2012 Speeches
W. James McNerney, Jr.

Jim McNerney

Chairman, President and Chief Executive Officer

The Boeing Company

"2012 Address to Shareholders"

Annual Meeting

Chicago

April 30, 2012

One year ago at this meeting, I described how Boeing was entering yet another inflection point in this company's long and storied history.

Since then, through the unrelenting focus of our team, we have retired a number of significant business risks, further strengthened our core operations, improved our execution and competitiveness, leveraged our international advantage, and positioned ourselves to capture the incredible growth opportunity that is now upon us.

It has been my great honor to lead the now-172,000 person strong Boeing team during a year of such great challenge, great progress, and great potential.

Let's start our review of the past year with a short video that captures a few of the highlights.

As that video attests, our people are executing on our strategic priorities. They are delivering a powerful combination of growth and productivity to fund continued innovation. They are broadening and diversifying our global stance, our capabilities and our capacity for this company's next century of growth.

In 2011, our core production programs and services businesses in Boeing Commercial Airplanes and Boeing Defense, Space & Security performed exceptionally well, leading to operating margins near 10 percent in both of these businesses.

We finished the year with record revenues of $68.7 billion. Net earnings nearly equaled an all-time high at more than $4 billion. And our strong operating cash flow of $4 billion maintained healthy liquidity of $11.3 billion.

Taking a closer look at our businesses and our markets:

Last year, Commercial Airplanes delivered 477 airplanes and added 805 new orders, including a 150-plane launch order for our new 737 MAX. We also extended our market-share lead in the twin-aisle segment with a record 200 orders for the 777. Through the first quarter of this year, we booked an additional 412 new orders. This brings our backlog of firm orders to more than 4,000 airplanes valued at a record $308 billion -- an unprecedented foundation for strong and long-lasting growth.

Beyond the numbers, and perhaps most important to our future, we ushered in a new era in commercial aviation -- and retired substantial technical and business risks -- with the certification and first deliveries of the 787 Dreamliner and the new 747-8.

Reaching these historic milestones did not come easily. Game-changing innovation rarely does. But, thanks to the determined ingenuity of our people, we have created two incredible new airplane families that will bring significant value to our customers and to Boeing for many years to come. Both airplanes are performing very well in service, demonstrating high reliability and delivering dramatically improved fuel efficiency and operating economics.

Pilots and passengers alike are welcoming the 787 enthusiastically in each and every city it visits. The 787 is helping to restore the magic of flight to the travel experience, and its dramatically improved environmental footprint plays a major role in that popularity. The Dreamliner is winning critical acclaim, as well, including the premier award for achievements in aerospace -- the 2012 Collier Trophy.

Last year we solidified our product strategy in the single-aisle segment, with the launch of the 737 MAX. Customers quickly signaled their approval with more than 1,000 orders and commitments in its first four months in the marketplace. This new-engine variant of the 737 will be 10 to 12 percent more fuel efficient than today's 737 and will cost less to operate than its competitors.

Shifting for a moment to Boeing Defense, Space & Security:

In 2011, this side of our company also achieved strong operational success --even in the face of severe U.S. defense budget headwinds. We delivered 115 military jets, 131 new and remanufactured helicopters, four satellites and more than 10,500 weapons systems.

Our revenues held steady at $32 billion on continued customer demand for our core offerings and increased international sales, which grew to 24 percent of revenues from 17 percent the year before. We expect international sales for our defense business to reach as high as 30 percent of revenues in the near future -- a roughly four-fold increase from just several years ago.

We also strengthened our market position and growth prospects with an impressive string of strategic wins and new contract awards, including:

  • the U.S. Air Force KC-46 tanker program, in which we will design, develop and build 179 next-generation, 767-based tankers -- and maintain our 50-year franchise in this business;
  • a U.S. government sale to Saudi Arabia of 84 new F-15s and upgrades to 70 existing ones, which extends production of this advanced fighter to late this decade and positions it well for more international sales;
  • the Ground-based Midcourse Defense development and sustainment contract, which preserves our role as prime contractor and keeps us at the forefront of critical missile defense technology;
  • And the core rocket stages and the avionics systems for NASA's new Space Launch System, which ensures Boeing a leading role in the future of U.S. space exploration.

Meanwhile, in important growth markets, we continued to expand our capabilities with organic investments -- such as our Phantom Eye and Phantom Ray unmanned systems, and a new Cyber Engagement Center. We also supplemented this activity with some niche acquisitions, including information-solutions provider Solutions Made Simple.

