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SEPTEMBER 20, 2004
By Stanley Holmes Boeing Drafts IBM for Defense Work The aerospace giant is tapping Big Blue for its info-tech expertise in order to better compete for lucrative Pentagon contracts As the 21st century unfolds, a key Pentagon initiative is the creation of network-centric operations for various war-fighting machines. And for defense contractors, getting a piece of this huge technological upgrade is essential. So Boeing (BA ) and IBM (IBM ) today announced a strategic alliance that's potentially valued at more than $200 billion over 10 years. The two companies currently share more than $2 billion in defense-related business. They signed a 10-year agreement that includes a steering committee comprising Boeing and IBM executives charged with overseeing the partnership and the allocation of skill, technologies, and money. The teaming up underscores the aerospace company's determination to play a leading role in the military's Digital Age agenda. A VARIETY OF SUPPORT. The size and scope of the strategic partnership is rare for the defense industry. IBM will be working with Boeing on eight specific defense programs, ranging from digital communications to information and battle-space management, says Roger Roberts, CEO of Boeing Satellite Systems. "We hope to spark innovation and collaboration, and help the government transform its technologies and operations," said John Kelly, IBM senior vice-president, at the press conference Monday. Kelly said Big Blue will provide Boeing with a range of its technical and consulting expertise, from off-the-shelf computer technology and information-management software to microprocessor technology and networking software capabilities. In one project, Boeing's Roberts says IBM will provide the digital communications and smart processors for a defense-related satellite program worth about $300 million for both companies. Since Boeing understands system integration and building military and space platforms such as fighter jets, helicopters, rockets, and surveillance satellites, says Roberts, "the part we really need is the information management. [IBM] will help us take the power of the network to turn that data into rapid information and intelligence." COMMON NETWORK. That certainly is the next challenge in the Pentagon's strategy to transform the military. Its goal is to create technology that gives fighter pilots, special-forces commandos, Navy captains, and battlefield commanders real-time information through a common digital communications network. Defense contractors such as Boeing face myriad technical hurdles in creating a single network to digest and distribute real-time information to different military platforms. Yet with military transformation one of the few growth areas in the defense budget and billion-dollar contracts at stake, the defense industry has to reshape its priorities. Boeing and Northrop (NOC ) have been the clear leaders. In June, the U.S. Navy picked Boeing to build antisubmarine jets that will be stuffed with surveillance equipment and battle-space management capabilities. The contract is potentially worth up to $44 billion. And last week, Northrop won a billion-dollar contract to outfit the new E-10 surveillance jets with battle-management systems and Northrop's synthetic aperture radar. Essentially, both of these aircraft will be wired for the brave new network-centric warfare world that the Pentagon is pressing hard to attain as soon as possible. MORE BATTLES AHEAD. The contractors are taking different approaches. Preferring its role as a systems integrator, Boeing is choosing to partner with key software and info-techy companies. Northrop, by contrast, is drawing mostly from its own internal expertise in military networking and integration. Lockheed-Martin (LMT ), the nation's No. 1 defense contractor, is behind Boeing and Northrop in network-centric business and is still trying to settle on a strategy. "Boeing is using the best of other people's work, and it's a good message to send," says Richard Aboulafia, aerospace analyst for Teal Group. "Northrop's core competency revolves around battlefield-management capabilities." The new alliance between Boeing and IBM is the latest salvo in the fight for the lucrative emerging defense market. But more battles are likely before a victor emerges because all the players are still pioneers in the world of network-centric warfare.  Holmes is a correspondent in BusinessWeek's Seattle bureau Edited by Patricia O'Connell
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