§ *space *industry § *the *rise of a *global *industry, § *or *inter-*regional *competition? § *it's quite an honor for me to be here with such a distinguished panel. *they represent the heavyweights of the satellite industry. *i need to make sure *i take good notes on what my fellow panelists are saying since they represent both my customers and competitors. § *as *didier [*moderator] has said, we've just undergone a major reorganization in *boeing. *my group is now responsible for satellites, as well as launch services. § *since *i was originally asked to provide the launch services perspective for this conference, *i'll leave the satellite industry perspective to the rest of the panel. § *the theme of this panel asks a very important question: *will we become a global industry *or, will we divide into competitive regions? § *in the space transportation and satellite manufacturing industries, arguments can be made for both outcomes. § *but, in the end, the customer will decide, and the decision will be based on best value. *and, it's my view, along with many others, that the only way to get best value is by being a global competitor. § *this means competing globally at every level - at the component, the subsystem, and launch vehicle level. *if we don't, we can never provide our customers - the satellite builders, the service providers, and the ultimate users - a best value product. § *in many ways, commercial space is already a global industry. *the global span of our customers - and of their customers -- makes it so. *i think this is reflected in the numerous global partnerships formed in the last several years. § *growth in the commercial satellite market is driving us. *you - our customers - have been very busy: § + *there are more than a thousand companies worldwide that develop, manufacture and operate space systems. + *there's a communications satellite launched every 12 days. + *and, *i won't bore you with the projections of the number of satellites to be launched in the next ten years or the revenues generated. *you know those numbers better than *i do. *just as an aside, it's also interesting to look at the business plans of the launch service providers over the next ten years. *all of us assume we will capture 50 percent of the worldwide market. *this should provide a very interesting and value-oriented marketplace for satellite builders and users. § *aside from the fact that no single nation has the capacity to address the total launch market, there are three principal reasons why *boeing thinks doing business globally is in all our best interests: § *first, only by working with global partners, can we give our customers access to all of the technologies available. *this allows us to offer the best solution for the customer's requirements. § *i think it's presumptuous for *boeing to think it has all the answers, right at our fingertips. *we don't. *no one does. *only by choosing the best ideas available from around the world can we provide the best solutions to our customer's requirements. § *for example, on *sea *launch, we needed a rocket that could be stored and serviced horizontally. *the *russians and *ukrainians are world leaders in that technology. *that's where we went. § *second, a global approach means that we have access to markets we wouldn't otherwise have access to. § *at *boeing, we're working hard on global alliances with both launch providers and satellite builders that will allow both *boeing and our partners to provide best value to their customers - and to increase market share. *in many cases, these are markets we couldn't be in without these relationships. § *third, it allows us to have access to products that we wouldn't otherwise have. § *within these three reasons, two important words appear again and again. *one of them is "partner." *the other one is "customer." § *first, *i want to say that suppliers are easy to come by. *partners are more difficult to find. *and, we're looking for partners. § *we're seeking partners who are willing to take a long-term view of the marketplace. *we're seeking partners interested in reciprocal arrangements. *when we are asked by companies, "what can we build for *boeing," we ask in return, "what can we build for you." § *i'd like to have *boeing hardware on all competitively sourced vehicles launched worldwide. *it doesn't matter to me whether the vehicle says *boeing on the side or not. § *all of this must happen under an umbrella of value to the customer. *the customer always, the customer. *our customers are operating seamlessly worldwide, and so must we. *partnerships are extending across international boundaries. § *for example: *i recently read that *t*v set-top decoder technology from *comstream in *san *diego is being manufactured in *wales by the *u*k arm of the *japanese electronic giant *matsushita for sale in *the *netherlands under the *panasonic brand name. *how would you like to be the contracts manager on that one? § *what does this new worldwide orientation mean? *it means that launch service companies must be flexible. *they will offer integrated, one-stop shopping of launch services. *they must also serve as merchant suppliers to other providers. § *boeing does this now. *you can sign up with *boeing to build and launch satellite, end-to-end. *or, for example, you can come to our *rocketdyne business for engines only. *companies will be trying to do this on both a global and regional basis. § *as we heard in the last panel, *european satellite manufacturing is consolidating before our eyes. *regardless of how *european satellite consolidation turns out, *i believe that, over the long haul, launch service decisions will be based on value - not regionalism. § *in the *united *states -- *ariane, *atlas, *delta, *h-2*a and others compete for the launch market. *i believe that will happen also in *europe and *asia. § *even for highly integrated products built by a single company, there'll be higher and higher global content. *for instance, on *delta *i*i*i, it includes both *european and *asian hardware. *saab *ericsson, *mitsubishi, and *s*e*p - to name just a few - are all part of our *delta *i*i*i team. § *the trend toward global content in launch vehicles will continue with our *delta *i*v product. *on *delta *i*v, *boeing has a goal of a 50 percent reduction in the cost of placing a pound in orbit. *i know our friends at *lockheed *martin have a similar goal. *i think we can do it - but only if we utilize all the capabilities and technology available to us worldwide. § *let me close by summarizing with three points: § + *first, only through competing in the global launch marketplace can we drive costs down and provide best value. + *second, companies, or countries, which don't embrace the global marketplace will quickly find that they are not competitive. + *and third, if those of us in this room today don't embrace the second point on the global marketplace, a different set of leading companies will be sitting here five years from now. *our business is not about countries or regions; it's about a world changing changing towards a deregulated, market-based economy. § *i look forward to the panel discussion. *thank you. § *fb. § *satellite 2000 *international *conference and *exhibition § *i hope you enjoyed the visual experience [video screening] we offered you this afternoon. *we did it as a tribute to the satellite industry and to the folks like you who make it such an exciting and dynamic business to be in. *in the presentation we just saw, *leonardo da *vinci takes a brief look at how, over the centuries, advances in communications and transportation have gone hand-in-hand. *in fact, one reason we chose *leonardo to narrate a video about communications was because of his early research into flight. *since 1916, much of the business of *the *boeing *company has been about putting people in touch in a physical way - by moving them from place to place. *allowing them to have face-to-face communications, to maintain relationships, to conduct business, to explore the world. *as we move into the 21st *century, satellite communications is doing the same thing, but in a virtual way. *ubiquitous connectivity is the future and satellites will be a big part of it. *the point *i think *leonardo makes in the video is that throughout history, communications has had an impact on transportation and vice versa. *years ago, if you wanted to communicate with someone far away, you had to go there yourself or send a messenger. *the telegraph and, later, long-distance telephones, made the messenger obsolete. *but for these new technologies to be implemented, advances in transportation were required -- trains to string telegraph poles and special ships to lay underwater cable. *r*f [radio frequency] communications followed and suddenly we could communicate with things that moved. *but *r*f had limitations -- it couldn't provide global connectivity. *satellites could, but required a new method of transportation -- space launch vehicles. *but enough about history *what *i want to talk about today is how *i see the future of the satellite industry how *i see the market for information and communications services and related support infrastructure shaping up over the next 10 years and where *i think the real growth will occur. *one can envision a future in which we have the ability to be connected to people, resources and information -- whenever we want and wherever we are. *that connectivity will be seamless and simple because the underlying complexity of required systems and infrastructure will be transparent to the user, connected by an invisible web of integrated systems. *in this fast-paced world of the future, our lives will be increasingly mobile and dynamic. *seamless connectivity will be required to enhance our personal and professional lives. *i'm sure many of you know the numbers better than *i do, but projections for the space-based *information and *communication market range from around $40 billion today to $120 billion or more per year by the end of the decade. (*that's down significantly from prior forecasts but still huge growth). *given that assumption, let's take a look at where the industry is today: *first let's look at the market. *we've all heard about the troubles in the industry. *last year's headlines sent a chill through the financial markets that remains today. *but is the picture all bad? *i don't believe so, especially in the *g*e*o market. *in 1999, 25 commercial geostationary satellites totaling $3 billion were put on order. *at the end of last year, there was a backlog of about 350 satellites - nearly half of them were medium- to large-sized *g*e*os. *in fact, by some estimates, last year was the satellite industry's second most active year ever, second only to 1995, and up 10 percent from 1998. *true, there were definite signs of slowdown in 1999, particularly in *asia and *latin *america. *these regions that had been driving much of the industry's growth, ordered only two satellites last year. *but now even *asia and, to a lesser extent, *latin *america, are showing signs of coming back. *the fact is, satellite-based communications is an enduring need in these areas of the world and will be for a long time to come. *so, despite some recent press reports to the contrary, in a lot of ways *i think the future remains bright. *but to a large extent, this depends on how well we can address, manage and meet customer expectations. *in a world of 10-10-321 5 cents a minute and 30-day money-back guarantees, our "offerings" -- whether products or services -- must be high-value, user-friendly and flexible to changing demands. *the real value to customers, and the real growth opportunity that *i see, is in providing seamless services that integrate separate systems and provide customers hassle-free, transparent operations. *no customer today wants a voice system, a location system, a data system and an entertainment system, separately. *customers want -- and demand -- integrated solutions an answer that can connect the dots. *for instance, connect the dots between a *g*p*s system, a communications satellite, a ground system and an airplane to provide an integrated air traffic management system -- allowing us to fly safer and put more planes in the sky. *at *boeing, when we talk about a network of separate systems operating together as a single unit, we call it "*system of *systems." *one example of that kind of system interoperability is called *c*s*e*l -- the *combat *survivor *evader *locator. *this product provides soldiers in the field with multiple satellite links for over-the-horizon communication, voice, global positioning, secure digital messaging and the full spectrum of radio and ground equipment interfaces. *this is a complete systems solution in a package weighing about the same as a paperback novel. (*wouldn't it be great to have one of these things in your briefcase, just like we now carry cell phones?) *tomorrow, the complex systems that allow *c*s*e*l to work will be imbedded in every form of service we use. *the satellite and information technology industries will lead the way. *in fact, they already are. *we've all witnessed the explosion in demand for bandwidth over the past 10 years. *and, while terrestrial systems are building out to address much of the demand, satellites will play a significant role in addressing this fundamental need. *just look at all the programs in work if you want any indication of whether or not this is true: *space*way, *astrolink, *skybridge, *teledesic and *cyber*star. *we also know this business isn't for the faint of heart. *we are constantly on the cutting-edge of technology, working in areas of extreme environments. *much can go wrong and people do focus on our failures. *but if you step back, your successes have been many. *those of you who are sitting in this room today have changed our world in so many ways. *you've brought us products and services such as: digital broadcast,*v*s*a*t*s, *earth observation and climate-monitoring satellites, *g*p*s and related applications, national security and reconnaissance imaging, and near-instant connectivity around the world, anytime, anywhere, with no infrastructure required. *so what are the issues we, as an industry, face? *what impediments must be addressed to grow this market and to satisfy customer needs? *i think there are two: performance and compliance. *first, performance -- *we must repair our quality image both in terms of launch vehicles and satellites. *we must provide customers with reliable access-to-space and, once on orbit, high-quality, reliable service at a competitive price. *on the financial side -- *we must live up to expectations and stop surprising *wall *street. *individual companies suffer from surprising analysts and our industry can't do that and expect to have investors' confidence. *in short, technically and financially, we must perform! *in the area of compliance -- *the communications marketplace is a global one. *government regulators and we as an industry must address the issue of export control. *many of us in industry spend too much time complaining about export controls instead of facing up to the fact that we're part of the problem and doing something about it. *certainly national security must be protected - *boeing clearly understands that - but we, like many, have not done a very good job in this area. *in my view, there are three things we [industry] must do collectively with the government: + *redefine the critical technologies + *streamline the existing licensing process + *ensure that the government is properly staffed in this area *so, those are some of the challenges we face, as well as some of the tremendous opportunities within our reach if we address them successfully. *and just as if climbing a mountain, it's important to look back once in awhile and marvel at the terrific progress we've made along the way. *today the satellite industry provides services hardly imagined 15 years ago. *far be it from me to say with certainty what the future will look like. *i'll leave that to the likes of *leonardo, and to those of you in this room, to create the future. *thank you. § *fb. § *joint *propulsion *conference '99 § *thanks for that kind introduction. *i'm very pleased to be here. *i see a lot of friends from *rocketdyne, *pratt & *whitney, *aerojet, *lockheed *martin, *daimler*chrysler *aerospace and *s*e*p. § *as *tom (*tom *massman, *division *director, *advanced *programs and *business *development for *boeing *rocketdyne *propulsion & *power) mentioned, *i spent some time at *rocketdyne. *in my new position, *i have other responsibilities that include, among other things, the *space *shuttle. *it's still hard to get adjusted to the fact that a *shuttle mission isn't over in 8 1/2 minutes with the main engine cut off. § *i also have to stop joking with *russ *turner (*president, *united *space *alliance) and *rick *stephens (*general *manager and *vice *president, *boeing *reusable *space *systems) that the *shuttle *orbiter is nothing but a mobile test platform for the *s*s*m*e (*space *shuttle *main *engine). *also, haven't you noticed the pictures of *shuttle are always