Chairman and CEO
The Boeing Company
"2001 Investors Conference"
March 22, 2001
Good morning! I'm delighted to welcome you to our fourth institutional investor conference, and I thank you for spending time with us. Our intent today and tomorrow is to provide as much information as possible and give you the opportunity to interact with the management of the company.
Almost five years ago, we began a very fundamental transformation of Boeing because the most dangerous thing for a company to do is stand still. The transformation began with the acquisition of Rockwell Aerospace; then it took major form with the merger with McDonnell Douglas, which set the path for a company with greater strength and greater breadth. We followed that with the acquisition of The Preston Group, Jeppesen, Continental Graphics, Hughes, then added to that with Hawker de Havilland. The result is a company with enormous capability and enormous opportunity. The next step was to position the company -- not only for greater performance -- but for future growth. So during the last year, we stood up new business units with Boeing Capital, Connexion by Boeing, and Air Traffic Management. These are opportunities for the future.
A year ago January, I put forward to the management of the company a very simple plan -- a straightforward strategic plan that we reviewed with you last year. It is, number one, run healthy core businesses. This strategy will always be number one because without it we can't go on to number two and number three. Having done that, we can leverage our core strengths into new products and services, then open new frontiers. Yesterday, we took another step down this path of transformation. First, we announced that we will operate from a new World Corporate Center. Second, we named the heads of our three largest business units as CEOs of those core units. These moves, like the ones before, are aimed at only one thing; i.e., to create value. Today, we remain focused on the simple strategy of running healthy core businesses, leveraging our core strengths into new products and new services, and opening new frontiers.
So to open this conference, you might ask, "How do I think we are doing?"
First, running healthy core businesses. Since last year, I think we delivered excellent financial and business performance. We were the second-best-performing company on the Dow. Our operating performance improved each quarter last year, as the concept to run healthy core businesses took deep root.
Our Leadership Center in St. Louis took hold. We now have had 5,000 people transit that Center; they understand and have internalized the goals of this company. As we reported in our fourth quarter performance, we improved earnings and margins, wrapped up one share repurchase program and authorized another, and also raised our annual dividend. Overall, I am delighted that we are running healthy core businesses. It is where I want to be, and we are on the right trajectory.
We positioned Commercial as the premiere provider of aviation solutions. Commercial is poised to reach double-digit operating margins more than a year ahead of the original plan that we laid down. This is due to great execution, a stable production process, and never-ending attempts to make our enterprise leaner. Over the last year, we launched four new longer-range commercial airplanes. We are poised to take an exciting step forward with an airplane that operates at a higher speed and is assembled in a much better fashion, using the manufacturing technology breakthroughs that we demonstrated on the 777, 737, the JSF, and the UCAV.
We have positioned Military Airplanes and Missiles as the premiere provider of military aviation products and services. A&M continues to deliver double-digit operating margins and great execution, and it has made great strides in the Military Aerospace Support market. Airplanes and Missiles also is leading a revolution in aerospace with its one-team, design-anywhere, build-anywhere philosophy, which allows us to produce aircraft faster, better, and more affordably than ever before.
Finally, Space and Communications is the premiere integrator of complex space and communications systems, with a line of full-range space related services. S&C is clearly the leader in missile defense, battle space management, and space-based communications.
One of the things that doesn't get that much attention is that we are leveraging e-commerce across the corporation to cut transaction costs and create value. Our Shared Services Group, an internal group, focused on our infrastructure and non-production activities, leads this effort, which presents great opportunity for cost reduction. Today, we have a strong core team, which continues to focus on solid performance and is driven by economic profit targets that are directly aligned with shareholder interests. You will hear more from each of those operating groups about how they are running healthy core businesses and where they are headed. That leads me to our second strategy and to where we are headed: leveraging our core strengths into new products and new services.
If we are going to look at long-term growth, we have to do some things. Our core businesses have solid, steady fundamental growth of about 5 percent. We want to do far better than that by leveraging what we know best -- our core strengths -- into new products and new services to help our customers deal with a rapidly changing global market. We will push the boundaries of aerospace, and we will do it with a "next-square" approach. Imagine a grid -- a grid with markets on one axis and technology on the other. We want to move only one square at a time on this grid. We want to apply technology that we know well to adjacent markets or take new technologies and apply them to markets and customers we know well. We do not intend to take new technologies to new markets. We intend to push out the boundaries, next-square by next-square, to where we believe we will have the best possible success. We simply intend to be the best -- to run a great business. These steps will continue to reduce our exposure to economic downturns and increase our opportunity in economic upturns. Leveraging our core strengths can provide real, solid growth in our businesses, which leads to the third strategy: open new frontiers.
This company was willing to dream, to imagine what could be, and I want to make sure that we don't lose that. So we are doing things externally and internally to put forward long-term growth opportunities for Boeing by planting seeds that will grow the top line and build great margins. Last year, we did just that when we formed a new ventures group and stood up three new business units. The new ventures group seeks to tap innovative business ideas from inside and outside the company. Our first new business unit is Boeing Capital Corporation, which has a great opportunity to build on the company's strong balance sheet and access to strong markets. We are learning a lot about Connexion by Boeing, which can change air travel by providing high-speed Internet and entertainment services to commercial airplanes for their passengers. And it is out of that type of thinking that we came up with Air Traffic Management, which will develop new approaches to solve air traffic congestion in the world. I have two business goals for ATM. The first is to help build solutions and political support to fix congestion. The second is to participate profitably in that activity. As we look to the future, we will continue to seek growth opportunities and invest in the best ones.
I want a well-defined role for the Corporate Center -- one focused on the strategy of this company and on the allocation of capital and human resources. We will use capital wisely and invest with discipline and in a way that enhances our competitive position and provides excellent returns for our investors.
In short, to deliver value to our shareholders we will run healthy core businesses, leverage our strengths into new products and new services, and open new frontiers. As we look to the future, we will continue to seek growth opportunities and invest in the best ones. I believe that in the last year we delivered on that promise, and we will do that in the future. We will continue to do those three things as we position Boeing for better margins in the short-term, and as we grow the company for greater revenue and better margins in the long-term. It would be an understatement to say that I am excited about the opportunities.
So we will continue to drive for world-class margins, to grow the company with a capable and experienced management team, and to achieve top quartile returns over time. I am excited because this gives us enormous potential and you will know exactly "why" after you hear from our top leaders today and tomorrow. Most of all, I hope you will talk with the management team.
Now I'd be glad to take your questions.