Randy's Journal: Archives

09 December 2005

D.C. flurries

There’s at least one thing Seattle, Washington, and Washington, D.C. have in common. They both go a little bonkers at the first sign of winter weather. Earlier this week I flew into D.C. in the midst of a few snow flurries. I was arriving on an evening flight to take part in something called the Aerospace and Defense Summit, held at the Reuters news bureau on H Street in Washington.

But what I didn’t count on was the minor pandemonium that a little frozen precipitation brings! Traffic tie-ups, school closings. It was enough to think I was back in Seattle where we went through our own version of this last week. Anyway, the snow flurries in the capital got me thinking about the flurry of airplane orders we’ve seen this year.

At more than 800 firm orders in 2005 so far, we’re approaching an all-time record year for orders for Boeing Commercial Airplanes. This milestone was also on the minds of the dozen or so Reuters reporters and editors I met with on Tuesday, who had a flurry of questions for me about Boeing’s year.

The one thing I wanted to impress upon them was that this shift in momentum for BCA didn’t happen over night. This transformation - and that’s really what it is, a transformation - has been the result of a total, long-term effort to bring more value to our customers, shareholders, employees, and our communities. I told the Reuters group that market share is just one element of the turnaround.

To begin with, under the leadership of BCA President and CEO Alan Mulally, we’ve transformed our product line to a simpler, more capable family of airplanes covering 100 to 450 seats (737, 787, 777 and now the 747-8). I told Reuters that this strong product line has positioned us well for the market recovery. And as we’re seeing this year, the market is validating our approach.

But that’s just part of it. We’re transforming our entire production system. The goal is a production machine with a focus on large-scale systems integration, and a lean global operation that continuously improves its efficiency. Evidence that this approach is working is the 737 moving assembly line in Renton, which we are also putting in place on the 777 line in Everett. The bottom line is that these lean operations are allowing us to produce the best products at the lowest possible cost to our customers.

We’re transforming our customer relationships by working even more closely with them to get a feel for their unique requirements, and we’re meeting those requirements with total business solutions. I think this has led directly to more responsive and energetic sales campaigns and the successes we’ve seen this year.

In the course of my one-hour session with the Reuters reporters, I got a number of questions about the future of the 767 program. When do we need to make a decision? My answer is, right now we have 15 net orders on the books in 2005 for the 767. That means we don’t have to make a decision until some point next year. And there still could be additional orders from existing customers. But as a commercial passenger platform, yes, the 767 is going to go away when the 787 is delivered. That’s a couple of years out.

Now, as a military or freighter platform, we’ll continue to produce the 767 as long as customers ask for it. I told Reuters that once the Air Force defines its requirements for a tanker, I’m confident Boeing will have a suitable platform, whatever the size and needs may be, because we’ve got airplanes ranging from the 737 all the way up to the 747.

Another question at the session in D.C. was, “Have airplane orders peaked? Or will next year be bigger?” Well, the answer to that is, yes, no, maybe. If you had told me a year ago we’d top 800 orders in 2005 I might not have believed you. But here we are.

Now, historically speaking, after a year this high, the tendency is that the following year orders can be somewhat lower. The good news is that the market continues to look strong into next year. And the factors in our business environment that drive growth are solid. This is great news for our airline customers and for our passengers. We’re certainly looking forward to the New Year. But who can know with any certainty what 2006 will bring?

When will we see an order for the passenger version of the 747-8? We expect that in 2006. We’re talking with customers now about it. There’s plenty of interest. We see a need for about 300 airplanes in the 400-500 seat size, so there’s a lot of potential there.

And what about “pressure” to launch a 737 successor? Well, I replied that there’s not really a lot of pressure. From a market point of view, we’re very happy with how the 737 is doing. In fact 2005 is an all-time record year for 737 sales. Certainly we’re having conversations with airlines. A Reuters reporter pointed out recent comments coming from Southwest Airlines indicating interest in a new single-aisle. But what’s not quoted about the SWA comments, is that what they would want is a new single-aisle airplane that delivers higher value.

And that’s exactly what will determine when Boeing develops a 737 successor. As I’ve said here before, that value has to offset the new infrastructure airlines will need to build to support the new airplane. In addition you’d want to see improvements in fuel consumption, operating costs, and price.

Reuters conducted a brief on-camera interview with me following the Summit session. You can find the video clip on the Reuters Summit Webpage under Aerospace and Defense Summit.

All in all, the Washington flurries were kind of refreshing. It was amusing to see the local media reports of people rushing to the stores to horde milk, bread and toilet paper (toilet paper?). The TV stations even have an acronym for it, MBTP. Despite it all, the Nation’s Capital survived the storm. And so did I.