Graham Warwick/WASHINGTON DC

Boeing is buying Hughes Electronics' satellite manufacturing business for $3.75 billion in cash. The deal will boost Boeing's space revenue by 35%, to $10 billion a year - a figure the company expects to double by 2009.

Renamed Boeing Satellite Systems, the El Segundo, California-based unit employs almost 9,000 people and had sales of $2.3 billion last year. It will become part of Boeing's Space and Communications group, which builds Delta launch vehicles and global positioning navigation satellites and is lead integrator on the International Space Station and National Missile Defence programmes.

Boeing chairman Phil Condit says the acquisition "is a significant step forward in executing our goal of becoming the industry leader in integrated, space-based information and communications", a market the company expects to increase from $40 billion to $120 billion annually by 2010.

The transaction, due to close in June, makes Boeing the largest manufacturer of commercial satellites, but most growth over the next two years will be in the military sector, says Boeing Space and Communications group president Jim Albaugh. Boeing, with Hughes as a team-member, won the US National Reconnaissance Office's massive Future Imagery Architecture programme last year. Albaugh believes the acquisition will boost the company's chances of winning the Future Communications Architecture programme.

The agreement signals Hughes' exit from the aerospace industry. Hughes Aircraft was formed in the 1930s by Howard Hughes, but left the aircraft industry in 1984 when its helicopter division was sold to McDonnell Douglas (now Boeing). Hughes' defence business was sold to Raytheon in 1998.

The satellite business sale leaves Hughes focused on its high-growth, high-return communications business, including DirecTV, PanAmSat and the Spaceway broadband data service.

President Michael Smith says Hughes lacked the resources to fund growth opportunities in the services business and invest in new technology for manufacturing.

Smith says Hughes did not hold an auction, but selected Boeing as best buyer. Condit says Hughes was top of a list of acquisition candidates identified last year.

Source: Flight International