Including new orders booked in the first quarter of this year, Defense, Space & Security's $72 billion backlog is a Boeing record and ranks among the industry's highest.

A longstanding strategic priority for Boeing has been to aggressively grow our services business, and to do so, in part, by leveraging the combined capabilities and synergies of both our major businesses.

Our services teams provide everything to help our customers operate their aircraft more efficiently and effectively throughout the entire lifecycle of the product. They train flight crews and maintainers; provide and provision spares, maintenance and integrated logistical support; and perform modifications and upgrades.

Our competitive edge in services comes through our scale, as you would imagine -- an installed base of 18,000 commercial and military aircraft --and the innovative solutions our technology can provide. Last year, services accounted for nearly 20 percent of total company revenues. And our commercial services segment is forecast to continue growing at double-digit rates.

In this next video, our service business leaders share a few examples of the innovation and value we're bringing to our customers.

Turning to our outlook:

While we made considerable progress on our priorities in 2011 -- with its momentum evidenced in the strong first-quarter results we announced last week --more work remains to be done to unleash our full potential as we count down to this company's 100th anniversary in 2016.

With strong core operating performance as our bedrock, and substantial growth already booked in our backlog, we intend to convert these foundational strengths into sustained business performance -- the year-in, year-out excellence typified by the world's top-performing companies. By staying intensely focused on disciplined execution, productivity improvements to continuously fund innovation, and improved management of business and technical risks, we intend to deliver the consistent, high levels of performance and value that our shareholders expect.

Commercial airplanes remains an attractive growth market. Despite the choppy pace of the global economic recovery, airline industry fundamentals remain intact, and demand for new airplanes is strong and growing.

Our top priority for Boeing Commercial Airplanes this year is to deliver on the growth in our record backlog by steadily and profitably increasing production rates across all programs, while ensuring continuity for our business as we scale it up to meet market demands.

Carefully managed production-rate increases from 2011 through 2014 will raise our commercial-airplane output by more than 40 percent. The four-year contract extension we reached with our Machinists union in Puget Sound late last year will help ensure delivery of this growth plan. Other recent steps we have taken to ensure business continuity include rebalancing the 787 work done in-house and by our global partners, and expanding and diversifying our manufacturing and engineering base in South Carolina and other locations.

Also on our list of priorities for Commercial Airplanes are to execute the 787-9 and 737 MAX development efforts on plan; continue to grow our services business; and extend our lead in the twin-aisle segment with potential advances in our 777 and 787 airplane families.

In Defense, Space & Security, we face continuing challenges brought on by declining defense budgets and shifting program priorities among a number of our major customers, primarily here in the U.S.

However, we have been anticipating and preparing for a declining defense environment for several years. We have taken significant action to reduce infrastructure and other costs, and to restructure our business for greater affordability. As our healthy backlog and recent orders attest, we believe we are well positioned for continued success with our portfolio of proven, affordable and reliable systems and services --and our focus on innovation and program execution.

Our Defense, Space & Security priorities for this year remain:

  • First, extend and grow our core business by bringing capability and affordability to our customers.
  • Second, capture additional international business.
  • And third, continue to strengthen our capabilities in higher-growth spending areas like unmanned systems; intelligence, surveillance and reconnaissance; logistics; and cyber and infrastructure security.

My confidence in our ability to achieve the goals we have set has never been higher. That's due to the quality of our people, the breadth and depth of our technology, a renewed emphasis on the fundamentals of technical excellence, and the progress we have made in reshaping our culture to value One-Boeing collaboration and the achievement of broader company objectives.

There is no greater example of this "One Boeing" advantage than our winning the U.S. Air Force tanker competition --a collaborative effort that leveraged the unique strengths of our two major businesses and several core functions. During the course of 2011, we added several other dramatic examples of the power of collaboration across the enterprise, which I see as evidence that this shift in culture is truly taking hold.

Sustaining and furthering this culture is the job of leadership. We hire at the rate of between ten- and twelve-thousand new employees each year to meet our needs. This ongoing influx of new talent presents a major opportunity to rapidly instill this company's purpose and values into the employees who will drive our performance for the next 30 to 40 years.

These are rich and exciting times for the people of Boeing. With strong product-and-services strategies, a record backlog, and a commitment to innovation and continuous improvement, we are poised for significant and sustained growth that will carry us into our second century of aerospace leadership.

Innovation has been the bedrock of Boeing's success, so let me close with one last video that captures the essence of innovation and how it inspires all of us at Boeing to do so many of the things we want to do.