from the bottom? § *you are discussing many very important topics at this conference, such as liquid propulsion, hybrid rockets, propellants and combustion, air breathing propulsion, electric propulsion and advanced propulsion concepts. *what the folks in this room do is important, and it is difficult. § *remember that the phrases "rocket science" and "rocket scientist" are synonymous with intellect and the ability to solve the world's toughest problems. *what you do is truly rocket science. § *what *i'd like to talk about today is what we as an industry are capable of doing. *and, what we, in fact, must do. *what we are able to do in the air and in space as a nation. *the human race depends in large part on the propulsion systems available to us. § *i don't want to say that propulsion is the "long pole in the tent" because that has a negative connotation. *let me say that propulsion, to a large degree, is the limiting factor - or enabling factor - in many things, including low-cost access to space and *h*s*c*t (high-speed civil transport). § *the recent string of launch vehicle failures has caused folks to question our industry. *they say, "we've lost the recipe." *i'd say they're partially right. *perhaps there are some fundamentals we need to focus on. *after all this is rocket science, and there are no tricks in our business. *it reminds me of a story by former football wide receiver *james *lofton. § *when asked what "tricks" he uses, *lofton said, "*one trick is to work harder than the other guy. *the second trick is, always hustle. *the third trick is to study and know what you're doing. *the fourth trick is always be prepared. *the fifth trick is never give up. *those are my tricks," he concluded. § *while *i have read in the press that some feel we, as an industry, have lost expertise as a result of retirements, and others say because we have gone to *integrated *product *teams and we have lost the emphasis on *system *integration. *i don't buy that. § *ultimately, *i believe we'll come back stronger because our work ethic is much like *james *lofton's and we will fix the recent problems we've had. § *i certainly don't have to tell this audience that one of the great themes of the 20th *century is progress in human flight: *from *kitty *hawk to the *moon in 66 years. *from a tiny internal combustion engine on the *wright *flyer, to the *f-1 engine on the *saturn *v, propulsion pioneers made it happen. *we did it because we dared to dream. § *looking back, it's hard to believe that it's been 30 years since *neil *armstrong walked on the moon. *let me ask you to step back to that time because it was like today in many ways. *it was a time of great energy and grand visions. § *at this very moment, thirty years ago, the *u.*s. space program was at full-tilt. *from *october 1968 through *july 1969, ten short months, we launched five *apollo missions: + *apollo 7, the first flight to *earth orbit + *apollo 8, the first orbit of the moon + *apollo 9 and 10, testing the *lunar *module + *and, of course, the *apollo 11 landing § *five incredible missions in ten months! *just think of it, in less than a decade - in less than half a generation - we went from being tethered to *earth... to the moon and back. § *that's the kind of thing our industry is capable of doing. *many of you may remember that at the time of the first *moon landing in 1969, we thought *mars would soon follow. § *many of you may also remember that at the time, *pan *american *airways began taking reservations for passenger flights to the moon. *they estimated that service would begin in the year 2000 and that a round-trip would cost about $28,000. *in 1971, the airline quietly suspended taking reservations, despite the fact that they had more than 30,000 people signed up for trips. § *the irony today is that passenger flights to the moon are probably more realistic than ever flying with *pan *american from *new *york to *paris again. § *that's the past. *let's look forward now. *what will the 21st *century bring ... what will its great themes be? *and will our industry still be at the forefront? § *part of the answer is embodied in the "*call for *papers" of this conference. *to paraphrase, it said... *"*global partnerships between nations, governments and industries must be forged to develop cost-effective systems for a new generation of programs."* § *certainly our business is no longer one dominated by government, or one that is domestic in nature. *you don't have to look any further than *sea *launch or *international *launch *services to see that. § *despite current problems, satellite constellations like *iridium, *globalstar and others yet to come will remake our industry. *through their demand for launch capacity they already have changed the launch vehicle business. *and while the demand for launches has softened, *i'm still bullish over the long haul. § *and how about airplanes... *despite what you read about the hurdles we face, at some point there will be a cost-effective *h*s*c*t. *and propulsion will be an enabling technology. *it, too, will change our world. *there will also be a convergence of air and space flight. § *yet, this is the *age of *market *competition. *it means the emphasis will be on three things... *cost... cost... and cost. *in my mind, there are two ways to address cost: doing things better and frame-breaking technologies. § *first, let me talk about doing things better. *this gives me a chance to talk about one of my favorite subjects, the *r*s-68 engine, which *boeing is developing for our *delta *i*v version of the *e*e*l*v (*evolved *expendable *launch *vehicle). § *byron *wood (*vice *president and *general *manager, *rocketdyne) spoke about it yesterday, so *i'll just touch on it for a moment. *the *r*s-68 is the first new *u.*s. rocket engine development in 25 years and we were able to take a "clean sheet" approach. § *this engine delivers 50 percent more thrust than the *space *shuttle *main *engine, yet it has 80 percent fewer unique parts and takes 95 percent less labor to assemble. *combined with the advances on the *delta *i*v vehicle itself, we believe we'll be able to reduce launch costs by 40-50 percent. § *however, despite the great strides we've made, the *e*e*l*v will be a "transitional" vehicle in the long run. *in fact, *i think the *r*s-68 engine may be the last expendable engine that *rocketdyne develops. *i call it transitional because of the limits of physics. § *what we've basically done is perfect what we've been doing for 40 years. § *if you look at chemical propulsion, perhaps we can get the specific impulse up to 475 seconds... maybe even 480 seconds. § *we all know that to get to *s*s*t*o (single stage to orbit), and to really reduce the cost of access to space, we need specific impulses much higher than that. *there are a lot of concepts that sound pretty far-out today, but some of them will change the industry. § *it might be *pulse-*wave *detonation or *rocket-*based *combined *cycle... or something we haven't heard of yet. *but, for us to change our world, we must break out of the box. § *speaking of "breaking out of the box," *i'm sure you're all very aware of the challenges *dan *goldin has set for *n*a*s*a and the aerospace industry. *in aeronautics, he has set the goal of making commercial air travel ten times safer and half as expensive. *in astronautics, he has set performance targets to make space launch 10,000 times safer and 100 times cheaper. § *some say his goals are too difficult. *i would say the only question is timing, because his goals are the right ones. *it's not if - it's how and when. *we've accomplished things like this in the past, such as going to the moon and back. § *getting to the moon took strong national will and significant investment. *the nation invested $100 billion in *apollo, including $50 billion to develop the *saturn *v rocket. *even the *space *shuttle took a $40-billion investment. *clearly, those kinds of investments aren't available in today's environment. *the solution lies in sorting out the roles of government and industry. § *there's so much talk about the word commercialization these days that some folks confuse it with the word free. *let me be real clear. *the word commercial and the word free are not synonymous! § *if we are to have a robust space industry and a *h*s*c*t, the government needs to step up to investments in long-term, high-risk *r&*d. *industry will make the necessary investments to commercialize when the market and technology is ready. § *one of the best analogies *i know of in this development process is the way airplanes reached the critical mass necessary for passenger flight. *as this audience knows, it was through the growth of the airmail system. § *the government helped develop the planes that were needed to meet the growing demand for airmail service. *as the volume grew, the costs came down and economics took over. *when the costs got low enough, airplanes attracted passenger travel and the rest is history. § *so where do we go from here? *the one thing *i think we all agree on is that, unless we get costs down dramatically, we won't be able to achieve our dreams. *this is true for space and air travel. *and it will take a concerted effort by government and industry. § *we must lobby to get increases in the science and technology budgets for propulsion. *we must continue to push the limits of existing technology and also explore new ones. *also, export control is stifling our business. *we need to work with government to ensure that export controls focus only on critical technologies. *meetings like this support all of those aims. § *like everyone in this room, *i love working in our industry. *i love the zoom and boom and the potential that we all dream about. *i want to take that $28,000 ride to the moon and back. *the people in this room have the vision and skills to make it happen. § *we have a limitless future ahead of us with many opportunities and challenges. *i look forward to working with all of you as we go into that future together. § *thank you. § *fb. § *working *together *globally § -focused products - *this chart very graphically displays that *boeing is much more than a commercial airplane company and how we're involved in some of the world's most exciting projects. - *in my brief comments today *i will show you how we've aligned these projects -- and many others -- into four market-focused businesses. § *long heritage; strong core competencies + *while the *space &*communications *group was formed in *september 1998, we have a long heritage and strong core competencies from all the former companies that complemented each other *north *american, *rockwell, *mc*donnell *douglas, *boeing. + *it's a new organization, but we've been in these businesses for a long time. + *we quickly focused this tremendous combination into the four market areas shown on this chart: *launch *services, *information &*communications, *orbital *systems &*exploration, and *missile *defense *systems. + *when you look at these four areas, there is a common requirement for expertise in large-scale systems integration. + *this allows us to gain synergies by moving people and technology back and forth -- just as we do with the other parts of *boeing. *we have the power to use the expertise of the entire company to address any issue. + *the other point *i'd like to make on this chart is that we view these markets as increasingly global in nature, and you'll see a lot more global initiatives from *boeing in these areas. § + *we are *n*a*s*a's largest contractor and are working with 16 countries to construct the largest and most complex structure ever placed in orbit -- *international *space *station. + *sea *launch is now a success with global partners. + *we are operating globally with *n*a*t*o and *japan *a*w*a*c*s, and our 737 *a*e*w will open even more international markets. + *we're committed to building on this experience to take an even more global approach. + *we will have less traditional business arrangements with a prime contractor/supplier relationship, and we'll have more strategic alliances and joint ventures. + *i'll highlight each of the four businesses on the chart, but first *i want to show you the market potential we're pursuing. § *market outlook + *this chart shows the market outlook for our four business areas. + *you've probably seen similar forecasts that show the total space market growing to $160-170 billion. + *first, look at the three lines on the bottom: *launch *services, *orbital *systems &*exploration, and *missile *defense. *they are all stable, long-term businesses. *while they seem to be flat markets in this graph, they are in constant dollars. *also, we believe we can grow our market share in all these areas. + *information &*communications is the real growth area, especially in the services area. § *launch *services -*in the *launch *services area we have strong core competencies across the board. - *expendable vehicle family supports the full spectrum of users -- 2,000 kg (4,400 lb) to 13,200 kg (29,000 lb). - *delta *i*i is the world's most reliable. *it has a 98 percent successful performance rate. - *sea *launch success gives us another excellent vehicle and more flexibility. *it's also a strong example of international cooperation. *we have global partners, and a solid manifest. *the first *sea *launch commercial flight is scheduled for *aug. 29 for *hughes/*d*i*r*e*c*t*v. - *delta *i*i*i -- *of course we've had two unrelated failures. *we have a handle on the problems and are looking to return to flight this fall. *we have two teams -- one looking at the *delta *i*i*i failures, and the other looking at mission assurance for all *boeing launch programs -- *delta, *sea *launch and *i*u*s. - *delta *i*v substantially lowers price when it enters service in 2001/2002. *first new *u.*s. vehicle in a generation uses advanced, yet simplified design for both the vehicle and propulsion. *it has reduced operating margins and a flexible mix of vehicles that meet wide customer needs. *reusables - *the *space *shuttle is the world's most versatile vehicle. *it can fly 10-20 more years. *boeing has unmatched capability -- *orbiter, *propulsion, *systems *integration. - *working with *n*a*s*a and the *u.*s. *space *alliance, *boeing aims to reduce operating costs by 3- percent -- with a targeted 40 percent reduction over the next 4-5 years. § *propulsion - *we are developing propulsion systems for the future. - *r*s-68 rocket engine is currently in test. - *solar *orbit *transfer *vehicle. § *orbital *systems &*exploration - *we are *n*a*s*a's largest contractor -- this year *n*a*s*a is celebrating its 40th anniversary and we've been with them all the way. - *international *space *station prime contractor: *the toughest integration job in history. *very successful *f*e*l in *november/*december 1998. *first logistics mission just landed last week. *we look forward to launching the service module late this year, followed by the first crew early next year. *a more global view - *large-scale systems integration at its finest. *this is true on the hardware side -- which is the world's most complex space project ever built, but also through our experience of working together with 16 nations. - *it will help us -- and our partners and our customers -- greatly in the future as we pursue global alliances and joint ventures. *this market area also includes *x-37, *space *maneuver *vehicle *reusable *upper *stage, and long-term exploration. § *information &*communications - *the broad *information &*communications expertise at *boeing is not obvious to most observers. - *we're leveraging broad-based network communication expertise, such as *c*s*e*l, *h*f-*mod, *tactical *networks) - *we built and operate the world's most successful satellite constellation: 40 *g*p*s satellites (*block *i and *i*i), performance exceeding requirements (8 years v. 6 years). - *now working on follow-on *block *i*i *f (up to 33 satellites): *double-life improvement (12.7 years v. 6 years), cost reduction -- 35 percent ($28 million v. $43 million) - *we are in the final stretch of our evaluation of how we will pursue this overall market, which would target both passengers on commercial airplanes and *a*w*a*c*s. *strategic decisions during the next 1-3 months on investment levels, roles and responsibilities, and long-term potential. *airborne *information &*surveillance *systems - *also, the long-time leader in airborne information and surveillance systems, such as the *airborne *warning and *control *system (*a*w*a*c*s). *we have demonstrated the ability to integrate sophisticated sensors that detect, identify and track targets, with command &control systems to execute decisions with split-second timing. - *upgrades and international business with *n*a*t*o and *japan provide the base. - *new low-cost 737 *airborne *early *warning &*control opens substantial new international markets: *australia/*turkey (two competitors in each country; winner announced in early *july), an excellent product that will support the defense needs of many nations. § *missile *defense *systems - *participation in all phases of missile defense: *theater hit-to-kill (*p*a*c-3, *navy *theatre-*wide), *n*m*d-*l*s*i, and *directed *energy (both *u.