The Financial Times of London reported Tuesday that growing budget demands for basic military maintenance are such a "threat to large defense programs" that Jim Albaugh, the head of Boeing's $31,000,000,000-a-year arms business, is worried. -- Reporter James Boxell noted that "Boeing and its U.S. arms industry peers Lockheed, Northrop Grumman, Raytheon, and General Dynamics have seen sales rise by 10 per cent on average for each of the past five years as the Pentagon budget has soared." -- But now "the boom years are over." -- Nevertheless, "Boeing will stick to its strategy" of pursuing contracts for "large and complex programs such as U.S. missile defense and the $165bn Future Combat Systems (FCS), an advanced fleet of armored vehicles," according to Albaugh. -- A few years ago, Kevin Martin and a group of student interns reviewed Boeing's history as an arms manufacturer. -- "Boeings march into the world of the war profiteer has been a long one," they wrote. "It began in 1917 when the U.S. Navy ordered 50 Model C seaplanes from Boeing, launching the company into the world of military aviation. Through the next 60 years Boeing became a major part of the military-industrial complex, supplying many of the militarys aircraft, including the Chinook helicopter, B-52 and B-1 bombers, and the F-15 fighter, along with many generations of missiles and rockets. Yet by the 1980s it looked like Boeing might begin moving out of the weapons business. However, with the end of the Cold War came a new turn of events. In 1993, Secretary of Defense William Perry repealed a 40-year ban on federal subsidies for weapons contractor mergers and acquisitions. This paved the way for Boeings 1996 acquisition of Rockwell Internationals space and defense divisions and the 1997 merger with McDonnell Douglas." -- At present, Boeing is the world's second largest arms merchant....
Aerospace & defense
BOEING CHIEF'S FIFTH DIMENSION
By James Boxell
Financial Times (UK)
October 3, 2006
http://www.ft.com/cms/s/10ae3894-527c-11db-bce6-0000779e2340.html (subscribers only)
Jim Albaugh believes the aerospace and defense industry has reached a historic point.
The head of Boeing's $31bn-a-year weapons business says the aerospace sector can be characterized by four key stages over the past century. "The Wright brothers, obviously; World War II where we were developing a new aircraft every couple of months; the jet age, which changed the way people came together, especially on the commercial side; and walking on the moon."
Mr. Albaugh contends that the beginning of the 21st century heralds a fifth stage -- the bringing together of fighter aircraft and other weapons with advanced computer networks. "I think the whole information management/information technology intersection is a defining moment," he says.
The issue for Boeing, the world's largest aerospace manufacturer and its biggest defense contractor after Lockheed Martin, is how this battlefield revolution will take shape and what it means for its profits.
Boeing and its U.S. arms industry peers -- Lockheed, Northrop Grumman, Raytheon, and General Dynamics -- have seen sales rise by 10 per cent on average for each of the past five years as the Pentagon budget has soared.
But industry executives fear the boom years are over as the U.S. struggles with its current account deficit and faces pressure to divert defense dollars from the biggest weapons programs to the urgent refit of battlefield kit.
"The cost of Iraq and Afghanistan is consuming a lot of the defense budget," says Mr Albaugh. "Maintenance and operational costs are going up. The first priority is to take care of the troops deployed. We are seeing fewer and fewer start-ups and new programs."
This poses questions for Boeing. In recent years, it has been put in charge of large and complex programs such as U.S. missile defense and the $165bn Future Combat Systems (FCS), an advanced fleet of armored vehicles.
Not everybody in the industry is convinced of the success of such appointments.
Some believe a rethink is needed to bring costs under control and to respond better to urgent needs from commanders in the field.
"They have asked metal benders to be systems integrators too and, by and large, that has not worked," says a former senior Pentagon official, who concedes much of the problem is caused by the military changing requirements. "The cycle of development is too damned long when we need to be nimble." Mr. Albaugh defends his company's performance on large programs such as FCS and maintains Boeing will stick to its strategy. "If you are vertically integrated, you cannot bring the best of industry. You just bring the best of your company."
"If I look at where we have been able to grow our business, it has been through network programs like the ground-based missile defense programme and FCS . . . Our expertise is in large-scale, complex system integration. That is where we have had a lot of success."
Those skills have helped Boeing make inroads into homeland security, shown by its recent win of SBInet, a U.S. border protection contract that could be worth $2bn.
Because of the threat to large defense programs, future success could rest on the ability to quickly upgrade old fighter jets, armored vehicles, and warships with new technology.