Boeing announced a major restructuring of its defense division on Wednesday that will cut 30 percent of management jobs from 2010 levels, close facilities in California and consolidate several business units to cut costs.
Boeing, the Pentagon’s second-largest supplier, said the changes were the latest step in an affordability drive that has already reduced the company’s costs by $2.2 billion since 2010, according to the memo. The company told employees about the changes on Wednesday, in a memo obtained by Reuters and confirmed by Boeing.
The measures come as U.S. weapons makers are under pressure to cut costs and preserve profit margins amid dwindling defense spending in the U.S.
In a message to employees, Dennis Muilenburg, chief executive of Boeing Defense, Space & Security, said the company aimed to cut costs by an additional $1.6 billion from 2013 through 2015.
“We are raising the bar higher because our market challenges and opportunities require it, and our customers’ needs demand it,” Muilenburg said.
He said the total savings would reach $4 billion, making the company healthier and better able to deal with a tougher marketplace.
He said Boeing would cut the number of executive jobs an additional 10 percent by the end of 2012, bringing overall cuts in its executive team to 30 percent for the past two years, a move that would result in a 10 percent cut in management costs.
Boeing said the changes were not a response to the threat of additional, across-the-board U.S. budget cuts due to take effect on Jan. 2, or the outcome of U.S. elections, but represented another step in its continuing drive to “be more competitive while investing in technologies and people.”
Boeing said it could not project exactly how workers would lose their jobs because it would try to place people in its growing commercial business.
A company spokesman declined to say how many jobs had already been cut from the 2010 level.
Rival Lockheed Martin has reduced its management ranks by about 25 percent in recent years after announcing a voluntary buyout.
Boeing said it would also expand its efforts to cut supply-chain costs by working closely with its suppliers, but did not provide details.
Defense consultant Loren Thompson said the changes were needed to ensure Boeing’s continued profitability.
“Many investors focus on Boeing’s commercial operations,” Thompson said, referring to the jet-making business.
“But defense provides 40 percent of the company’s revenues and returns, so controlling costs there is crucial to maintaining the company’s overall profitability.”
Boeing and other top weapons makers like Lockheed Martin, Northrop Grumman and Raytheon have focused heavily on cutting costs and drumming up foreign sales to maintain profits as they prepare for a sustained period of weaker defense budgets.