Boeing

2015 Speeches

Jim McNerny

W. James McNerney, Jr.
Chairman and Chief Executive Officer
The Boeing Company

2015 Address to Shareholders

Annual Meeting
Chicago

April 27, 2015

Three months from now, Boeing will begin its 100th year in business. We approach that threshold stronger, healthier and more competitive than at any time in recent memory. We have high confidence in our capabilities, winning strategies for our markets, and a time-tested resolve to continue leading our industry through innovation—innovation that is inspired by our customers’ needs...and fueled by the talents, technologies and teamwork of Boeing employees and global partners.

Over this past year, the people of Boeing sustained our upward trend of improved annual operating performance and strong growth. We set new records, reached numerous key milestones and significantly advanced the initiatives that will fuel our success well beyond our centennial year.

It’s important to note that these results represent the tremendous efforts of employees not just in the last year, but throughout the past decade as part of a concerted effort to strengthen and transform our company. 

During this time:

  • We united under one vision and one set of values—with ethics and integrity at the core.
  • We began operating as “One Boeing,” leveraging our enterprise scale and capabilities to the benefit of both our main businesses.
  • We renewed our commitments to innovation, technical excellence and environmental performance.
  • We improved execution in our production and development programs.
  • We instilled a culture of continuous productivity improvement to self-fund our growth and diversified our operational footprint in support of that growth.
  • We strengthened key customer, employee and other stakeholder relationships.
  • We expanded our global presence and partnerships.
  • And, we retired multiple lingering legal and financial risks to our business.

 

As a result of these and other efforts:

  • We recaptured and have expanded our market leadership in Commercial Airplanes with superior offerings and increasing production.
  • We have strengthened our relative position in Defense, Space and Security markets with franchise wins such as the P-8, KC-46 Tanker, Space Launch System and Commercial Crew programs.
  • And, since 2004, our revenues have risen 73%, and our earnings-per-share and our backlog have tripled.
  • In essence, through this decade of restoration and renewal, we have set the foundation for Boeing’s next generation of success.

 

Looking back at 2014 specifically:

  • Higher commercial airplane deliveries drove revenue up 5% to a record $90.8 billion.
  • Strong demand for our market-leading products and services produced $152 billion in new orders, boosting our total company backlog to a record $502 billion.
  • Strong core operating performance companywide drove core operating earnings of $8.9 billion and core earnings per share of $8.60.
  • These strong performance trends and our positive outlook led to our announcement last December to raise our dividend by 25% and authorize an additional $12 billion in new share repurchases.

 

Boeing Commercial Airplanes set an industry record in 2014 of 723 deliveries, which expanded our global market-share lead for the third consecutive year. Revenues reached $60 billion. We also set a company record with 1,432 net new orders and increased our backlog to nearly 5,800 airplanes worth a company-record $440 billion. This represents approximately eight years of production at current rates.

Our twin-aisle airplane family—the 747-8, 767, 777 and 787 Dreamliner—accounted for more than 60% of the world’s twin-aisle deliveries in 2014.

The 787 set an industry record of 114 deliveries, as we reached our planned production rate of 10 per month—the highest ever for a twin-aisle jet. In addition, we completed flight testing and certification of the 787-9 and delivered the first 10 of these higher-capacity, longer-range 787s. Our 787-10 development program also achieved firm configuration during the year.

We delivered a program-record 99 777s and booked 63 new orders to support the eventual transition to the 777X, which finalized 220 orders last year.

In the single-aisle market, the Next-Generation 737 and the 737 MAX combined for more than 1,000 new orders. We now are producing 737s at a record production rate of 42 per month—with more increases to come. Our high-capacity 737 MAX 200 was launched with a 100-airplane order from Ryanair. Demand for the MAX family remains high, with cumulative orders to date for more than 2,700 airplanes from 57 customers.

Boeing Defense, Space and Security maintained its competitive edge and market position in 2014 despite a continuing tough U.S. budget environment. Deliveries included 179 military aircraft, nearly 11,000 weapons systems and five satellites. We logged new orders worth nearly $26 billion. And we grew our backlog to $62 billion—about 36% of which stems from international customers. Revenues were solid at $30.9 billion, with 28% coming from international customers.

Strategic milestones and new orders in our defense business highlight the diversity of our product- and-services portfolio and the healthy geographic mix of our customer base.

Over the past year, we’ve achieved:

  • A successful Global Missile Defense intercept test
  • First flight of the 767-2C test aircraft for the KC-46 Tanker program
  • Selection of the V-22 by Japan to fulfill its tiltrotor aircraft requirements
  • A five-year contract to support Australia’s Airborne Early Warning and Control aircraft, plus delivery of the first upgraded AWACS aircraft to France
  • Three additional proving flights of the liquid-hydrogen-powered Phantom Eye
  • Orders for 43 AH-64E Apache helicopters
  • And, selection by the U.S. Air Force of the 747-8 as the next presidential aircraft.

 

Our space-exploration business also notched significant wins to expand our historic leadership in manned space. These included a contract to extend the life of the International Space Station; winning the Commercial Crew program—America’s next manned spacecraft; and finalizing our contract to build NASA’s Space Launch System—a rocket capable of taking humans to the moon, Mars and beyond.

Other recent space-related milestones included:

  • Return to Earth of the reusable, unmanned X-37B spacecraft after a record 674 days in orbit
  • On-orbit testing of the first Inmarsat-5 satellite
  • And, launch of the first two all-electric propulsion satellites—double-stacked on a single rocket.

