Boeing looks to helicopters, cyber security to counter losses

Boeing Co. defense chief Dennis Muilenburg said demand for helicopters, logistics support and cyber-security services will more than make up for recent losses of Army, missile defense and satellite programs.

"No question there's downward pressure on our revenue profile," Muilenburg, 45, said in an interview yesterday in Bloomberg's New York headquarters. "But what we are seeing is that upside opportunities are more than offsetting some of the visible program reductions."

Boeing, the second-largest defense contractor, was hurt in the Pentagon's 2010 budget as programs such as a missile-defense laser and an $87 billion portion of the Army's Future Combat Systems were canceled or curtailed.

Muilenburg said Boeing is speeding efforts to enter new markets such as energy grids and expects a boost from add-on orders for Chinook helicopters and F-18 Super Hornet fighters, along with increased demand as the U.S. places more troops in Afghanistan.

"I'm not sure I buy into growth, but I don't have a precipitous drop forecast for Boeing's defense business either," Howard Rubel, an analyst at Jefferies & Co. in New York, said in a phone interview. "They also need to work pretty hard to keep their current book sold and to get a couple of breaks in the international market."

Services Business

The services business grew 15 percent compared with last year, Muilenburg said in the interview. "There isn't one single program that's highly visible, but the aggregate is very significant."

In military airplanes, U.S. production of Boeing's C-17 transport aircraft may be extended through at least 2012 if Congress approves a $2.5 billion plan to buy as many as 10 extra planes in the final 2010 budget and as international interest picks up, Muilenburg said. Foreign militaries also are seeking Chinook and Apache rotorcraft.

Boeing's prospects in the rotorcraft business are a "slam dunk," Rubel said. Cyber security is a competitive marketplace and the company's expectations in the logistics and support services business can be met, he said.

Defense accounted for about 52 percent of Chicago-based Boeing's $60.9 billion in revenue and 76 percent of operating income in 2008.

Boeing rose 91 cents, or 1.7 percent, to $54.68 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 28 percent this year, surpassing a 21 percent increase in the Standard & Poor's 500 Aerospace & Defense Index.

Afghanistan Surge

The plan that President Barack Obama unveiled this week to increase U.S. forces in Afghanistan by 30,000 will mean higher usage of Boeing's transport aircraft such as the C-17 and Chinooks, as well as increased deployment of the F-18 fighter, Muilenburg said.

That will lead to more revenue from support services and spare parts, he said. Boeing declined to give revenue figures for individual programs.

Muilenburg said his first three months on the job have made it clear to him that the repositioning efforts the company began under Jim Albaugh, who was named head of Boeing's commercial unit on Aug. 31, need to be accelerated as an offensive move.

Boeing is working on a "regional-scale, real-world demonstration" of the power-grid protection technology it hopes to transfer from defense projects to the commercial energy market. The company won an $8.6 million grant for the pilot project last month from the U.S. Department of Energy.

Cyber Security

The company also sees opportunities to provide large-scale integration skills to improve security across multiple weapon systems and government agencies, as the U.S. government formulates an acquisition strategy for cyber-security programs, Muilenburg said.

Potential delays to Lockheed Martin Corp.'s F-35 Joint Strike Fighter may leave the Navy as many as 250 jets short of its war-fighting requirements, and Boeing will be ready to fill the gap with its F-18 Super Hornet, Muilenburg said. Bethesda, Maryland-based Lockheed Martin is Boeing's only larger military- contracting rival.

The Navy plans to buy as many as 680 combined Navy and Marine Corps F-35s, with the scheduled operational date of the carrier model set for March 2015. That compares with a commitment for 506 F-18E/Fs.

'On Cost'

Lockheed must "get it on cost, get it on schedule or I have to do something to mitigate" the potential gap that may arise from any delays of the F-35 plane, Vice Admiral Barry McCullough, deputy chief of naval operations for resources, said yesterday at a Credit Suisse aerospace & defense conference in New York. He said the Navy supports the F-35 program.

The Navy's options if the F-35 is delayed include either buying new aircraft or modifying the existing fleet to keep it flying longer, McCullough said at the conference.

Selling more Super Hornets to the Pentagon may help international prospects as well, Muilenburg said. The aircraft is "faring very well" internationally, with sales in Australia and spots in competitions in Brazil and India, he said.