Boeing’s 737 Woes Aren’t Hurting Its Pursuit of Military Contracts, Exec Says

Boeing is taking record losses as its 737 Max jetliner sits grounded around the world, but that hasn’t changed how it pursues new Pentagon business, a top executive said Monday.

“It has not impacted what we’re doing and what [Boeing Defense, Space & Security CEO] Leanne [Caret] has tasked organization and the Boeing Defense organization,” Mark Cherry, vice president and general manager of Boeing Phantom Works, said at the Association of the U.S. Army annual convention in Washington. 

“I think it’s important to know that we have an overall strategy,” which hinges on winning long-term projects that can provide decades of revenue, he said. “That strategy is supported throughout Boeing and Boeing Defense.” 

Cherry’s Phantom Works division leads the company’s development of new aircraft and weapons for the U.S. military. Last year, the unit helped Boeing win contracts to build a new pilot training jet for the Air Force and an in-flight refueling drone for the Navy. Collectively, the two projects could be worth $22 billion.

Boeing sank its own money into pre-contract work on both projects. The company also underbid its competitors. Last year, Lockheed Martin CEO Marillyn Hewson said her firm would have lost $5 billion if it bid as low as Boeing for the training jet, refueling drone, and a third project to supply Air Force security helicopters.

Back when the Pentagon awarded those contacts, the 737 Max was Boeing’s best-selling plane. Since March, regulators have grounded the Max fleet as Boeing prepares a software fix for a flight control system believed to have helped cause two crashes that killed 346 people.

In June, the company took a $4.9 billion after-tax charge due to the Max grounding. But Cherry said Boeing’s defense business still has money to make investments.

“We have IRAD [independent research-and-development funds] that we get and utilize across Boeing defense,” he said. “And we use that in ways to…mature technologies and position ourselves for winning franchise opportunities. We are quite comfortable with the IRAD that we have at Boeing now and actually in the future that we slated to enhance and reduce risk for this program.”

Cherry said Boeing has been “very deliberate in how IRAD is laid out to ensure we achieve or exceed” the company’s defense growth objectives.

Today, Phantom Works is building a new attack and reconnaissance helicopter in a bid to beat three other teams vying for an Army deal. Boeing is being extremely tight-lipped about its design. 

“Our approach is not to necessarily be out in the public sphere thumping our chest,” said Shane Openshaw, the program manager for Boeing’s Future Attack Reconnaissance Aircraft. “We are quietly and aggressively pursuing the requirement and staying in touch with the Army team that’s going to be making this decision. We will gradually go public and start revealing the nuances of our design when it makes sense for us to do so.”

Boeing is planning to build a prototype of the new helicopter, Openshaw said.

Last week, Boeing’s board removed Dennis Muilenburg as its chairman, replacing him with Blackstone’s David Calhoun. Muilenburg remains Boeing CEO and president. A company statement said that move will allow Muilenburg to better focus on returning grounded 737 Max to service. Boeing reports third-quarter earnings next week.