November 04, 2013
Credit: Reuters/Landov File Photo
Dennis Muilenburg is president and CEO of Boeing's Defense, Space & Security unit, which employs 58,000 and generates $33 billion in annual sales. He met with Aviation Week editors in Washington for a wide-ranging discussion about the company's future in the challenging defense and space markets.
AW&ST: There is a sentiment among some U.S. politicians that the automatic budget cuts, known as sequestration, are working and have reduced the federal deficit to a more manageable level. What do you say?
Muilenburg: The combination of sequestration and the [recent] government shutdown is causing chaos for the aerospace industry. The resulting uncertainty is upending plans for our customers at the Defense Department, FAA and NASA. The inability to do consistent, long-term planning also causes difficulty for the industry as we think about capital outlays and investments. It's a destructive force, and we really need an alternative solution to the nation's budget situation before it causes irreparable damage. We're seeing damage every day with facility closures, job reductions and impact on the supply chain.
How has the downturn affected Boeing's defense and space unit?
We're planning for a “full-sequestration” scenario and getting our cost structure in the right place so that we can continue to hold and grow our investment in R&D. Our employment is down about 20% from three years ago and we've had executive reductions of more than 30%. We've made difficult decisions to close facilities like Wichita, where we had 80 years of Boeing history. We're assuming roughly another $500 billion in defense budget reductions over the next 10 years. For fiscal 2014, that implies a $52 billion reduction to the president's budget request. It is very difficult to project where those cuts will fall. We know that tanker and long-range strike are very high priorities for the U.S. Air Force. But the lack of clarity on how [cuts] will flow down to individual programs makes capital outlays, R&D planning and talent planning very difficult. That's the devastating impact.
How much are international and commercial airplane sales offsetting the downturn in defense?
International customers have gone from 7% of our defense business five years ago to 28-29% this year, and we project they will account for roughly one-third over the next 5-10 years. We're looking at the strength of the commercial airplane market, our ability to invest in the defense and space business in combination with that in a global sense. That's part of what we call our “One Boeing” strategy.
South Korea is reopening its fighter competition after initially selecting Boeing's F-15SE Silent Eagle as the only qualified bidder. There is a lot of support there for the F-35, and cost may not be their primary concern. Will you re-bid?
We were certainly disappointed by the decision. We followed the competitive process precisely over the last two years and provided an offering that met all of the technical and budget requirements. A large majority of our customers' missions do not require all-aspect stealth; they require an all-aspect fighter: range, payload, acceleration, speed and avionics. The Silent Eagle is 50% faster in acceleration and top speed than the F-35. It carries 60% more payload and has a 70% greater combat radius. You have two seats and two engines, which provide a lot of additional capabilities, and avionics that are at the leading edge in networking and situational awareness. And we know exactly when we'll deliver them, what they'll cost and the cost to support them in the field, which is roughly half of the projected support cost for the F-35.