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Boeing CEO concerned about proposed C-17 cutoff in Washington

Wednesday, February 8, 2006

CHICAGO -- Boeing Co. chief executive officer James McNerney voiced concern Tuesday about the absence of new orders for the company's C-17 military transport plane in the proposed Defense Department budget for fiscal 2007.

Overall, however, McNerney said the company's other major military contracting programs are "well-supported" by a budget that would increase U.S. defense spending by 6.9 percent.

Boeing and other defense contractors fared better than analysts expected in the budget unveiled Monday, which calls for $439 billion in Defense Department spending. No major program cuts were announced, and speculated reductions to defense growth rates did not occur.

"All in all, Boeing looks to be in pretty solid shape," Morningstar analyst Chris Lozier said. "It's generally positive for almost all defense contractors, provided that something that looks like this proposal is what's passed."

A big sore spot for Chicago-based Boeing is the lack of additional C-17 orders beyond the 180 already on the books. The last of those planes is due to roll off the assembly line sometime in 2008.

Speaking at an analysts' conference in New York, McNerney said the discussion over C-17 funding is continuing in Washington and noted that Congress advocates additional orders of the airplane, which is "our country's only widebody transport capability."

"I think that all has to get solved," he said of the ongoing budget debate. "But until we get it solved, that'll be something I worry about."

Boeing's defense business outsold its commercial airplanes division for the third straight year in 2005, accounting for 56 percent of the company's $54.8 billion in revenue. But the gap is starting to shrink under what McNerney called "significant market pressures."

Compared with the 8 percent revenue gain posted by the Seattle-based commercial unit, Boeing's St. Louis-based defense arm saw sales edge up just 1 percent. McNerney reiterated that another increase in the low single digits is expected for 2006.

"What we project over the next three to four years, BCA (Boeing Commercial Airplanes) will have a bigger portion of the growth at our company than IDS (Integrated Defense Systems)," he said.

But already boasting the defense industry's biggest backlog of orders, the military contracting unit should be able to avoid a profit downturn even without the C-17 funding it seeks, he said.

"We don't want to get to that point," McNerney said. "But we see enough growth in enough areas that it's a manageable situation."

Boeing shares rose 41 cents to close at $71.55 on the New York Stock Exchange, near December's all-time high of $72.40.


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