(Reuters) - Boeing Co’s (BA.N) defense unit is bracing for the “worst case scenario” — a trillion-dollar U.S. defense budget reduction over 10 years, the chief executive of the company’s Defense Space and Security business said on Thursday.
Speaking on a webcast of a Bank of America Merrill Lynch forum, Dennis Muilenburg said the company must be realistic about the budget outlook.
“Now from an operational standpoint, productivity standpoint, we are assuming that worst case scenario,” Muilenburg said. “So we are designing our cost structure to accommodate a trillion-dollar budget reduction.”
The congressional panel created over the summer as part of the U.S. agreement to raise the debt ceiling must recommend $1.2 trillion in spending cuts later this month. If it fails to reach a deal, automatic cuts of that amount would kick in, to be split equally between defense and non-defense programs.
That would force the U.S. Defense Department to take steeper additional cuts on top of the $350 billion in spending reductions it has already set over the next decade.
Defense contractors are reducing headcount and shedding non-core units in preparation for leaner global budgets.
Boeing, which splits its business between defense products and commercial airplanes, believes that while defense spending is shrinking in the United States, opportunities remain in international markets, Muilenburg said.
He said he sees especially strong budget growth in the Middle East and Asia Pacific regions.
“We like the position of our portfolio in that tough environment,” he said, noting a backlog worth $59 billion for the Defense, Space & Security unit.
Shares of Boeing were up 0.6 percent to $64.93 on the New York Stock Exchange.
Reporting by Kyle Peterson and Karen Jacobs; Editing by Tim Dobbyn