Boeing to move defense strategies to 'smart' energy

As some of Boeing's key military programs are being canceled or face budget cuts, company defense chief Dennis Muilenburg is seeking to enter the potential $20 billion U.S. power-grid market.

After a month in the job, Muilenburg, 45, said he's accelerating plans to expand beyond aerospace and defense that were started by his predecessor, Jim Albaugh, who was named head of the commercial-jet division on Aug. 31.

"We know that we have to reposition our business, and that repositioning is something we are very aggressively doing," Muilenburg said in an interview in his office overlooking the Pentagon. "One idea is to take some of our defense technology and use it to help solve problems in the energy sector."

Energy projects would put Boeing in competition with General Electric, IBM and Cisco Systems, among others, for $4.5 billion of U.S. stimulus spending aimed at improving the grid.

The planned "smart-grid" technology seeks to lower costs and prevent disruptions with systems that allow energy providers to communicate. The market for the grid's communications segment may be worth $20 billion in the next few years, Boeing spokesman Chris Haddox said.

Boeing proposes using network and integration technologies from its missile-defense program and the Army's Future Combat Systems to "add a certain level of intelligence to the grid and allow efficiency and reliability improvements" for utilities, Muilenburg said.

"I would have some trepidation about Boeing's ability to manage program risk in these new areas as this would be unfamiliar territory," wrote Rob Stallard, an analyst with Macquarie Capital in New York, in an e-mail. "The past is littered with examples of defense companies trying to diversify."

Stallard added that "any progress in taking on Department of Energy projects is likely to be initially very small, especially when compared to headwinds" like the conclusion of Boeing's C-17 production.

Muilenburg said Boeing already has helped military bases reduce energy consumption and worked to improve the fuel efficiency of military planes.

Boeing submitted three proposals on Aug. 26 for stimulus grants to study the smart grid. The Department of Energy is expected to award the grants this year, Muilenburg said.

About $600 million of the department's funds will be distributed to smart-grid demonstration projects, and $3.3 billion will support manufacturing, purchasing and installing equipment, the department said in June.

Lockheed Martin, the world's largest defense company, also is bidding for the smart-grid projects.

The extra business would be a boost to Boeing, which has faced losses in the Pentagon's new spending plans. The $159 billion Future Combat Systems led by the company was broken into five parts, and its anti-missile Airborne Laser was curtailed from a program of seven 747-based airplanes to one test aircraft.

A ground-based missile-defense site in Europe that Boeing would have built was canceled. The company is fighting for a $35 billion contract for aerial-refueling tankers against Nothrop Grumman and the parent of Airbus.

Defense Secretary Robert Gates in May called the Future Combat Systems — manned and unmanned vehicles joined by a wireless network — "messed up" and split it into five programs. Boeing, which had been leading the effort, was left with one of the five.

Boeing will continue to have a role in the communications part of that program, which has worked "exceptionally well," Muilenburg said, allowing it to be deployed on the existing fleet of Army vehicles.

"That's why we are now able to take that technology and move it to adjacencies," he said. Muilenburg, who has been with Boeing since 1985, led the Future Combat Systems program in its early years.

Boeing's defense unit is leading the effort to enter the energy market, with help from the commercial side, and there are no plans to create a separate division, Muilenburg said. He and Albaugh, 59, are "very much focused on leveraging commonalities" in their new positions, he said.