LOS ANGELES The worst is yet to come for defense contractors facing the impact of federal budget sequestration, Boeing Co. warned this week.
While Boeing has seen "some impact of sequestration," it anticipates an even greater impact, including "some pretty draconian types of scenarios," Jim McNerney, chairman, president and chief executive officer of the Chicago-based aerospace company, said during an earnings call.
"We are not out of the woods at all," he said, without detailing the probable effects of further cutbacks. "We are just entering the woods.
Boeing is diversifying its defense and military business outside the United States, the company said. Backlogs at its Defense, Space & Security segment increased to $71 billion during the second quarter, 37 percent of which comprised orders from foreign customers.
Boeings deliveries of commercial aircraft rose 12.7 percent over the same period last year to 169, pushing deliveries for the first half up 6.6 percent to 306 planes.
Second-quarter net income of $1.09 billion rose 12.5 percent from $967 million a year earlier on sales that gained 9 percent to $21.82 billion from $20.01 billion.
For the first six months of the year, net income totaled $2.19 billion, up 16.1 percent from $1.89 billion a year earlier, on revenue that rose 3.4 percent to $40.71 billion from $39.39 billion.
While Boeing dispatched just 17 of its wide-body 787 Dreamliners in the first half as issues with its lithium-ion batteries temporarily suspended deliveries, Boeing expects to deliver more than 60 of the planes this year, McNerney said. The company is currently producing Dreamliners at a rate of seven per month and expects to build them at a rate of 10 per month by year-end, which he said is Boeings "number one priority," at plants in Everett, Wash., and North Charleston, S.C.
There is pressure to raise production further, McNerney said. This is being driven by demand for the newer and larger 787-9 and 787-10 versions of the Dreamliner, the former of which is due for its first flight later this year, and a growing marketplace "could move us (in the) direction" of boosting output.
While boosting output is "never easy," McNerney added that Boeing is assessing how to raise the production rate of its top-selling 737 narrow-body airliner beyond 42 per month, a rate it is slated to reach in the first half of 2014.