Boeing chief executive Harry Stonecipher believes the USgiant has proved its mix of commercial and defence works
Much has changed for the world's largest aerospace company in the past year, and not all for the worse. The 757 has been axed, but the 7E7 has been launched. The US Air Force's 767 aerial-refuelling tanker is stalled, but the 737 will be the US Navy's next maritime-patrol aircraft. Two senior executives have been fired over ethics violations, but bluff Harry Stonecipher has replaced amiable Phil Condit as chief executive and is busy repairing the damage. The defence business is booming, the commercial business is recovering, and Boeing is back in favour with Wall Street.
The biggest change over the past year, says Stonecipher, is that Boeing's strategy of balancing its business between commercial and defence is working. "That wasn't very obvious a year ago. We could say the words, but I don't think many people believed it. When you take [Boeing] Integrated Defense Systems, which won over $50 billion in orders last year, it's quite remarkable. So we are finding that the strategy is working, the balance is there."
The strategy was begun by Condit in 1996, but it was Stonecipher, then chief executive of McDonnell Douglas (MDC), who negotiated the 1997 merger that gave the transformation its momentum. He joined Boeing as president and chief operating officer, became vice-chairman in 2001 and retired in 2002, only to return as president and chief executive in December last year after Condit resigned in the wake of the ethics scandal involving two senior executives.
Stonecipher is no stranger to restoring the reputation of scandal-tainted companies. As chief executive of Sundstrand in the early 1990s, he repaired the company's fraud-damaged relationship with the Department of Defense. Now he finds himself in a similar situation, working to restore the DoD's confidence in Boeing after ethics violations that resulted in the suspension of its launch vehicle business and the firing of chief financial officer Mike Sears.
Whatever progress Stonecipher has made, it has yet to bring a lifting of the launch business suspension, which continues to delay the award of the next batch of US Air Force evolved expendable launch vehicle (EELV) contracts. The KC-767 tanker deal remains stalled, tainted by Sears' illegal job talks with Darleen Druyun while she was still USAF acquisition chief, and is unlikely to be decided before January at the earliest.
"We did a lousy job of investigating the EELV thing five years ago," says Stonecipher. "And Mike Sears did the dumbest damn thing I've ever seen." While Druyun has pleaded guilty, Sears is still under investigation. "We have nothing to fear from this because it is quite open," he says. "If something else comes up, we will deal with it. Meanwhile, no one has come forward with any more 'go dos'." The last deal flagged up was Boeing's NATO E-3 AWACS upgrade contract. "There's no evidence of wrongdoing, but they didn't like the process and wanted to renegotiate," he says.
High on Stonecipher's list of achievements since his return to Boeing is the April launch of the 7E7, with a 50-aircraft order from All Nippon Airways. "I'm one of the guys who loved the Sonic Cruiser, but this is about economics," he says.
In the run-up to the launch, Stonecipher was portrayed as sceptical about the 7E7, partly because his 1993 decision as MDC chief executive not to launch the MD-12 large airliner helped pave the way for the Boeing merger and disappearance of the Douglas name.
"I was never sceptical about the 7E7," says Stonecipher, describing himself as one of the aircraft's biggest proponents. "They say Harry's against commercial airplanes. But if I were against commercial airplanes, why would I ever merge with Boeing? That was the only attractive thing about merging with Boeing."
Stonecipher attributes this reputation to his tough words when Boeing Commercial Airplanes (BCA) met major delivery problems soon after the merger in 1997. "I was pretty blunt. But what I didn't like was the execution that was going on," he says. "Some say I'm totally different this time round, but I'm not - the situation is different. I'm very happy [with BCA]."
With the air transport market showing signs of recovery, Boeing is coming under pressure to raise 737 and 747 delivery rates, but Stonecipher is not ready to "jump-start" production. "I hope there will be a very organised approach to increasing volumes, as big steps in production rates cost you money," he says.
When the recovery kicks in, Boeing will not chase market share despite the ground lost to Airbus in recent years, says Stonecipher. "Every time [a company] chases market share, it's a spiral to death. First you destroy margins, then you have problems delivering. So, no, we are not chasing market share - but I didn't say we are going to stay second to Airbus." That is good news for Boeing shareholders, who are "scared to death we'll take off chasing market share", he adds.
Back in 1993, one reason for Stonecipher's decision not to proceed with the MD-12 was the billions of dollars that would then have been needed to revamp MDC's entire airliner range. This time round, he has no similar concerns about the 7E7's launch fuelling demand for the same cost-saving technology across Boeing's product range.
"We are not limited at all [in launching new products]. We have the money, we have talent to do anything we want to, but the markets will decide the size of the airplane." He expects 7E7 technology to find its way into both the 737 and 747 ends of Boeing's range, "but there won't be anything dramatic happening any time soon".
On the defence side, Boeing continues to grow its network-centric business, but Stonecipher still sees long lives ahead for some of its more traditional platform programmes. "If the C-17 folks do their job right, it could go on to be a 40-year aircraft programme," he says. "The V-22 has that same capacity, if we keep driving cost out. Every country will want a couple, or a hundred." The F/A-18 could also find an export niche based on its cost versus the Joint Strike Fighter, he says.
Whether the next new commercial product is a 747 Advanced or a new 90- to 200-seat airliner, Boeing will not be limited by resources, says Stonecipher. "We have great cash balances. We have $4 billion worth of cash and another $4 billion worth of bank lines. The good news is we have the cash; the bad news is we don't have a good idea what to use it for." Any acquisitions are likely to be in the network-centric arena, "but we can't plan these things, we just have to keep our money ready for when an opportunity emerges".
Stonecipher publicly scotched long-lingering rumours of a possible transatlantic merger with BAE Systems earlier this year - three years after talks ended, he says.
"BAE chose a path of vertical integration and expanded into businesses we are not interested in," he says. "We are against vertical integration - Lockheed Martin got into trouble doing that. We want to bring the best of industry to our programmes. We are not going to buy any of the box-builders."
Stonecipher's focus on execution is still as acute today as it was when he bluntly tackled Boeing's commercial-aircraft production problems back in 1997. If he is told something will be done, he expects it to be done, say insiders.
"Failure to execute on big programmes is the biggest threat to Boeing," he says. "We have to be sure we execute. We have won some huge programmes. We describe ourselves as a large-scale integrator. Failure in any of those areas will destroy everything we have tried to build."
GRAHAM WARWICK / CHICAGO
Source: Flight International
