Boeing's commercial aircraft division is on a high, with orderbooks bursting at the seams and its European competitor struggling with political, industrial and currency obstacles.
With such high-profile success in airliners dominating the headlines, it is easy to overlook the fact that for the past few years more than half of Boeing's overall revenues have come from its Integrated Defense Systems (IDS) division (see graph).
The unit has enjoyed rapid growth, with revenues increasing by 28%, since its formation in 2002 after Boeing's purchase of McDonnell Douglas propelled it into the defence sector in a big way just in time to offset the impact of the post 9/11 downturn in the commercial sector.
In 2002 the newly formed IDS posted revenues of $25.3 billion compared with its 2006 level of $32.4 billion. Only in its first year of operation as IDS did Boeing Commercial Airplanes (BCA) outstrip the defence business in revenue terms - and even now with the commercial recovery well under way IDS has posted higher revenues than BCA since 2003.
IDS has experienced hiccups since it came into being - missing out on the Joint Strike Fighter and becoming embroiled in a high-profile procurement scandal with the US Department of Defense - but the division has put those dramas behind it and is currently enjoying booming sales.
Now the division, which employs more than 70,000 people and currently relies on its home market for most of its business (see graph) is increasingly looking overseas for new opportunities to ensure this growth continues.
In its domestic market, Boeing is looking ahead to some big procurement decisions later this year. The US Air Force is expected to decide on a winner for its tanker competition in the third quarter and IDS is also awaiting a decision on its Chinook HH-47 submission for the CSAR-X combat search-and-rescue programme as well as counting on substantial US government funding for cost-reduction improvements to the Bell Boeing V-22 Osprey tiltrotor programme.
"We have a good mix of customers within the Department of Defense and we have good protection when the budget is under pressure," says Mark Kronenberg, IDS vice-president, Asia-Pacific business development.
But with all three of IDS's business areas (see graph) ripe for growth, according to Boeing executives, international markets are set to play a bigger and bigger role.
Vital as Pentagon business is, IDS is casting its net much wider to ensure its growth continues. "Joint ventures and partnerships are going to be increasingly important to get into new countries," says Kronenberg.
In particular, Global Strike Systems is well-positioned for growth, says Chris Chadwick, vice-president and general manager of the business unit that forms part of the Precision Engagement and Mobility Systems division of IDS and already accounts for more than 20% of IDS as a whole. In the USA, Global Strike Systems has recently negotiated a deal to supply 600 laser JDAM precision-guided bombs to the US Air Force and Navy, while current domestic contracts allow for Super Hornet production until 2011.
"Our strategy will allow Global Strike Systems to grow substantially over the next five to 10 years," says Chadwick, who points out that at current levels, Global Strike Systems, which alone has 6,000 employees, would come in at number 322 in Fortune 1000 company rankings if counted as a standalone business, compared with Boeing's ranking of 26.
Boeing has had success in various Asia-Pacific markets including Singapore and South Korea with the F-15 and is competing in India's forthcoming multi-role fighter contest. In addition, tanker deliveries to Japan are scheduled to begin in the coming months. "Asia-Pacific is clearly a growth market," Kronenberg says, adding that "Asian customers continue to invest in defence".
The United Arab Emirates is a potential market for this year, Kronenberg says. "The Middle East has been dormant for the last 10 years - we are starting to see customers coming back and looking at new acquisitions." Saudi Arabia is also looking at the possibility of upgrading its F-15 fleet, while Kuwait is considering the F/A 18 Super Hornet. "Between Saudi and Japan, I don't think we'll see the F-15 production line closing before 2015," says Chadwick.
Meanwhile, IDS is not forgetting some of the emerging markets closer to home. While western Europe will remain steady as a source of customers, Kronenberg says, newer entrants to the European Union could provide some opportunities, with Bulgaria showing interest in Super Hornets, Chadwick says.
As IDS increasingly looks abroad, supplier partners in international markets are key, says Kronenberg.
The company has around $27.8 billion in industrial participation globally. And the company's defence success is not divorced from the strong position of Boeing's commercial division worldwide, according to Kronenberg. "IDS is in the unique position of being able to leverage its commercial activities for offset," he says.
Source: Flight International
