Defense Mechanism : No. 1 Jet Builder Boeing Aspires to New Heights With Military Contracts

By JAMES F. PELTZ

Nov. 20, 1996 12 AM PT

TIMES STAFF WRITER

Commercial airplane king Boeing Co. is muscling its way into the top tier of defense contractors and moving closer to becoming the world’s leading aerospace company--period.

Boeing’s role in defense was dramatically enhanced when the company was chosen last weekend as a finalist to build the next-generation U.S. fighter jet, a program that could involve manufacturing more than 3,000 airplanes.

But Boeing was already working to expand that role, having agreed over the summer to buy Rockwell International Corp.’s defense and space lines for $3 billion. And Boeing’s existing noncommercial operations--including work on another new tactical jet, the Air Force’s F-22--already accounted for $5.6 billion of Boeing’s $19.5 billion in total sales last year.

The result is that defense and space--in recent years a minority part of Boeing’s business that rose and fell in importance depending on the health of the jetliner industry--are poised to become more equal forces with jetliners as Boeing moves into the 21st century.

“That’s our objective,” Jerry King, president of Boeing’s defense and space group, said in a recent telephone interview. “We would like to have more balance between the two sectors.”

To be sure, Boeing must still compete with defense titan Lockheed Martin Corp. to build the proposed new fighter jet, known as the joint strike fighter, or JSF. The Pentagon chose the pair Saturday while rejecting a third rival, a team that included McDonnell Douglas Corp. and Northrop Grumman Corp. Even if Boeing wins the manufacturing contract, production won’t start until 2008 or so.

Regardless, Boeing’s selection means the Seattle-based giant is in contention for a contract that could ultimately be worth more than $200 billion, the richest fighter jet contract in history. Also, Boeing has four years to further refine its JSF prototype and bolster its chances of winning.

“They have an excellent chance” to win, said Paul Nisbet, president of the aerospace consulting firm JSA Research Inc. in Newport, R.I. “They came up with the most innovative design of the three.”

Besides the JSF and F-22, Boeing makes the AWACS surveillance aircraft and the RAH-66 Comanche helicopter for the Pentagon. It’s also the prime contractor on the international space station.

After it completes the Rockwell deal, Boeing will have far-flung operations in the space shuttle program, the Rocketdyne rocket engine business, missile systems and support for the Rockwell-built fleet of B-1 bombers. Many of those groups are based in Southern California.

The challenge for Boeing and its new chief executive, Philip Condit, is to juggle its growing defense and space endeavors at the same time it is trying to keep pace with a surge of new orders for commercial jetliners.

Commercial airplane sales are booming worldwide, and Boeing--which already commands more than 60% of the market--is getting orders for planes faster than its plants can produce them.

Boeing’s existing defense and space business has been flat for the last decade, generating between $5 billion and $6 billion a year. So, depending on whether the commercial market was up or down, defense accounted for as little as 19% and as much as 40% of Boeing’s overall business.

But that percentage could hold steadier after Boeing absorbs Rockwell’s operations, and especially if Boeing is the ultimate JSF winner, analysts said. Winning the JSF contract would virtually guarantee Boeing’s financial health well into the next century, regardless of the topsy-turvy cycles of the commercial jetliner market.

“With JSF and a third of the F-22, Boeing is certainly positioned to become one of the two major military aircraft producers” in the nation with Lockheed Martin, said analyst George Shapiro of Salomon Bros. in New York.

Even so, defense could still be a minority part of Boeing for years to come because of Boeing’s surging jetliner business. Shapiro forecasts that commercial jets, which accounted for $13.9 billion of Boeing’s revenue last year, will soar to $36.3 billion in 1999.

There’s also speculation that, in the meantime, Boeing will buy more properties to bolster its defense and space operations.

For instance, while the joint strike fighter will be used by the Air Force, Navy and Marine Corps, it’s McDonnell and Northrop with the most recent experience in building carrier aircraft.

But Boeing is a very cautious and conservative company when it comes to takeovers, and it never comments on possible targets.

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A New Flight Path

Boeing Co., already the top maker of jetliners, is poised to become a leading defense contractor as well. Boeing’s defense and space operations, including those it’s about to buy from Rockwell International:

The Programs

* Joint strike fighter (co-finalist)

* F-22 fighter (co-developer)

* RAH-66 Comanche helicopter (co-developer)

* V-22 Osprey tiltrotor aircraft (co-developer)

* AWACS surveillance plane

* International space statio (prime contractor)

* Space shuttle support**

* Rocketdyne rocket engines**

* Missile systems**

** From Rockwell

The Company