Boeing shakes up defense business, cuts management jobs
By Andrea Shalal-Esa | November 8, 2012 7:49 AM EST
Boeing Co said Wednesday it will restructure its defense, space and security business and cut 30 percent of management jobs from 2010 levels as part of a cost-cutting drive.
Boeing, the Pentagon's second-largest supplier, said it also will close some facilities in California and consolidate several business units in an effort to trim $1.6 billion in costs by the end of 2015, on top of $2.2 billion in reductions achieved since 2010.
"We are raising the bar higher because our market challenges and opportunities require it, and our customers' needs demand it," Dennis Muilenburg, chief executive of Boeing Defense, Space & Security, told employees in a message obtained by Reuters and confirmed by Boeing.
He said the total savings of $4 billion would make the company healthier and better able to deal with an increasingly complex and challenging marketplace.
"Even with the uncertainty ahead of us, we are charting a positive course, and we are committed to excellence, execution and investment," Muilenburg said. "I like Boeing's competitive position and our approach - facing into it aggressively and with a sense of productive urgency - and not 'hunkering down.'"
The sweeping measures come as all U.S. weapons makers are under pressure to cut costs and preserve profit margins amid dwindling defense spending in the U.S.
Boeing shares rose on news of the restructuring. Early in the day, the stock was down as much as $2.27, or 3.2 percent, at $69.31, partly on concern about dwindling defense spending following President Barack Obama's re-election. But after the news that Boeing would restructure its defense division to cut costs, the stock was trading at $70.15, still down $1.43 for the day, but off its earlier lows.
Boeing said the changes were not a direct response to the threat of additional, across-the-board budget cuts due to take effect on January 2, or the outcome of U.S. elections, but marked another step in its long-term effort to be more competitive.
Muilenburg said the company's strategy had already helped it take market share from competitors, pioneer new innovations and win orders around the world.
Muilenburg said Boeing would trim executive jobs in its defense business by an additional 10 percent by the end of 2012, eliminating many vice president and director-level jobs and resulting in a 30-percent overall cut in executive jobs over the past two years.
In addition to this "tough, but necessary work," Muilenburg said Boeing also planned to increase the ratio of non-managers to managers to a more affordable 12.5 to 1 from 9.7 to 1 now.
Together, the measures would result in a 10-percent cut in the cost of management, he said in the message to employees.
Boeing said it could not project exactly how workers would lose their jobs because it would try to place people in its growing commercial business or other areas.
A company spokesman declined to say how many jobs had already been cut from the 2010 level.
Boeing and other top weapons makers like Lockheed Martin Corp, Northrop Grumman Corp and Raytheon Co have focused heavily on cutting costs and drumming up foreign sales to maintain profits as they prepare for a sustained period of weaker defense budgets.
Lockheed reduced its management ranks by about 25 percent in recent years after announcing a voluntary buyout.
Boeing said it would also expand its efforts to cut supply-chain costs by working closely with its suppliers, but did not provide details.
Defense consultant Loren Thompson said the changes were needed to ensure Boeing's continued profitability.
"Many investors focus on Boeing's commercial operations," Thompson said, referring to the jet-making business.
"But defense provides 40 percent of the company's revenues and returns, so controlling costs there is crucial to maintaining the company's overall profitability."
Phil Finnegan, an analyst at the Virginia-based Teal Group, said Boeing and other companies were taking steps to deal with growing pension obligations and maintain profit margins that were already the lowest among the top five weapons makers.
"They're trying to stay ahead of the coming defense cuts ... and the way to do that is to cut costs," Finnegan said.
Boeing said it would merge its current mobility division with a separate surveillance business, while moving the Chinook and V-22 rotorcraft programs to a new vertical lift division.
It also planned to consolidate its missiles and unmanned airborne systems, while weapons programs such as the small diameter bomb would shift to the global strike business.
Unmanned systems would continue reporting to Chris Chadwick, president of Boeing Military Aircraft, but support functions would be shared with other divisions, Boeing said.
Boeing also planned to merge its electronic and missions systems business with a separate unit focused on information solutions to create a leaner operation.
The company said it would further cut facilities, which are already down 10 percent since 2010, including two sites in Seal Beach, California, and other locations in the state.
Boeing also announced several management moves, including the appointment of five women to new, senior positions.
(Additional reporting by Alwyn Scott; Editing by Alwyn Scott, Carol Bishopric and Andre Grenon)