By Doug Cameron And Jon Ostrower
Boeing Co. said Tuesday that it didn't expect a drastic revamp
of its defense and space arm if it fails to win a share of upcoming
Pentagon weapons contracts potentially worth more than $100
billion.
The world's second-largest defense contractor aims to replace
declining sales of its fighter jets by winning deals to build new
long-range bombers and jet trainers for the U.S. Air Force, as well
as large drones for the Navy.
Jim McNerney, Boeing's chief executive, said the company
wouldn't pursue big changes at the $31 billion defense arm or a
transformative deal if it fails to win any of the contracts.
"It's hard to believe we wouldn't get one of these big
programs," Mr. McNerney said at the company's annual investor day,
adding that its commercial jet backlog provided a backstop for the
company's broader growth plans.
The $90 billion bomber program is viewed by analysts as a
must-win for Boeing and rival Northrop Grumman Corp., with a
contract award expected in the summer. Boeing is teamed with
Lockheed Martin Corp. in the contest, and with Saab AB in a joint
bid to build the T-X trainer.
Mr. McNerney said a clean-sweep loss of those and the Navy's
planned UCLASS drone would shrink the defense business modestly and
prompt a return to organic growth as it boosts output of a new
aerial refueling tanker and expands its service business.
"We would not overreact," Mr. McNerney said.
Wes Bush, his counterpart at Northrop Grumman, has also rejected
suggestions that the bomber contest could prompt another round of
industry consolidation, perhaps including a combination with
Boeing.
Mr. McNerney also said he was more confident about U.S.
lawmakers reaching a compromise deal on military spending, even as
the company pursued faster growth overseas.
While the latest push to reform weapons' buying at the Pentagon
hasn't so far led to any substantive changes, Boeing and its rivals
have been cutting costs, with the Chicago-based company targeting
another $1 billion in savings on top of the $5 billion already
achieved.
Chris Chadwick, head of Boeing's defense and space arm, rejected
the notion that the Pentagon's push to recruit nontraditional
suppliers would hurt his business. He said there was plenty of
innovation at Boeing, whose research spending is higher than many
rivals, but well below that of big technology companies like Google
Inc. or Facebook Inc.
Boeing remains optimistic that new orders for its fighter jets
could extend the business into the early 2020s, with the new KC-46
aerial refueling tanker providing the main avenue for near-term
growth.
The company is building an initial 18 jets for the Air Force by
2017, an order that could expand to 179, and executives said
Tuesday that the global market was for between 400 and 500 of the
jets.
The first flight of a fully-equipped tanker was due to take
place last month. That slipped to the summer, but Boeing executives
said they remained confident on meeting the Air Force schedule for
the planes.
Write to Doug Cameron at doug.cameron@wsj.com and Jon Ostrower
at jon.ostrower@wsj.com
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