Boeing Dives into Foreign Territory for Militarized Drones 🌏🚁
Boeing is branching out from their usual commercial aircraft business and establishing their first foreign assembly plant in Toowoomba, Australia. This new facility will focus on building military drones rather than passenger jets, marking a significant departure for the company.
In recent challenging years, Boeing's defense, space, and security segment proved to be the most stable source of revenue, generating a whopping $26 billion in 2018. However, commercial aircraft revenue took a hit, plummeting by 72% — or $41 billion — in the wake of the 737-Max crisis and the global pandemic.
Almost 83% of Boeing's defense business in 2020 came from the United States Department of Defense. While the company has depended on critical overseas customers as well, it's no surprise that Boeing is exploring market opportunities in Australia.
The brainchild of the Australian Boeing team, the MQ-28 Ghost Bat military drone, will be the primary focus of the new assembly plant. Boeing plans to create 3,500 full-time jobs in Toowoomba by 2028, with the Royal Australian Air Force currently being the only confirmed customer. However, the company aims to export the drone to military customers worldwide.
This move comes shortly after Australia announced its plans to collaborate with the United States and United Kingdom to develop a fleet of nuclear-powered submarines, viewed by many as an attempt to curb China's growing military ambitions in the region.
Long ago, American manufacturing giants relied on domestic production for most, or almost all, of their products. Boeing, under the ticker symbol BA, is one of the few exceptions. For instance, General Motors and Ford manufacture more cars in factories abroad, like in China and Mexico, than in the United States.
The primary motivation for overseas production is not merely centered on cost savings. It also involves reducing lead times and selling costs in foreign markets. While Boeing may not face significant challenges in this regard, given its existing customer base in various parts of the world, other companies may choose to expand manufacturing capabilities in foreign markets to benefit from reduced lead times and selling costs.
Boeing already operates its largest facility outside the United States in Australia, with approximately 4,000 employees. Some components are pre-assembled in the Australian facility for use in Boeing's domestic facilities in the United States.
Boeing also has a manufacturing facility in China, which was established for the completion of the interior finishing and final painting of Boeing 737 Max planes sold in China. The reason for establishing the facility there is primarily due to the mandatory Chinese governmental approval needed for all aircraft sales in the country.
However, the facility opened in late 2018 and barely managed to complete a single 737 Max plane before a series of tragic accidents and the subsequent worldwide grounding of the 737 Max led to its closure. Boeing's China sales have slumped since then, in part due to escalating trade tensions between the United States and China.
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Regardless of the commercial aircraft sector's misfortunes, Boeing's defense, space, and security segment has maintained a steady revenue stream. With the Australian project, Boeing sees the opportunity to explore new markets and seize the growing interest in military drones worldwide, offering advanced capabilities and leveraging the MQ-28 Ghost Bat's technological advancements.
