Losing Streak Presents Challenge To Aerospace Giant

Boeing, the world's number two military contractor, lost another US defense contract bid last week... adding to a recent, continuing losing streak for the aerospace giant in the military market.

In the latest loss, Lockheed Martin defeated Boeing on a potential $3.6 billion deal for a new generation of global positioning satellites for the US Defense Department as reported by Reuters.

The losing streak is causing many to worry the company is losing its grip on the traditional military hardware, such as fighter jets and transport planes, and is being forced to focus on integrating programs into networks and expanding civil work.

"They're moving from bending metal to connecting systems," said Richard Aboulafia of Teal Group, a Fairfax, Virginia consultancy to Reuters. "That's the challenge for aerospace companies, especially Boeing."

The negative trend can be traced back to 2001 when the manufacturer lost to Lockheed on the potential $299 Billion F-35 Joint Strike Fighter program. 

As reported by ANN, 2008 hasn't been kind to Boeing -- starting with the $35 billion KC-X aerial refueler program loss to a rival partnership between Northrop Grumman and European manufacturer EADS.

In March, the company lost a $766 million contract to Lockheed for development of an electronic radio system for US aircraft, ships and ground stations.  April brought yet another loss with a $1.2 billion unmanned patrol aircraft contract being awarded by the US Navy to Northrop Grumman.

On top of everything, Boeing may even lose a contract it won originally. Won in 2006, a $15 billion contract to build the US Air Force's new combat search-and-rescue helicopter is now being rerun after congressional auditors upheld protests from losing bidders Lockheed and Sikorsky.

Boeing defense chief James Albaugh told Reuters the results of recent contract awards won't materially affect results. But the cumulative loss of revenue will make growth difficult.

Based in St. Louis, Boeing's defense unit reported a 2 percent dip in sales last quarter after fewer aircraft deliveries.  In contrast, Boeing's Seattle-based commercial planes unit posted an 8 percent increase in sales, and most other defense companies posted substantial gains.

Boeing's two main businesses have roughly been equal in sales in recent years. Projections for next year place the commercial unit ahead at up to $38 Billion in revenue due to passenger aircraft orders, but the top of the defense unit's forecast is only $34.5 billion.

Boeing's Integrated Defense Systems unit, now lacks any major, growing military aircraft programs. Its 35-year-old F-15 fighter jet is now limited to foreign sales, production of its F-18 fighter jets will likely stop in 2015, and its C-17 transport plane appears to be coming to the end of its line, unless the U.S. Congress steps in to save it.

Overconfidence and underperformance on a number of existing government jobs is what some are saying is to blame for the recent troubles at Boeing. Others say that the situation is not unique to Boeing and may not indicate a long-term problem at the manufacturer.

"It's not uncommon that a company will have a dry period where they lose an inordinate number of contracts," said Paul Nisbet at aerospace and defense specialists JSA Research.

"Northrop Grumman went through this a couple of years ago and they came right back. I think you'll see the same thing here," he said.

The savior may be the US Army $160 Billion Future Combat Systems project led by Boeing and technology firm SAIC Inc.  The project entails linking 14 major weapons systems and could be lucrative for Boeing despite some Congressional nibbling at its funding.

"Once Future Combat Systems gets out of the development phase, that could be huge," said Nisbet.

FMI: www.boeing.com