Despite the squeeze being felt domestically in defense spending, the global market of opportunities for defense and space products and services remains sizable, but affordability and program execution will be critical for Boeing [BA] to meet margin targets and win and maintain business, the head of the company’s defense business says.
Boeing estimates that its potential defense and space market is worth $2.9 trillion between 2012 and 2021, with critical opportunities both domestically and internationally, Dennis Muilenburg, president and CEO of Boeing Defense, Space & Security, told Defense Daily in an interview yesterday.
Muilenburg is forecasting a relatively flat overall spending environment for defense and space with a decline in Defense Department budgets being partially offset, if not completely, by commercial space and international business. There is an “almost insatiable demand” for more communications bandwidth in commercial satellites, Muilenburg said, pointing to recent wins with satellite network service providers Intelsat [I]and ViaSat [VSAT].
Domestically, the company is focused on transitioning its P-8 maritime surveillance program to full-rate production for the Navy and continuing to execute the Air Force’s K-46 aerial refueling tanker program, which is slated for its critical design review next month, Muilenburg said.
Muilenburg said the tanker program is going “exceptionally well,” pointing out that it has hit 100 percent of its program milestones so far and is on track for first flight in 2015 and delivery of the first 18 combat ready aircraft in 2017. He said the Air Force is maintaining discipline with the aircraft’s requirements and it’s up to Boeing to execute.
On top of the P-8 and K-46 programs, Boeing recently won significant multi-billion dollar, multi-year contracts for continued CH-47 Chinook helicopter deliveries for the Army, and long with industry partner Textron [TXT], for continued V-22 tiltrotor production.
“I would say in this environment, with all the budget pressures, programs that execute are the programs that will have the most likelihood of being funded so it’s incumbent on us to execute, whether it’s tanker, our fighter programs, our helicopter programs, our satellite programs, we’re putting a real hard focus on executing and delivering on cost and schedule,” Muilenburg said.
Some of the key new starts domestically that Boeing is eyeing include the Navy’s unmanned aircraft system called UCLASS, which would be launched from an aircraft carrier for long-range surveillance and strike missions, and the Air Force’s next-generation long-range bomber.
Internationally, the company is eyeing a number of fighter competitions, including a major competition for strike planes in South Korea where Boeing’s venerable F-15 is up against Lockheed Martin’s [LMT] new F-35 Joint Strike Fighter and the Eurofighter Typhoon. On top of that is considerable interest in the F/A-18 multi-role fighter in Brazil, Malaysia, the Asia-Pacific and Middle East regions broadly and Australia, which plans to purchase the EA-18 Growler Airborne Electronic Attack aircraft.
Boeing yesterday announced a $354 million contract from France for a major upgrade of four Airborne Warning and Control System aircraft.
In 2012, Boeing said 24 percent of its revenues came from international sales while 42 percent of its $68 billion backlog in defense is international. The company’s long-term goal is to achieve between 25 to 30 percent of its sales from outside the United States.
To drive affordability, Boeing has been reducing its facilities footprint and executive headcount while working with suppliers to drive down supply chain costs. With its supply base, rather than engage with companies on a program by program basis, Boeing is taking a “holistic” approach at the company to company level to reduce costs by enabling suppliers to do business across the range of its commercial aircraft, defense and space portfolio, Muilenburg said.
“That allows us to leverage…the broader volumes that come with a broader commercial and defense business,” Muilenburg said. This in turn drives affordability for Boeing’s customers, he said.