No. 2: With SBInet, Boeing IDS takes flight

Boeing's new 787 Dreamliner passenger plane captured the mainstream media's attention in 2006 when it became the fastest-selling commercial airliner in history, with more than 500 orders.Although Boeing's reputation for flashy, high-tech passenger aircraft is well-known, its role as a government contractor is not as well-publicized. But with its high-profile win of the Homeland Security Department's SBInet contract that's about to change.Last fall, Boeing's Integrated Defense Systems division beat Lockheed Martin Corp., Ericsson Inc., Northrop Grumman Corp. and Raytheon Co. to win a six-year award for what is called Project 28 under SBInet, the DHS multiyear initiative to secure U.S. borders from would-be terrorists and illegal immigrants through advanced technology and increased manpower.Announcing the award, DHS Secretary Michael Chertoff said the two-part task order was worth about $67 million. Estimates put the potential value of the SBInet program at $2 billion to $3.1 billion.Despite a moderating defense market, Boeing's IDS division continues to do well, thanks partly to the SBInet program and other contracts, said Jim McNerney, Boeing's chairman, president and chief executive officer, in a statement to shareholders. As significant as the SBInet award was, 84 percent of IDS' revenue of $32.4 billion in 2006 came from the Defense Department, according to the company's annual report.IDS revenues increased 18 percent during fourth-quarter fiscal 2006 to a record $9.7 billion on higher volume across all segments of the division, the report said.This year, Boeing is No. 2 on the Top 100 with $7.3 billion in prime government services revenue.Boeing's work on the DHS contract is already under way. The company recently successfully tested the first SBI tower, paving the way for the construction of some 1,800 towers along the southern and northern U.S. borders within the next three years."The successful completion of the first integrated mobile-sensor tower test is a significant program milestone," said Jerry McElwee, vice president of SBInet at Boeing. "We are on schedule to deploy [the towers beginning] on June 13, as originally promised." Boeing will construct the first towers along the Arizona/Mexico border, and future task orders will expand their reach, McElwee said.Jim Albaugh, IDS president and chief executive officer at Boeing, said the successful tests show that the component is designed well and can be replicated for future deliveries.Once operational, the 98-foot towers ? equipped with cameras, radar, wireless data access points, communications and computer equipment, and a tower security system ? will detect and identify entries into the U.S. as they occur. That will help Border Patrol agents respond quickly.McElwee called the indefinite-delivery, indefinite-quantity contract an incentive to Boeing to not only meet the timetable but also perform better than expected. "Of course, as an IDIQ [contract], the government always has the option to take a different approach," he said. "There's no guarantee of future work."Nevertheless, McElwee said, he believes winning the initial award and meeting its benchmarks on time should give Boeing an advantage for future SBInet work.Some market analysts are skeptical, however. Suggesting the early SBInet performance is significant is "like saying Custer had a leg up because he got to the Little Big Horn first," said James Carafano, senior fellow at the Heritage Foundation. "It remains to be seen if being first out of the blocks is a big advantage or not."Carafano said it is too early to say that the SBInet contract is a major win for Boeing because the border security program presents unique challenges. "This is a deeply politically charged issue," he said. "It's a work in progress" that is also affected by staffing, policy and other problems affecting DHS."What we expect out of a lead systems integrator and how they interact with the government, that's going to be evolving and changing," he said. "I do think there is a pot of gold at the end of the rainbow. I also think there are a lot of minefields between a company and that pot of gold."Carafano added that if integrators such as Boeing can ultimately be successful implementing the SBInet program, "there is enormous business potential."McElwee said the Boeing team is working with Customs and Border Patrol to plan the next steps in the SBInet program, but he declined to provide specifics. "As you might expect," he said, "we're leaving it to [DHS] to announce those [steps] rather than our joining in and getting ahead of them."