Boeing expects most of defense unit cost cuts from supply chain
SEATTLE (Reuters) - The head of Boeing Co's (BA.N) defense, space and security business said on Monday that nearly two-thirds of the $6 billion in cost cutting the unit is undertaking will come from savings found in its network of suppliers.
"Out of the $6 billion, probably 66 percent of that will come out of the supply chain, maybe more," Chris Chadwick, chief executive of Boeing Defense, Space and Security, said in response to Reuters following a speech sponsored by the Seattle Metropolitan Chamber of Commerce.
Boeing already has cut $4 billion in costs from the defense unit, which has annual sales of $33 billion. The company has said it plans to cut an additional $2 billion.
"There continues to be tremendous opportunity in the supply chain for efficiency, cost reduction," Chadwick said. There are also opportunities for growth with suppliers.
"What we've found is those supplier who lean forward from a cost perspective, we do partner with them for the long term."
Boeing's defense business, like competitors such as Lockheed Martin Corp (LMT.N), General Dynamics Corp (GD.N) and Raytheon Co (RTN.N), has been under pressure to cut costs as U.S. defense spending has fallen in recent years due to budget cutting.
Chadwick said the U.S. budget has fallen by about 24 percent due to sequestration, or automatic spending cuts. Chadwick said Boeing is not alone in expecting the budget to continue to decline. And he said the company has an advantage over competitors by using successful commercial airplane models to produce military products, such as the P-8 Poseidon plane, based on the 737, and the KC-46 aerial tanker, based on the 767.
Chadwick said among the opportunities in the U.S. defense sector, where U.S. spending is equal to about the 10 next-largest national defense budgets combined, are military customers still using equipment based on the Boeing 707 jetliner, that are old and will need to be replaced. Boeing is investing in research and development to meet those needs, he said.