*s. national programs *a*b*l and *s*b*l). - *again, our abilities in large-scale systems integration -- with sensors, *c2 and fire control -- that has allowed us to succeed in this area over the last couple of years. - *while much of this business is domestic, we do have growing international activity. *p*a*c-3 is part of the *european *m*e*a*d*s program; *navy *theatre-*wide is being considered by several nations that have *aegis-class destroyers/cruisers. *these ships already have the *standard *missile in inventory. - *large growth potential as these programs enter production. - *worldwide weapons proliferation will drive this long-term market. § *apollo's 30th anniversary - *i'd like to end my comments with a glance back at the *apollo program since the 30th anniversary of *neil *armstrong's first step is next month. - *if you look closely at the chart, it's quite astounding. - *the *apollo program is the single icon that most graphically shows the strength of the new *boeing *company... - *boeing: 1st stage, lunar rover, *saturn *v integration - *north *american *rockwell: 2nd stage, command and service modules, every engine on every stage by *rocketdyne. - *mc*donnell *douglas: 3rd stage. - *this integrated strength is now working on the *international *space *station. *great energy and grand visions - *that time was like today in many ways -- a time of great energy and grand visions. - *at this very moment, 30 years ago, the *u.*s. *space *program was at full tilt. - *from *october 1968 through *july 1969 -- 10 short months -- we launched five *apollo missions - *apollo 7, the first flight to *earth orbit - *apollo 8, the first orbit of the moon - *apollo 9 and 10 tested the lunar module - *apollo 11, just two months afterward § (*continued) - *five incredible missions in 10 months! *just think of it -- in less than a decade in less than half a generation we went from being tethered to *earth to the moon and back. - *walter *cronkite summed it up this way: *of all humankind's achievements in the 20th century, the one event that will dominate the history books a half a millennium from now, will be our escape from our earthly environment and landing on the moon. - *as we look forward, we do, in fact, believe this team can do anything. § *increased commercialization and globalization of space - *we are in an exciting time -- feels like it's 30 years ago. - *we are prepared for the increasing commercialization and globalization of space: two new engines in development; three new launch vehicles. - *the *international *space *station is entering its operational phase. - *we are well positioned for the growing missile defense requirements -- *t*m*d and *n*m*d. - *we are making tough decisions to take advantage of the exponential growth in the *i*c markets. - *we also are divesting non-core and low-margin businesses. - *we're bullish on the long-term outlook for *space and *communications. § *fb. § *space & *communications - *expanding the *limits § *it's great to be here tonight and see friends from our *southern *california locations where *i've worked over the last 12 years. § *i've attended many of these leadership nights and listened to discussions about the wonderful products we build. *tonight, *i'd like to talk about how we make our business decisions. *a big part of evaluating a new venture is making sure people have all the information they need to make wise decisions. *i hope *i can give you relevant information tonight. § *there are some 40,000 of us in *california. *while we are the leading private employer in the state of *california, we have yet to make our weight felt in this state. *i think it's incumbent on all of us on the leadership team, and *i include everyone in this room, to ensure that we make our presence known with our community leaders, with our legislators and certainly with our congressmen. *the *boeing *company is already engaged in this activity. § *if you watched the *tournament of *roses *parade last *january 1st, you saw there was a *space *shuttle float, an *apollo *saturn *v and a number of airplanes. *i kept thinking to myself, why are other companies sponsoring floats with our products? *as most of you probably know already, we will have a float next *new *year's *day and people are already asking how they can get involved. *the work is going to start about two months before *january. *we will need many volunteers, so anybody who wants to participate should look for information on the web. § *we have several *southern *california *management *association groups here tonight, and *i want to thank them for giving me the opportunity to come here and talk with you. *the *management *association serves a great purpose for *the *boeing *company. *they give us a chance to get together in a relaxed setting like this and renew old acquaintances. *they also give us an opportunity to communicate things that are important to the business. *they do a wonderful job in the community and they support the training needs of *the *boeing *company. *i'd like to thank each of the groups for the work they're doing and for their support to *boeing. § *in past top management nights, we've always had a significant number of retirees in attendence. *this year, we're missing two retirees, *lee *atwood and *art *raymond. *as most of you know, *lee *atwood and *art *raymond were two of the early pioneers of *north *american and *douglas. *with both of them gone now it truly is the end of an era for many of us. § *as *i mentioned, *lee often came to these events and it was here that *i had my first opportunity to meet him. *he was *president and *c*e*o of *north *american *aviation, which was then part of *rockwell. *he had a 42-year career, which started with wooden-frame aircraft and wound up putting people on the moon. *he was the spearhead of designing the *p-51 *mustang, with which we shot down more enemy planes than any other in *w*w*i*i. *he was involved in *b-25, *f-100, the *x-15 and the *b-1. *his crowning achievement was putting together a 300,000-person enterprise that spanned the entire country and many, many companies in building the *apollo program and landing people on the moon. *he certainly will be missed. § *i think many of you knew *arthur *raymond personally. *he had a 35-year career with *douglas *aircraft. *he was the designer of the *d*c-3 in the '30s, which was the first reliable passenger airplane. *when *raymond designed the *d*c-3, he said it was "an airplane built in a time when product life was designed to be indefinite." *here we are, 60 years later and, of the 11,000 *d*c-3s that were built, 2,000 of those airplanes are still flying. *raymond was very involved early on with the development of the *ajax, *thor and *nike missiles. *thor led to the *delta family of rockets that we're still flying today, and we've progressed all the way to *delta *i*v as a result of his great leadership. *he helped found the *r*a*n*d *corporation in 1946, and he retired as the *vice *president of *engineering for *douglas. *we're going to miss those two great pioneers. § *it wouldn't be appropriate to continue without talking about the passing of "*t" *wilson who was a past *c*e*o of *the *boeing *company. *he led us through the bust and boom times of the '70s. *he passed away last *sunday. *he was responsible for having the courage to go forward in a very depressed airplane market with the 757 and 767 program. *earlier, he worked on the *b-52 and the *minuteman missile programs. *much of what we have today in *the *boeing *company, we owe to *mr. *wilson. § *now, *i want to talk about some of the challenges we have in the *boeing operating groups. *it's a great company we work for! *we've got great people, great technologies and a phenomenal potential in the road ahead. *it's up to us to maximize that potential. § *in the next 20 years, some 17,000 commercial airplanes will be built - that's a $1.5 trillion market. *what a great opportunity that represents for us. § *in the next 10 years, the *information and *communications market is going to grow from $15 billion a year to about $120 billion a year. *another great opportunity! *that's going to be an ever-expanding market we're pursuing. § *the challenge of competing in these markets is that many of our products compete only on price. *as a result, our ability to win competitions is going to have everything to do with becoming more competitive. § *most likely, you all saw the earnings announcement that came out today. *last year in the first quarter, we made .05 a share; for the first quarter of this year, we had .50 share. *all of the operating groups exceeded their projections. *and all of you in this room and thousands of others in *boeing just like you helped make this happen. § *while we saw great improvement in the first quarter, we still have great challenges ahead. *at *b*c*a*g, we have to reduce our cost structure. *already, *i see a real turnaround in the *boeing *commercial *airplane *group as *alan *mulally's leadership team continues to reduce the cost of doing business and improve competitiveness. *i look for great things coming from *alan and his team in the months ahead. § *at *aircraft and *missiles, in spite of the success of the *c-17 and other programs, we face a very flat market. *if we're going to continue to have the great returns coming out of *mike *sears' organization, we're going to have to focus more on global markets. *mike and his team are doing just that and *i'm sure they'll continue their great performance. § *in *space and *communications, our challenge is to identify the targets of opportunity we want to pursue and to manage risk as we get into these new areas. *with so many opportunities, we have to make sure we identify the right ones - projects that suit our capabilities and core competencies. *of course, the assignment we've been handed is to double sales in the next six or seven years, and to increase our return on sales to about 12% by the year 2002. § *clearly, we have to change; we have to move from being a technology-driven organization to one that's driven by business considerations. § *getting into more detail on *space and *communications, there are four markets that we serve. *i'm going to spend some time going through these markets, beginning with *launch *services. *last year, we had about 27% of the world's market. *it's our intent to grow that to about 40% or 50%. *the *space *shuttle is a signature product of *the *boeing *company; a signature product of the *united *states. *it is a statement to the world in terms of *american know-how, engineering and workmanship. *it's the world's only reusable launch vehicle and it's one that has used only about 25% of its useful life. § *working with *united *space *alliance, we've been able to reduce the cost of flying the shuttle by some 30% since 1992. *with prudent upgrades, we can reduce the cost even more. *we're going to have 45 launches of the *space *shuttle to the *international *space *station between now and the year 2004. *i don't see any replacement in sight. § *while many people are looking at new reusable launch vehicles, the shuttle is doing much more than merely getting payloads to space. *it's also a platform for doing experiments that can be reconfigured for different missions. *rick *stephens (*v*p & *general *manager, *reusable *space *systems) and *byron *wood (*v*p & *general *manager, *rocketdyne *propulsion & *power) and all the people that support the shuttle have done a terrific job maintaining world class performance. § *the *delta family is a phenomenal collection of vehicles with a great heritage. *delta *i*i is the world's most reliable vehicle; we had 12 launches last year. *we're going to have 13, maybe 14 launches this year. *we had a successful launch this morning. *we'll soon have the return to flight of *delta *i*i*i. § *what is really exciting, though, is what *gale *schluter (*v*p & *general *manager, *expendable *launch *systems) and *mike *kennedy and their team are doing on *delta *i*v. *delta *i*v is going to be a completely redesigned vehicle from the bottom up. *it's going to be the first vehicle designed with cost as an independent variable. *it's going to have a *l*o*x-hydrogen engine on it, courtesy of *rocketdyne, and it's going to cut the costs of going to space by about 50%. *we had a competition with *lockheed *martin last fall and we captured 70% of the market. *a year ago at this time, it was a paper rocket, but it's not a paper rocket anymore. *all the components are coming together, and we're now testing the *r*s-68 engine at *edwards *air *force *base. § *sea *launch has been a difficult program with a lot of technical challenges. *the real challenge, though, has been working through all the regulatory issues. *have you ever tried to get the permits necessary to get a *russian *i*c*b*m into *long *beach? *we had our first launch on *march 27 and it was flawless. *our customers are now very anxious to fly on it. *we're going to have a commercial launch later this year and possibly as many as five in the year 2000. *it's an exciting time for *sea *launch and for *launch *services. § *in *information and *communications we have a tremendous range of capabilities, maybe not to the depth of some companies, but certainly in breadth. *let me ask a question.. what was the first satellite constellation that was ever put into space? *i think you all know, it was the *g*p*s (*global *positioning *system) satellite, built in *anaheim and *seal *beach. *not many people outside of *boeing know that. § *the *airborne *warning and *control *system (*a*w*a*c*s) is a franchise that *boeing owns. *we've delivered some 66 *e-3 *a*w*a*c*s so far to our customer. *we've delivered four 767 *a*w*a*c*s to *japan over the past year. *we're also pursuing 737 *a*w*a*c*s that we're selling on the international market. *we just got down-selected to the final two in *turkey and we expect to win a competition in *australia this year. *we're counting on about $2.6 billion in sales coming from our *a*w*a*c*s products over the next couple of years. *these programs are fixed price and they have great returns. § *in the area of satellites, the people who work for *ken *medlin (*v*p & *general *manager, *information & *communications *systems) have taken existing resources - space, air and ground - and integrated them into systems that provide the ability to provide customer communications and to pinpoint locations. *it's a great example of our ability to do large-scale systems engineering. § *in the commercial satellite area, we're going to announce some commercial offerings this year: *just stay tuned in this area, it's going to be exciting. § *bob *paster (*v*p & *general *manager, *electronic *systems & *missile *defense), *john *peller (*v*p & *program *director, *national *missile *defense/*leads *system *integrator) and others are leading the *missile *defense team. *we are players in virtually all missile defense programs whether they're national missile defense, theater missile defense or directed energy. *we have two national-directed energy programs in the *airborne *laser and *space *based *laser programs. § *a year ago, we won the *lead *system *integrator role for *national *missile *defense because we were able to bring together the expertise of the three heritage companies. *we've got a $4-billion contract we believe we'll be able to double. *anyone who doubts you can hit a bullet with a bullet, should look at the footage of the *p*a*c-3 intercept. *we know how to do it. § *the *orbital *systems and *exploration area is primarily *n*a*s*a business. *boeing is the number one *n*a*s*a contractor and we will continue that support long after assembly of the *international *space *station, as we get into operation and utilization. *we're also working on a number of other programs for *n*a*s*a, such as the crew return vehicle, advanced tactical vehicle and the space-maneuvering vehicle (for the *air *force). *those aren't great programs from a profit standpoint, but they provide great technology leverage and we're going to maintain that position. § *our *subsystems and *support programs include enabling technologies that provide leverage in the large markets. *these include *guidance, *navigation and *control at *anaheim, and *propulsion and *power at *canoga *park. § *if you were to step back in time 30 years, you would find a time much like today, full of grand visions and great promise. *the *u.