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2000 Speeches
Phil Condit portrait

Phil Condit

Chairman and CEO

The Boeing Company

"Farnborough Press Conference"

Farnborough, England

July 26, 2000

Good morning! I'm Phil Condit, Chairman and CEO of The Boeing Company. Rather than having me stand up here alone and give you a description of everything we do, I want you to hear from the people who do the work. They have a powerful story to tell as we transform our company from products to solutions.

With me today are:

Mike Sears, Chief Financial Officer;
Jim Albaugh, President, Space and Communications;
Jerry Daniels, President, Military Aircraft and Missile Systems;
Alan Mulally, President, Commercial Airplanes;
George Muellner, General Manager, Phantom Works.

After our remarks, we will take questions.

Boeing is committed to three goals: running healthy core businesses, leveraging our core strengths into new products and services, and opening new frontiers. We will talk about each, but remember: This is an ongoing process, and we will migrate new activities into our core business and open different frontiers as we forge ahead.

Our first goal: running healthy core businesses.

We have a very balanced portfolio: Commercial Airplanes, Military Aircraft & Missile Systems, and Space and Communications and have identified our markets.

We will continually adapt to market needs and expand product lines to tap technological advances. Phantom Works is working across Boeing to apply technology advances to production, to integrate lean manufacturing, and to oversee research and development in all units.

Now I want Mike Sears to talk a little about financials and where we are going.

Thanks, Phil. And good morning, everyone. For those of you who may have missed our second-quarter earnings last week, it was an exceptional report. First, we kept our promises on performance and had a truly outstanding quarter. Second, we revised upward our guidance on some key aspects of our forecast for the remainder of this year and next year. To hit a few highlights....our operating earnings for the quarter were up over 16 percent from last year. Operating margins were up a full point from last year... from 5.2 percent to 6.2 percent - a big step in the direction of our target for consistent double-digit profits from operations.

Cash flow was exceptionally strong due to our rapid recovery in commercial airplane deliveries and advance payments on strong new orders. And earnings per share were up by nearly 34 percent when adjusted for non-recurring items.

All in all, it was a great quarter for Boeing and evidence that our focus "on running healthy core businesses" is solidly on track. We expect to achieve the stretch goal we established last year of maintaining our 2000 earnings per share around the same level as 1999 -- despite a planned $8 billion reduction in revenue.

On top of our outstanding results for the quarter, our outlook for the future is even better. As a result of external market factors and internal performance improvements, we've:

To summarize...when you look at the substantial improvements we're seeing in our operating performance, plus the strong demand for our current product and service offerings, plus the new frontiers we're entering, you have to conclude that this is a very different Boeing - better in many, many ways - than the one that came to Farnborough in '98 or Paris in '99. We know what we need to do to keep our business healthy for the long haul, and we're executing our plan for doing it. That's it, Phil.

Thanks for that update, Mike.

Now let's look closer at core businesses.

Business performance in Commercial continues to strengthen. After our strike, our team pulled together to get things back on track for our customers. I'm delighted with the quick rebound.

In the second quarter, we had excellent performance, with improved production and margins, three big campaign wins, and a healthy market outlook because of strong global economies that are driving strong growth in air travel. We continue to develop total customer solutions from financing and leasing to life cycle maintenance services.

Alan Mulally is going to share what his team is doing for our customers.

Our principal focus is meeting our customer commitments, and, as Phil mentioned, we've fully recovered from the strike and are on track with deliveries to meet our airplane commitment for this year.

We're also committed to world-class support for the 11,000-plus Boeing airplanes flying today. We've opened a new spares facility in Amsterdam with 50,000 different types of parts. And our Rapid Response Center offers technical support all day, every day.

We're also expanding our family of airplanes, the most complete and capable family ever built. I hope you've had a chance to see the 767-400ERX, with the new 777-style interior, that's on display here at the show. By now you've heard the good news from our customers about the 777X, the airplane consistently preferred by travelers. There's tremendous customer interest in the 747X, an airplane that provides an elegant solution to the limited market for very large airplanes.

But customer focus also includes making the process of buying an airplane more efficient, so we've computerized the process of configuring an airplane, shortening a process that once took weeks down to days. We're also focusing our options' catalogs on features the customers really want, making their choices simpler and easier. In the end, that means a more efficient build-process for us as well.

And we're looking at every aspect of our production process to shorten the flow from order to delivery. We're forging new partnerships with our suppliers around the world so that we receive fewer, simpler parts that go together easier and with even higher quality.

Thanks, Alan, and congratulations on the quick rebound.

Business performance in our Military Aircraft and Missile Systems is solid and consistent, and we expect full-year margins to be in the low double-digits.

