Boeing to Reorganize Its Defense Business

Boeing Co. said Friday that it would streamline its defense business to help it better compete for Pentagon contracts amid a slowdown in spending.

The realignment of the company’s $30.5-billion military operation will reduce the number of defense units to three from seven. Those changes will result only in a small number of job cuts locally, the company said.

Boeing has 31,000 employees in Southern California, the largest private payroll in the region. Its local defense work includes making C-17 cargo jets in Long Beach, doing engineering work on the Army’s Future Combat Systems program in Anaheim and developing the X-45A unmanned fighter jet in Palmdale.

James Albaugh, president of Boeing’s defense business, said the organizational shake-up would reduce costs as the Pentagon weighs cutting major weapons programs. “I want to continue to increase the business,” he said. “I’m trying to take a different turn based on where I see the customer going.”

Chicago-based Boeing, the world’s largest aerospace concern, had been relying on military work to offset a slowdown in its commercial aircraft business. Defense spending surged after the 2001 terrorist attacks and Boeing’s defense business has outgrown its commercial plane group and accounts for about 60% of revenue.

But with budgets once again becoming constrained, the Pentagon must make cuts. Boeing’s military sales growth dipped to 7% last year, from 11% in 2004, Albaugh noted.

Fortunately for Boeing, the passenger jet market has revived in the last year as defense spending has slowed.

Boeing Chief Executive James McNerney has said he expects the two businesses to be roughly the same size.

The three new defense units Boeing announced are weapons and air mobility, network and space systems, and logistics and support.

John Lockard, formerly head of Navy systems, will run the Precision Engagement and Mobility Systems headquartered in Washington. He will oversee the production of jet fighters, helicopters and cargo planes such as the C-17.

Roger Krone will head Networks and Space Systems, based in northern Virginia, and have responsibility over satellite and rocket operations, missile defense and the Army’s Future Combat Systems program.

Pat Finnernan will oversee Support Systems in St. Louis, which will handle aircraft maintenance, training and logistics, including its computer networks.

In addition, Boeing is creating an advanced research and development unit in Long Beach. It will be headed by George Muellner.

The defense reorganization was announced ahead of the release of Boeing’s fourth-quarter results, which is scheduled for Wednesday.

Shares of Boeing slipped 16 cents Friday to $68.56.