Chairman and CEO
The Boeing Company
"Transforming Boeing: A View of the Future"
The Commercial Club of Chicago
September 25, 2001
It is great to be here.
I want to start by thanking the Commercial Club of Chicago for its support to Boeing over the last several months. You are a great group of business leaders and are one of the reasons that we chose your location, why we came to Chicago. As you know, this group has an amazing history of hosting leaders of the world since 1877.
Sir Winston Churchill spoke at the Commercial Club of Chicago 72 years ago next week - just about three weeks before the Black Thursday stock market crash. I stand here, trying to fill those enormous shoes that got a lot bigger after the tragic events of September 11th, which shocked all of us. I have found inspiration and courage in words that Churchill spoke in his radio broadcast to America during the dark days of 1941. He said: "The destiny of mankind is not decided on material computation. When great causes are on the move in the world ... we learn that we are spirits, not animals, and that something is going on in space and time, and beyond space and time, which, whether we like it or not, spells duty."
I believe duty calls all of us today. Duty to support our nation. Duty to support the business of our country. Duty to support our infrastructures. Duty to watch out for each other. The events of two weeks ago remind us again that it is our duty to take responsibility, that it is our duty to lead, that it is our duty to be brave because we have so much to do.
That is particularly true of the aerospace industry. This is an industry that provides a great and critical infrastructure for the world. This industry provides the core of global defense and security. As an industry, we connect people and bring families, heads of state, and business leaders together. As an industry, we protect people, bringing air superiority and carrying troops, bringing humanitarian aid and help when duty and disaster call. As an industry, we support lots of jobs, economies, and communities. We have a positive influence on where we live and work.
Right now our challenge is to support our nation, to promote the national security, to build the business infrastructure of this great country of ours, and to make it even greater. It requires rapid response, strength, and sacrifice. Duty calls - for our industry, for our communities, and for all of our companies.
At Boeing, I have asked the Boeing team to do several things:
- to build a safe and secure air transport system and restore public confidence;
- to join with the U.S. Department of Transportation and legislators to find effective security measures;
- to offer our expertise in communications intelligence and military aircraft in the war on terrorism.
We have a duty to respond and to restore national and global order. We must insist on safe and secure travel and commerce. We must have healthy businesses. Throughout its history, Boeing has helped keep this nation safe, and we will help keep it safe in the future. At the most fundamental level, this is a commitment to building a great future. We are up to that commitment.
I would like to spend a few minutes telling you where we are and where we are going. In 1996, we looked to the future and laid out a strategy to fundamentally transform The Boeing Company. The events of September 11th validated our strategy and brought it into sharp focus. Where are we against the background of today and the world of tomorrow?
Let me spend a little time talking about The Boeing Company of today and tomorrow, against the backdrop of the world of today and of the future. Sometime back, we saw some radical change coming, changes in a world driven by technology and the globalization of commerce. The information revolution and information technology have provided opportunities for fundamental changes in the way we do business, in the technology of communication, and in the technology of defense. The geo-political world also changed. Communism collapsed. The Berlin Wall disappeared. The Cold War ended.
As a result, the aerospace industry saw dramatic consolidation in the mid-90's. Looking at it from the perspective of The Boeing Company, we were headed toward having greater than 80 percent of our business in commercial aircraft and a declining defense and space business. We made a fundamental decision to build a company with better balance; one that could leverage technology across the full spectrum of aerospace. The implementation started quickly, beginning with the acquisition of Rockwell Aerospace in 1996. That began the fundamental transformation of the company.
The transformation took major form with the McDonnell Douglas merger. This established a company with significantly greater strength and breadth. We followed that with other acquisitions, even an acquisition of some businesses owned by people in this room, such as Jeppesen from the Chicago Tribune. We also acquired The Preston Group, Continental Graphics, and Hawker de Havilland in Australia among others. Hughes Space and Communication was another big one that filled out our portfolio.
