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More U.S. Defense Budget Cuts ‘Devastating’: Boeing

Jun. 1, 2012 - 08:25AM   |  
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SINGAPORE — Another round of dramatic U.S. defense budget cuts will be “devastating” to the arms industry and will force thousands of people out of their jobs, American corporate giant Boeing warned June 1.

Dennis Muilenburg, president and chief executive of Boeing Defense, Space and Security, said smaller companies from around the world that form part of the U.S. firm’s supply chain will also be affected.

Boeing’s defense business has already seen its workforce slashed by around 8,000 people to 61,000 over the past two years as a result of a $500 billion U.S. defense budget cut currently being implemented.

However, there is also the potential for automatic defense spending cuts, called sequestration, totaling another $500 billion over 10 years from 2013 if the U.S. Congress does not reach a deal on slashing the country’s deficit.

“That’s very significant. We believe that would have a devastating impact on industry,” Muilenburg told reporters in Singapore on the eve of the Shangri-La Dialogue.

“We are strongly encouraging the U.S. government to find a way to avoid that sequester scenario and avoid the impact that would have on jobs and industry.”

Muilenburg said he could not confirm the number of jobs that could be shed in the event of such cuts, but it would be likely to run into the “thousands” in the U.S. alone.

“We have thousands of suppliers in our global network that support our defense and commercial business and the ripple effect to second- and third-tier suppliers would be very significant,” he added.

Boeing’s defense business has so far managed to survive the effects of current cutbacks in defense spending in the U.S. and Europe because of rising demand from militaries in the Asia Pacific and the Middle East, he said.

Last year, 24 percent of Boeing Defense’s revenue came outside its U.S. home Market, and this is expected to grow to 25 percent to 30 percent over the longer term, he added.

Of Boeing Defense’s revenue outside the U.S., about half comes from the Asia-Pacific.

Boeing’s other major business, making commercial planes, is faring better than its defense component.

Boeing said net income surged 58 percent in the first quarter to $923 million from a year earlier as sales of commercial planes continued to grow despite the weak global economy.

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