Boeing stands by defense growth plan

By Bill Rigby

WASHINGTON (Reuters) - Boeing Co (BA.N) still aims to boost defense sales by 4 to 5 percent over the next five to 10 years, even in the face of a global recession and uncertainty over defense budgets worldwide, the head of the U.S. No. 2 arms supplier said on Wednesday.

Boeing's defense unit will account for more than half of Boeing's overall revenues this year, as the unit's growth makes up for some of the expected drop in commercial plane sales due to a two-month machinists strike, Boeing's defense chief Jim Albaugh told the Reuters Aerospace and Defense Summit in Washington.

Boeing's Integrated Defense Systems unit, second only to Lockheed Martin Corp (LMT.N) in Pentagon sales, is also sticking to its plan to raise international sales to 20 percent of its total, up from about 13 percent currently.

"We're not scaling that back and we're also not scaling back the long-range business plan we've put in place," Albaugh said at the summit, referring to the previously stated plan to increase revenue by 4 or 5 percent compounded annually over the next five to 10 years.

But he warned that U.S. defense spending will likely flatten out in coming years due to mounting budget pressures, and some new arms programs may be delayed because of budget pressures and the high cost of adding troops.

"While the defense budget may continue to go up, it'll be incremental increases rather than the dramatic increases we've seen," said Albaugh.

To hit its growth target, Boeing needs to extend current production programs, win contracts to replace Boeing weapons already in service and increase international sales, while reducing its own cost structures and offering the Pentagon cheaper alternatives to new programs, Albaugh said.

Albaugh said it was clear that Defense Secretary Robert Gates, asked by President-elect Barack Obama to remain in his job, would review every major weapons program, including some of Boeing's biggest projects, such the U.S. Army's $160 billion Future Combat Systems modernization.

Gates would also closely examine the U.S. military's $10 billion-a-year program to develop a multilayered missile defense, a project in which Boeing also has a big stake and which remains in testing, Albaugh said.

Boeing's challenge was to ensure that its programs remained healthy and on schedule, since programs with "performance issues" would be particularly vulnerable to cuts, he said.

Boeing would also focus more on areas expected to grow faster than the defense budget, such as services, intelligence accounts, homeland security and international sales.

Boeing's defense unit -- which makes F/A-18 fighter jets, C-17 cargo planes, military helicopters and a range of missile and surveillance systems -- posted $24 billion in revenue for the first nine months of this year, up 1 percent from the same period the year before.

In July, Boeing forecast defense unit revenue of $32 billion to $33 billion for this year, rising to between $33.5 billion and $34.5 billion next year, which would represent an increase of about 4.5 percent if the unit hit the mid-range of those forecasts.

Boeing suspended that outlook during the machinists' strike, which shut down its commercial plane plants for 58 days this autumn.

The company is expected to provide new predictions in the next few weeks. Wall Street analysts have been reducing profit and revenue forecasts for Boeing overall, due to a drastic reduction in commercial plane deliveries caused by the strike.