*s. space program was moving at full tilt. *we were in the midst of *apollo. *our heritage companies built the *saturn *v rocket - *boeing built the first stage, *north *american built the second stage and *mc*donnell *douglas built the third stage. *rocketdyne built all 34 engines on *saturn *v. **that* was a *boeing vehicle! § *in the *saturn *v facility at *cape *canaveral, there is a *saturn *v suspended in the air and it's very impressive to see. *from *october 1968 until *july 1969, in just 10 short months, we launched five *apollo missions. *we launched *apollo 7, the first *earth orbit with *apollo; we launched *apollo 8, the first orbit of the moon; then we launched *apollo 9 and 10, testing the lunar module. *two months later, we launched *apollo 11. *it's really hard to believe we were able to do five missions in just 10 months! *the fact that we were able to go from being tethered to *earth, to the moon and back in 10 short years - in just half a generation - is incredible. § *we are approaching the 30th anniversary of landing on the moon this summer. *i'm sure everyone can remember where they were 30 years ago. *walter *cronkite summed it up best when he said, of mankind's achievements in the 20th century, the one event that will dominate history books half a millennium from now will be our escape from our *earthly environment. *in hindsight, *i think it's amazing that the *apollo team accomplished the impossible without much of the technology we have today. § *what drove the innovation, the speed and daring of 30 years ago? *it was the *cold *war and the race to be the first people on the moon. *that became a national imperative for us and also for the *soviet *union. *thirty years later, we still stand on the accomplishments of *apollo in many ways. *however, we have moved beyond the international rivalries to a situation that involves international cooperation and collaboration, as opposed to competition. *we're in an age that's filled with strategic alliances and joint ventures we wouldn't have dreamed of 10 years ago, let alone 30 years ago, when we were working on *apollo. § *who would have thought the *u.*s. industry would be partnered with *russia and other countries on the *international *space *station and on *sea *launch, or with *lockheed *martin's *international *launch *services? § *i was over in *ukraine last *july visiting *yuzhnoye/*yuzhmash. *they built all of the *soviet *union's *i*c*b*ms and also the *zenit for the *sea *launch vehicle. *they were taking me through their museum, showing me their vehicles. *they pointed toward one and said, "this is the *boeing *rocket." *i said, "*why do you call it the *boeing *rocket?" *they replied, "*because this is the vehicle that was targeted on *seattle." § *it's funny, but it makes you pause. *just 10 years ago, these people were targeting us. *now were collaborating on a great program like *sea *launch. § *who would have thought in 1981, when we first launched the *space *shuttle, that a commercial company would be operating the *space *shuttle fleet? *and that commercial company, *united *space *alliance, is a 50-50 joint venture between *lockheed *martin and *the *boeing *company. § *who would have thought that *g*p*s would develop into a $12-billion-a-year commercial industry? *today, we couldn't fight a war without *g*p*s.. and many of us probably couldn't find our way to the airport without *g*p*s. *it's quite a program - and it's a *boeing program. § *who would have thought 30 years ago that commercial space would be a much larger share than the government space activity today? § *many things have changed and we've entered a whole new era in space utilization. *but *i'd like to make a couple of points about this new era. *it is more commercially driven than anything else. *our progress will continue to be dependent on factors such as specific impulse, mass fraction and bandwidth. *but to a much larger degree, our progress will be driven by the internal rates of return - return on sales, return on net assets and cash flows - generated from these new programs. *we've got to evaluate these new programs differently now to determine where we're going to invest our dollars. § *i see many commercial programs within *boeing, and at other places *i visit. *many of these programs do not have a solid business foundation. *in the launch area, we see start-up companies assume they're going to capture 70-80% of the market share. *regardless of their price, it's not going to happen. *in the satellite area - in communications and in remote sensing - there are many programs that assume a $200-300 million anchor order every year from the *department of *defense. *that's another assumption that will never be realized. § *we've got to come to some sobering realities about what makes a good business case. *all of us need to think about how we're going to embrace this new commercial era. *i'm leading up to our performance and how well we're doing in the areas of *r*o*n*a (return on net assets), return on sales and important areas like inventory turns. *because those are the things that are going to determine whether or not we're going to be competitive in the years to come and whether we'll continue to see the price go up in our stock. § *at an investors conference in *orlando, *fla., in the first week in *february, *debbie *hopkins, *alan *mulally, *mike *sears and *i talked about our businesses. *we also shared with the analysts how well we were performing on a number of these critical measures - measures that are essential as we go forward commercially. *when compared with our competition, companies such as *g*e, *allied *signal, *proctor and *gamble, *general *motors, *ford and *exxon, we were at the bottom of the list on *r*o*n*a. *i don't like that position. *there are many things we can do, working together, to raise this bar. *it's everyone's responsibility to chip in and improve this status. § *our assets, such as facilities, equipment, receivables and inventories, are all things we can influence every day in the decisions we make. *the stock went up the last couple of days for one reason: because our earnings went up. *if we can continue to increase our earnings and reduce our assets, we're going to have positive and meaningful results. § *in return on sales after tax, we were at 3.9% last year. *space and *communications was at 3.6%. *we can make a lot of excuses why *space and *communications was at 3.6%. *we invested heavily in new programs, about twice as much as we made. *we could have managed for the short term and gotten that number up, but we decided to go for the long term. *but the fact is, the analysts don't care how we invest in the future; they care about our earnings today. *and our earnings weren't very high. § *there are things we can do, all of us collectively, to improve that number. *we've got to reduce costs and improve efficiencies. *we need to think very hard about low margin businesses that we may need to exit. *inventory turnover is a simple measure - sales divided by assets - and, for the most part, it follows *r*o*n*a. *again, we need to go off and work on reducing our inventory, working on collectibles, eliminating assets that aren't being fully utilized. *we talked about some of the consolidations that are going on, and that's all about making sure the assets we have are put to use 100% of the time. § *our goals are pretty lofty at *space and *communications. *we want to double our sales by the year 2005. *we want to have a 12% operating margin by the year 2002. *we want to go from having some negative cash flow this year up to having a billion dollars of cash by the year 2001 that we can invest in new programs. *we want to be leaders in the markets we share. § *everyone can help as we go forward toward meeting these goals. *we have a very simple plan we've developed with three steps. § *the first step is to fix or eliminate value-destroying programs. *we have to understand how our programs are performing. *if they aren't performing up to the measures we want, we've got to put plans in place to fix those programs. *or, in the event that we can't get the margins up and we can't fix them, we need to think about exiting some of those businesses. § *the second step is to maximize the value creation in the profitable programs we have. *go off and work on assets and processes, get people in employee involvement and responsible for improving what they do each and every day. *by doing that, we can improve the margins on some of the profitable programs. § *the last step is all about growth; that is, adding new value-creating programs or activities to the portfolio. *we are working very hard to do that. *an example is *delta *i*v. *delta *i*v is a major investment on the part of *the *boeing *company to go after a bigger share of the launch market. *it's a program that *mc*donnell *douglas or *rockwell could never have sought. *we're able to do it because we've got the financial power of *the *boeing *company behind us. § *about three or four weeks ago, we took about 375 managers from *space and *communications to downtown *los *angeles for two-and-a-half days. *we discussed various ways to grow the business and do things radically different than before. *each of the businesses came back after two days and reported on the actions they were going to take to improve business performance. *huntington *beach, for instance, committed to reducing inventory by 50%. *rick *stephens and his organization committed to making a significant improvement in *r*o*n*a performance. *we're not talking about doing the same things better; we're talking about doing things differently. *over the next few weeks, *i'm sure some of those initiatives will flow down to all of you. § *let me talk about leadership expectations.. none of you would be here if you weren't leaders. *leadership isn't reserved for people who have corner offices or a title under their names. *leadership is something we all have to assume. *leadership is about determining where we're going, and then figuring out how we're going to get there. *it's about putting a plan together and making it happen. *it's about doing things differently tomorrow from how we're doing them today. *i don't care if you're in the mailroom or the corner office, you can improve your processes and become much more effective. *that's what *i'm asking the leadership team of *space and *communications to do. *we have to do this quickly, with a sense of urgency. § *i like what *i saw today in the stock market. *it certainly reinforced what *i've been saying lately ... that it's not about technology per share; it's about earnings per share. § *we can do it if we work the right things, measure our performance with the right metrics and execute to our plans. *it's all about blocking and tackling. *we've got to do the things we commit to. *and certainly, we've got to create an environment in which people feel comfortable talking about the issues they face so we can address the things that are important. *working together we can make it happen. § *it's going to take the leadership of everyone here to make that happen. *i love *boeing, *i love the programs we have and *i love the promise of space. *we've got a great future, a future we can influence and control. *the people in this room can make it happen. *we can make those dreams come true. § *thank you. § *fb. § *space: *advancing our *world § § *it's an honor for me to be here in *colorado *springs and participate in what has been a wonderful conference. *i want to congratulate the staff of the *u.*s. *space *foundation for putting together a world class event involving the right people discussing the right topics. § *over the last four days, we've heard great speeches and had hard-nosed business discussions. *the last session with *general *richard *myers (*u*s*a*f, *commander-in-*chief of *n*o*r*a*d and the *u.*s. *space *command, and *commander, *air *force *space *command), *daniel *goldin (*n*a*s*a *administrator) and *keith *hall (*director of the *national *reconnaissance *office) talked about how they are working together. *the three of them have truly been at the forefront of "reinventing government" and the commercialization of space. § *taken as a whole, the partnerships being worked by *gen. *myers, *dan and *keith will ensure that we meet the needs of the commercial, military and civil space communities for years to come. § *at *space *command, *general *myers, working with *general *ryan, has championed the *commercial *space *opportunities *study, chartered to identify areas that capitalize on the commercial space revolution. *i'm sure we all anxiously await the *c*o*r*o*n*a report out in *june. § *at *n*a*s*a, *dan has overseen the transformation of the agency into an organization that believes and operates under the vision of *faster - *better - *cheaper. *the fact that he has been *n*a*s*a administrator for seven years -- a period that has covered both *republican and *democratic administrations -- speaks to how effective he has been. *the vision that he painted this morning, certainly is one that *i find inspiring. § *at *n*r*o, *keith *hall has been bringing his agency out of the black world. *this has helped gain more efficient use of space resources by integrating where possible white and black operations. *as you've heard, *keith is also taking the next step by leveraging the commercial marketplace. § *this week we also heard about the commercialization of space from business people and entrepreneurs. *when it comes to commercialization of any kind, *i defer to *warren *buffet, who said: "*unlike the *lord -- the market never forgives." § *there's a lot a truth in that statement, certainly there are many examples of folks learning market realities the hard way. *i'll bet you can all think of a few. § *one that is well documented is *sony's *betamax. *sony was so enamored with the technology, they forgot about the marketplace. *the rest, of course, is history. § *another was the attempt to introduce a "new" *coca-*cola. *of course the market still wanted the "old" *coke. § *another that *i love is getting too far ahead of the market. *many of you may remember that at the time of the first *moon landing in 1969, *pan *american *airways began taking reservations for passenger flights to the moon. *they estimated that service would begin in the year 2000 and that a round-trip would cost about $28,000. § *in 1971, the airline quietly suspended taking reservations, despite the fact that they had more than 30,000 people signed up for trips. *the irony today is that passenger flights to the moon are probably more realistic than ever flying with *pan *american from *new *york to *paris again. § *over the years, the *u.*s. *space *foundation has gone to great lengths to ensure that this conference has a balance between defense, civil and commercial space. *this year, we're seeing a diminishing separation between the three and a pronounced shift away from stand-alone government sponsored programs. § *what *i would like to discuss with you are some observations on this so-called "commercialization." *let me say at the outset that the potential of space, like space itself, is limitless. *the challenge for all of us is to ensure this potential is fully realized. § *let's step back in time to a point nearly 30 years ago to a point much like today. *it was a time of great energy and grand visions. § *at this very moment, thirty years ago, the *u.*s. space program was at full-tilt. *from *october 1968 through *july 1969, 10 short months, we launched five *apollo missions: + *apollo 7, the first flight to *earth orbit. + *apollo 8, the first orbit of the moon. + *apollo 9 and 10 tested the *lunar *module. + *and, of course, two months after that, *apollo 11. § *five incredible missions in 10 months! *just think of it, in less than a decade...in less than half a generation...we went from being tethered to *earth...to the moon and back. *it's hard to believe the 30th anniversary of *apollo 11 is this *july. § *walter *cronkite summed it up this way, "*of all humankind's achievements in the twentieth century, the one event that will dominate the history books a half a millennium from now, will be our escape from our earthly environment and landing on the moon." § *in hindsight, it's amazing that the *apollo team accomplished the "impossible" without the technology that's available to us today. *so, what drove the innovation, speed and daring of 30 years ago? § *of course we all know it was the *cold *war and the national security implications of the space race. *to be the first to the moon became a national imperative. *thirty years later, we continue in many ways to stand on the shoulders of *apollo. § *as *dan (*goldin) reminded us this morning, it is not enough to live off the accomplishments of those who have gone before, but rather we must create our own future. *i believe we have begun doing that. *we have now moved beyond international rivalries into an age of global commercialization filled with alliances, joint ventures and, often, unthinkable bedfellows. § *we've come a long way in 30 years and now space activities are reaching such a level, their impact is felt by all. *what a difference from *apollo to now. *who would have thought that *u.