1997 Speeches

Phil Condit

The Boeing Company

"The New Boeing: Our First 100 Days"

Twelfth Annual Transportation Conference

Salomon Brothers

World Headquarters

Seven World Trade Center

New York City

November 11, 1997

The "new" Boeing is 100 days old today.

I'd like to take this occasion to tell you: where we are today, how it is going, and what we see ahead.

First, where we are.

Just a year ago, The Boeing Company looked a lot different. We were mix of 75 percent commercial airplane and 25 percent defense and space with 123,000 people. Our mergers make a new mix: 60 percent commercial airplane and 40 percent defense and space with 233,000 people. We have now operations in 27 states, customers in 145 countries, and 1997 sales projections at $46-47 billion.

Today the "new" Boeing is the world's largest aerospace concern and a leader in three key areas: commercial aircraft, defense systems, and space systems. As of November 1, our new organization is complete. Top level, we have a two-person office of the chairman, a ten-person executive council, and three operating groups: Commercial Airplane Group, Information Space & Defense Systems (ISDS), and Shared Services, which includes computing, transportation, and support services.

We are now integrating operations throughout the groups.

The Commercial Airplane Group product decisions have been made and long-term integration decisions are scheduled for year-end.

ISDS integration is well under way. We have established four business units, three production units, and a research unit. We have mixed elements of all three heritage companies together to focus on aircraft and missiles, space systems, and information and communication.

The Shared Services Group is integrating the very diverse support operation focused on three geographical areas: Puget Sound in Washington, Southern California, and the Midwest. We have a real opportunity for savings.

Overall, integration is going better than I had hoped. I believe the combination of three historically rich aerospace firms position us extremely well for the long-term ... for our shareholders, our people, our customers, and our suppliers.

I'm pleased how far we've come to bring greater balance to The Boeing Company in one year.

Second, how it is going.

Now I'd like to turn to our current operations. Let's start with Commercial Airplanes. We have announced that by the second quarter of next year we will be producing 48 airplanes a month total, including our Douglas division.

We clearly have our short-term challenges. We started out to double our production in 18 months. This severely strained our systems ... our production system, our people system, our supplier system, our ordering systems.

Because of the rapid acceleration to higher production rates, we are experiencing costly out-of-sequence work. We have a recovery plan, and it is on schedule. Six weeks ago, we took dramatic action. We stopped the production line on the 747 and 737 to regain our schedule position, and this is working. Our plan is to brief all investors on our production status in a conference call November 25.

The rapid acceleration has put strains on our supplier base too. Our suppliers are working together with us, and shortages are down dramatically. Our ordering systems have been a significant part of the problem. Our airplane definition system, which will be replaced by DCAC, is flawed. Let me give an example. You "tab" a set of drawings to build an airplane. If you forget to tab one, you don't build the part. And then you expedite when you find out the part is short. If you don't "detab" a drawing, you spend the time and money to produce the part anyway. So in many cases, it wasn't a supplier problem, it was simply that the parts hadn't gotten ordered. From the parts supply standpoint, we are now at production rate.

Because of our commercial production problems, we have incurred pretax charges of $1.6 billion through the third quarter and will incur an additional $1 billion over the next 15 months.

We are going to feel the results of this acceleration over the next six months, maybe as long as nine. My best estimate is the next six months are going to be the toughest. Given the problems, our cash position remains strong. And our backlog, at $109 billion, remains strong.

Now let's turn to Information, Space & Defense Systems and look at operations there.

All of the production programs are in good shape: C-17, F-15, F/A-18, Delta II, Shuttle, and the CH-47 are all good, high-margin programs.

We have some issues on some of our development programs. We have increased our cost overrun estimate for our part of international space station, but we are working closely with NASA to make this program a success. We're making excellent progress on the hardware.

Sea Launch development has slid with first launch moving about six months from the middle of 1998. The F/A-18 E and F, despite a few hiccups, is going well. V-22 EMD has some cost problem, but production looks very good.

