MURDO MORRISON / CHICAGO & GUY NORRIS / LOS ANGELES

Space and communications expects sales hike due to missile defence and state spending

Boeing's dependence on commercial aircraft will continue to fall as other business divisions move towards a 50% share of revenues, says chief financial officer Mike Sears. Currently three-fifths of Boeing's sales come from airliners.

Boeing is "early in a 10 to 20 year process of re-architecting the corporation", although it will never become a GE-style holding company, and aerospace will remain its core activity, he says.

He says Boeing is no longer obsessed with battling with Airbus to win the orders race and that any new business has to be done profitably. "Once upon a time, Airbus said'we're going to be a 50%player' and Boeing said 'the hell you are' and we sold at zero profit," says Sears. "We sold $50 billion at zero earnings in 1997, but nowadays we want to do good business deals every step of the way."

This new emphasis on profitability over market share comes despite reports that the post-11 September orders drought has created a buyers' market for airlines such as EasyJet and Ryanair, putting them in a stronger than ever position to negotiate massive discounts.

Boeing Commercial Airplanes chief executive Alan Mulally believes the airline market is set for massive consolidation as falling yields weed out weaker carriers. He also predicts the easing of foreign ownership restrictions and move to US-Europe bilaterals will allow stronger airlines to expand overseas.

Boeing Space and Communications (S&C) in particular is expecting sales to surge - predicting around $14 billion in sales by 2006 - driven by increased spending on missile defence, satellite launches, and government information and communications (I&C) spending.

The sector generated revenues of $10.3 billion in 2001, 29% more than in 2000. S&C has already booked $45 billion in missile defence, launch service and US government contracts for the next five years. Revenues of around $11.4 billion are forecast for 2002.

S&C is aiming at an overall market which it estimates will be worth around $85 billion by 2011 compared to around $30 billion this year. Missile defence spending is likely to triple, as is government information and communications work, much of it classified.

Commercial work is showing slower growth than predicted, but is forecast to build dramatically from around 2005. Boeing believes this market sector will quintuple by 2011 to roughly $30 billion. Based on these trends, the information component of S&C's annual sales is expected to grow from 50% this year to 78% in 2003, largely due to the growth of "integrated battlespace" and global connectivity business.

Classified work, including the Future Imagery Architecture spy satellite programme, accounts for 68% of Boeing's government I&C sector. The rest is split between satellites, the airborne command and control Wedgetail and E-767, and integrated systems such as the recent US Army Future Combat Systems.

Source: Flight International