Philip M. Condit
Chairman and CEO
The Boeing Company
"Address to Shareholders"
May 01, 2000
Thank you, Jim. Let me add my welcome this morning.
This is my second visit to Alabama in a month, and it's great to be back. Alabama is home to about 3,000 Boeing employees. Our people have been key players in building our nation's space and defense programs. From the Saturn V Rocket, and the Apollo Program, to the International Space Station, and the Space Shuttle, to the National Missile Defense Program, and the Avenger, and our new Delta launch vehicle. So it's great to be here!
Now, as your Chairman, I officially call the annual meeting of The Boeing Company to order. First, I want to introduce our Board of Directors and ask each to stand as called. They are John Biggs, Chairman & CEO of TIAA-CREF, the national teachers' pension fund; John Bryson, Chairman & CEO, Edison International; Ken Duberstein, Chairman & CEO, The Duberstein Group; John Fery, Retired Chairman & CEO, Boise Cascade Corporation; Dr. Paul Gray, President Emeritus and Professor of Electrical Engineering, MIT; John McDonnell, Retired Chairman, McDonnell Douglas Corp.; Chuck Pigott, Chairman Emeritus, PACCAR Inc.; Lew Platt, retired Chairman, President & CEO of Hewlett-Packard Company; Roz Ridgway, former Assistant Secretary of State for Europe and Canada; Harry Stonecipher, President & Chief Operating Officer, The Boeing Company. At this time, I also would like to introduce John Shalikashvili, former Chairman of the Joint Chiefs of Staff, who is a nominee for election to this Board. This is our Board of Directors.
Now I'd like Boeing director, Bill Perry, former Secretary of Defense, to stand. Bill is retiring from our Board. We have been extremely fortunate to have had his brilliant guidance, perception, and experience. As a valued and respected member of this Board, he has helped immensely as we transformed ourselves into a competitive, global company. His vast experience in business, technology, security, and global matters has provided great depth and perspective. He always approaches every issue with studied insight, clarity of thought, and expression. Bill Perry is an outstanding leader and a wise counselor. We all look forward to the opportunity to continue to work together. Thank you, Bill.
Finally, it is my pleasure to introduce, as a group, the members of the Executive Council as we have shown them in our annual report, and I ask them all to stand together...Jim Albaugh, Ted Collins, Jim Dagnon, Chris Hansen, Jim Johnson, Judith Muhlberg, Alan Mulally, Jim Palmer, Mike Sears, Dave Swain, John Warner, who can't be with us. This is our Executive Council, thank you. Our next business is the Chairman's Report. The year 1999 was about transition; a year focused on performance, on progress, and on change. It was about setting and achieving goals, restoring Commercial production efficiency, winning critical new business, changing our culture, installing and managing for value, tying incentives to economic profit. Nineteen ninety-nine was a year of considerable financial improvement...$58 billion in revenue, up $1.8 billion dollars over 1998; $2.3 billion in earnings, up 117 percent from the prior year; free cash flow of $4.8 billion; better operating margins of 5.5 percent, compared with 2.8 percent for 1998. And most important, a 29 percent total return to you, our shareholders. That is a return that compares with 21 percent for the S&P 500 average. We also repurchased 69 million shares of stock for 2.9 billion dollars. We have repurchased a total of 104 million shares. The Board authorized more than two-thirds of the 15 percent in August 1998.
Last year, our three core businesses performed extremely well. Commercial Airplanes restored its production and drove for better margins. Military Aircraft & Missiles had strong execution and a premiere program portfolio. Space & Communications achieved critical wins, and invested for long-term growth.
The first four months of 2000 have been eventful, too. After successfully completing 51 labor negotiations, we had a strike by members of the SPEEA union. We resolved our differences. Part of the solution was to "work together" for the future of this company. We held our first joint meeting two weeks ago. Today our workforce is "back together" as a team.
We are executing a recovery plan. Our priority is getting our customers what they need. Our Commercial deliveries should be essentially back on track by the end of the second quarter. We also signed an agreement to purchase Hughes Space and Communications to become the world leader in satellite communications. That deal should close later this year. We launched two new derivatives of the 777. We landed 128 Commercial airplane orders, reflecting economic recovery in Asia and increased interest by customers worldwide. We announced a global aerospace and defense Business-to-Business exchange. And a few days ago, we announced Connexion by Boeing, which I'll talk more about later.
Last week, our CFO, Debby Hopkins, left to join Lucent Technologies. Debby joined us at the time we were building a stronger, more effective leadership team to steer the company forward. And, we have done just that! In the interim, we have named Walt Skowronski our acting CFO.
In summary, you have seen us, over the last year, recover, resolve differences, grow and invest in R&D, introduce new products and services, deliver airplanes, win orders, expand, transform, add value, and make great strides as a team. Before I share my thinking about the future, I want you to see "how" Boeing products, people, and customers keep our planet "alive" every day, 24 hours a day. I would especially ask you to listen to what each of our customers is saying. Those compelling voices, and vivid images, and product sounds tell a great story of a great company. One in which you have chosen to invest.
Now I want to talk about the future. Every January, I bring our top 300 leaders together to discuss goals for the year. This last year, I talked about attitude and asked our leaders..."How good can we be; "How can we take 'what' we are good at doing and leverage it in new ways? "How can we create greater value for you our shareholders?" I asked the team to commit to three goals and they are to run healthy core businesses, to leverage our core strengths into new products and services, and to open new frontiers. I want to talk about each one of those a bit more.
