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BOEING TO MERGE MILITARY AND SPACE UNITS

10 Jul 02. Boeing Co. (NYSE:BA – News), said on Wednesday it will merge its underperforming space and communications unit with its more profitable military aircraft and missiles unit.

The combination brings together programs ranging from fighter jets and high-tech battlefield management systems to satellite launches and missile defense under the direction of Jim Albaugh, who had run the space unit. Jerry Daniels will resign his current post as head of the St. Louis-based military unit after a transitional period, Chicago-based Boeing said. The merged unit will be based in St. Louis.

The combination will not cause any charges or job cuts, Boeing Chairman Phil Condit said. “In simple terms, we are aligning our business today with the way we believe future systems are going to be designed, acquired and maintained,” Condit said in a statement.

The California-based space and communications unit has been cutting thousands of jobs at its satellite-making arm, which has failed to meet financial targets this year.

The new integrated defense systems subsidiary will employ 78,600 workers, more than the company’s flagship commercial jet unit, which is currently firing about 30,000 workers and slashing production amid a steep airline slump. Currently, Boeing employed 70,246 workers at its Seattle-based jetliner unit. The new defense unit will also produce nearly as much revenue as commercial jets in 2002 and will take the lead in 2003, analysts said.

The combined space and defense units brought in $23bn in 2001, while commercial jets yielded $35bn. But Boeing expects jet deliveries to fall to 380 this year from 527 in 2001.

The military unit turned a $1.35bn profit in 2001 on revenues of $12.5bn. Space and communications reaped revenues of $10.4bn last year but earned just $619m in profits.

Comment: The rumblings of BAE’s aspirations in the U.S. and rumours of a beefed up U.S. Main Board representation will not go away. Some observers suggest that John Weston’s departure may have started the eventual removal to U.S. domicile with the current spat with the MoD being the prelude. This move by Boeing to tidy up its defence interests may also be the prelude to the much discussed merger with BAE. A merger with a separate Boeing defense business would be easier to justify than a merger with the whole entity, watch this space.

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