Boeing Defense Ops Stabilizing After Years Of Erosion

News that Army leaders were impressed by the most recent demonstration of the battlefield network that Boeing developed for future armored forces is the latest indication that the aerospace behemoth’s defense operations may be stabilizing after years of erosion. Boeing mounted a big push to grow its defense business in the late 1990s as competition from Airbus reduced its share of the global commercial transport market. In addition to merging with McDonnell Douglas — the nation’s premier fighter-aircraft manufacturer — the company bid aggressively to secure leading roles on the Future Imagery Architecture, the Joint Tactical Radio System, and the Army’s Future Combat System. These and other wins made Boeing the biggest contractor on what the Rumsfeld Pentagon called “military transformation,” a net-centric approach to warfare that complemented the company’s traditional emphasis on military aircraft and space systems.

However, the company then became embroiled in a procurement scandal surrounding efforts to hire former Air Force acquisition official Darleen Druyun, and as the scandal wore on Boeing’s defense operations began to lose momentum. Its leading role on the Future Imagery Architecture was pared back because of costly delays in developing new imagery satellites. Its bid to build the Air Force’s next aerial-refueling tanker was confounded by a surprise Northrop-Airbus victory that led Boeing to launch its first protest of a military contract award in a decade. Its efforts to develop the initial ground-forces variant of the joint radio encountered major technical issues leading to a substantial de-scoping of the effort. The final, crushing blow came during the first year of the Obama Administration, when defense secretary Robert Gates moved to cancel several of the company’s biggest programs, including the Future Combat System, the F-22 fighter, and a planned European missile-defense site. The biggest winner of military contracts in the new millennium seemed to have become the biggest loser.

But with the appointment of 45-year-old engineering wunderkind Dennis Muilenburg in 2009 as head of the company’s sprawling defense business, the hemorrhaging appeared to cease. The Pentagon committed to buying more of Boeing’s high-capacity military communications satellites, and the company signed its first new commercial satcom contracts in years. Congress added money to buy additional C-17 transports despite opposition from policymakers, and delays in developing the next-generation joint strike fighter enabled the company to book additional orders for its F/A-18 carrier-based fighter. In addition, the company’s controversial V-22 Osprey tilt-rotor began demonstrating its worth in overseas deployments. While these positive program developments were unfolding, the global services unit that Muilenburg had previously headed was growing steadily, generating double-digit margins supporting military aircraft around the world.

Like many other parts of America, Boeing’s defense business today is not where it expected to be when the new millennium began. But after a series of severe reverses, it now seems to be recovering its momentum and thinking coherently about pursuing new opportunities. Those opportunities include cyber defense (where it has made a series of acquisitions), unmanned aircraft, and a broadening array of aerospace services. Perhaps the most promising path forward, though, is the growing cooperation between the defense and commercial sides of Boeing in adapting commercial transports for military missions. The P-8 Poseidon replacement of the Navy’s venerable Orion maritime patrol aircraft — based on a modified Boeing 737 — is a highly successful example of this partnership, which may open doors to additional opportunities in replacing other sensor-laden aircraft. But the true test of whether Boeing defense is back will come later this year, when the Air Force decides whether it favors a modified Boeing 767 as its future tanker or a European alternative. Right now, most observers are betting Boeing will win.