*s. industry would be partnered with *russia and other countries on projects like the *international *space *station, *sea *launch and *international *launch *services? § *who would have thought that a commercial company would be operating the *space *shuttle fleet? *and that *lockheed *martin and *boeing would be fifty-fifty partners in this company? *who would have thought that the *g*p*s system would have developed into a $12-billion commercial industry? *today, we couldn't fight a war without it . . . *and many of us couldn't find the airport without it. *and who would have ever dreamed that *n*r*o would have a letterhead, a brochure and an external affairs office! *well, of course, all those things have happened and we've entered a whole new era. *a couple of points about this new era... *it's now clear that the utilization of space will be commercially driven. *while our progress will still depend on advances in specific impulse, mass fraction and bandwidth, it will be driven to a much larger degree by *internal *rates of *return, *return on *sales, *r*o*n*a (return on net assets) and the *cash *flows generated by new business opportunities. *however, as we all know, commercialization is not a panacea. *right now, *i see many commercial ideas and programs that are doomed to failure because of flawed business cases, just as some past programs were doomed to failure because of flawed technology. *there are many commercial proposals out there that just don't make sense. *i see them every day within *boeing-and *i'll bet many of you also see them at your businesses. *in the launch area, they all assume capturing 75-80% of the market -- an assumption that is fatally flawed regardless of the launch price. *in satellite communications or remote sensing they all assume the government as an anchor tenant to the tune of 100's of millions of dollars a year, with little or no revenues coming from the commercial marketplace. *my point is *i believe that many of the commercial activities we're hearing about are not supported by good business cases and will not succeed. *an example of a good business model and a government/industry partnership is the *e*e*l*v program. *as you all know the *e*e*l*v program had a minimum requirement of reducing the cost of placing a payload into orbit by 25% and a goal of 50%. *with the approaches of *boeing and *lockheed *martin, the final savings will be closer to the 50% goal than 25%. *as a result, the *air *force will save from $5*b to $10*b over the life of the program. *however, *e*e*l*v did not happen overnight. *if you look back, you will find that there were no less than 18 government launch vehicle related studies between 1986 and 1994. *each one was focused on developing the answer for space transportation. *the difference with *e*e*l*v was that the market was ready and it was commercially driven. *as *i often remind our team, "*it's not about technology per share, it's about earnings per share." *while we're on the subject of *launch, *i'd like to spend a minute on the effort to develop a next-generation *reusable *launch *vehicle. *as much as *i am an advocate of the *space *shuttle, and know it can fly for another two or three decades, *i also know a next-generation *r*l*v will be flying prior to that. *it is an absolute necessity to lower the cost of access to space. *the question is what will an operational *r*l*v look like and when? *as much as *i'd love to do a commercial *r*l*v right now, it's not about wanting to. *try as you might, if you assume a realistic market capture rate and acceptable *i*r*r's, it's my view that the business case just doesn't close for a commercial *r*l*v today, or in the near future. *as *i mentioned earlier...and to repeat *warren *buffett's wisdom, "the market will decide." *clearly, in order to achieve a next-generation *r*l*v, we must work with government to identify the technology required to make that business case close. *if we were limited to only one technology that we would invest in, in my mind it would be propulsion. *looking beyond launch services to the broader military uses of space, both the *air *force and *n*a*s*a have identified ways to leverage commercial programs and free up more funds for their core missions. *for instance, last *march, the *u.*s. *space *command issued its *long *range *plan and, in *november, the *air *force *scientific *advisory *board produced the *space *roadmap for the 21st *century. *both reports highlighted the fact that the commercial sector is now leading the expansion in space technology. *earlier, *i mentioned the *air *force's *commercial *space *opportunity *study. *that study is taking a hard look at commercializing some big-ticket items such as communications, navigation, remote sensing, satellite control, launch infrastructure. *the hard part of this analysis is determining what are the core military roles, and what can be handled by industry. *for the *d*o*d and *n*a*s*a to take true advantage of the boom in commercial space, just like the *air *force did on *e*e*l*v, in my mind they need to do three things: declare themselves as commercial customers; establish standards early; and quit competing with their contractors. *once these steps are taken, industry can incorporate those standards in their planning and make investments fully understanding what the total market is. *last month, *keith *hall spoke to the *senate *subcommittee on *strategic *forces and described how *u.*s. space assets are required for our global leadership, militarily and commercially. *i'd like to read a statement he made. *keith said, "*in this era of tightened budgets the nation can no longer afford -- nor should it accept -- completely separate domains for intelligence, military, civil and commercial space programs. *continued *u.*s. space dominance will rely on the successful collaboration between the *n*r*o, *air *force, *n*a*s*a and industry to deliver future space systems faster, better and cheaper." *there are a lot of powerful thoughts in that statement which *i think pretty well sum up where our industry/government partnership has to go. *there was one item in the *scientific *advisory *board report that truly demonstrates the transitional period we're in. *it said "commercial space services will have an aggregate capacity early in the next century...that is about 1,000 times that of even the most ambitious *m*i*l*s*a*t*c*o*m structure." *it urged that the *air *force phase out "non-core" military satellite communications in favor of commercial services as early as it can. *that statistic points out just how dynamic the commercial marketplace has become. *however, as we focus on commercial satellites, we should remember what a small part they play in the broader marketplace. *analysts estimate that satellite communications will supply only 2-3% of the overall telephony and data market. *any changes in that share will be driven by market requirements and cost. *in other words, space-based communications must be considered in light of the total communications market. *for instance, with today's technology, the cost of using installed fiber optics will always beat satellites for point-to-point communications. *in addition, the build-out of fiber has grown 16-fold over the last several years. *because of this, *i remain somewhat cautious on the *scientific *advisory *board's forecast on commercial satellite communications capacity. *certainly, *i have no crystal ball or superior insights here. *again, the marketplace will drive the answers based on demand and the cost trades between ground-based and satellite options. *in addition to the impact of fiber build-out... *from a strictly *american perspective, unless we collectively address the export control process, we will lose both satellite and launch vehicle market share overseas, limiting our ability to realize our full potential. *this is a topic that *i know has been widely discussed this week and which requires our serious attention and a prompt resolution. *one area though, that *i'm convinced will have dramatic growth is in the area of wideband, mobile satellite communications. *just look at what we're seeing today. *if one judges *internet traffic as a measure of the demand for wideband data, it is doubling every 100 days. *the number of global users is over 150 million. *if one looks at the demand for cell phones as a measure of the need for mobility, there are now over 250 million users. *of course, cell phones are great where you have a fiber backbone. *but how about the demand for wideband, mobile data where you don't have a fiber link? *that's where *i see some spectacular opportunities. *think about this, the next time you catch a plane going overseas -- or even to the *east *coast. *you'd love to fire up your laptop and get connected, but you can't get a data rate or bandwidth that makes you productive. *then consider that the estimate for commercial airplane passenger travel is 5.5 billion seat hours per year. *that's what *i call a captive market...and a real opportunity! *potential military uses are as exciting as commercial. *yesterday, *vice *admiral *herbert *browne, *deputy *commander in *chief of the *u.*s. *space *command, described the insatiable demand for bandwidth by the *navy. *another example would be an *a*w*a*c*s with loads of consoles and servicemen and women on board. *with wideband satcom you could get the data on and off the aircraft remotely. *this would allow you to reduce the crew size and keep them out of harms way. *it would also allow you to get real-time data to the commander in the field. *commercial uses, of course, are limitless. *you could do important things, like watch live football games from an airplane! *you could surf the *internet. *or, you could hook up to your office and catch up on work. *of course, that presents another good news/bad news scenario. *the good news is you can link up to the office from anywhere. *the bad news, of course, is that you can never leave the office again. *a final observation on commercialization before *i close... *the word "commercialization" and the word "free" are not interchangeable. *we must guard against some in government interpreting commercialization as an excuse not to pay for high risk *r&*d or to support the government infrastructure so important to sustaining a robust commercial industry. *i tried to cover a lot of ground tonight, and *i did try to keep it short. *too often at conferences like this we come and "preach to the choir." *but of course, it's not what we talked about here this week that's important... *it's about what we do when we get back to work tomorrow. *in my view, our success will depend on our ability to work together for the common good. *we did it on *apollo and *saturn *v. *we're doing it today on *e*e*l*v, *x-33 and the *international *space *station. *like everyone in this room, *i love working in the *space *industry. *i love the zoom and boom, and the potential of space that we all dream about. *i want to take that $28,000 ride to the moon and back. *yet, for there to be a flourishing space industry, it will be business considerations that drive us, much as technology drove us in the past. *the people in this room can make it happen. *by working together, we can literally "*create the *future." *thank you. § *fb. § *partnerships in *space § *partnerships in *space is a good topic for today. *just the fact that all of us are here, industry and the *air *force working as partners, is a big change from where we were five or ten years ago. *if we were to be doing this ten years ago, all the watchdogs would have gotten very twitchy and *i'm sure we'd have 60 *minutes come barreling through the doors. § *partnership is all about trust and trusting each other. *one of the key roles of leadership is to create that trust and have a strong belief in one another. § *in recent years, there has been a massive increase in rules and procedures, across all levels of government and industry, that are designed to protect us from ourselves and from waste, fraud and abuse. *just last week, *i got a policy across my desk. *it was a 13-page policy on how to conduct bake sales in the workplace! § *the effect of all these rules has been a spiraling cycle of distrust and disempowerment. *fortunately, since *dr. *perry's initial thrust on acquisition reform back in 1994, we are seeing a tearing down of those rules and procedures and a build-up in trust and relationships. *companies like *boeing and *lockheed *martin have embraced these new reforms. *in fact, just as *do*d and the services are changing, the industry is changing as well. § *it used to be that *do*d would announce a specific need and we would go to the *pentagon and say, give us your money. *today, we ask you to invest your confidence in us. *now, don't get me wrong. *we still want your money. *but we are prepared to help achieve your goal of better, less expensive hardware developed in less time and we recognize that can happen only through partnering. § *let me tell you how that is happening in *the *boeing *company. *just last *tuesday, *i was in *st. *louis, attending the fifth meeting of the *boeing *leadership *council. *this council meets quarterly and includes representatives from the service acquisition executives, *n*a*s*a *headquarters, the operating group, on-sight customer leaders and the operating group presidents in *the *boeing *company. *it was attended by *alan *mulally, who heads up our *boeing *commercial *airplane *group; *mike *sears, who is in charge of our *military *aircraft and *missiles *systems *group; and myself. *mike, *alan and *i spent the entire day working together with our government customers to bring about change. *why did we do that? *because we think working together within *boeing and with our customer really provides us a competitive advantage. § *i'd like to discuss the *boeing model for how the joint *leadership *council works. *the customer comes to the table with their objectives for modernization and a list of ways to pay for that modernization. *we bring to the table what we think are the core competencies of *the *boeing *company, detailed customer focus, large scale, complex systems integration, and lean and efficient design and production systems. *together, we address how to make money for *the *boeing *company, how to save the customer money and how to improve reliability, operability and capability. § *here are some of the issues we talked about on *tuesday. *we went through how well our processes were working at *the *boeing *company. *we talked about what some of the new process thrusts should be. *and we talked about candidate projects for civil-military integration, such as the complete conversion of our *c-17 facility to commercial practices. *we also talked about how we could share paperless data, a subject that was discussed early this morning. *one of the concerns that we had was that all we would do is digitize what we have already. *we have to be very careful we don't fall into that trap. § *in the afternoon, *alan and *mike and *i talked about how we can help achieve commercial defense integration throughout *the *boeing *company. *in that area, *i think *boeing does have a real advantage in that we are 58-percent commercial and we are 42-percent government. *at *boeing, we believe the best way to get that integration is to move people back-and-forth between the different organizations. *certainly *alan *mulally and *mike *sears are two good examples of people who have moved back-and-forth between military and commercial. *in fact, many of you probably know that *alan recently left our defense business and has gone over to the commercial airplane group. *as a result, *alan is now introducing our commercial people to a concept we all know and love something called "earned value." § *we also spent several hours discussing common technology needs across all of the businesses. *airplanes don't know if they are commercial or if they are military. *we talked about technologies like composites, ceramics, propulsion, avionics, design codes and design tools. *george *muellner is helping us very much in trying to sort out some of those technology needs. § *the point *i am trying to make is that, within *boeing, we feel that working together is a real strength for us and our customers. § *partnership with our space customer has really paid off for us. *let me give you some examples. *on airborne laser, as a result of acquisition reform initiatives that we have worked on over the last several years, we are going to be able to bring the airborne laser to fruition in six years. *our original concept had it being brought to completion in 12 years. § *another positive result is that, after working very closely with our customer, we recently got an award piece score of 100 percent. *we have a customer who is happy with our performance and believe me, a customer who made our whole *boeing team happy with the score and recognition. *talk about a win-win! § *in our global positioning satellite program, the customer went from giving us a statement of work to giving us a statement of objectives. *they were able to help us reduce the *block 2*a to *block 2*f costs from $43-million per satellite down to $28-million per satellite. *in doing so, we are also going to be able to increase the on-orbit satellite life from six years to 13 years. *in addition, we believe there are some great applications for that satellite bus that we can leverage into the commercial area and *i would guess that *mike *henshaw is going to talk about that a little later. *relative to civil-military integration, the other thing we want to do with *g*p*s is to work with our commercial airplane