Guy Norris/LOS ANGELES
Boeing plans to weed out, sell or cancel "value-destroying" programmes by the end of the year, under a new strategy aimed at increasing the company's profitability.
The policy is based on the findings of a study which, for the first time, used the same metrics to assess the financial performance of Boeing's vastly different product lines across the civil, defence, space and services fields. The probe reveals that about nine of the 40 major business lines studied will break even at best, with seven of them more likely to produce negative returns.
Boeing's new chief financial officer, Debbie Hopkins, says around $3.6 billion of the $13 billion invested in the 40 programmes "-is not profitable". Of this, $2 billion is "-stuck at the break-even line", she adds, while the other $1.3 billion - 10% of the total - "-is really destroying value", and will receive "immediate attention".
Although no suspect programmes have been named, they are thought to range from space launchers to the ultra-long-range 777X study and the 717-200. Boeing chief executive Phil Condit warns that "-there are no sacred cows", and Hopkins adds that the $1.3 billion is the "-first cut, and is not necessarily cast in stone".
Re-assessment of its product lines follows a period of turbulence at Boeing. Rapid expansion through the acquisition of McDonnell Douglas and parts of the Rockwell business preceded a disastrous period as the company hit severe production problems.
Boeing's new business model has three major guidelines:
fix or eliminate value destroying activities or programmes; maximise the value of programmes that are already profitable, and update progress on a quarterly basis; add new value-creating programmes to the portfolio.
Using the new model, Boeing will define growth and profit targets for each line by the end of the second quarter of 1999. Hopkins says this will make explicit "-the targets we are driving towards".
The company also says that a "much stronger performance" over all its business sectors should result in operating earnings for 1999 and 2000 "at the higher end of the ranges" predicted earlier.
In January, the company envisaged improved net earnings of $1.5-1.8 billion in 1999 from turnover of $58 billion, with revenues slipping to $49 billion in 2000. "We will not dip in 2000, despite having lower revenues," says Hopkins.
Source: Flight International
