Boeing completes its purchase of Hughes satellite operation

Associated Press

EL SEGUNDO, Calif. — The Boeing Co. formally took control of Hughes Electronics Corp.’s space and communications unit Friday, completing a $3.75 billion deal that makes Boeing a dominant player in the satellite communications industry.

Hughes’ expertise also will allow Boeing to develop new businesses providing broadband Internet and global positioning services for military and civilian aircraft, said Phil Condit, Boeing’s chairman and chief executive officer.

With the deal, Boeing picks up Hughes’ backlog of more than 40 satellite orders valued at about $5 billion. Boeing estimates the acquisition will boost revenues from Boeing’s Space and Communications division by about 35 percent to nearly $10 billion in 2001.

About 9,000 former Hughes employees were switched to the Boeing payroll as part of the deal.

"We think we’re putting together the premiere satellite capability in the world," Condit said.

The acquisition will benefit Boeing on several fronts, said Marco Caceres, an analyst with Teal Group in Fairfax, Va.

Equally important to Hughes’ satellite manufacturing capability, Condit said, is the intellectual capital Boeing can tap to develop new applications for commercial satellites, including the use of wireless broadband systems to connect aircraft to the Internet, GPS networks and other systems.

One possible application Boeing already is exploring is the use of global positioning technology to improve air traffic control at airports. Another would be in battlefield management systems. Technology could be used to let commanders know exactly where their units are at any given time.

Boeing already is developing a system, Connexion by Boeing, designed to provide high-speed Internet access for passengers on commercial airlines. The system is scheduled to become operational in late 2001 or early 2002.

Hughes was the world’s leading satellite maker before the acquisition. Hughes approached Boeing about the sale last year because Hughes executives wanted to focus their attention on the company’s fast-growing DirecTV satellite-to-home entertainment business. The sale was announced in January.

Shares of Boeing were down 6.3 cents to $61 Friday on the New York Stock Exchange, where shares of Hughes Electronics were up $1.52, or 5 percent, to $32.02.

Seattle-based Boeing attempted to buy Hughes in 1985, but was outbid by General Motors, which agreed to pay $5 billion in cash and stock for the satellite maker.

The new satellite unit, called Boeing Satellite Systems, is expected to have operating margins of 10 percent or better, said Tig H. Krekel, president of the unit. It will produce 16 to 18 satellites per year.

The demand for wireless broadband and satellite to home television systems should generate growth of 10 percent to 15 percent a year in the commercial satellite industry, he said.