Today, Boeing has revenues of more than $1 billion a week, people in 62 countries, and customers in 145 countries. So we said to ourselves, if we are going to manage a company with those fundamental elements that I just described, we need to spend a lot of time on a few vision words. In the end, we had a clear corporate vision: "People working together as a global enterprise for aerospace leadership."
We started with strategic goals: One, run healthy core businesses. Two, leverage our strengths into new products and services. And three, open new frontiers. Never stop dreaming. Executed well, we expect these strategies will provide for a profitable and growing business.
I am going to deviate a little. When we started, we asked our team: "What are our core competencies of all that we do?" Everyone said that they had a core competency. Very clearly, no one wanted to be left out.
Today we have three core competencies to focus our efforts: Detailed customer knowledge and focus, large-scale system integration, and a lean enterprise -- doing what we do efficiently. There are really clear roles and organizational responsibilities.
The company is composed of nine elements:
One, a Corporate Center, located in Chicago, that is responsible for the strategic direction of the company and the allocation of human and financial resources.
Two, a Shared Services Group based in Seattle. This unit provides the infrastructure and support for the entire company.
Third, a Research and Development organization -- The Phantom Works. This unit provides the technological glue for the company, making sure that the best technology and expertise for the business processes are available throughout the corporation.
And there are six operating business units. Most people are familiar with Boeing Commercial Airplanes, based in Seattle. It provides aviation solutions to customers worldwide and employs about 96,000 people. Commercial Airplanes is the world's largest manufacturer of commercial aircraft, with a global network of suppliers. Over the last few years this unit has improved its efficiency, and this year we were a few quarters ahead of the plan, reaching our goal of double-digit operating margins.
September 11th impacted Commercial Airplanes dramatically. The shutdown of the nation's air traffic system, coupled with the dramatic decrease in passengers, resulted in sharply lower aircraft requirements by both U.S. and global airlines. When people don't travel, airlines don't need airplanes.
This reduction will result in commensurate reductions of airplane production until traffic recovers. When Kuwait was invaded, the recovery took a year. It will take that long, or longer, to come back to the pre-September 11th level.
As a result, we have dramatically revised downward our delivery projections for 2001 and 2002, and we are looking to reduce our workforce by 20,000 to 30,000 jobs. We are working closely with our customers to rebuild public confidence in a safe, secure air transportation system. Our engineers are busy working on ideas to improve the safety and security of aircraft.
Over the long run, Commercial Airplanes is a good, solid business with a fundamental growth of about 5 percent per year. So, we are looking for other ways to grow this business. We are leveraging this core business into new products and services through our Commercial Aviation Services group. Today, it represents about 10 percent of Commercial Airplanes' revenue, and we anticipate that it will grow significantly.
Our next unit is Military Airplanes and Missiles Systems (A&M), based in St. Louis. This unit, which provides military aviation products and services, employs about 43,000 people. It is the world's largest military aircraft manufacturer. It designs, produces, and supports fighters, bombers, transports, rotorcraft, missiles, and munitions to defend the United States and our allies.
Here again, the events of September 11th affected this unit. As the U.S. government looks at how to deploy rapid response forces, the capabilities of A&M, which are at the core of that effort, stand out. Thus, there will be a lot of change in that business unit.
The C-17 is the premier military transport in the world, with the capability to operate in difficult fields. Boeing is, far and away, the largest producer of tanker aircraft, and we are working on a new tanker that uses the 767 as a platform.
We believe that we have the best military fighter solution with the Joint Strike Fighter (JSF). The JSF group is leading a revolution in aerospace with their one-team, design anywhere, build anywhere philosophy, which allows us to produce aircraft faster, better, and more affordably than ever before.
Finally, A&M is a leader in the technology for Unmanned Aerial Vehicles (UAV's) and Unmanned Combat Aerial Vehicles (UCAV's), which will be critical in the asymmetric warfare of the future.
As in Commercial Airplanes, we are leveraging our strengths in A&M, too. The U.S. government once maintained and modified all military aircraft in major depots. We now do a lot of that service work. Aerospace Support has grown to 25 percent of our Military Aircraft and Missiles' revenue today.
