By Andrea Shalal-Esa
RIDLEY PARK, Pennsylvania | Tue Jun 11, 2013 8:36am EDT
(Reuters) – Boeing Co (BA.N) has won two multibillion dollar U.S. orders for its Chinook helicopters and the V-22 Osprey it builds with Bell Helicopter, sharply expanding the company’s backlog at a time when overall U.S. defense spending is starting to decline.
The U.S. Navy told Reuters on Monday that it planned to sign a five-year contract valued at just under $6.5 billion for 99 new V-22 tilt-rotor aircraft built by Boeing and Bell, a unit of Textron Inc (TXT.N).
On Tuesday, Boeing and the U.S. Army announced a separate deal valued at $4 billion for 177 more CH-47 Chinook helicopters, plus options for up to 38 more of the twin-rotor workhorse helicopters.
The contracts, which have a combined value of over $10 billion, will help shore up Boeing’s revenues while some other companies are seeing their orders scaled back or cut.
“I’m extremely bullish on the rotorcraft industry,” Leanne Caret, vice president and general manager for vertical lift in Boeing’s military aircraft division, told Reuters in an interview at the company’s sprawling plant outside Philadelphia.
Caret said she expected Boeing to double its rotorcraft revenues by 2030 but declined to give specific dollar targets or the company’s current revenues in the sector.
She said past innovations in rotorcraft occurred after wars or other events such as the Iranian hostage crisis of 1979-1980, and Boeing was committed to continuing to invest in research and development initiatives even as defense spending declined.
“The multiyear agreements are critical because we’re going to continue to advance the technology that occurs on both the Chinook and the Osprey fleets,” said Caret, who headed the Chinook program before moving into her current job in January.
Caret said the government was “fair, but tough” in its negotiations with Boeing, and the company clearly had hard work ahead meeting its commitments on both contracts, which carry fixed price terms, and offer significant savings compared with buying the aircraft one year at a time.
She said the Chinook multiyear agreement resulted in savings of 19 percent when compared with the estimated cost of buying the same number of aircraft year by year. Work on the multiyear agreement first began in 2009, she said.
Boeing was able to achieve the savings through $130 million in investments to modernize the Ridley Park plant, where Boeing builds both the V-22 Ospreys and the Chinook helicopters, Caret said. She also cited concerted efforts to get the best pricing for components from suppliers.
She said she and top military officials met with suppliers to encourage them to “lean forward” and give their very best pricing.
“We were very clear that if we couldn’t generate the savings that the U.S. government required … or better than those savings, that there may not be a multiyear (deal),” she said.
Robotics and lean production methods helped generate significant savings on the Chinook production line, Caret said. It now takes just over 40 minutes to move an aircraft down the line, instead of nearly a whole shift.
The government also benefited from strong demand for Boeing helicopters and the V-22 Osprey, Caret said. By including options for foreign orders in the contract, Boeing and the government aimed to offset any declines in U.S. orders caused by mandatory across-the-board budget cuts.
Boeing has also reduced its management structure, cutting about 30 percent of its executives last year, she said.
She said the company was now turning to the automotive, gaming and other non-defense industry for more ideas on how to make rotorcraft more competitive and efficient.
(Editing by Mark Potter)