Boeing sees better profits in satellite business

Tue Mar 15, 2011 12:21pm EDT

* Boeing cites better profitability in satellite sector

* Says SBSS follow-on price was much lower

By Andrea Shalal-Esa

WASHINGTON, March 15 (Reuters) - Boeing Co (BA.N) has retooled its satellite business to remove extra costs and become more competitive, allowing it to generate more profits than in the past, a top company executive said on Tuesday.

"We're doing a lot better than we used to," Craig Cooning, chief executive of Boeing Satellite Systems International, told reporters, giving an upbeat assessment of his division's current outlook after less than stellar results in the early to mid-2000s.

Boeing completed work on a series of government and commercial satellites over the past year, added considerable orders to its backlog, and continues to generate about half its revenue from classified U.S. government work, Cooning said.

The government launched a second, classified prototype miniature space shuttle built by Boeing earlier this month. [ID:nN05246452]

Cooning gave no detailed revenue breakdown, but said his division accounted for about one-third of Boeing's annual revenue in network and space systems, which dropped 13 percent to $9.4 billion in 2010 from $10.9 billion a year earlier.

Commercial sales would account for about 18 percent of revenue this year, up from 10 percent in previous years, Cooning said, forecasting further gains in coming years. The shift would help Boeing maintain jobs and revenue even as U.S. defense spending is expected to begin to taper off.

Boeing sees great promise in hosted payloads, or smaller payloads for government use that piggyback on satellites already being built for commercial satellite operators.

Boeing is building a standard commercial telecommunications satellite for Intelsat [INTHBT.UL] with a UHF-frequency hosted payload owned by Australia's military. A second one was in work for the U.S. government, the company said.

Boeing expects to sell two to four of the hosted payloads each year, underpinning demand for commercial satellites.

The Air Force's drive to use block buys to drive down the cost of new military satellites is "a great idea," but contractors should earn the right to participate by proving they can lower costs, said Cooning, who oversaw Air Force space acquisition until his retirement in 2005.

The Air Force said it could save at least 10 percent if Congress lets it to buy four satellites built by Lockheed Martin Corp (LMT.N) in batches of two, instead of one at a time.

Cooning said he did not know why Boeing satellites were not included in the Air Force's initial attempt to revamp its procurement approach, but said Boeing was continuing its own efforts to drive down costs by leaning out its operations.

He said Boeing could now build three new Wideband Global Satellite (WGS) satellites for the cost of two.

Cooning said talks were also under way with other foreign countries about joining Australia as partners on the WGS satellite system, and he hoped those discussions could reach fruition before the end of the year. Australia has already agreed to pay for a sixth WGS satellite under an agreement that will give it access to the U.S. satellite system.

He said recruiting international partners might also work for the Space Based Surveillance Satellite (SBSS) program, especially given that it would offer other countries a "cost effective" way of getting access to that capability.

Boeing built the first SBSS satellite, which was launched last year to track man-made objects in space.

Cooning said he was "stunned" by recent comments from Air Force officials questioning the affordability of a second satellite, noting that Boeing submitted a fixed price offer that was "a lot lower."

The first SBSS satellite cost $838 million, but total program costs are now estimated at $917 million, including extra costs for on-orbit checkout and other testing procedures. (Reporting by Andrea Shalal-Esa, editing by Matthew Lewis)

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