 

Ever mindful of our competitors and our customers’ high expectations for the value we provide them, we continue to drive both incremental and step-function improvements in quality, productivity and safety all across Boeing.

Our “Partnering for Success” effort has grown to include more than 500 supplier companies, with whom we are working to reduce costs and improve first-time quality and component reliability. The committed savings through 2017 exceed several billion dollars, and our expectations for long-term savings are even higher.

We are focused, as well, on reducing risk and breaking the upward cost-spiral of development programs. Our teams are introducing designs that are more producible, use more common elements and adhere to our disciplined development process. We’re already seeing tangible benefits of these efforts in our 787-9 and -10, 737 MAX and 777X developments.

Earlier this year, Boeing Defense, Space and Security replicated a Commercial Airplanes best practice by establishing a central organization to manage development programs. This will help us further share expertise while reducing cost and risk...and better ensure performance as promised to our customers.

Our teams’ awareness of workplace safety—a core value throughout our company and a vital aspect of any quality or productivity program—also continues to grow. In that regard, we’re seeing solid signs of progress in strengthening our safety culture.

In addition to these growth-and-productivity initiatives, we furthered our competitive position last year by securing long-term labor contract extensions in the Pacific Northwest, St. Louis and Philadelphia regions. These unprecedented agreements will help us ensure business continuity for customers and lower program execution risks, while providing excellent pay and benefits for employees. Coupled with changes announced for nonunion employees, these agreements also reduce long-term risk to our balance sheet from defined-benefit pensions.

Looking ahead to the remainder of 2015 and beyond...

Through the hard-fought gains of the 787 program, we have built a substantial technological lead in Commercial Airplanes. Now, our job is to execute: To deliver on lower-risk development programs and accelerate the rate at which we convert our record backlog into cash and earnings...so that we can fund those projects and provide increasing returns to all stakeholders.

Our plans call for five additional production-rate increases yet this decade across the 787, 737 and 767 programs. We are also modernizing our production systems as we increase rates and introduce new models. Advanced-manufacturing innovations that we are pursuing, including greater automation, will enable us to reach new standards for employee safety, first-time quality and factory throughput.

Our commercial airplane development programs are progressing on plan (and our goal is to keep it that way). Ahead for us this year are the start of the final assembly of the 737 MAX (with first delivery in 2017) and firm configuration of the 777X (with first delivery in 2020).

The global commercial aviation market remains extremely attractive, with strong demand for new airplanes forecasted in the near- and long-term. We project nearly 37,000 new airplanes are needed over the next 20 years at a total value of $5.2 trillion.

In Defense, Space and Security, our portfolio of proven and reliable products and services remains a competitive advantage, and we remain confident in our prospects for continued success in a global market worth more than $2.7 trillion over the next decade.

Despite the ongoing threat of full U.S. budget sequestration in 2016, we see opportunities for growth in multiple areas: extending our current programs, capturing future U.S. franchise programs, and increasing international market share as we have over the last few years.

The U.S. market still remains our largest opportunity, and we are focused on meeting our commitments, addressing our customers’ evolving requirements and further increasing the affordability of our offerings. Since 2010, our market-based affordability efforts have produced more than $5 billion worth of savings (with a commitment to find another $1 billion) in support of government customer needs and to sustain healthy levels of R&D spending to maintain our technological edge for when the market eventually returns. 

Our investments remain focused on organic growth in areas such as commercial derivatives; space; unmanned systems; intelligence, surveillance and reconnaissance; and the critical few large-scale future programs that are priorities for our customers. These include the long-range strike bomber program and the T-X training system.

While we focus on building a bigger, better Boeing, we never lose sight of opportunities to also build a better planet. Once again last year, through their actions and their generosity, the people of Boeing demonstrated our deep commitment to improving the environment and our communities.

For example, we began powering our 737 factory in Renton, Washington, with 100% renewable energy, just like we do at Boeing South Carolina. Our Huntington Beach, California, site saves millions of gallons of water each year by reusing treated groundwater.

These actions and others support our target of zero growth by 2017 in greenhouse-gas emissions, water use, hazardous-waste generation and solid waste sent to landfills—this even as we increase commercial airplane production rates by 50%.

Boeing—and our employees and retirees—also invested $188 million in 2014 to help improve lives and build better communities worldwide. And during our global month of service, our employees, their family members and friends gave of their time and talents by participating in 170 projects benefitting more than 100 community partners in 15 countries.

When Bill Boeing first flew in a barnstormer’s floatplane over Lake Washington early last century, he told his business partner, “I think we can build a better one.” And they did. 

The rugged determination and passion for innovation with which he and other aerospace pioneers founded and built our company is alive and well. I see it in the eyes and actions of Boeing employees, who never shy away from big goals or tough challenges—whether on the job, or on behalf of their communities.

We at Boeing are stewards of an incredible legacy, and as such, we understand that we are not guaranteed success in the future. We know we must earn our position every day by setting our sights high and creating a virtuous cycle of customer-inspired innovation and strong, sustained business performance.

In short, to endure as a global industrial champion for a second century, we must continue to ask as much of ourselves as all those before us asked of themselves. And, as we celebrate our past in the year to come, we will keep looking to the future—looking to build an even better Boeing, and an even stronger team.