Boeing's war

Will growth in military business offset the decline in commercial jet building?

IT'S THE KIND OF blood-and-money question that analysts were asking under their breaths this week after Boeing military jets, choppers, and missiles filled the skies over Afghanistan: Can war do for Boeing what peace wasn't doing?

"From an overall company perspective, yes," says Robert Toomey, aerospace expert with Dain Rauscher investments in Seattle, "growth in the military side should offset somewhat the decline in commercial, but not entirely." Prudential Securities analyst Chuck Gabriel figures most of America's new war with terrorism "will likely be conducted with attack planes, armor, and other tactical weapons."

In other words, a war with Boeing's name on it.

According to the Pentagon, Boeing warcraft and weapons led the allied assault on Afghanistan that began Sunday, while Boeing transports spearheaded the airdrop of humanitarian aid to Afghans.

In particular, the F/A-18 Hornet, a newer version of the McDonnell Douglas attack jet that dates back to 1983, was used extensively by American and British pilots to hit Afghan targets (Boeing inherited much of its modern war hardware from McDonnell in the buyout three years ago).

The United States' top strike fighter (it converts from fighter jet to strike jet), the Hornet is used by the Navy and Marines, as well as the air forces of Canada, Spain, Kuwait, and Australia. It costs up to $57 million per copy.

The $200 million Boeing B-1B Lancer (a long-range bomber) and the B-2 Spirit (the swept-wing stealth bomber built with Northrup Grumman that costs $1 billion a copy), along with Boeing's B-52 Stratofortress, capable of carrying 500,000 pounds of conventional bombs, were reported to have hit Taliban military installations and Osama bid Laden's suspected mountain hideouts.

Boeing's Apache helicopters may have been used to strafe desert strongholds, and Chinook troop transports could have been used to move U.S. and British infantry and commandos for combat or reconnaissance.

The Pentagon won't be specific about some weapons, but it's likely Boeing's Avenger air-defense system, refueling tankers, and SLAM and Cruise missiles were involved. Boeing also makes tank and aircraft cannons up to 50 millimeters.

Several Boeing-made C-17 transports airlifted equipment and troops to the region, while others dropped food and supplies in a humanitarian airlift to refugees.

Boeing, founded in 1916 by ex-lumberman William E. Boeing, has preferred to be known more as a builder of commercial jetliners than, say, a war profiteer.

But the Lazy B has a rich military history dating back to at least 1919, when it made the MB-3 fighter for the U.S. Army Air Service.

"Considering the company's long-standing reputation for building large aircraft," says aircraft historian Robert Guttman, "it is often forgotten that Boeing was ever in the fighter business."

Among its innovations was the P-26 Peashooter, a lightweight fighter less than 24 feet long that became the forerunner of WWII fighters.

It was the B-17 and B-29 bombers that brought Boeing war fame in the 1940s and 1950s. But with the acquisition of McDonnell, Boeing became a diverse military empire of new helicopter, missile, and weaponry production.

Today, the company is America's second-biggest Pentagon contractor. Its major defense plants and research operations here and in Pennsylvania, Arizona, Missouri, and California, among others, bring in about $11 billion annually from U.S. taxpayers. Boeing is also the United States' major supplier of military weapons to allied countries.

Financially, the company has been on a turbulent ride since the Sept. 11 terrorist attacks, when hijackers used Boeing commercial jets to kill more than 5,000 people in New York, Washington, and Pennsylvania. That ignited a global response against terrorism and sent the slumping airline industry into a tailspin. In turn, Boeing, already in a production turndown, announced severe cutbacks over the next 15 months.

Yet, because the attacks have created new alliances and calls for innovative security measures while stimulating America's defense readiness, Boeing's fortunes are now rising on the commercial and military fronts.

As airline flights return to near-normal levels—a dramatic recovery from a month ago today, when no one was allowed in the air—Boeing is reassessing its dire forecast to lay off up to 30,000 workers by 2003, which critics thought was an ill-timed and overblown projection to begin with.

Depending on battle needs, the U.S. may order faster production of replacement parts and equipment and expanded research and development of new weapons—a boon for Boeing's advanced research lab, Phantom Works, and the 5,400 employees at the Military Aircraft and Missile System division here. Just last week, the Air Force awarded Boeing a $47 million contract to begin work on a Small Diameter Bomb system for manned and unmanned crafts (a system originated by Phantom Works), and Congress easily approved $8.3 billion to fund continued development of Boeing's ground missile-defense system, Star Wars II, a potential $200 billion-plus program.

Though not even the generals know the size and shape of this unconventional conflict—in which the first blows were struck with box cutters—Congress this week is putting final touches on a $345 billion Pentagon spending package that includes billions in military contracts for Boeing, which normally relies on defense spending for a third of its income.

Also imminent is the Oct. 26 awarding of the Joint Strike Fighter contract, a winner-takes-all competition between Boeing and Lockheed Martin. That $200 billion pact could mean up to 3,000 new jobs for Puget Sound (although analyst Toomey says the Joint Strike Fighter and missile-defense programs will have their major employment impacts at Boeing military plants in St. Louis and Southern California). Lockheed may have the edge, observers think, but a win by Boeing, the world's largest commercial airplane maker, would make it the world's largest defense contractor.

That would indeed offset losses of a commercial production drop from 500 planes this year to as low as 300 in the next couple years (based on Boeing's and Toomey's estimates). Development of airline security measures and needs for innovative cockpit systems could lead to more work for Boeing or its subcontractors.

Another sign of the war's upside effect came just last week, with the announcement of a 30-jet order from the often-adversarial Chinese.

A Chinese official put it, "We will never forget our friends, particularly in times of difficulties," then inked a $1.6 billion deal. That was music to Boeing, which expects another China sale soon and estimates the Chinese will need $144 billion in jets over the next two decades.

"The China market represents tremendous growth opportunities for the Boeing Company," says Boeing/China president Fred Howard. Unfortunately, so does war.

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