(Reuters) — Boeing Co <BA.N> expects its defense business to
continue facing a tough environment with "flatish" profit margins,
Chief Executive Jim McNerney said on Wednesday.
A recent federal government budget deal has pushed off automatic
spending cuts known as sequestration by two years, but
"sequestration has not gone away," McNerney said at a Cowen & Co
investment conference.
In contrast, the commercial jetliner business is better than
McNerney has seen it in his career, which includes time running
General Electric <GE.N> Aviation, the maker of aircraft engines.
Commercial aircraft business margins have room to widen, he said,
due to faster jet production and the ability to get better prices
from suppliers.
But he said it is a "fair criticism" that Boeing needs to do more to
help suppliers on engineering and process improvement that will
provide better prices.
He said about one-third of Boeing's suppliers are involved in the
company's "partnering for success" program, under which they work
together to reduce costs and share the benefits. The remaining
two-thirds are either in discussion or not engaged in the program,
he said. He said he expects the program to continue to grow. "We
have volume to offer and they have efficiency they can offer," he
said.
McNerney also acknowledged that Boeing is hiring contract workers to
help fix production problems at the 787 Dreamliner factory in South
Carolina, and that some work was being moved to the Seattle area to
be finished.
"We have traveled some work to Everett," he said, referring to the
location Boeing's main 787 assembly line. But he characterized it as
routine: "This is what we do all the time."
He also acknowledged there were "still some hard feelings" with
machinists in the Seattle area after an acrimonious contract vote
last month that ensured Boeing's new 777X jet program would be
located in Washington state. The contract required machinists to
give up their pension for a defined contribution plan.
Boeing's commercial jet business is not being affected by weakness
in emerging markets, McNerney said. But there is more divergence
among emerging countries and China and the Middle East remain
strong. Demand in the U.S. is improving, while a pick up in Europe
is "still to come," he said.
Boeing likely will announce new aircraft orders at an upcoming
airshow in Singapore next week, but not at the level of the record
orders announced last November, he said.
(Reporting by Alwyn Scott; editing by
Jeffrey Benkoe and Gunna Dickson)
