, an analyst at Bloomberg Intelligence.

The White House did whittle down costs by agreeing last year to buy two so-called “white tails,” jets that Boeing built but never delivered. The $673 million funding request for fiscal 2019 was trimmed by $59 million “to account for the change in acquisition strategy for the purchase of the 747-8 aircraft,” according to the budget document.

To contact the reporters on this story: Jennifer Epstein in Washington at jepstein32@bloomberg.net, Julie Johnsson in Chicago at jjohnsson@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Bill Faries at wfaries@bloomberg.net, Joshua Gallu

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