Boeing is backing away from an agreement to build cargo planes for the Army and the Air Force because it was unable to reach a financial arrangement with the aircraft’s main manufacturer.

Two years ago, Boeing signed a memorandum of understanding with Alenia North America to build a final assembly plant for the C-27J Spartan, known as the Joint Cargo Aircraft (JCA), in Jacksonville, Fla.

The contract was also a big win for the state of Florida. Company officials were calling congressional offices to inform staff of Boeing’s decision, congressional sources said.

An Alenia official said the C-27J would still be assembled in Jacksonville despite Boeing’s departure.
But Boeing’s move may raise some questions on Capitol Hill about its future in the global defense air mobility market. The large airplane and defense company now currently competes for share with Lockheed Martin , which makes the C-5 Galaxy and the C-130 cargo planes.

Boeing makes the C-17 and with the Air Force’s backing has been pressing Congress to buy more of those mid-sized cargo planes, which would avoid the imminent shuttering of that production line.

But should Congress decide not to provide more money for C-17s, Boeing could find itself largely out of the mobility market altogether, at least temporarily.

“There is a lot of potential in the Joint Cargo Aircraft program, but the business case for Boeing was such that the parties jointly decided to move on without Boeing,” said Boeing spokesman John Williamson.

“This is in no way us retreating from the mobility market. The business case just wasn’t there for Boeing.”

The decision comes at a challenging time for Boeing. The company has lost several high-profile contracts in recent months, including the Air Force’s new refueling tanker and next-generation global positioning satellites.

Officials said Alenia and Boeing reached a mutual decision that the two companies should part ways on the C-27 J assembly agreement.

“Boeing and Alenia have worked diligently to put together a business case for the joint production of the C-27J,” said Benjamin Stone, Alenia’s spokesman.

“Unfortunately, an appropriate business arrangement could not be realized.”

Because of an aggressive production schedule to deliver the C-27J to the Army and Air Force, Alenia decided to build the production facility alone. The decision will not delay the schedule, Stone said.

“We are committed to delivering all of our aircraft on time,” he said. 

Boeing several years ago dismissed offers from Alenia North America to team with the company as the prime contractor. L-3 Communications took on the role as the U.S. prime contractor for the JCA. Alenia North America is the U.S. subsidiary of Italy’s Alenia, a unit of defense conglomerate Finmeccanica.