Boeing Restructures Defense Arm
June 13 2017 - 4:51PM
Dow Jones News
By Doug Cameron
Boeing Co. said it is removing a layer of executives from its
defense business this year in response to government criticism that
slow decision making has hurt its chances of winning big contracts
from the Pentagon.
The world's second-largest defense contractor by revenues is
chasing a big win to maintain its production lines and engineering
workforce, having suffered sobering losses such as its failed
pursuit in 2015 to build the new Air Force B-21 bomber.
Leanne Caret, president of Boeing Defense, Space & Security,
said in an interview that the restructuring announced Tuesday
wasn't driven by a particular contract loss, but the company
recognized it couldn't afford to stand still as rivals including
Lockheed Martin Corp., Northrop Grumman Corp. and Raytheon Co.
returned to growth on the back of winning big long-term
contracts.
Boeing's defense revenues have fallen over the past three years,
but it's been more profitable than its commercial jetliner business
and expansion is central to efforts to boost company margins to the
midteens from around 10% at present.
The company has already cut jobs and moved the defense unit's
headquarters close to the Pentagon from its longtime home in St.
Louis, Mo. She said feedback from the Defense Department indicated
the need for Boeing to become more agile.
It's cutting the number of management layers to six or less,
with more program leaders reporting direct to the president of the
division, and it will cut or downgrade around 50 executive
positions.
"There was the culmination of not winning," Ms. Caret said, with
frustration at the absence of a big new program that could sustain
the business for years or even decades.
For instance, Boeing and partner Lockheed Martin were ultimately
undercut on price by Northrop in the B-21 contest. It's a program
expected to cost $80 billion which could sustain the winner for
more than a decade.
Like its rivals, Boeing has found the Pentagon's selection
process for big new contracts has become more fickle. Proposal
documents can run to thousands of pages, and competing offerings
often have only tiny differences in their technical merits.
"Then it's a price competition," said Ms. Caret, with a premium
placed on companies that can quickly respond to any changes
required by the Pentagon.
The defense unit will be restructured around four smaller
entities covering military aircraft, rotorcraft, autonomous systems
and space and missile systems.
Ms. Caret said she expected the changes to make Boeing more
competitive in three big ongoing contests for fleets of new Air
Force training and surveillance jets, as well as replacing
land-based nuclear missiles. "This is affecting the executive
ranks, not the engineers and technicians on the floor," she
said.
The restructuring is also directed at longer-term opportunities
such as revamping military helicopters and developing new unmanned
undersea vehicles for the Navy.
While there's concern about Boeing's ability to win new weapons'
platforms, the existing business has outperformed management
expectations over the past year, potentially preserving two combat
jet lines that had been earmarked for potential closure by the end
of the decade.
Sales still dipped 3% in 2016 to $29.5 billion last year, some
31% of group revenue, though the backlog of new business climbed to
$63 billion at the end of the first quarter, more than a third of
it from overseas customers. Boeing said it picked up a potential
$50 billion in deals during President Donald Trump's recent state
visit to Saudi Arabia.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
June 13, 2017 16:36 ET (20:36 GMT)
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