Chairman and CEO
The Boeing Company
"State of the Company"
December 13, 2000
Good morning! What I would like to give you is a very quick "State of the Company" view, and I have one announcement to make. Then I will take your questions both over the telephone and from the room.
At the start of 2000, I set three fundamental goals: the first was to run healthy core businesses; the second was to leverage our core strengths into new products and new services, and the third to open new frontiers. So I thought it would be worthwhile to tell you where we are. But most importantly, that our team did the job.
First Goal: Run Healthy Core Businesses
Across our businesses, we had a great year. We landed orders and launched new products. At the end of the third quarter, we had built a healthy backlog of $111 billion, up almost $12 billion from year-end 1999.
On the order side, Boeing Commercial Airplanes will sell almost 600 commercial airplanes this year while delivering about 490 new airplanes. Commercial airplane production is virtually sold out for 2001 deliveries. In addition, Commercial won a record 115 orders for the 777, bringing the total for that airplane to 561. Space and Communications is also ending the year with a record delivery from our new Boeing Satellite Systems...15 of them this year. Military Aircraft and Missiles won a multi-year Navy contract for 222 F/A 18 E/F aircraft, and they won the first international order for the C-17, with a planned lease of four to the United Kingdom's Royal Air Force. NASA selected the Delta launch vehicle for three firm missions and five options, and we landed a NASA contract for Delta II, Delta III, and Delta IV launches.
Commercial announced four new longer-range commercial airplanes. Military Aircraft and Missiles' Joint Strike Fighter concept demonstrator has now had 39 successful flights. We have completed 100 percent of the conventional takeoff and landing tests and look forward to the first flight of the STOVL version.
We did experience a work stoppage by our engineers in the Puget Sound area. A strike is never a desired outcome. In the end, we came to agreement and also created a joint "working together" council that has met regularly to keep communications open.
Our operating performance has improved every quarter through the year as our drive to run healthy core businesses has taken deep root. In 1999, our operating margin for the year was 5-1/2 percent. In the third quarter of this year, it reached 7.3 percent.
The Commercial Airplanes' team is poised to operate at double-digit operating margins ...significantly sooner than we thought possible just a year ago. Military Airplanes and Missiles continued double-digit operating margins and has a premiere portfolio of programs. Our core businesses at Space and Communications have performed very well, and we have made significant investment for future growth.
Together our employees have produced a year of excellent financial performance. We had powerful cash flow. We have had improved earnings and margins, and I will note that is in a year when our revenues were down. Our stock price opened the year at just over $41 a share. Yesterday, we closed at over $69 a share -- an increase of about 67 percent so far this year. And that's when the Dow, at the same time, lost 6.3 percent, the S&P 500 lost 5.8 percent, and the NASDAQ lost about 28 percent.
To reflect that performance, last Monday, the Boeing Board of Directors authorized a 21 percent increase in the dividend and authorized an additional 85 million shares of stock be repurchased as we wrap up our current share repurchase authorized in 1998. We remain dedicated to achieving 15 percent total shareholder returns over time. Overall, I am extremely pleased with how our team has done and that our performance has resulted in greater investor confidence and interest in our stock.
So it's vital that we continue to run healthy core businesses and that brings me to our second goal.
Leveraging Our Core Strengths into New Products and Services
We live in a world that sees our customers rapidly adapting to a global market economy and that gives us an opportunity to expand our market.
Commercial airline customers, for example, are concentrating more on core businesses and are less interested in maintenance and modification of airplanes. Today 85 percent of the current commercial fleet was built by Boeing. The maintenance and modification market is worth close to $90 billion, and our current share is four percent. That means we have a lot of room to grow. One example of our new activity is our conversion of passenger airplanes to special freighter configurations for DHL and UPS.
The exact same thing applies to the military side where the U.S. government maintained and modified their aircraft in major depots. In fact, we do a lot of that work now, and it has grown to 25 percent of Military Aircraft and Missiles' revenue. We have similar service opportunities in Space and Communication. Particularly, Hughes will play a critical role there as we help to connect a mobile world, and this gives us great entrÃ©e into that area.
Leveraging core strengths can provide growth in our businesses and create significant value. And we have even more opportunities in the future and that leads me to our final goal.
Opening New Frontiers
If you look at the strength of our brand and the intellectual capital of our 198,000 employees, we have two great assets. We added to that intellectual capital when the people of Jeppesen, The Preston Group, Continental Graphics, Hughes Space and Communications, and Hawker de Havilland joined us.
Now just a few examples of what else we did over the year. In conjunction with Raytheon, BAE Systems, and Lockheed, we launched Exostar, an industry-wide global aerospace and defense trading exchange that gives us a new portal for buying and selling.
We formed a new ventures group in Boeing to take advantage of new opportunities outside and inside the company. We have formed three new business units: Boeing Capital Corp., which is going to grow the company's growing financial arm. Connexion by Boeing, our way to change air travel forever by providing high-speed Internet and entertainment services to commercial airplanes. Air Traffic Management, an effort to develop new approaches to solving air traffic congestion in the U.S. and throughout the world.
As the world's largest aerospace company, we have customers in 145 countries and employees in 60 countries around the world. We have significant manufacturing in the U.S., Canada, and Australia with suppliers today in almost every major country of the world. We have an increased presence in Australia, where we employ nearly 3,000 people now and over 300 people with Jeppesen in Europe.
The company and I worked hard to secure Permanent Normalized Trade Relations for China to bring them into the global trading system. As we become increasingly part of this global market, we clearly understand that we need to bring greater focus to our global presence. So we are going to take an important step today by announcing a leader to help me build that strong global support network.
Today, I am pleased to announce that Thomas R. Pickering, who is Under Secretary of State for Political Affairs, will join Boeing as senior vice president, International Relations, in January, following his retirement from the U.S. government and the approval of the Boeing Board.
In this newly created position, Ambassador Pickering will focus on strengthening the Company's relationships around the world. He is very impressive. He is multi-lingual and has foreign service experience that spans five decades, including an assignment at the United Nations. Tom has extraordinary knowledge and experience in global matters. He will help take our global vision for the company to a new level.
2000 has been an exciting year. 2001 will be even more exciting. We will continue to focus on running healthy core businesses, on leveraging our strengths into new products and new services, and on opening new frontiers.
Now we can say we will open new frontiers globally.