FARNBOROUGH: Interview with Boeing Defense’s Dennis Muilenburg

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In spite of a challenging defence environment at home, Boeing Defense, Space, Security sees big opportunities to grow its business beyond the USA. The unit is involved in major competitions in a number of countries, and also hopes to sell more C-17 strategic transports in order to keep the Long Beach, California production line open beyond 2014. Dennis Muilenburg, president and chief executive of Boeing Defense, Space & Security talks about the key opportunities and challenges facing Boeing in the global defence market, with a particular focus on Asia.

How are things are going with Boeing's defence business?

dennis muilenburg boeing 

 Boeing

The overall global defence environment continues to be challenging. In the USA and European markets, defence cuts are well under way. This is not surprising, these are reductions we've been anticipating for some time and we've been planning to factor those into our plans. On the other hand, we see growth in defence budgets beyond the US and Europe, especially in Asia and the Middle East. We continue to make good progress serving our customers in those markets. Over the past five years the international segment of our defence business has grown from 7% of our revenue base to 24% last year. This represents a very significant increase in the international mix of our defence business, and we see this trend continuing to strengthen. In the long run, we expect 25-30% of our defence business to be outside the USA, and that this will be a sustained level.

We continue to invest in building industrial partnerships around the globe. Not only are we providing platforms and products that support our defence customers in the Asia Pacific region, we're also helping to build industrial capacity. Boeing's presence here is growing, but in addition to that our industrial partnerships are growing as well. This is an important part of the investment out here. From a Boeing perspective, this applies across the entire enterprise.

Even though it is a challenging time in the defence environment, we are pleased with the progress we've seen and are honoured to support our customers in the Asia pacific region.

Indonesia's ambassador to the US told the Jakarta Post in May that Boeing has agreed to give Indonesia offsets for Civil and military programmes. What offsets has Boeing agreed to?

I can't comment on any specific offset agreements. The nature of the discussions we've been having is both on the commercial airplane and defence business. We have growing opportunities to support our Indonesian customers. Typically, as we grow our presence in product lines we'll have opportunities to build industrial partnerships.

Industrial partnerships come in many forms. Our global supply chain is extensive. We will work to build a supplier base around the world, and help this supplier base to be competitive in developing technologies and capabilities. There is also potential to build commercial supply bases. When defence products are delivered, we hope to build industrial capability to augment those defence products.

There are no specific arrangements or agreements with Indonesia, but there has been dialogue on building industrial capacity over the long run. I would view that as a strategic discussion at this point.

We've met nearly $40 billion in offset agreements over the last decade in more than 30 countries. This is an important part of how we do business.

What is your view on selling AH-64D Apache Longbows to Indonesia?

Indonesia has expressed interest in acquiring Apaches. These are government-to-government discussions, as such discussions typically are. Our role is to support those discussions. If Indonesia decided to procure Apaches, we will support this requirement.

Can you update us on South Korea's requirement for 36 attack helicopters?

This is another important opportunity. We've partnered extensively with the Koreans to build global production lines that includes Korean content in Apaches sold to US and international customers. Apache is a strong match to mission requirements in Korea. We are confident on our ability to deliver on cost and on schedule. We're hopeful in that competition as well, and if selected we'll deliver on that commitment.

What are the trends for your defence products in Asia-Pacific?

If you look broadly across the Asia-Pacific there is a great deal of interest in a number of our product lines. Certainly, fighter aircraft are important, with the F/A-18E/F Super Hornet and F-15 Silent Eagle being of high interest. Recently, we completed the delivery of 24 Super Hornets to Australia, which was achieved on schedule and on cost. We remain very confident in our ability to deliver Super Hornets.

On the F-15 side we are involved in a competition in Korea with the Silent Eagle. We have great industrial partnerships in Korea that are a part of this.

We also see interest in our C-17 cargo aircraft. Australia just announced interest in a sixth and India has ordered 10. The C-17 has a tremendous track record for performing its missions during wartime and for humanitarian relief missions. There is also a lot of interest in Rotorcraft such as Apaches and CH-47D Chinook.

Asia-Pacific is a growing and expanding market for us, both in commercial aircraft and defence. It is a long-term strategic market and one where we have strong industrial partnerships. It also represents a broad portfolio of opportunities.

With C-17s you have on contract, how long will that keep production line going?

With our current firm backlog, we'll run the production line out to about the third quarter of 2014. We continue to see international opportunities beyond the current firm backlog, and so we're hopeful to extend our production deadline. Last year we reduced our production rate from 15 C-17s a year to 10 a year. And while that has been a challenge it has been done very effectively by our team. At the rate of 10 a year we're hoping we can extend a little longer out into the future.

How much longer?

It's difficult to say. We do see opportunities for perhaps two or three more years internationally. It's highly dependent on those decisions moving forward on a pace that supports the production line. We go through a deliberate process every quarter looking at the future order potential and the longevity of production, and continue to manage things to be sure we continue to deliver on schedule and on cost. In this environment the ability to deliver on cost and on schedule and keep promises is becoming more and more important to defence customers around the world. We intend to be that consistent deliverer of products, and that will contribute to the longevity of the C-17 line.

 

There is no other aircraft in the world that can do what the C-17 does.

Following Japan's decision to choose the Lockheed Martin F-35 for its F-X requirement last year, what is the outlook for Boeing's defence unit in Japan?

We continue to support their installed fleet of F-15s, which have provided an excellent capability for our JASDF customer for a long time. We were clearly disappointed with the decision that was made earlier where we offered the Super Hornet in the F-X competition. That said, we respect our customer's decision.

We've been in Japan for decades, both with our commercial and defence business, and we expect to be there for the long run. We have extraordinary industrial relationships with Japan. They do work for us on both industrial and commercial lines. While we were disappointed with F-X Decision, we respect it, and will continue to work with them in the long run.

More broadly, there are many opportunities ahead of us where the F/A-18 E/F and F-15 are very good offerings.

Any opportunities to upgrade Japan's F-15Js?

The F-15 is designed from the start to be upgradeable. That design philosophy has proven itself. We continue to upgrade the US F-15 fleet. If you look at the aircraft we're delivering in Singapore and South Korea, and the aircraft we'll be delivering in Saudi Arabia, they include new defensive electronic warfare systems, fly by wire, and more advanced radars.

Our ability to upgrade technology over time, and do it on cost and on schedule, is important. If our customers decide on an F-15 upgrade, we'd be honoured to support them. But this is a decision for them to make.

If you look at fighter competitions today, being able to deliver capability, as promised, on cost and on schedule is what counts. Today, we are doing that on the F/A-18 E/F and F-15. I would put our track record up against anybody's.

Are you still in discussions with India after losing MMRCA?

While we were disappointed to lose India's fighter competition, India is still a strategic partner. We have ten C-17s on order and they have indicated interest in potentially more. We have eight P-8I Neptunes on order with options for four more. There is ongoing interest in Apaches and Chinooks and a lot of interest in commercial airplanes as well.

How many more C-17s could India potentially buy?

Well, some initial indicating that they might be interested in as many as six to eight more. These are decisions that will have to be made by the Indian customer. These are the kinds of numbers that they have been discussing in public.

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