In the second quarter, we signed a five-year contract, valued at $8.9 billion, with the U.S. Navy for 222 F/A-18E/F aircraft and a $3.1 billion development contract with the U.S. Army for the RAH-66 Comanche. This is a key part of the U.S. Army's Aviation Modernization plan for up to 1,200 aircraft valued at nearly $34 billion.

In a drive to improve asset utilization and enhance competitiveness, we announced our intent to sell the parts fabrication operations in St. Louis.

Jerry Daniels, can you tell us more about how you are providing solutions to customers.

Sure, Phil. All our programs focus on providing solutions that offer more capability at less cost. The reality today is that defense forces must modernize and maintain their forces under tight budget conditions. That reality will continue for as long as we can see.

Making its international debut here is the F/A-18E/F Super Hornet, which has been on schedule and on budget for about a decade. The cooperation between the U.S. Navy and the Hornet Industry Team was recognized recently in two ways - the award of the Collier Trophy for aeronautical excellence and the signing of an $8.9 billion multiyear Super Hornet contract. The Super Hornet is already gaining great interest in the international marketplace.

Cost and capability are the linchpins of our Joint Strike Fighter (JSF). Our Boeing JSF One Team is making tremendous progress through a seamless multinational contractor effort. Together we will produce the most capable and affordable fighter for all customers - domestic and international. If you have not visited our exhibit to see our full-scale mock-up, I invite you to do so. The future is here today.

We are very gratified that the United Kingdom decided to lease four C-17 aircraft. It's a trendsetter in terms of capability and program management. The C-17 shows what's possible by offering unrivaled capability and keeping program management intensely focused on cost and producibility improvements.

The V-22 also offers tremendous value for international customers. A number of countries, including the U.K., could benefit from it. We are working to bring the cost down so the V-22's revolutionary capability is accessible to militaries around the world.

Finally, our Military Aerospace Support business is driven by the concept of allowing customers to use scarce resources more productively by affordably providing the maintenance, modification, and upgrade activities customers were doing themselves. That business is at $3 billion in revenue, a total that will likely triple within a decade.

Phil, those are just a few examples of our dedication to delivering best value and solutions to our customers.

Those are great examples, Jerry, and I know you have more.

We continue to invest to grow Space and Communications. In the second quarter, we launched Connexion by Boeing and you will hear more later. We announced two niche acquisitions - Autometric for space imagery and geospatial information expertise and SVS for laser and optics capabilities.

Space and Communications had wins, too. NASA's Launch Services selected Delta II for three firm missions and five options, and we landed a NASA contract for Delta II, III, and IV that is potentially valued at $5 billion over 10 years. We will consolidate launch vehicle production facilities to Colorado and Alabama.

Jim Albaugh, can you share more about what your team is doing.

Today we serve five markets: launch services; human space flight and exploration; missile defense and space control; national intelligence, surveillance and reconnaissance (ISR); and information and communications.

Launch Services: We offer a range of launch service solutions including the Delta family and Sea Launch. Delta II has had 279 successful launches, more than any other expendable launch vehicle. Delta III problems have been addressed, and we return to flight soon. On Sea Launch, we have determined cause of failure and return to flight this week. Delta IV is in testing with first launch in 2001. And we have steady customer demand on the suite of vehicles.

Human Space Flight and Exploration: We're NASA's largest contractor; e.g., prime contractor for the International Space Station, which is part of a 16-nation venture. The Space Shuttle's 100th mission is in October, and we're proud to build and maintain the world's only operational reusable launch vehicle.

Missile Defense and Space Control and ISR: We're developing the Future Imagery Architecture for the National Reconnaissance Office, and we are the lead system integrator for the National Missile Defense. While we missed our target a few weeks ago, we know there are inherent technology risks in our work, especially at the beginning of a quest.

In short, we are excited about our future, Phil, and our enormous business possibilities.

I am too, Jim! It is vital that Boeing run healthy core businesses because it provides the power to sustain the company and allows us to look at, and examine, new opportunities.

Our second goal: leveraging core strengths into new products and services.

As the global market economy takes hold, our customers are adapting to a rapidly changing world. This gives us opportunity to provide more solutions to customers with our critical mass of product and customer knowledge and key technologies.

Historically, Boeing has been in the after-market for customer support, but today that is all changing, as Jerry just said. Aerospace support products and service solutions are good examples of leveraging core strengths. Large-scale systems integration is another way.

And Jim has a great story "on how" his group is doing that for our advantage. Jim.