people. *our goal is to figure out how we can land an airplane using *g*p*s alone. § *being a rocket guy, let me talk about what *i think is a classic success story of military-civil partnering. *it has already been discussed this morning, and that is the evolved expendable launch vehicle, or *e*e*l*v. § *prior to acquisition reform between 1986 and 1994, there were no less than 18 launch-related studies. *each one attempted to develop a future space transportation program. *with flexible acquisition reform, *e*e*l*v will be flying by 2001. *we are going to be able to develop the new *atlas and the new *delta in four years. *now, *i was reading the other day that it took *burger *king two years to develop their new french fry. *if we can do rocket science in four years and it takes them two years to develop a french fry, *i think we are on the right track! § *on *e*e*l*v, it was no easy challenge that we got from the *air *force. *they set a reduction target of 25-percent for the cost of a payload to orbit and they set a goal of 50-percent. *they also decided that, rather than having a winner-take-all procurement, they'd go with two suppliers. *this provided a big opportunity for *boeing and *lockheed *martin to get into the commercial launch business without having to go to *baikonur in order to launch *protons or, in the case of *boeing, having to go to *christmas *island to launch *zenits. § *to gain an appreciation of how this has worked, let me site an example that *i am most familiar with. *i was involved at *rocketdyne in the development of the *r-68 engine. *we decided on a lox-hydrogen solution to the *e*e*l*v problem because we could get a 30-percent increase in thrust by going with liquid hydrogen rather than kerosene. *we went back and looked at our models for developing a new engine and found it would cost $2 billion. *we knew, at that cost, that would never meet the design-to-cost goals the *air *force gave us. *we took a hard look at why it cost so much historically to develop lox-hydrogen engines and went back and looked at the *space *shuttle *main *engine. *what we found was, about 75-percent of the cost and time associated with engine development was tied up in the test, fail and fix loop that we got into once we got the engine at the test stand. *then we peeled the onion some more and found the reason for the test failures was that we were operating in a pump turbine environment we hadn't operated in before and, in addition, we were introducing new technologies. § *on the *r*s-68 engine, we decided to operate the turbine in an environment we knew a lot about from our experience on the *space *shuttle *main *engine. *we also decided to introduce no new technologies. *we focused on cost, and cost alone. *what we were able to do is reduce the number of parts by 93 percent, the number of welds by 95 percent and the amount of labor by 95 percent. *so, now we have an engine we are going to develop not in 10 years, but two-and-one-half years. *we are going to have an engine with 50 percent more thrust than the *space *shuttle *main *engine and we are going to build it for a fraction of the cost - and *i am not going to give that cost number away today. § *we have also seen major cost reductions on the rest of the vehicle and on its operations. *secretary *peters talked about what that is going to be worth to the *do*d - about $6 billion. *we think that is a great investment of the $1 billion they are giving to *lockheed *martin and *the *boeing *company. *it is also going to allow both companies to go out and compete internationally in the commercial area. § *i know *mike [*henshaw] will be talking about communications and information so *i won't say a lot about this area. *but *i would like to discuss the total demand for data by the military. *as you can see from the chart, there is quite a short fall. *clearly, the implication is that the *do*d is going to have to spend a lot of money or they are going to have to take advantage of the commercial constellations of the future. *if you look at the commercial satellite communications business, from satellites to launch to services, it is about $40 billion a year right now. *within 10 years, it will be $160 billion. *as a result, there is a great opportunity for the *do*d to leverage off what is going on in the commercial satellite area but they need to get involved early in the development phase. § *one thing very clear from the chart is that the *do*d can't afford to build up capacity for their peak surge demand. *the possibility exists though, that they could use commercial resources to meet these demands in the event of a future threat. *there is a good example of how this joint military-civil approach can work and it is called the *civil *reserve *air *fleet. *many of you are probably very aware of that. *the *do*d invests in strengthening, reinforcing and paying for the operation of commercial airplanes. *in return, these aircraft are available for heavy lift duty in the event of a sudden need of the *armed *forces. *that was used to quite an extent in the *persian *gulf *war. *this same kind of partnering can work in the area of satellites but we need to ensure that, as we work the systems of systems solutions, we get the *do*d and the military very involved in the up-front planning of new satellite constellations, like *iridium, *teledesic, *ellipso and others. § *before *i close, *general *lyles said *i was supposed to throw out something controversial so we could have some lively discussion. *i'd like to close by bringing up something that hopefully will help the discussion. *it has been touched on already this morning. *that is the national space policy. *we all know the objective of the space policy, for the *united *states to be a leader in space launch. *it also provides for the government to let industry use excess launch capacity on a non-interfering basis. *when written, our *u.*s. launch manifest was about 75-percent government and about 25-percent commercial. *in the future, that equation will flip-flop and we will be 75-commercial and 25-government. *commercial launches are now consuming all the excess capacity that is out there and are driving range costs. *on *iridium, we got a task from *mike to get the *iridium satellite constellation up in a hurry. § *at the range, we were working the government around the clock, seven days a week and they did a terrific job for us, but we drove up their cost structure. § *as a result of the need for increased government support for commercial launches, there is a lot of talk about how to share costs more equitably. *one approach that everybody talks about is to develop a spaceport after the airport model. § *i initially thought that was the right answer. *but my launch experts have convinced me that may not be the case. § *if you look at an airport, it really has a captive market. *if you are in *los *angeles and you want to fly to *new *york, you are going to go to *l*a*x. *you are not going to drive up to *san *francisco or drive down to *san *diego. *really, what we have with airports are captive markets. § *for satellites, though, people like *don *cromer at *hughes are not going from *l*a to space. *they are going from *earth-to-orbit. *it is a different model. *other than the constraints of launch mechanics, we can launch satellites from any place in the world. *we can launch them at *baikonur. *we can launch them at *kourou [*french *guiana]. *we can launch them in *china. *these are all locations that are heavily subsidized by their governments. *right now, our launch operations costs are about 10 percent and my guess is that *mike's are about 10 percent as well. *but if we take on more cost sharing, where will that number go to? 15 percent? 20 percent? *i don't know what that answer is. *the point is, if they go too high we could damage the *u.*s. commercial launch business and all commercial launches, including those from *boeing and *lockheed *martin, could wind up overseas. *once again, the government could be stuck with all the range costs. *again, *i don't have the answer, but *i think it is a bigger issue than *boeing or *lockheed *martin or the *air *force. *it really is all about national space policy and we need to work together to come up with the right answer. *the *air *force is taking a leadership role in this. *colonel *jeff *norton is working on a range economic model and *the *boeing *company will support him in the development of that model. *we intend to take this issue back to *washington to work it on *capitol *hill and drive it towards a conclusion. *i would like to close by saying a little about acquisition reform. *i hope this doesn't come across too much like a commercial, but it really is a commercial for what the *air *force has done. *we had a supplier conference in *seattle a couple of months ago. *we had some 400 suppliers there and we talked about partnering between *boeing and our customers and between *boeing and our suppliers. *we had an artist at the conference who took notes on our discussion of acquisition reform. *the result is this mural [displayed on wall at presentation]. *the mural takes us from *dr. *perry's message back in 1992 to where we are today and into the future. *i hope you'll enjoy looking at it. *thank you and *i look forward to the discussion. § *fb. § *farnborough *press *conference § *today we serve five markets: launch services; human space flight and exploration; missile defense and space control; national intelligence, surveillance and reconnaissance (*i*s*r); and information and communications. § *launch *services: *we offer a range of launch service solutions including the *delta family and *sea *launch. *delta *i*i has had 279 successful launches, more than any other expendable launch vehicle. *delta *i*i*i problems have been addressed, and we return to flight soon. *on *sea *launch, we have determined cause of failure and return to flight this week. *delta *i*v is in testing with first launch in 2001. *and we have steady customer demand on the suite of vehicles. § *human *space *flight and *exploration: *we're *n*a*s*a's largest contractor; e.g., prime contractor for the *international *space *station, which is part of a 16-nation venture. *the *space *shuttle's 100th mission is in *october, and we're proud to build and maintain the world's only operational reusable launch vehicle. § *missile *defense and *space *control and *i*s*r: *we're developing the *future *imagery *architecture for the *national *reconnaissance *office, and we are the lead system integrator for the *national *missile *defense. *while we missed our target a few weeks ago, we know there are inherent technology risks in our work, especially at the beginning of a quest. § *in short, we are excited about our future, *phil, and our enormous business possibilities. § *our knowledge of highly mobile platforms, satellites, and space-based communication led to *connexion by *boeing. *it's a mobile, global service using phased-array antenna and satellite technology to bring two-way broadband, communication services to airline and business jet passengers. *so, soon when you can watch a soccer match, send an e-mail, or file a story from 40,000 feet, the airplane will begin to feel like your home or office and that will change the traveling experience and will turn downtime into productive time. § *satellite-based air-traffic management *c*n*s/*a*t*m is another big growth opportunity. *current systems are nearing capacity, and a projected 5- to 10-percent annual increase in use means major upgrades will be needed to avoid gridlock and ensure safety. *global architecture that transitions terrestrial infrastructure to satellite-based *a*t*m is a solution. *as a leading integrator of large-scale satellite-based communications systems, *boeing is uniquely qualified to design, build, and operate such a system. § *practical *idealism: *key *to *building *strong *communities § "*in real estate, the key to success is location, location, location. *in the real world at large, the key is connections, connections, connections." § *those aren't my words. *they are *stephen *covey's, from an essay entitled "*the *ideal *community." § *i thought of this observation when *i was invited by the *human *service *council of *snohomish *county to be the keynote speaker at this year's partnership forum. *as someone who has lived a vast majority of her life in the *midwest, *i wasn't even sure *i knew how to pronounce *snohomish. § *i asked myself: *where is the connection that will help me (a *midwesterner) say something of value to you (*northwesterners) on the role of partnership and collaboration in creating "*c*o*m*m*u*n*i*t*i*e*s *t*h*a*t *c*a*r*e"? § *i was struck by a thought, after *i had the opportunity to visit some of your agencies here and see first-hand some of the wonderful work that is being done in this community. § *as a connection, *i am going to ask you to reflect upon the singular event that connected us -- or, *i should say, connected our distant forbears -- almost 200 years ago. *i am speaking of the *lewis & *clark *expedition. § *why *lewis & *clark? *first, because even the name -- *lewis & *clark -- bespeaks collaboration. *what's more, the *corps of *discovery, as their team was called, took off from my home town of *st. *louis on *may 14, 1804. *eighteen months later, on *oct. 14, 1805, they entered into what is now *washington *state as they swept down the *snake *river toward its junction with the *columbia. § *to top it off, *lewis and *clark created a sense of community -- a sense of national community. *when they arrived back in *st. *louis, the whole country erupted in celebration. *as one *u.*s. *senator noted with uncanny foresight in anticipating the only future expedition that would bear comparison, "*it was just as if they had returned from the moon." § *if you study the *lewis & *clark *expedition (and the story is told wonderfully well in *stephen *ambrose's book, "*undaunted *courage," and, again, in *ken *burns' masterful film on the expedition), you learn a thing or two about pronouncing *indian names, like *snohomish. *you also are treated to what amounts to a series of parables, showing the remarkable power of teamwork and creative partnerships in surmounting enormous obstacles ... and, indeed, in conquering the unknown. *all of you in this room are faced with enormous social and economic obstacles as you attempt to create "healthy communities." § *consider the nature of the task in front of *lewis and *clark as they began their expedition. *they were supposed to lead a band of 32 armed men -- across a vast wilderness -- where they would encounter large numbers of *indians -- speaking many different languages -- who had every reason to regard them with the greatest suspicion. § *what were the odds of members of this group living to tell the tale? § *well, the remarkable thing is that they all survived -- except for a single man, who died from natural causes, at an early stage of what was for the others a two-and-one-half-year journey of unceasing discovery and continual peril. *and they accomplished a long list of objectives. § *with few tense exceptions -- calling for great fortitude and, once or twice, some amazing luck -- *lewis and *clark were able to elicit the friendship and cooperation of native *americans all along the way. *indeed, the expedition would never have been a success without the active assistance of *american *indians. § *there are a number of lessons to be drawn from the *lewis & *clark *expedition that are relevant to those of us who are involved in community work. *i will state them quickly and then come back to each of them later. § *first is the importance of a bold vision and a compelling purpose. § *next is the need for creative partnering and collaboration at all stages of a project, beginning at the planning, or conceptual, stage and continuing thereafter. § *third is finding the right people to partner with. § *fourth is an openness to others -- and a willingness to experiment. § *last, but not least, is having the courage -- and, in many instances, the stubbornness -- to persist, when day-to-day progress is painfully slow -- or seemingly non-existent -- and the final destination is nowhere in sight. § *the real author of the *lewis & *clark *expedition was *thomas *jefferson. *in what has been described as the greatest land deal of all time, *jefferson had just paid $15 million to *napoleon's *france for the vast territory comprising the *missouri and *mississippi river basins. *if that doesn't sound like much money, consider this: *it was nearly twice the size of the total federal budget at that time. § *jefferson dreamed of creating an "*empire of *liberty" -- stretching from coast to coast. *that was his vision, and he viewed the *lewis & *clark *expedition as a first step in its achievement. § *i am sure that each of you who works in an agency or a branch of government is motivated by an overarching vision of the kind of community that you would like to create. § *john *mc*donnell, one of the members of *the *boeing *company board of directors, said in one of his speeches, "*the *lighthouse *effect": "-- if