It's official. Boeing no longer is just an airliner manufacturer. The momentous decision to move the company's headquarters from Seattle, its home for the last 85 years, clearly shows this is no longer the Boeing that your father, and grandfather, knew.
Big business requires bold decisions. And leaving the town where William Boeing first began building seaplanes is a bold decision. It is also necessary.
Boeing has spent billions transforming itself from the premier builder of commercial aircraft into the world's largest aerospace conglomerate. But another airline industry recession could see the company's share price tumble as its orderbook crumbles.
The business in which Boeing built its name is at best growing slowly. At worst, it is destructively cyclical. Defence, which became a major part of the business with Boeing's 1997 take-over of McDonnell Douglas, is growing only slowly, if at all. Boeing expects its core business to grow by no more than 5% a year for the foreseeable future. To achieve the 15% annual growth shareholders want, the company has to find new markets and new businesses.
The company has already taken bold steps in this direction, with its $3.75 billion acquisition of Hughes Electronics' satellite manufacturing business and its $1.5 billion purchase of aeronautical information provider Jeppesen. Elevating the status of new aviation internet, air traffic management and aerospace financing units was the next step in tapping into potential high-growth businesses.
In the light of these moves, separating corporate operations from aircraft manufacturing, organisationally and geographically, makes business sense. Relocating Boeing's headquarters away from its three core businesses - commercial aircraft, weapon systems and space - gives them equal and greater freedom to operate and unlock growth. Headquarters will incubate the new units in the expectation that they will one day grow into stand-alone businesses.
"One Boeing" has been the watchword since the take-over of McDonnell Douglas. This approach helped the company handle the post-merger challenges, but has its risks. A downturn in commercial aircraft could eclipse progress in other sectors and drag the share price down. By giving its core businesses greater independence, Boeing hopes to unlock shareholder value in its defence and space sectors.
Other companies have taken bold business steps. Lockheed merged with Martin Marietta and moved from California to be close to its biggest customer - the US Government. Now Lockheed Martin looks secure as the US Department of Defense's largest contractor.
BAE Systems turned down a merger with DaimlerChrysler Aerospace (Dasa) to cement its consolidation of the UK defence industry by acquiring GEC Marconi. A disgruntled Dasa turned to Aerospatiale Matra and sparked the creation of EADS. The result is two strong competitors on the world market.
Sometimes difficult decisions are necessary. Boeing's domination of the world airliner market is a thing of the past. It is time to move on. Boeing is rapidly evolving into a diversified, service-oriented entity that more closely resembles General Electric than its European rival Airbus.
News of Boeing's decision shook Seattle almost as much as the recent earthquake, but some perspective is required. Corporate headquarters accounts for only 1,000 of the 80,000 Boeing employees in the Seattle area, and will employ less than 500 after relocation. Commercial aircraft manufacturing will remain in the Puget Sound area.
Seattlites must recognise that $20 billion of Boeing's $50 billion in annual revenues now comes from businesses other than airliner manufacture and support; 120,000 of the company's 200,000 employees now reside in 25 other US states and 59 other countries. Last year, two-thirds of Boeing's $2 billion research and development budget was spent in areas other than commercial aircraft.
Seattle will forever be regarded as a cradle of aviation, but Boeing's home town is now the USA - its business base in the world.
Source: Flight International
