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Boeing to Lay Off 50 Defense Executives, Streamline Business
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In its latest move to streamline the defense business, aerospace giant, The Boeing Company (BA - Free Report) , has decided to lay off a handful of its executives this year. The initiative will cost the job of as many as 50 executives from the company’s Defense, Space & Security (BDS) segment.
Apart from the layoff decision, Boeing has also undertaken some restructuring strategies to improve competitiveness and productivity of its defense unit.
Details of the Restructuring
Starting Jul 1, Boeing’s Military Aircraft and Network & Space Systems segments will be broken down into four smaller units: Autonomous Systems, Space and Missile Systems, Strike, Surveillance and Mobility, and Vertical Lift. All these entities, under the management of four executives, will report to current CEO and president of Boeing’s BDS division, Leanne Caret.
The Autonomous Systems unit will include Insitu and Liquid Robotics subsidiaries, Echo Voyager maritime vehicle, vertical lift unmanned systems, and certain electronic and information systems. The Space and Missile Systems will include satellites, Boeing's share of United Launch Alliance, Ground Based Strategic Deterrent, Joint Direct Attack Munition and Harpoon weapons, among others.
Meanwhile the Strike, Surveillance and Mobility unit will include F-15 and F/A-18 fighters, P-8 maritime patrol aircraft and Joint Surveillance Target Attack Radar System while the Vertical Lift unit will incorporate the Apache and Chinook family of helicopters as well as the V-22 Osprey tilt rotor.
On the other hand, no restructuring has been planned for the Development, Global Operations and Phantom Works segments.
As per Bloomberg, 60 defense executives will be transferred to Boeing Global Services, a new segment expected to be launched by the company next month. This new unit, incorporating defense and commercial aircraft parts, maintenance, and information technology products, is expected to evolve into a $50 billion business.
Our View
Apart from being a premier commercial jet manufacturer, Boeing enjoys the position of one of the largest defense contractors in the U.S., thanks to its ever-expanding BDS segment that stands out among its peers. Constituting more than 30% of the company’s total earnings as well as revenues as of first quarter of 2017, this unit holds a significant key to Boeing’s growth story.
Since taking leadership of this business early last year, Caret’s focus has been on reducing cost and inducing enhanced competitiveness and growth. Toward this end, last November, she announced some consolidation initiatives for the unit. Under this, by the end of 2020, the company’s facility spaces were aimed to be reduced by approximately 4.5 million square feet, causing job loss of around 500 employees. It also included closing of two sites at Texas and Virginia. Next, in December, came a plan of relocating the company’s defense headquarters from St. Louis to Washington, D.C., to be closer to the Pentagon.
We believe that this time the executive lay-off decision is a bold one taken by Boeing’s management, going a step ahead of what it has done earlier. Such a notable job cut will clearly save money for the company, which, in turn, can be reinvested to further boost growth of its defense unit.
However, we remain doubtful about the extent to which this decision will be an optimally cost-efficient one, at least in the near term, as it will take some time to effectively take up the burden of work from the existing ones.
In April, the company forecasted that the unit is expected to generate $28–$29 billion in sales this year. But with this sudden layoff at the executive level, the company may not be able to achieve the anticipated sales range.
Price Performance
Shares of Boeing have rallied 47.9% over the last 12 months, outperforming the Zacks categorized Aerospace–Defense industry’s gain of 26.2%. This could be because the company’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions. In addition, the company poses strong competition to its peers like Lockheed Martin Corp. (LMT - Free Report) , General Dynamics Corp. (GD - Free Report) and Huntington Ingalls Industries, Inc. (HII - Free Report) .
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Boeing to Lay Off 50 Defense Executives, Streamline Business
In its latest move to streamline the defense business, aerospace giant, The Boeing Company (BA - Free Report) , has decided to lay off a handful of its executives this year. The initiative will cost the job of as many as 50 executives from the company’s Defense, Space & Security (BDS) segment.
Apart from the layoff decision, Boeing has also undertaken some restructuring strategies to improve competitiveness and productivity of its defense unit.
Details of the Restructuring
Starting Jul 1, Boeing’s Military Aircraft and Network & Space Systems segments will be broken down into four smaller units: Autonomous Systems, Space and Missile Systems, Strike, Surveillance and Mobility, and Vertical Lift. All these entities, under the management of four executives, will report to current CEO and president of Boeing’s BDS division, Leanne Caret.
The Autonomous Systems unit will include Insitu and Liquid Robotics subsidiaries, Echo Voyager maritime vehicle, vertical lift unmanned systems, and certain electronic and information systems. The Space and Missile Systems will include satellites, Boeing's share of United Launch Alliance, Ground Based Strategic Deterrent, Joint Direct Attack Munition and Harpoon weapons, among others.
Meanwhile the Strike, Surveillance and Mobility unit will include F-15 and F/A-18 fighters, P-8 maritime patrol aircraft and Joint Surveillance Target Attack Radar System while the Vertical Lift unit will incorporate the Apache and Chinook family of helicopters as well as the V-22 Osprey tilt rotor.
On the other hand, no restructuring has been planned for the Development, Global Operations and Phantom Works segments.
As per Bloomberg, 60 defense executives will be transferred to Boeing Global Services, a new segment expected to be launched by the company next month. This new unit, incorporating defense and commercial aircraft parts, maintenance, and information technology products, is expected to evolve into a $50 billion business.
Our View
Apart from being a premier commercial jet manufacturer, Boeing enjoys the position of one of the largest defense contractors in the U.S., thanks to its ever-expanding BDS segment that stands out among its peers. Constituting more than 30% of the company’s total earnings as well as revenues as of first quarter of 2017, this unit holds a significant key to Boeing’s growth story.
Since taking leadership of this business early last year, Caret’s focus has been on reducing cost and inducing enhanced competitiveness and growth. Toward this end, last November, she announced some consolidation initiatives for the unit. Under this, by the end of 2020, the company’s facility spaces were aimed to be reduced by approximately 4.5 million square feet, causing job loss of around 500 employees. It also included closing of two sites at Texas and Virginia. Next, in December, came a plan of relocating the company’s defense headquarters from St. Louis to Washington, D.C., to be closer to the Pentagon.
We believe that this time the executive lay-off decision is a bold one taken by Boeing’s management, going a step ahead of what it has done earlier. Such a notable job cut will clearly save money for the company, which, in turn, can be reinvested to further boost growth of its defense unit.
However, we remain doubtful about the extent to which this decision will be an optimally cost-efficient one, at least in the near term, as it will take some time to effectively take up the burden of work from the existing ones.
In April, the company forecasted that the unit is expected to generate $28–$29 billion in sales this year. But with this sudden layoff at the executive level, the company may not be able to achieve the anticipated sales range.
Price Performance
Shares of Boeing have rallied 47.9% over the last 12 months, outperforming the Zacks categorized Aerospace–Defense industry’s gain of 26.2%. This could be because the company’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions. In addition, the company poses strong competition to its peers like Lockheed Martin Corp. (LMT - Free Report) , General Dynamics Corp. (GD - Free Report) and Huntington Ingalls Industries, Inc. (HII - Free Report) .
Zacks Rank
Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3 Stocks to Ride a 588% Revenue Explosion
At Zacks, we're mostly focused on short-term profit cycles, but the hottest of all technology mega-trends is starting to take hold...
By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>