Boeing sees 'tough' defense business climate, flat margins

(Reuters) - Boeing Co expects its defense business to continue facing a tough environment with "flatish" profit margins, Chief Executive Jim McNerney said on Wednesday.

A recent federal government budget deal has pushed off automatic spending cuts known as sequestration by two years, but "sequestration has not gone away," McNerney said at a Cowen & Co investment conference.

In contrast, the commercial jetliner business is better than McNerney has seen it in his career, which includes time running General Electric Aviation, the maker of aircraft engines. Commercial aircraft business margins have room to rise, he said, due to faster jet production and the ability to get better prices from suppliers.

But he said it is a "fair criticism" that Boeing needs to do more to help suppliers on engineering and process improvement that will provide better prices.

McNerney also acknowledged that Boeing is hiring contract workers to help fix production problems at the 787 Dreamliner factory in South Carolina, and that some work was being moved to the Seattle area to be finished.

He also acknowledged there were "still some hard feelings" with machinists in the Seattle area after a bitter contract vote last month that ensured Boeing's new 777X jet program would be located in Washington state. The contract required machinists to give up their pension for a defined contribution plan.

(Reporting by Alwyn Scott; Editing by Jeffrey Benkoe)

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