Hughes has a backlog of more than 36 satellites valued at more than $4 billion.
"Boeing intends to be number one in space," said Phil Condit, Boeing chairman, in a company statement. "This acquisition is a significant step forward in executing our goal of becoming the industry leader in integrated, space-based information and communications."
The acquisition, Condit said, "is an excellent strategic fit" for Boeing.
For Hughes, the deal provides much-needed cash for its growing satellite TV venture, DirecTV. The Los Angeles-based company, which has built nearly 40 percent of the world's commercial satellites, now plans to concentrate on expanding DirecTV and restructuring its other wireless communications services.
"When we put our (company) business plan together, we had so many growth opportunities but when we looked in the cash register we didn't have enough cash to fund all those businesses," said Mike Smith, Hughes' chairman and chief executive officer.
While digital services like DirecTV were soaring, the company's commercial satellite business was languishing, Smith said.
What made matters difficult, he said, was that other companies wouldn't buy Hughes satellites because they knew they later would have to compete with Hughes for the communications services those satellites could provide.
"We think the benefit to Boeing (in the deal) is we were shut out of competitions (for satellite sales) because we were in the service business," Smith said.
"Now Boeing becomes our largest vendor…and we will continue to buy (satellites) from Boeing. We didn't want to hold an auction because we are such an everyday user of the satellites and we wanted to make sure we had a supplier we could work with," he said.
The government must still approve the deal. Boeing said it expects completion by the end of summer.
Analysts said the move would lessen Boeing's dependency on the sales of jet airliners and allow it to boost its revenues in the commercial satellite business.
Already, the company has several satellite launch programs, including its Delta family of rockets and SeaLaunch, which uses a Russian rocket to lift off from a launch pad floating in the Pacific Ocean.
Hughes, meanwhile, would have the cash on hand to invest more in its array of wireless communications services.
With more than 8 million subscribers, DirecTV had revenues of $1 billion in the third quarter of last year, up from $408 million in the same period in 1998. But Hughes also spent heavily in developing the subscriber base, losing $29 million in the third quarter of 1999, mainly because of the cost of buying two satellite TV rivals.
The company expected to end last year about $2 billion debt.
Hughes also plans to use some of the Boeing cash to support PanAmSat, which operates a global network of 20 satellites serving five continents. Hughes owns 81 percent of that venture.
Hughes, which was started by eccentric tycoon Howard Hughes in 1932, began as Hughes Aircraft but spread out into defense electronics after World War II. In 1985 Hughes was acquired by General Motors, but its shares trade separately from GM stock. It sold its aircraft operations in 1997.
Under the agreement, Boeing will also acquire Hughes Electron Dynamics, which supplies electronic parts for satellites, and Spectrolab, which makes solar cells and panels for satellites.
The three businesses have a combined workforce of about 9,000 people, mostly in the Los Angeles area. Boeing is the largest private employers in California with 36,700 people.
Industry projections indicate that the global space and communications market will grow from its current $40 billion a year to $120 billion a year by 2010.
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