Boeing Space and Communications (S&C) is based in Seal Beach, California. This unit employs 40,000 people and clearly leads in missile defense, battle space management, and space-based communications.
S&C is the unit that produces the Airborne Warning and Control System (AWACS) and Global Positioning System, which provide integrated air and ground systems for battle management. Last year, we bought Hughes' space and communications business as part of our strategy to leverage core strengths into new products and services. We have tremendous integration capability. As the U.S. government looks for improved intelligence, the satellite technology of S&C will be a very valuable asset.
We have three new business units. Boeing Capital Corporation, our growing financial services arm, is based in Renton, Washington. This asset-based leasing and lending organization manages an asset portfolio of more than $6 billion, an amount that could grow significantly in the next five years. It has a broad portfolio and a lot of other heavy capital. It will play a great role, but is not the last resort for financing.
Connexion by Boeing is based in Seattle, Washington, and Irvine, California. This unit was formed to take advantage of technology, developing a global communications network to improve mobile communications to be more like your home phone call. The system utilizes a unique phased-array antenna, developed and patented by Boeing. It will provide high-speed Internet and entertainment services to mobile platforms, and passengers will be able to access e-mail, television news, and timely information.
September 11th changed all that again, Connexion was focused on bringing entertainment and connectivity to the airline passenger. The events of two weeks ago have added a focus on high bandwidth data to -and from the cockpit. This can range from video to the potential of flight command.
The last unit, Air Traffic Management, has its headquarters in Washington, D.C., and Kent, Washington. Air Traffic Management (ATM) is developing new approaches to bring technology solutions to air traffic control and airport operations.
Many of the world's air traffic systems are strained today. So Boeing is developing an air traffic management system that will dramatically increase capacity, improve safety, and remain affordable for those who use the system. September 11th dramatically increased the focus on our ATM activities. A satellite-based system with global connectivity, such as we have proposed, offers better knowledge and control of the world's air traffic.
Boeing is a company with a powerful global brand and great intellectual capital. The Boeing name opens doors literally everywhere and gives us opportunities around the world. We hold more than 6,300 active patents worldwide. Out of a work force of 200,000, our people hold more than 100,000 college degrees, with 64,000 degrees in the sciences and engineering.
Last year, almost 30,000 Boeing people took advantage of our "Learning Together Program," which pays for classes at any accredited college or university, wherever they want to go. Our goal was to create an atmosphere in which lifelong learning is what we do. In 2000, we invested a total of $110 million in that program and in our Boeing Leadership Center, which opened near St. Louis above the Missouri River two years ago. As of now, more than 6,000 Boeing first level, middle, and senior managers have trained at the center, where we have integrated business and leadership curricula with the goal of developing great leaders. It's a powerful force in building this company.
Boeing is also a company that believes in giving to causes. Last year, our company and our people gave cash and in-kind services of about $92 million to communities where they live and work. About $40 million came from generous employees and retirees, who gave through what is the world's largest employee-owned charitable organization, the Employees Community Fund of The Boeing Company.
As a result of what happened on September 11, we all pulled together to support relief and recovery and fundraising efforts to help the victims' families. Working together, we contributed $5.8 million for humanitarian purposes. We also donated the use of satellite transponders to FEMA in New York. And we are sponsoring a National Symphony Orchestra concert fundraiser, which airs Friday, September 28, to honor the families of the victims at the Pentagon.
Today is a pivotal time in our country, in our industry, in our company. We have a great history to build upon. Boeing defined a great deal of the aerospace industry and most of what flew in the 20th century. We did that because we were willing to take risks, to dream the impossible, and turn those dreams into reality.
Now we have come to Chicago to lead a great company, to connect and protect, to continue to dream and turn dreams into reality, to open new frontiers, to help define the future.
We must work together. We must keep our infrastructures sound and solid. We must watch out for each other. We must build a great future. That is what Boeing is committed to do, because it is our duty! Thank you. Now I would like to take your questions.