First, run healthy core businesses. It is absolutely vital that we never stop doing that because it gives us the energy, and the power, and the resources to look at the new things we can do. Our core businesses, Commercial Airplanes, Military Aircraft and Missiles, and Space and Communication, have solid, steady fundamental growth. However, we can significantly improve margins. There is room to improve; i.e., there is clear evidence that we can design our products in a way that cuts costs, identify more in lean manufacturing, and develop better processes every day. I think I've got it: However, this is not enough for the long-term.
So that brings me to my second point. We must leverage our core strengths into new products and services. This area provides tremendous opportunity for The Boeing Company. Our customers are adapting to a rapidly changing world and a global market economy. For example, commercial airlines are concentrating more on their core businesses and they are less interested in the maintenance and modification of airplanes. Right now, our support services in this market represent a little less than 5 percent of our Commercial Airplanes revenue, but it can grow significantly. The same applies to the Defense side. The U.S. Government once maintained and modified all aircraft in depots and now Boeing is doing some of that work. Today it has grown to 25 percent of our Military Aircraft and Missiles revenue. We have similar opportunities in Space and Communications and one way is through our acquisition of Hughes. Leveraging our core strengths can provide significant growth in our businesses. This gives us an opportunity to create significant value for our company and gives us substantial intellectual capital to pursue new business opportunities.
And that leads me to the third point. There are enormous possibilities to open new frontiers for our company. We have great intellectual capital and that is our people. We have a great global brand, recognized in virtually every country of the world. And we have phenomenal large-scale integration expertise. There are opportunities to leverage this into truly dramatic results.
The list of opportunities is long, so I will give just three examples: air infrastructure, mobile communications, and e-commerce. First is air infrastructure. Our current system of air traffic management has grown over time, literally from bonfires on hills to beacons to omnidirectional ranges and distance measuring equipment. It's our one-way lane in the skies. Airlines now carry 1.5 billion passengers every year...greater than the population of China. By 2016, the year Boeing will turn 100, airlines will carry about 3 billion people each year. That is a huge increase both on air traffic and the system that supports it. Boeing can use its knowledge and skill to solve the impact of a growing air infrastructure system. Just think about it: who knows satellite-based systems, who knows communications to and from airplanes, who knows surveillance of airplanes and management of airplanes better than Boeing?
The second example is mobile communications. Connexion by Boeing is a global, mobile service that will provide communications to mobile platforms whether they are in the air, on land, or sea. It uses a phased-array antenna and global satellite technology to provide broadband, mobile communication services to a variety of customers; i.e., airline passengers at 40,000 feet, airline operators, business jets, and all moving platforms such as cruise ships or trains. Connexion by Boeing will allow people "on the go" to connect on-line in real-time to the Internet, to a company intranet, to an e-commerce site, to a cable news network. This will change travel and the travel experience forever. Just as an example in commercial air travel today, you have a few choices. You can read or watch a movie. But soon, when you will be able to view a live baseball game or soccer match, or e-mail a family member, or shop on-line, or keep an eye on your stocks, the airplane will begin to look like your home or your office and the experience of travel will change. Mobile communications will have a dramatic impact on business productivity as well.
Third on that short list is e-commerce. Several years ago, we established an on-line spares operation, which had $400 million worth of spares sales last year. It's been a phenomenal success. Building on that, we have partnered with Raytheon, BAE Systems, and Lockheed Martin to create a global international aerospace exchange for aerospace solutions. This exchange offers both internal and external gains in efficiency for buyers and sellers. To develop both these and other opportunities, we formed a New Ventures' activity to look at these new frontiers and find how Boeing can better proceed. So if you take all of that, and all that I've talked about today, what you see is opportunity, ability, and capability.
We can do dramatic things as a company to deliver more shareholder value. It depends on three things. First, we will run healthy core businesses. We cannot take our eye off of that goal! Second, we will leverage our core strengths to expand the marketplace. We will not limit ourselves to the production of new equipment, but broaden ourselves to support our products over their lifetimes. And then, we will go to new frontiers, and ask what else we can do to produce exciting results.
We have had tremendous successes. Last year was a significant success. In the last year we had strong unit performance, better margins, aerospace services growth, record Commercial deliveries, new long-range 777 derivatives, and the Collier Trophy for the 27th time - this time for the F/A-18 E/F. We have divested non-core businesses; we have expanded services; we have expanded financing and support capabilities. And we are in the process of transforming from aerospace products to aerospace solutions.
As you saw in the video, let me give you some more numbers about Boeing. In the next 24 hours, some 3 million people will board 42,300 flights on Boeing jetliners, destined for almost every country on Earth. In the next 24 hours, 6,000 Boeing military aircraft will "keep the peace" with 27 air forces and every branch of the U.S. Military. In the next 24 hours, 335 satellites, launched into orbit by Boeing vehicles, will pass overhead. In the next 24 hours, Boeing will export $72 million of goods and services around the world. And in the next 24 hours, Boeing and its people will contribute $260,000 to support communities and make the world a better place to live.
Today the real impact is the excellent outlook for the future of this company. Today, we also 'debut' our new global ad campaign on CNN, to tell the whole world about this great Boeing Company. Some of you may have seen it this morning when you turned on the TV. So if you didn't see it this morning, I would like you to be among the "first" in the world to see our ad premiere.
(After election results announced). I would like you to leave with one major impression. We do have a well-balanced company. We have a great team, a working together team that gets stronger every day. We do have great people, great energy, and great attitude. And, I believe, overall a great company. That does not mean it's without problems or issues. I look forward to the years ahead. Thank you.
This meeting is adjourned.