you have a vision, you will see opportunities where others see only problems." § "*vision provides the ability to transcend traditional thinking and see new opportunities for growth and improvement." § *from my own experience as *president of the *boeing-*mc*donnell *foundation and from leading community affairs at a major corporation, *i know that the people and the agencies that operate the most effectively, and do the most good, are those that are inspired by a clear and compelling vision of an ideal to be sought and the means of achieving it. § *thomas *jefferson recognized the need for creative collaboration from the earliest stage. *that is why he sent the 28-year-old *meriwether *lewis off to *philadelphia, the year before the expedition was launched, to study under the top scientists of the day. *lewis spent months in *philadelphia soaking up everything there was to know about such subjects as botany, mineralogy, medicine and celestial navigation. § *he studied medicine, for instance, under *dr. *benjamin *rush, the most celebrated physician of the day. § *when his men were shivering in the dead of winter near what is now *bismarck, *north *dakota, some of what *lewis learned from *dr. *rush would be put to good use. *his learning was certainly put to use in delivering the baby of a young *indian woman. *this woman -- named *sacagawea -- joined the expedition the following spring and played a critical role in making it a success. *sacagawea was a *soshone *indian, by birth, who had been captured by another tribe, was freed, and then married a *french-speaking *canadian. § *when the *corps of *discovery was in desperate need of horses to cross the *bitterroot *range of the *rocky *mountains, they came across a band of *soshones. *the *indians debated among themselves over whether they should kill the interlopers then and there -- or wait a bit. *the *soshones could easily have murdered all of them -- except for the stupendously fortuitous fact that *sacagawea recognized the chief of the tribe as her much-loved and long-lost brother. § *nevertheless, the incident is another example of how painstaking planning, individual enlightenment and early collaboration had paid off. *sacagewea didn't just happen to be along. *she was there, first of all, because *lewis was able to save her -- and her child -- through a difficult and painful labor. *secondly, and most relevant for those of us in this room, she was there because *lewis recognized her potential importance to the expedition both as loyal friend -- and as a highly resourceful person who had been raised in the unknown territory they were soon to enter. § *at the *boeing-*mc*donnell *foundation, and in the work that *i have done in community relations, *i have seen countless examples of how diligent preparation and early collaboration spell the difference between a great program and a not-so-great one. § *let me tell you how impressed *i was upon taking a tour of the *little *red *school *house and talking to the *executive director of that facility, *barbara *george. *their mission is to provide the education and therapy services to any child from birth to three years old who has a developmental delay or disability. *their service is not only for the child, but for the family. *it is a community of support. *this is a quote from their *quality of *life statement: "*little *red's leadership resolved to create a place where many providers of services for children will come together with a united vision to make a difference in the lives of children --" § *speech therapists, occupational/physical therapist, counselors, parents and others work as *sacagawea-type guides in helping these children in their onward journey into day schools, kindergarten and beyond. § *they are programmatically partnering with *day *care *centers to ensure that the inclusion of these children is successful. § *clearly, finding the right partner is key to many endeavors. § *in visiting the *work *force *development *center, *i discovered their motto: "*teamwork is the fuel that allows common people to achieve uncommon goals." *they have partnered with industry -*boeing -- to provide needed parts. *they have partnered with the school system to continue the educational process that may have been interrupted or even aborted for a variety of reasons. *they have a clear and compelling vision and mission. § *larry *hanson, the president and publisher of *the *herald in describing your progress toward *healthy *communities talked about the commitment for action from a wide number of agencies and people. § *there are three outstanding examples of *lewis's genius in this area of picking the right partners -- or, as *stephen *covey might say, in developing connections, connections, connections. *there was his selection of the steadier and more experienced *william *clark to be the co-leader of the expedition. *there was his recruitment of *sacagewea. *and there was the assembly of what proved to be a cohesive team of men comprising all kinds of different skills and talents. § *your 2,100 square miles -- with over 550,000 residents has similar challenges of cities that are larger and more densely populated. *the *healthy communities focus of *children & *youth, *discrimination, *health & *wellness, *housing, *jobs and "*economic *development and *violence are mirror images of the *st. *louis 2004 initiative. § *your progress report bespeaks the effort at collaboration and the realization that no one agency, no one business, no one political entity can address successfully the issues that befall these categories. § *from what *i have been able to observe here in *snohomish *county, you have done an excellent job of bringing multiple streams of energy and expertise into a comprehensive plan to support the people of this county. § *you must feel as *i do, therefore, that it is vitally important for each of us in our different capacities -- in social work agencies, in business and in government -- to communicate with one another and to seek out programs and outcomes that advance our mutual interest in having a better community. § *ideally, human service providers should be able to think and plan like the best business people; while business people, in interacting with their communities, should be able to see with the deep-seeing eye and feel with the deep-feeling heart of the best human service provider. *but that's* ideally* speaking. § *more realistically, human service agencies that are looking for business support will enhance their chances if they do certain things right: *if they learn to speak the language of business, and understand its logic; if they are creative in seeking out win-win situations; and if they make wise use of the human resources to be found in the business world. § *to cite a small but telling example of finding a good win-win connection -- each year the *y*w*c*a of *metropolitan *st. *louis conducts its major fund-raiser, *leader *lunch. *the proceeds from this fund-raiser provides a portion of the operating budget to fund critically needed programs such as the "*women's *sexual *assault *center", "*y-*tools *teen *program", transitional housing and many others. *while these programs are needed within the community and provide structured quality services with proven results, thus making them candidates for funding in and of themselves. *the *y*w*c*a also uses this fundraising event to recognize working women who have made remarkable contributions. *this event affords businesses the opportunity to recognize their women achievers publicly. *this is the win-win, the "quid pro quo" if you will, funding for needed services and an opportunity to highlight working women. § *there are also, certain skills that are readily available to you from the abundant number of people in the business world who are active as volunteers -- or looking for opportunities to become involved in community events and issues. *people with accounting and finance skills, strong analytical and strategic planning skills, and a facility for networking with others in business or in positions of influence and power. § *in connecting with business people, never forget that you have a lot to offer us. *you can place us into situations and provide us with challenges that will help us develop new skills and understanding. *that is something we must have in order to continue to grow in our business as well as our non-business lives. § *harry *stonecipher, *boeing's president, put it very well when he said: "*most people discover they get more from giving than almost any other activity. *they gain an understanding and appreciation of others. *they learn team-building skills. *and they come away renewed and refreshed from an exposure to new points of view and from a sense of genuine accomplishment." § *every year *boeing people spend millions of hours in services to their local community. § *i believe we are fortunate to live in a time of rapid and seemingly ever-accelerating change. *and change always requires an openness to new ways of thinking -- or a willingness to experiment. § *the fact is, those of us who work in community affairs have entered into unknown, or at least unfamiliar, territory in many ways. § *today we are seeing problems that people in our parents' generation -- even our grandparents' generation -- seldom acknowledged or saw. *the increasing mobility of people, the breakdown of families, increased volatility in both the social and economic environments -- these and many other variables pose serious new challenges for our communities. *they call for new kinds of solutions. *they require creative, sometimes ingenious partnerships § *i believe we are going to see more and more creative collaboration between different kinds of agencies -- which will bring together some programs, but realistically and practically not others. *we, like *thomas *jefferson, must practice "practical idealism." § *one thing has not changed. *the hardest and most important work to be done in the whole area of community affairs will always require people of great personal courage, persistence and dedication. *that means people who are willing to go into the toughest schools, the poorest hospitals and the least desirable neighborhoods -- in advocating the cause of the least fortunate members of our society. § *my deepest admiration is reserved for all of you who do that on a daily basis. *you are the kind of people that *meriwether *lewis would have chosen for his ultimate journey, the one he contemplated in his moments of wishing for something greater than either fame or fortune. § *to him, service to the community -- service to others -- was the highest calling. § "*this day *i completed my thirty first year," he wrote in his journal shortly after a dazzling series of "firsts" -- being the first *american citizen to cross the *great *plains, the first to view the *rocky *mountains, and, soon, the first to cross them on his way to the *pacific. § "*i reflected," he wrote, "that *i had as yet done but little, very little indeed, to further the happiness of the human race, or to advance the information of succeeding generations." § "*in the future," he concluded, he would "live for* mankind*, as *i have heretofore lived *for myself*." § *what can we do to bring that kind of spirit more to the forefront of our society? § *as *meriwether *lewis did, we must lead by example. *many of you are setting a great example for the rest of us to follow. *for that, *i thank you, and *i look forward to working with you in doing everything *i can to help you in your endeavors here in *snohomish *county. § *fb. § *some *thoughts on *building a *house for *diversity § *i'd like to begin by retelling a story that was told in the late 70's and early 80's, when there was great pessimism about the ability of *u.*s. companies to compete in the global marketplace. *bear in mind: *this was before *e-*bay, *price-line, *amazon, and all the other dot.com companies. *it was before the *world *wide *web. *it was before the invention of the microprocessor. *americans were under siege - or so we felt at the time - from everything from high-priced oil to low-priced automobiles and appliances from abroad. § *so here is the story. *three businessmen - a *frenchman, a *japanese man, and an *american - are lined up before a firing squad. *according to ancient custom, each is granted a final wish. *the *frenchman says he would die happy if he could sing *la *marseillaise one more time. *he does . . . and he sings this old revolutionary song so well that it brings tears to the eyes of the riflemen. *even so, they take steady aim and shoot the *frenchman dead. § *the *japanese businessman is inspired by the patriotic example of the *frenchman. *he expresses his desire to give one last speech on *kaizen, the *japanese word for encouraging incremental improvements in the production system. *however, before he can get started, the *american rises and insists that he be the next to go. "*i will die happy," says the *american, " if *i don't have to listen to one more lecture on *japanese *management." § *when *kenneth *seeney invited me to speak at this gathering, *i must admit that my first inclination was to say no. *i was not sure that *i wanted to be the instrument of subjecting all of you to one more lecture on the importance of diversity. *diversity, with a capital *d, has become one of the buzzwords in *american businesses and society . . . and anything that buzzes is likely to be a source of annoyance, whether it is a swarm of mosquitoes, or the insistent and indiscriminate use of certain words and phrases. § *beyond that, *i was not sure that *i would be the right person to connect with you as an audience. *to be perfectly frank, you are looking at the consummate urban dweller. *i enjoy the beauty of nature and *i appreciate the fragility of our environment, but *i have never pitched a tent, climbed a mountain, run a fast river, or done many of the other things that many of you probably take for granted. § *however, as *i was pondering all this, it dawned on me that we do share a passionate sense of conviction about one thing. § *with this audience, *i don't have to point out the importance of another kind of diversity, which is to say, bio-diversity. *you know the terrible dangers posed by pollution and wasteful management of natural assets in the destruction of habitats and the extinction of many forms of life. *you are the real experts when it comes to appreciating the beauty that exists in the larger mosaic of life. *we are a species that relies on insects to pollinate many of our crops and we can thank the accumulated masses of bacteria that lived over billions of years ago for our primary sources of energy (oil and gas). *we owe the very air we breathe to the photosynthetic activities of those same bacteria. § *as a native *missourian, *i know that this is an extraordinary state in terms of ecological and biological diversity. *it has everything from swamp lands and river delta on the east to tall grass and plains on the west. *it has a northern portion above the *missouri *river that marks the farthest advance of the glaciers, and a southern portion that includes an ancient volcanic mountain range and an uplifted eroded plateau that is famously known as "the *ozarks." *you in the *missouri *department of *natural *resources, along with your colleagues in the *department of *conservation, are the true stewards . . . and champions . . . of this amazing diversity. § *so my message to you this morning is really very simple. *it is to bring the same kind of thinking . . . and the same kind of dedication . . . to diversity, in the purely human and organizational context, that you already do to diversity, in the biological and environmental context. § *the same thinking applies in both spheres. *we value diversity in the biological realm because we know that there is strength in diversity. *greater diversity means a superior gene pool through greater variation and complexity. *it means both more competition and more cooperation between species. *it means greater adaptability . . . along with stiffened natural resistance to disease and great disasters of one kind or another. § *we at *boeing value diversity for the exact same reasons. *we are a company with a population of nearly 200,000 people, with operations in 27 states (most assuredly including *missouri), and with customers in no fewer than 145 countries. *but we do not assume that diversity is something that comes with the territory in being big and being active around the globe. *to the contrary, we are spending a great deal of time, money, and effort to become more diverse at all levels of our organization. *this is not simply - or cynically - a matter of compliance. *we want people to think and act differently . . . to act with greater speed, agility, and creativity. *those attributes are required in an increasingly complex and demanding global business environment. *in a self-interested way, we, too, have come to the conclusion that there is strength in diversity. § *we must understand that our view of the world is but one of many . . . that others see things in other ways. *how do