We're leveraging our expertise from programs like AWACS, AEW&C, and GPS to provide integrated air and ground systems for battle management. 737 AEW&C expands the AWACS family to include a high-performance, lower-cost system with very low life-cycle and operating costs.

As Jim said earlier, we are in the information and communications services markets. Our pending acquisition of Hughes Space & Communications provides for long-term strategic growth in this area, and we see enormous potential in an addressable market that tops $100 billion a year. Our new services unit, Space and Communications Services, will provide ongoing customer support for current space and communication activities and help us capture new government and commercial service-related business.

We are leveraging strengths into new products and services at Commercial, too, as airline customers concentrate on their core businesses more.

Alan, how about telling us what you are doing to leverage this growth opportunity.

As you know, Phil, we always provide great flight and maintenance crew training for Boeing customers. Today, with our joint venture partner, FlightSafety, we are the world's largest and most comprehensive provider of airline training. FlightSafetyBoeing is truly global, with simulators in 20 training locations around the world.

In the past, we also offered our customers limited modification services. Today, Boeing Aviation Services has teamed with partners around the world to offer modification and engineering services on a much greater scale. These include: major passenger-to-freighter conversions, avionics enhancements, interior reconfigurations and installation of in-flight entertainment systems.

Another major initiative for us is to leverage our knowledge of Boeing airplanes to win a larger share of the airplane engineering and maintenance services market. Eighty-five percent of the current fleet was built by Boeing. The market is worth more than $50 billion-plus, and our current share is about six percent. We will be very aggressive players in the future.

Thanks, Alan.

Innovative market solutions, digital design and lean manufacturing are other ways we are leveraging our core strengths. I want George Muellner to tell you his story about how we leveraged technology and processes to design the Joint Strike Fighter (JSF).

As Jerry said earlier, we have made tremendous progress on JSF. We took advantage of the information revolution and the best of our design/build approach developed on the Boeing 777 and other programs. We built on and improved these approaches to design and produce our JSF concept demonstrators significantly faster, better, and more affordably than any other developmental aircraft we've ever produced. Furthermore, these lean approaches allowed us to design and build different parts of the demonstrators in St. Louis, Seattle, and in England, and have all the pieces fit together perfectly during final assembly in Palmdale, California. On the JSF forebody alone, we were able to reduce design cycle time by 50 percent, assembly hours by 60 percent, and tools by almost 90 percent. We are leading a revolution in aerospace, and our one-team, design anywhere/build anywhere philosophy will lead to the development of more international partnerships in the future.

Thanks, George.

Our third goal: opening new frontiers.

We have great opportunity to open new frontiers at home and afar.

Two strong assets: a great global brand and enormous intellectual capital with our 185,000 employees, who hold almost 100,000 college degrees, with 64,000 in science-related disciplines.

We are geographically well placed, too, with customers in 145 countries and employees in 60 countries. And we continue to build on that by placing key leaders closer to customers and supplier-partners. For example, we have appointed a lead in Commercial Airplanes business in Europe and in sub-Saharan Africa.

Such initiatives are key to our international strategy to improve customer understanding and forge closer relationships where we do business; improve market access for our technologies, products, and services; and broaden our supply base.

As we grow in the global market economy, we all benefit, too, from customers and supplier-partners to local economies where our people work and live. We are also developing technologies and services to stimulate growth. For example, our recently announced Connexion by Boeing will provide broadband, mobile communications services anytime, anywhere, and there is growth opportunity in Air Traffic Management, too.

Jim is going to tell you that part of our story.

Our knowledge of highly mobile platforms, satellites, and space-based communication led to Connexion by Boeing. It's a mobile, global service using phased-array antenna and satellite technology to bring two-way broadband, communication services to airline and business jet passengers. So, soon when you can watch a soccer match, send an e-mail, or file a story from 40,000 feet, the airplane will begin to feel like your home or office and that will change the traveling experience and will turn downtime into productive time.

Satellite-based air-traffic management CNS/ATM is another big growth opportunity. Current systems are nearing capacity, and a projected 5- to 10-percent annual increase in use means major upgrades will be needed to avoid gridlock and ensure safety. Global architecture that transitions terrestrial infrastructure to satellite-based ATM is a solution. As a leading integrator of large-scale satellite-based communications systems, Boeing is uniquely qualified to design, build, and operate such a system.

Jim, there's some great opportunity there.

E-commerce allows us opportunity, too, as transaction costs are cut. Ordering online, transferring data, and reconciling receipts with orders will dramatically reduce non-value-added activity. Rough estimates are that in the United States alone, 50 percent of all economic activity is transactional. Those estimates also conclude that with 1996 technology, we can reduce transaction costs by 50 percent.

