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Boeing IDS flexes muscle for new growth strategy

 - June 15, 2009, 9:15 AM

Boeing Integrated Defense Systems has adopted a five-pronged strategy to drive forward through the current downturn, and to continue its growth from an estimated $33- to $34 billion revenues for 2009 in an era of increased focus on costs.

While the U.S. Department of Defense has a 2-percent compound budget growth over the coming years, manpower costs are expected to rise by 6 percent, further squeezing the acquisition budget. As part of its strategy, IDS continues to look at reducing acquisition and operating costs to maintain the attractiveness of its products to the customer.

Another element of the strategy has been to divest elements of the business that are perceived to not fit the portfolio, but IDS also maintains a strong desire to invest.
“We looked at previous downturns and saw that the companies that did not invest did not survive,” said Jim Albaugh, president and CEO of Boeing IDS. “We want to invest in technologies, not programs,” he stated.

One area Albaugh sees as being under-funded in terms of technology development is the rotary-wing world.  “When they were flying Hueys and Cobras in Vietnam, they were already working on the Apache,” he observed, “but that kind of work isn’t going on today.”

A significant part of Boeing IDS work is classified, around 10 percent of the business. The company is involved in many key areas, including future combat aircraft.
Albaugh expects the definition stage of the Next-Generation Bomber to be reached in a year or so, but in the meantime the company has launched its Phantom Ray UCAV prototype. Building on work performed on the X-45C, the Phantom Ray will be used to explore the use of UCAVs in the attack and electronic attack fields. It could also be “grown” for bomber technology research. First flight is scheduled for around the turn of the year.

UAS Division

A new Unmanned Air Systems division was formally created by Boeing yesterday. It brings together all the current unmanned work being undertaken throughout IDS, except the Phantom Ray.

Although Boeing is seeking an “acceleration of adjacencies” by acquisitions of small companies that can be vertically integrated into the overall structure. Recent purchases have included InSitu, adding the Scan Eagle and Integrator UAVs to the IDS portfolio, while Boeing had earlier acquired Frontier Systems and its A160 Hummingbird rotary-wing UAV. Further UAS work is being undertaken on the HALE and Ultra HALE designs.

Other acquisitions have been made to strengthen the C4ISR, intel and security/cyber business, which currently accounts for an annual $1.5 billion.

RavenWing, DRT and Kestrel have recently been bought, and on Friday IDS completed the acquisition of eXMeritus.

Boeing has also been buying in the logistics arena, and has grown its services business by a factor of two in the last five years. As well as establishing joint ventures such as Alsalam in Saudi Arabia, Boeing is picking up contracts–such as the U.S. Air Force A-10 support and integration contract it picked up last week–to support systems made by other companies.

Existing Programs and International Prospects

Continued development of existing products has not been ignored either, with the recently announced F-15SE Silent Eagle and ongoing Chinook development. The F/A-18E/F Super Hornet, of which 390 have been delivered to date, remains an important program to IDS.

The U.S. Navy is facing a predicted shortfall of 243 aircraft, and that figure is predicated on the funding of a “legacy” Hornet service-life extension program and no further delays to the introduction of the F-35. Albaugh said the signs are good for another multi-year Super Hornet procurement contract beginning in the 2010 budget, especially now that unit cost has shrunk to around $53 million.

Without doubt, the biggest prize on offer is the U.S. Air Force’s Tanker Replacement Program, shortly to enter its third round of bidding. Albaugh expects a draft RFP to be issued in the summer. “We don’t know what’s in it,” he said, “but we expect fewer requirements and a well-defined selection process.”  Unsure of whether the Air Force will slant its requirements toward fuel offload capability or operational flexibility, IDS is currently working on 767- and 777-based proposals. Both currently come under the umbrella of what the company calls the KC-7A7 program.

Meanwhile, the Boeing 747-based YAL-1A ABL (airborne laser) program is advancing toward a first intercept trial this fall, despite modest funding. Albaugh predicts “renewed interest” if the trial is successful.

The last key area of the IDS strategy is to grow its international business. This has already expanded from 5 percent of the group’s business to 16 percent. In Asia the primary driver is India, which has selected the P-8 maritime patroller. Other existing customers, such as Australia, Japan and Singapore, remain steady markets.   

Boeing: we can do unmannned better

Discussing the decision to create an Unmanned Airborne Systems (UAS) division, Boeing’s head of military aircraft, Chris Chadwick, criticized the reliability of current systems. That derives partly from the experimental and fast-track way that they have been developed, said Chadwick. But, he asserted, Boeing “can also be a fast innovator. We can produce 80-percent solutions that are more reliable at lower cost.” The UAS market is still immature, wide open and evolving dramatically, he added.

Boeing seems to have learned a lot from its partnership and subsequent purchase of InSitu. He noted that the company’s Scan Eagle is still the only UAS to fly routinely from ships, and is operated on a fee-for-service basis. “You have to take a different approach. Pixels-by-the-hour is a new business model that we want to expand,” Chadwick said. He added that Boeing is on the lookout for further such acquisitions.