Boeing's Defense Unit Dealt Setback by Pentagon
By Doug Cameron
Boeing Co. this week was ejected from a contest to provide the
U.S. with a new anti-missile defense system, a setback to the
company's efforts to rely on its military business for more
Lockheed Martin Corp. and Northrop Grumman Corp., instead of
Boeing, were selected Tuesday to compete to provide a new system
aimed at knocking out long-range missiles fired by adversaries,
estimated to cost $12 billion. North Korea this week conducted its
first ballistic missile test in almost a year.
The Pentagon is revamping the Boeing-developed silos in
California and Alaska designed to shoot down enemy ballistic
missiles. It has already spent more than $50 billion on the
long-delayed program, with the next stage including the fielding of
20 Next Generation Interceptors by the end of the decade.
Boeing said it was disappointed by the agency's decision in the
latest contest but will wait for a debriefing before deciding on
Boeing has led the Pentagon's domestic missile defense program
for more than two decades. Its elimination from the opportunity to
provide a replacement system to intercept and destroy threats
highlights the fierce competition for a shrinking band of big
programs. Lockheed Martin and Northrop Grumman are both growing at
a faster clip, with an expanding pipeline of orders.
"Losing out on the new interceptor could endanger Boeing's
leadership of the nation's missile defense program," said Loren
Thompson at the Lexington Institute, a consultant to many of the
major defense contractors, including Boeing.
David Calhoun, Boeing's chief executive, said in January that
its defense unit was well positioned, and it succeeded in reviving
sales of its F-15 fighter as well as a range of classified work for
Sales growth in the defense unit this year was forecast to grow
by a percentage in the low- to mid-single digits after being flat
in 2020. Its backlog of new business fell 5% last year to $61
Sales at Boeing's Defense, Space & Security unit last year
eclipsed those at the commercial airplanes business to be the
largest for the first time in a decade. It delivered almost as many
military aircraft as jetliners, with the 737 MAX grounding and
pandemic-driven travel downturn hitting commercial revenues. The
company expects jetliner sales to remain a drain on cash into next
year. Analysts estimate the defense unit will generate $8 billion
in cash in the three years to the end of 2022.
Boeing said it will continue to support the existing missile
defense system, though the Pentagon's Missile Defense Agency may
take over more of its operation, further denting potential revenues
from strategic defense systems.
Boeing's removal from the missile defense contest follows two
other defeats in programs that executives had said were a priority
for its defense franchise, including the B-21 bomber and planned
replacement of the U.S. land-based nuclear missile arsenal, which
were both won by Northrop Grumman.
The setbacks follow a period when Boeing had cut jobs and
improved margins at the defense unit, and reprioritized
investments. The company in 2018 secured a trio of contract wins,
the first for new programs from the Pentagon in a decade. The deals
for a new Navy refueling tanker, an Air Force training jet and
helicopters to patrol nuclear bases started generating cash just in
time to help compensate for the grounding of the 737 MAX after two
Boeing and Raytheon Technologies Corp. had won an earlier
version of the interceptor program that was canceled in 2018 after
running into technical problems. Boeing's losing team for the new
version included Aerojet Rocketdyne Holdings Inc., the rocket motor
maker, which is also partnered with Lockheed Martin.
Write to Doug Cameron at firstname.lastname@example.org
(END) Dow Jones Newswires
March 25, 2021 08:50 ET (12:50 GMT)
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