Boeing "hit harder" than rivals by defense budget cuts

[David]

Seattle Times


Big defense cuts proposed Monday by the Pentagon delivered a budgetary airstrike to Boeing's defense division, which employs almost 9,000 people in the Puget Sound region.

All in all, defense analyst Loren Thompson of the Lexington Institute, a libertarian, free-market think tank, said, "Boeing seems to have been hit harder than any of the other major contractors."

If Defense Secretary Robert Gates' proposals survive Congress, there will be no more orders for the F-22 advanced stealth-jet fighter. Boeing builds the F-22's wings and aft fuselage in Seattle, employing almost 1,200 people.

Sharp cuts or radical changes also are in store for these Boeing programs:

• The Army's $160 billion Future Combat Systems (FCS) program of networked vehicles, drones and communication systems is being delayed and restructured significantly. Boeing, as the lead contractor, employs hundreds of engineers in Seattle on FCS.

• Boeing's C-17 military-cargo plane, built in Long Beach, Calif., will get no further U.S. orders, spelling the end of a production line that employs 5,000 people.

• Proposed cuts in missile-defense programs will greatly scale back Boeing's airborne-laser program; the budget maintains funding for more research but cancels a second prototype aircraft. And the number of ground-based missile interceptors based in Alaska will not be increased as planned.

Gates also recommended terminating several major programs for which Boeing has been competing, including the $15 billion combat search-and-rescue helicopter (CSAR-X), the $26 billion communications-satellite constellation called TSAT, and preliminary development of a future long-range Air Force bomber.

The defense side of Boeing's business brings in $32 billion a year in sales. The company issued a brief statement saying only that it must study the announcement "for potential impact."

Lockheed, the largest U.S. defense contractor, also suffered cuts -- its $14 billion presidential-helicopter program was terminated. But its Joint Strike Fighter aircraft and its close-to-shore combat-ship programs were boosted in the budget.

"[Lockheed] did well, [Boeing] not so much," said Rob Spingarn, a defense analyst with Credit Suisse.

The Pentagon remains committed to restarting the Air Force refueling-tanker competition this summer, Gates also said Monday.

He favors a winner-take-all recompete between Boeing, offering a 767 tanker, and Northrop-EADS, offering an Airbus A330 tanker. The defense secretary reiterated his opposition to the suggestion from Congress that the contract be split between the two bitter contenders.

In addition to preparing the military to fight irregular wars with more constricted funding, Gates said, his budget "will profoundly reform how this department does business."

Army project slowed

On the Army's FCS program -- a lucrative mega-project in which Boeing is marshaling numerous contractors to create a new generation of fighting machines and communications systems -- Gates said the government will maintain the initial stages of the program.

But he wants to cancel a major $87 billion component of the FCS program, the development of the new modernized Army vehicles, saying the lightly armored vehicles "do not adequately reflect the lessons of counterinsurgency and close quarters combat in Iraq and Afghanistan."

Starting over on designing and bidding for those vehicles will directly affect the Boeing subcontractors scheduled to build them, including General Dynamics and BAE Systems.

More significant for Boeing, Gates also declared himself "troubled by the terms of the current contract, particularly its very unattractive fee structure."

Boeing manages all FCS suppliers and controls the contracts almost as if it were a government-procurement agency. That setup has been criticized severely as a license to funnel money from government to industry.

Gates' comments suggest at least a renegotiation of the fees involved in FCS. And there may be fewer such contracts that hand over the gatekeeping role to industry.

The government plans to hire 13,000 new civil servants in fiscal year 2010 to replace outside contractors and to have up to 30,000 government employees replacing contractors within five years, Gates said.

"We must reform how and what we buy," he said, "meaning a fundamental overhaul of our approach to procurement, acquisition and contracting."

Missile-defense work

Boeing has large pieces of the sprawling missile-defense budget. It manages the ground-based midcourse-defense system, which has a system of interceptor missiles based at Fort Greeley, Alaska, and Vandenberg Air Force Base in California.

Gates wants to scale back the number of interceptors planned for Alaska, but this missile program is still alive.

"We will continue to robustly fund continued research and development to improve the capability we already have to defend against long-range rogue-missile threats -- a threat North Korea's missile launch this past weekend reminds us is real," he said.

Boeing also has been developing a prototype airborne laser (ABL) mounted on the nose of a 747, designed to shoot down missiles in their early-boost phase.

Rep. Ellen Tauscher, D-Calif., the Obama administration's pick for State Department undersecretary for arms control, last month said the ABL program is "eight years behind schedule and $4 billion over cost." Gates canceled plans for a second airborne-laser prototype.

"The ABL program has significant affordability and technology problems, and the program's proposed operational role is highly questionable," Gates said.

Boeing military planes

The Air Force takes a much bigger hit than the Army or the Navy in the budget proposed by Gates.

"This is just about the worst day for U.S air power that I can remember," analyst Thompson said.

Among fighter jets, Lockheed Martin's F-35 Joint Strike Fighter (JSF) would be the proposed budget's big winner against the more advanced F-22. Gates said the United States will buy 2,443 JSF jets.

Boeing has no part of the JSF program.

Lockheed also is the lead contractor on the F-22, but Boeing is a major partner on the program.

Gates resisted congressional demands to buy 60 more F-22 fighters and said the current order for 187 jets is sufficient.

"It was not a close call," Gates said. "There is no military requirement for numbers beyond 187."

The last F-22 will roll out in 2011.

One bright spot

As a small consolation for Boeing, Gates included funds to buy 31 of its less-advanced F/A-18s for the Navy, built in St. Louis, Mo.

Gates also said the military won't buy more C-17 heavy-lift air transports after this fiscal year. He resisted congressional pressure to go beyond the 205 already purchased in order to preserve jobs across the country. "We have enough C-17s," he said.

Gates certainly will get political push-back on both the C-17 and F-22 programs.

In 2006 and again in 2008, Congress added money for new C-17s in supplemental budgets.

In January, 43 U.S. senators wrote to President Obama asking him to ensure continued F-22 production.