Overall, ISDS current situation is very good.

Third, what we see ahead.

Real opportunity for our products, programs, and shareholders.

On the Commercial Airplanes side, we have great families of airplanes. Our 737 is the most popular airplane in world, with 2,900 of the jets delivered. We have a new generation with the first model -700 certified and four more in the pipeline: -800, -600, -900, Business Jet.

The 777 is the clear market leader with the 100th delivered. The next model is in certification, with potential of two new very long range models. The 757. We have two models in production with a new stretch moving into production. The 767 has three models in production, with a new model in design. The 747 ... two models in production. The MD-95 has a new model moving into flight test, with the potential of one or two additional models. And the MD-11 has two models in production.

The markets remain strong. A few weeks ago, we received a $3 billion order from China. Yesterday, American Airlines ordered 767-300ERs and more 777s. Alaska Airlines ordered 10 737-900s and 10 options, launching the fourth model in Next-Generation 737 family.

Now let's look at the Information, Defense and Space side.

On Defense, with our fighter aircraft we have great balance between on-going production programs like the F-15 and F/A-18 and future programs such as the Joint Strike Fighter. On transport aircraft, we have great balance between specialized aircraft like C-17, commercial derivatives like C-32 (757), and C-9 replacement (737).

On Space systems, we also have good balance.

We've got the Shuttle, where we are the prime contractor. We have Shuttle "refurb" and Shuttle operations, where we are 50-50 joint venture partner with Lockheed. In the long term, a Shuttle upgrade is very real. It's an old vehicle and the potential of upgrade to a new electronic flight deck on Shuttle is real.

Our launch vehicles have great balance. Dependable launcher like Delta II. New Delta III next year and good potential in the Delta IV/EELV. We've got Sea Launch coming next year. And rocket engines for Shuttle, Delta, Atlas. All of those look very positive and look to have a lot of business prospects. There are going to be a lot of satellites launched. Being a strong player in this business and providing a good, dependable launch service has tremendous business opportunity. We're looking at a doubling on the 1994 base in 1998, 1999 in the number of launches per year.

Now investor value.

First, shareholder value. We are working to engage and focus Boeing people on the importance of shareholder value.

Last year, we established a stock incentive program which gives Boeing employees a direct financial stake in creating long-term shareholder value. Also we're aligning our compensation systems for our executives. Thirty percent of their annual incentive is paid with stock. We have established stock ownership targets, and we're about to increase those stock ownership targets.

We will make some changes in the basic delivery of compensation. We will put part of compensation directly in the form of stock. And we will expand that in 1998, as it ties the incentive targets directly to specific financial metrics. I believe these incentives, which are linked to shareholder value, allow all of the people of Boeing to share in the success they create over the long term.

Second, savings. As a result of our consolidation and merger, we have achieved savings and there will be more in the future. We will consolidate: support services, laboratories, ISDS administration. We plan to put all this together and implement in 1998.

Now let me wrap this up so I can take your questions.

Today, we celebrate 100 days of being merged with McDonnell Douglas. In the year 2016, The Boeing Company celebrates its 100th anniversary as a company. We believe we have a clear vision to get us to our future: one company, one vision.

"People working together as one global company for aerospace leadership."

That vision includes our core competencies. The things we do best. And the things we need to do to ensure aerospace leadership in 21st century:

Our vision specifically includes values and a commitment to shareholder value, customer satisfaction, quality, and people.

Right now, we have some short-term challenges, but we have recovery plans, and I believe we can overcome these rocks on the trail. We've accomplished a great deal over the last year to position our company for the global century and to provide more shareholder value in the long term. I think we have good balance between our current production programs and our future programs. And I think the new Boeing has a lot of opportunity.

It would be sad to stand here and say, "We're as good as we're going to get." The good news, bad news story is: "We're not as good as we're going to get." We've got a lot of room to get better, and we're going to do that for our shareholders, our customers, our suppliers, and our people.

Thank you.