This is an opportunity to improve productivity, and one we are not going to miss.

Several years ago, Boeing established an online spares operation. Last year, it had $400 million worth of spares sales and led the industry in transaction costs. Building on that, we partnered with Raytheon, BAE Systems, and Lockheed Martin for a Business-to-Business global aerospace industry exchange that offers internal and external transaction gains in efficiency for both buyers and sellers. This is a new frontier for us.

We are opening frontiers in Commercial, too. Alan and his team are opening some exciting frontiers to solve those customer challenges, and he's going to tell you how.

Phil, we're in the total customer solutions business, and our arrangement with DHL is a great illustration of how that works for the customer. Last year DHL decided that they needed to replace older airplanes and grow their market with newer, quieter, and capable airplanes. The 757 is the perfect airplane for them, but they didn't need new 757s to meet the requirement. So we agreed to buy passenger airplanes, convert them to a special freighter configuration, and provide them to DHL under a multi-year lease. We're also going to maintain these airplanes for DHL. To make this come together, we involved Boeing Capital Corporation to help with financing and then brought in others to assist with the modification work.

American Trans Air is another example of being innovative to support the customer. ATA has a great future, but they needed a smaller, more capable fleet to meet its goals. We leveraged the resources of Boeing, ILFC, and GECAS to make a 47-airplane acquisition possible. We had a major contribution from Boeing Capital Corporation in structuring a deal that would support ATA's future growth. It was a win-win for ATA and Boeing.

Myboeingfleet.com is designed for our customers, too. It is a secure online access to a huge amount of information that used to be on microfilm. Now millions of engineering drawings, service bulletins, service letters, maintenance manuals, and other important documents are available online, 24 hours a day, seven days a week. It's the equivalent of about three million 350-page books. Point-and-click technology makes the site easy to use, and customers can personalize this page. Preston Group technology also opens new frontiers for Boeing. This software is to simulate airport and ATC environments, and our users include the FAA, NASA, airlines, airports, and others. Myboeingfleet.com and the Preston Group represent another aspect of total customer solutions.

Whether it's the right model of airplanes, the right deal to help the customer acquire that airplane, or a full-service maintenance agreement once it has been acquired, our focus is on total solutions for our customers.

Great, Alan.

We will open more frontiers as innovation and incubation grow across Boeing through our great resources in New Ventures and Phantom Works, where we are doing wonderful things in research and development. Now I want George to share some of that before we get to your questions.

As I said earlier, I think Boeing and Phantom Works are leading a revolution in aerospace, characterized by major breakthroughs in the ways we are designing and producing systems, not only to be more affordable, but also to have higher quality and higher performance.

These breakthroughs are coming from the use of commercial technologies and processes to develop, produce, and support open systems avionics' architectures in less than half the time and less than half the cost of what we used to do.

These breakthroughs are coming from the use of advanced manufacturing processes, such as friction stir joining -- which we are currently using to produce propellant tanks for our Delta rockets much better, faster, and cheaper than using arc weld - and with another process called stitched/resin film infusion -- which promises to provide large, sturdy composites structures at an affordable price.

And all of these advanced technologies and processes are being used in the development of such revolutionary new low-cost systems as the Unmanned Combat Air Vehicle, the X-37 reusable space plane, the Blended Wing-Body transport, the Canard Rotor-Wing, the Solar Orbit Transfer Vehicle, and the tiltrotor-wing Advanced Theater Tranport.

These systems - along with Boeing's vast array of other products and capabilities - are allowing us to move up the value chain even further to provide new, highly integrated System-of-Systems solutions for our customers - such as the Deepwater Program for the U.S. Coast Guard and the Future Combat System for the U.S. Army.

Exploring all these new frontiers for Boeing is very exciting for us because, in effect, we are defining the future of aerospace. It's a future with a lot of promise for improved performance, reliability, quality, and safety - all for a more affordable price. It's a promise that Boeing plans to keep, and I'm excited to be a part of it all.

Thanks, George, for some incredible work.

Now let me wrap this up. We have solid business performance. We know our markets. We know how to leverage core strengths, intellectual capital, and large-system integration expertise to provide total solutions for customers. We know how to open new frontiers with innovative products, services, and solutions to create a much stronger company around the world.

As the aerospace leader, as a company, and as a team of dedicated people, we are doing very dramatic things to benefit customers, shareholders, suppliers and communities where we work. Boeing is going to lead in the new global market economy in the 21st century, and I hope you will be with us forever to tell the stories of our capability and opportunity.

Now I want you to see our 60-second ad spot that reinforces our commitment to pursue "Forever New Frontiers" and helps answer the question, "What will tomorrow bring?"