Boeing Targets Defense Business

"To find new growth, Boeing Co. needs its defense unit on offense.

The aerospace company's defense business made a profit of $1.5 billion last year as its jetliner unit lost $6.5 billion, and challenges persist with its 737 MAX and 787 Dreamliner commercial jet programs.

Now, the plane maker has appointed a new head of its defense business to stabilize the unit after what industry officials and analysts said were recent missteps.

Sales at Boeing's defense and space unit, which makes F-15 jet fighters, Chinook helicopters and Harpoon missiles, have surpassed those from its commercial airplanes division in each of the past two years. That is set to change in 2022 with increased deliveries of the 737 MAX, though defense still provides the bulk of Boeing's profit and the free cash required to reduce its debt of more than $40 billion.

Chicago-based Boeing is scheduled to report quarterly results on April 27, with analysts polled by FactSet expecting the company to deliver an adjusted loss of about 25 cents a share after losing $1.53 a share a year earlier.Analysts expect it to burn through almost $3 billion in cash.

The defense arm remains a major source of cash and Boeing's largest business, with forecast sales of $6.7 billion in the first quarter versus $5.4 billion for its jetliners.

While the company is expected to update investors on the progress of the MAX and the long-running freeze on 787 Dreamliner deliveries, changes are also in the works in Boeing's defense unit, which generated $26.5 billion in sales last year.

Boeing this month appointed Ted Colbert as chief executive of the defense unit after heading its smaller services business for almost three years. The announcement came the same day the Defense Department released its new, China-focused budget request.

Mr. Colbert, 48 years old, takes on a defense business that has lagged behind rivals' growth and suffered multiple, costly failures under the six-year leadership of his predecessor, Leanne Caret. These included quality and cost problems with its Air Force KC-46A refueling tanker, Starliner space taxi and the new presidential planes that will serve as the future Air Force One.

Cash from defense sales helped Boeing weather the grounding of the 737 MAX jetliner after two fatal crashes, but the military unit still generated more than $6 billion in charges over the past six years. The Pentagon has criticized Boeing's performance on the military tanker and this month reached a deal that will require Boeing to pay for a redesigned camera system on the plane.

Ms. Caret, 55, remains a Boeing executive and adviser to the company and plans to retire this year, the company has said.

The company declined to comment, citing a quiet period ahead of earnings on April 27.

Mr. Colbert joined Boeing in 2009 after 10 years at Ford Motor Co., followed by a spell at Citigroup Inc. His biggest challenges atop Boeing, the third- largest U.S. defense contractor by sales, include rebuilding confidence with the Pentagon by successfully delivering on three new military programs it won in a costly bet in 2018, according to industry executives and analysts. They said he also needs to find a place for Boeing on one of the handful of new Pentagon programs that can bring in billions of dollars in annual sales for decades.

"The company has been hemorrhaging longtime franchises," said Loren Thompson, chief operating officer of the Lexington Institute, a specialist defense consultant. He pointed to Boeing's losses of contracts in 2015 and 2019 to build a new long-range bomber and refresh the U.S. arsenal of land-based nuclear missiles. Northrop Grumman Corp. won both deals.

Boeing secured three Pentagon contracts in 2018, its first big defense competition wins in seven years, though they came at a cost. The company took a charge of almost $700 million to cover extra investment after winning the deals for the MQ-25 Navy drone, the new T-7A Air Force trainer jet and Grey Wolf helicopters used to protect nuclear missile bases.

Rivals questioned whether they could make a profit at the prices Boeing has set. Lockheed Martin Corp. said at the time that it would have lost more than $5 billion if it had matched Boeing's winning bids on the programs, expected to be worth about $24 billion.

Executives have previously said the company is well-positioned to meet Pentagon priorities and the three programs won in 2018 are on track.

The company declined to make Mr. Colbert available for an interview. He is due to oversee the rollout of the T-7A jet for the Air Force at an event this month.

Military jets such as the F-15 and helicopters such as the AH-64 Apache account for almost half the defense unit's sales, with space systems such as a delayed space taxi and weapons including the Harpoon missile accounting for a quarter each." [1]

1. Boeing Targets Defense Business
Cameron, Doug.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 26 Apr 2022: B.1.