Boeing's defence division expects to emerge stronger and leaner as it makes the changes necessary to cope with falling US military budget and an ageing product line, says the company's top executive.
The US Department of Defense's 2010 budget proposal in April saw four major Boeing programmes either cancelled or cut down in size. These are the Future Combat Systems, the C-17, Airborne Laser and Lockheed Martin F-22, in which Boeing owns a one-third share. It was a major setback for a company that derived 50% of its 2008 revenues from the military business, and saw it share price almost halve in a year as sentiment turned negative.
While the budget must still be approved in Congress, where Boeing has strong support, it was serious enough for analysts to recommend that the company rethink its strategy.
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But Jim Albaugh, president of Boeing Integrated Defence Systems, counters that the company anticipated the cuts and is prepared for them.
"Over the last few years, I've been predicting a downturn or flattening of the US defence budget. That is happening. It was unreasonable to have expected the budgets to grow at the same rate," he says.
"We are focusing on new markets and opportunities. Over the last five years, we have doubled revenues from the international market to 15% of our total business. Over next five years, we can take that to at least 20% through growth in Asia and the Middle East."
Boeing also believes that the budget presents opportunities. "Secretary Gates talked about more money for special forces and that means more rotorcraft, a business in which we are very strong. There's investment in C41SR, UAVs [unmanned air vehicles] - all things that we are getting into," says Albaugh.
That means investing in areas where Boeing was not strong before, with the network systems and logistics services divisions within IDS registering strong growth in recent years. It bought six companies in 2008 including Insitu, which manufactures the ScanEagle UAV, and Digital Receiver Technology, which produces wireless communication equipment for the US intelligence services. Boeing will continue to spend if needed, says Albaugh.
There is also a growing focus on the unmanned market, in which the company has fallen behind the likes of Northrop Grumman and General Atomics. It announced in Paris plans for a new Unmanned Airborne Systems division, which will bring together and lead the efforts in the segment through organic growth and acquisitions.
Boeing's unmanned portfolio centres on the capabilities offered by the ScanEagle and the A-160 Hummingbird rotary-wing UAV. It also has the Phantom Ray, which is based on the X-45 that was originally developed for the US Navy's unmanned combat air system programme. It is scheduled to make its first flight in December 2010 to demonstrate ISR, electronic attack and strike capabilities. High-altitude long-endurance radars are also being studied.
"We are in the business of responding to requirements. Requirements change, programmes come and go. We have to make sure we are invested in the technology to support the direction that the customer wants to go. There are a lot of opportunities worldwide, and we are ready to meet them," says Albaugh.
That does not mean abandoning existing programmes like the F-15 Silent Eagle and F/A-18E/F fighters, P-8 Poseidon maritime patrol aircraft, and Boeing 737-based Wedgetail airborne early warning and control aircraft. These have capabilities that are still in demand, he adds.
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"Sooner or later, all programmes come to an end. But the F-15 was cancelled in 1992, but we're still manufacturing it. We've refreshed a lot of our products over the last few years and we will continue to sell them," says Albaugh.
"We are going to sell more than 100 P-8s to US Navy and another 100 internationally. The F/A-18 is needed in the USA and globally, as is the E/A-18G derivative. The Silent Eagle takes the programme to a different level and the Wedgetail is now on track. We are determined to win the USAF tankers competition and that is a great programme."
Instead of looking at platforms, observers should be aware of the investments that Boeing is making in capabilities, says Albaugh. "Capabilities don't change regardless of which country we are in. Any country wants integrated command and control, the ability to project force, mobility, and logistics to support what they have. We invest in those areas, and that is a smarter strategy than focusing on programmes."
Insisting that the division will continue to be relevant in the defence business for several years, Albaugh says: "What's good for the customer is good for the Boeing Company. It is great when those two things are in alignment and I do think they are, to a large degree. And they will continue to be going forward."
Source: Flight International
