Boeing Counts the Cost of Cuts

 - June 22, 2012, 4:00 PM
Dennis Muilenburg, president and CEO of Boeing Defense and Security, is ‘planning for the worst’ as sequestration looms for the U.S. (Photo: Boeing)

Boeing has suffered less than other contractors from the reductions already made to the Fiscal Year 2013 U.S. defense budget. But as sequestration looms, the company “is planning for the worst,” according to Dennis Muilenberg, president and CEO of Boeing Defense and Security.

In the next year, Boeing’s top 15 programs by revenue will be cut by 4 percent, compared with the average 15-percent reduction across the defence budget. That is because of the company’s strength and performance in currentprograms such as the F/A-18, P-8, KC-46, CH-47, AH-64 and satellites, according to Muilenberg.

Preparing for harder times, he said that Boeing has already made significant reductions in overhead, including consolidations of facilities. For example, the Wichita site is closing and some work is being moved from southern California to Oklahoma.

But if sequestration goes ahead, the further $500 billion cut from the planned defense budget over the next 10 years will be damaging because the law mandates non-discriminatory cuts across the board, including to the intelligence budget, Muilenberg noted. “There’s a lot of confusion because of the lack of clarity on how it would affect individual programs,” he added. Boeing is obliged by federal law to give employees 60 to 90 days advance notice of layoffs, and these may start before the January 1 date for sequestration to take effect because “as a business we have to mitigate our risk,” Muilenberg said.

Fortunately, Boeing’s growing international defense trade will offset some of the impact of lower domestic revenue. Muilenberg noted that offshore business accounted for 24 percent of revenue at Boeing Defense and Security last year, compared with only 7 percent five years ago. That number could reach 30 percent before long, he added.