Boeing Flags Goals, Concerns For Defense Division

May 26, 2011
By Guy Norris

LOS ANGELES — The head of Boeing’s defense and space unit says robust growth in the company’s international business will help spearhead additional revenues in 2011, but warns that budget reductions and industrial base health issues are among longer-term concerns.

Speaking at the company’s investors conference, Dennis Muilenburg, president and CEO of Boeing Defense, Space and Security, says defense revenues are forecast to be as high as $33 billion against $31.9 billion in 2010. Although describing the business as “a tough defense environment right now,” he says the company is poised for a strong year on the back of major developments such as winning the KC-46A tanker contract, signing the P-8A low-rate initial production contract, and F/A-18E/F and EA-18G multiyear procurement deals.

The fastest-growing areas in the portfolio include “proprietary work, cybersecurity and rapidly expanding international business,” he notes. The international sector “was 5%, is 17% now and will grow to 25% over the next few years.”

Despite an overall reduction of around $18 billion in the fiscal 2011 U.S. defense budget, Boeing will see a $1.2 billion increase. “If you include NASA, that’s a $3 billion increase,” Muilenburg adds. However, over the next five years, the company anticipates seeing an overall defense budget reduction of $78 billion in fiscal 2012-16. International customer growth, particularly in the Middle East and Asia, is expected to help defer this. “This environment is not a surprise to us, we’ve anticipated it,” Muilenberg asserts.

Aside from the ongoing U.S. defense drawdown and looming concern over America’s ballooning national debt, Muilenburg cites escalating energy costs, the shrinkage of the force structure and industrial base health issues as longer-term risks for the company’s defense arm. Nearer-term concerns are focused on the Ground-Based Midcourse Defense (GMD) missile program, currently being rebid, as well as the troubled Brigade Combat Team Modernization Increment 1 effort. The dwindling backlog for the C-17 military transport aircraft remains a near-term concern, though he adds “we think there are added opportunities beyond 2013.”

In terms of troubled programs that have dogged the company in recent years, such as the Australian Wedgetail and international tanker, Muilenburg says “we can clearly see the finish line.” The 737-based Wedgetail is entering service with the Royal Australian Air Force and two of the four delayed KC-767 tankers have now been delivered to Italy, he adds.

Regarding the recent loss in India for the F/A-18E/F, Muilenburg says “we still haven’t had the debrief.” However, he says, “we see India as a long-term business investment and as a long-term partner,” adding that pending C-17 and rotorcraft deals will strengthen this. In Japan, he adds that the destruction of training aircraft in the recent tsunami has accelerated procurement plans, and Boeing is confident of gaining business in the region in the near term.



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