Boeing eyes energy sector amid defense cuts

Published 24 October 2009

Boeing, the U.S. second largest military contractor, cites its expertise as it bids on slices of the $20 billion U.S. power-grid market; to compensate for cuts in funds for defense programs in which it was traditionally involved, the company is also moving into the helicopters, UAV, cyber-security, and intelligence businesses

Boeing Co. defense chief Dennis Muilenburg is seeking to enter the potential $20 billion U.S. power-grid market as the second-largest military contractor’s key programs are being canceled or face budget cuts.

After a month in the job, Muilenburg, 45, said he is accelerating plans to expand beyond aerospace and defense that were started by his predecessor, Jim Albaugh, who was named head of the commercial-jet division on 31 August. “We know that we have to reposition our business, and that repositioning is something we are very aggressively doing,” Muilenburg told Susanna Ray and Gopal Ratnam in an interview in his office overlooking the Pentagon. “One idea is to take some of our defense technology and use it to help solve problems in the energy sector.”

Energy projects would put Boeing in competition with General Electric Co., International Business Machines Corp., and Cisco Systems Inc. for $4.5 billion of U.S. stimulus spending aimed at improving the grid. The planned “smart-grid” technology seeks to lower costs and prevent disruptions with systems that allow energy providers to communicate. The market for the grid’s communications segment may be worth $20 billion in the next few years, Boeing spokesman Chris Haddox said.

Boeing proposes using network and integration technologies from its missile-defense program and the Army’s Future Combat Systems to “add a certain level of intelligence to the grid and allow efficiency and reliability improvements” for utilities, Muilenburg said.

“I would have some trepidation about Boeing’s ability to manage program risk in these new areas as this would be unfamiliar territory versus defense,” Rob Stallard, an analyst with Macquarie Capital Inc. in New York, said in an e-mailed response to Ray’s and Ratnam’s questions. “The past is littered with examples of defense companies trying to diversify and the outcomes being less than optimal for shareholders.” Stallard has a neutral rating on Boeing’s shares.

Boeing has partnered with Consolidated Edison Inc. in New York and Southern California Edison Co. Boeing already has helped military bases reduce energy consumption and worked to improve the fuel efficiency of military planes, Muilenburg said.

Stimulus proposals
Boeing submitted three proposals on 26 August for stimulus grants to study the smart grid. The Department of Energy is expected to award the grants this year, Muilenburg said in the Oct. 9 interview.

Ray and Ratnam write that about $600 million of the department’s funds will be distributed to smart-grid demonstration projects, and $3.3