Boeing's Defense Division Accelerates Out of the Red

RATHER than retreating from its defense business during an era of declining Pentagon budgets, the Boeing Company is sticking to its guns.

Or, more accurately, it is sticking to airplanes, helicopters, and space stations.

The decision appears to be paying off. After losing $1 billion from 1989 to 1991, the Seattle company's defense and space division has become profitable. ``They've had a tremendous turnaround on declining revenue,'' says Bill Whitlow, an analyst with Pacific Crest Securities in Seattle.

For the nine months ended Sept. 30, the defense unit saw its total revenues decline to $3.3 billion, 20 percent below the same period in 1992. But Mr. Whitlow says the division's profits this year should be even higher than last year's $204 million.

The successful recovery - based on streamlining administration, production, and research - suggests that being diversified remains a useful strategy for Boeing. In the past, the defense side has sometimes cushioned the company when commercial jet sales were slow. Just 10 years ago, defense business made up 40 percent of company revenues and ``most of the profits,'' notes Boeing spokesman Dave Suffia.

The diversification is technological as well as financial, Whitlow adds. The company's roots were in military contracts, and Boeing's now-dominant commercial jet business began as a spin-off from the development of an Army transport plane. Today, although defense has declined from around one-fifth of revenues last year to 16 percent so far in 1993, the development of military technology still promises to help other Boeing ventures.

For a company that was singled out as an industry bad-boy for cost overruns on federal projects in the late 1980s, having been chosen as prime contractor on the space station this fall signals renewed government confidence. Boeing will work with Japanese, European, Canadian, and Russian partners on the project.

Paul Nisbet, an analyst with JSA Research in Newport, R.I., says Boeing's involvement in everything from AWACS radar planes to Comanche helicopters should keep defense revenues above $4 billion, and maybe even higher by the end of the decade.

Still, the going will not be easy: Boeing foresees Pentagon spending declining in the next few years to $200 billion or less, down from more than $300 billion in 1991.

With the easing of the cold war arms race, the government is buying only 20 B-2 ``stealth'' bombers, the sleek, radar-eluding planes assembled by Northrop Corporation with Boeing as a key partner. That number is down from the 132 planned in 1989.

Northrop delivers the first operational stealth bomber tomorrow at Whiteman Air Force Base in Missouri.

Meanwhile, Boeing is just beginning its production work on the F-22 fighter plane, on which Boeing is teamed with Lockheed Corporation. Final assembly will be in Georgia.

Despite a White House endorsement, the program's immediate future remains in doubt. The General Accounting Office, Congress's watchdog branch, is urging a production slowdown for the $96 billion program, according to a recent report by Defense Week.

The Clinton administration says it wants to make sure key defense contractors stay healthy in case an emergency demands speeded-up production.

In a September ``bottom up'' review of Pentagon needs, Defense Secretary Les Aspin specifically cited the F-22 program for retention, along with fighter upgrades from McDonnell Douglas, a new nuclear submarine from General Dynamics, and an aircraft carrier from Tenneco's shipbuilding division.

Mr. Aspin says future military planes, rather than being developed separately for the Navy or Air Force, should use as much common technology as possible. Boeing wants to be a key player in this effort.

Boeing also hopes to eventually sell versions of its 747 jetliner for use as military transport planes. These would supplement the Pentagon's purchase of McDonnell Douglas's new C-17s, which are designed to land in makeshift dirt runways.

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