you encourage diversity? *above all, how do you encourage it in an organizational setting, such as *boeing or the *d*n*r? *large organizations are different from the habitats found in nature in the sense that they are (and *i'm not intending to be gender-specific when *i say this) man-made constructs. *they are what we make them. § *diversity is about us . . . each and every one of us. *the point is not that there are differences. *the point is whether we can learn from those differences. *the point is not that there are varying viewpoints, but whether we can recognize and to respond to those varying viewpoints. § *perhaps we should examine the key word a little more closely. *according to the dictionary, "diversity" simply means difference, unlikeness, or variety. *like the proverbial snowflake, each of us is different - in some way, unique. *however, again like the snowflake, we are also incredibly alike. *for all of the differences between people, far less than 1% of our *d*n*a separates any one human being from any other. § *the true test of diversity within an organization . . . or across a whole society . . . is whether people build upon their differences . . . or whether they are divided or even destroyed by them. *part of the greatness of our country is contained in the motto that is stamped on our coinage - *e *pluribus *unum, *out of *many *one. *conversely, in a place like *yugoslavia, the tragedy has been the failure of a people who are racially and in other ways the same to bridge their differences in religion and history. § *skin color, gender, age, and sexual orientation are some of the obvious and important differences between people. *but there are many other differences in background, history, and habit that are also profoundly important . . . and that must be addressed in any organization that wants to reap the benefits of diversity. § *about ten years ago, *i was a co-leader of a study examining why it was that so many promising young *african-*americans seemed to veer off course . . . in terms of their career development . . . within a few years of being hired. *these were people who had earned top grades at top universities . . . and who appeared to be every bit as qualified as their white counterparts at the outset of their employment. *what we found was that promising *african-*americans, unlike promising whites, had been largely ignored by their white supervisors. *this happened not out a spirit of viciousness, but more out of avoidance. *the white front-line managers simply didn't feel comfortable dealing with young black people. *so they seldom tried to challenge or engage them. § *this brings me to a favorite book . . . and *i recommend it to all of you. *it's called "*building a *house for *diversity." *the author is *r. *roosevelt *thomas, *jr., and we have retained him as a consultant in building a house for diversity at *boeing. § *thomas's book begins with a wonderful fable about a giraffe who wants to befriend an elephant and who therefore invites the elephant into his house. *after some quick carpentry to enlarge the basement door in order to admit the elephant, the giraffe goes off to answer a phone call, telling the elephant, "*please make yourself at home." *but every time the elephant moves, there is a large scrunch or crashing sound. *when the giraffe returns, he is amazed at the damage that the elephant has done and is quick to offer advice. *sign up for weight-watchers, he urges the elephant. *and it wouldn't hurt, he adds helpfully, "if you'd go to ballet class at night" . . . in order to become "lighter on your feet." § *there are three clear morals to be drawn from the interaction between the giraffe, as the insider, and the elephant, as the outsider. *the first is the silliness of expecting an elephant to assume the same dimensions as a giraffe. *if you are serious about diversity, you should build your house with that in mind. *but that is not the easiest of tasks. *as a second moral to the story, you should expect a certain amount of tension and complexity. *and finally, each of us must be prepared to move outside our original comfort zone if we want to embrace and promote diversity. *that's the third and biggest moral from the story. *there is no such thing as a diverse organization created by executive dictate. *it is something that will come into being only through the willing and active behavior of supervisors, managers, and people at all levels. § *but *i suspect that most of you have already learned those same lessons in managing the great physical resources of this state. *it wouldn't occur to you to think that every stream was the same or that every forest was the same. *you accept the need for positive actions dictated by unusual soil conditions or other localized differences. *say there has been substantial erosion of topsoil in a place of rich farmland. *that could be an action that would elicit some kind of counter-action on your part. *and *i trust that we can all agree that the maintenance of a clean environment requires the concerted efforts of all concerned citizens. § *when *i - as an *african-*american, female, corporate executive - speak on the topic of diversity, *i know that there is always going to be an unspoken question on the minds of many listeners. *they will wonder: *what does she really think? *if *i could take away her script and read her inner thoughts, what would they be? § *i will try to answer that question with particular reference to race. § *frankly, *i am worried. *what makes me apprehensive is the growing gap in the perceptions of white *americans on one side and black *americans on the other. *it is as though the giraffe and the elephant have each been blinded to what the other sees as reality. *white *americans, for the most part, believe that race is no longer much of an issue in our society. *they see the nighttime television dramas in which individuals from all races get along as buddies and excel equally. *that's how it is in real life, right? § *wrong, *i would tell you. *while *i cannot pretend to speak for black *americans as a whole, *i can tell you that a recent *gallup poll indicates that 50% of black *american believe that they have been discriminated against within the past 30 days . . . when shopping, dining out, working, using public transportation, or interacting with the police. *what's more, *i can cite studies showing that, with similar educational backgrounds, black males earn less than 75 percent of what their white peers take home. § *our journey toward greater harmony and justice is not yet over. § *having already given you the dictionary version, *i would like to close with my own definition of diversity. *to my mind, diversity is not merely the absence of discrimination; more fundamentally, it is the powerful presence of a sense of teamwork and community . . . one that brings all kinds of people from different backgrounds together . . . with the end result of creating a whole that is much greater than the sum of the individual parts. § *my challenge to you - who are already fighting on the side of the angels when it comes to the environment - is be equally bold and energetic in bringing that kind of teamwork and community into play in making the *missouri *department of *natural *resources a true house for diversity. § *fb. § *farnborough *press *conference § *sure, *phil. *all our programs focus on providing solutions that offer more capability at less cost. *the reality today is that defense forces must modernize and maintain their forces under tight budget conditions. *that reality will continue for as long as we can see. § *making its international debut here is the *f/*a-18*e/*f *super *hornet, which has been on schedule and on budget for about a decade. *the cooperation between the *u.*s. *navy and the *hornet *industry *team was recognized recently in two ways - the award of the *collier *trophy for aeronautical excellence and the signing of an $8.9 billion multiyear *super *hornet contract. *the *super *hornet is already gaining great interest in the international marketplace. § *cost and capability are the linchpins of our *joint *strike *fighter (*j*s*f). *our *boeing *j*s*f *one *team is making tremendous progress through a seamless multinational contractor effort. *together we will produce the most capable and affordable fighter for all customers - domestic and international. *if you have not visited our exhibit to see our full-scale mock-up, *i invite you to do so. *the future is here today. § *we are very gratified that the *united *kingdom decided to lease four *c-17 aircraft. *it's a trendsetter in terms of capability and program management. *the *c-17 shows what's possible by offering unrivaled capability and keeping program management intensely focused on cost and producibility improvements. § *the *v-22 also offers tremendous value for international customers. *a number of countries, including the *u.*k., could benefit from it. *we are working to bring the cost down so the *v-22's revolutionary capability is accessible to militaries around the world. § *finally, our *military *aerospace *support business is driven by the concept of allowing customers to use scarce resources more productively by affordably providing the maintenance, modification, and upgrade activities customers were doing themselves. *that business is at $3 billion in revenue, a total that will likely triple within a decade. § *phil, those are just a few examples of our dedication to delivering best value and solutions to our customers. § *people *working *together... *building the *future of *flight to *fly... to *defend... to *explore... to *inform § *the *boeing *airplane *family...*more *choices, *more *value *thank you *harry, and good afternoon, ladies and gentlemen. *harry did an excellent job of describing the *boeing view of our past year's performance. *without question, we have faced serious challenges - both on the production side and in the *asian market. *nevertheless, we haven't lost sight of the importance of working together to deliver great airplanes. *the major event for us in the last year was, of course, the merger between *boeing and *mc*donnell *douglas. *one of the principal advantages of the merger is that it brought a better balance to our business. *prior to the merger, the ratio of *boeing revenue was 3 to 1 in favor of commercial airplanes. *now, it's a ratio of 3 to 2, and we're a much stronger company as a result. *i'd like to talk this afternoon about the commercial segment. *we offer a complete family of airplanes which cover from 100 through nearly 600 seats, and have the payload, range, and operating flexibility to fill virtually every market need. *the airplane we've brought to *farnborough - a 777-300 for *thai *airways - represents everything that is great about our product line. *this unmatched family is backed by the industry's most comprehensive support services and a lifetime partnership. *this support network is especially important when you consider that more than 10,000 of the 12,000 airplanes in service today are *boeing airplanes. *i'll focus my presentation today on two themes: the way our great family of airplanes delivers value to customers, and the value *the *boeing *company brings to *europe. § *an *airplane for *every *need *here's our latest family portrait of the passenger airplanes we offer today. *we also have the only complete line of freighter airplanes. § *meeting virtually every airplane requirement, *boeing offers customers... the fastest, the shortest, the longest, the widest, the biggest, the smallest, the most flexible, the most capable, the most technologically advanced, the most fuel-efficient, and the most comfortable airplanes for sale. *we've developed and launched ten airplanes in the last five years, each one meeting an evolving market need. *and just this year alone, we've had four models roll out of the factory for the first time - the 717, the 737-600, the 757-300, and the *boeing *business *jet. § *where *are the *choices? *airbus talks about having a family of airplanes, but it's clear they offer fewer choices. *let's look at the markets represented on this chart. *boeing offers two products in the 100-seat category. *airbus offers none - or at best, only a paper concept. *we have five products in the 200- to 300-seat market, while *airbus only sells two - the *a321 and the *a330-200 (and there's a 100-seat difference between them). *in the large airplane market, of course, we offer the 747. § *boeing *offers *full *range of *cross-*section *choices... *if we've learned anything from having more than 10,000 airplanes in world-wide service, it's the value of working with, and listening to, the customer. *our product families center around a design philosophy focused on meeting our customers' real-world operational and market needs. *what we've found is that customers value choices...because more choices mean more value. *there's a *boeing option for almost every market scenario, as you can see from this display of cross-sections. *these options allow airlines to match capacity to demand, serve multiple markets efficiently, and above all, match passengers' comfort preferences. *the 777 economy-class interior, for instance, is available in the 3-3-3 configuration shown here, or in a 2-5-2. *we give airlines the choice - and that's the point. § ...and *airbus? *here is the full range of cross-section choices *airbus offers. *two. *the *airbus widebody cross-section is considerably smaller and has narrower seats than the *boeing 777 - and narrower seats than on the 767, too. *so, although airlines do have an alternative in this particular market category, the *airbus cross-section means passengers are sacrificing comfort on long-haul trips. *one reason for the *a330/*a340's comfort limitation is that is has the same fuselage as the very first *a300, which was designed in the late 1960's as a short-range airplane. *airbus has continued to use the same fuselage and narrow seats for all widebodies since then, regardless of range requirements. *this includes the *a310 as well as the *a330 and *a340. *this is an example of expecting the customer to adapt to the product, rather than adapting the product to the customer. *i'm sure you've all seen advertisements about the comfort of the wide *a320 cabin. *the interesting point to us is that *airbus seems to believe that a few extra inches matter a lot on short-range airplanes, but they dismiss the much larger 777 interior as wasted space for a long-haul airplane. *also, the short-range *a320 first-class and economy class seats are wider than on their new long-range airplanes. *they seem to have this backwards. *i'd like to spend a few minutes talking about the product choices we offer. § *value of the 747 *the 747 is still the biggest, fastest, and most distinguishable airplane in the sky. *it fills range and capacity requirements like no other airplane on the market. *the 747-400 has the lowest operating costs per seat of any commercial jetliner. *boeing offers four versions of the 747-400: the all-passenger version; a freighter; a domestic version for short, high-density routes; and a combi version with passengers and cargo on the main deck. *for nearly 30 years, this airplane has flown farther, carried more people internationally, and made more money for airlines than any other commercial airplane. *that's still true today, and the 747 continues to evolve to serve future markets. *the 747 is flown by about 100 customers, of which only 24 operate the vast majority - some 72 percent - of the fleet. *to date, these operators remain unconvinced that a larger airplane, such as the proposed *a3*x*x, will offer any more value than the 747. *if sufficient market demand develops for such an airplane, *boeing will respond. *we'll offer a larger airplane, one with longer range, or both. § *value of the 777 *it was in response to market demand, in fact, that *boeing created the newest member of our widebody family, the 777 - the world's largest twinjet. *we designed it to set a new standard for comfort and flexibility. *you don't need to take my word for it. *as *i mentioned earlier, we've brought a 777-300 to the air show. *i hope you'll have a chance to visit it. § *the 777 is the most advanced airplane in the world, and is available in two sizes: the 777-200 and a larger 777-300. *the qualities of this airplane - passenger comfort and cabin spaciousness, speed, range, and the lowest seat-mile cost in its class - add up to increased profitability for airlines. *in order to meet future trans-*pacific needs, we continue to develop the 777-200*x and 777-300*x. § *value of the 767 *the 767 continues to be a passenger favorite and a mainstay of the long-haul fleet. *the 767 is the airplane that led to the fragmentation of the trans-*atlantic market, allowing airlines to fly point-to-point and avoid congested hubs. *it extended twin-aisle comfort to routes never before served by widebody airplanes. *the 767 has the lowest operating cost of any twin-aisle airplane for intercontinental service. *having flown over 1 million *e*t*o*p*s (extended-range, twin-engine operations) flights, the 767 has confirmed the safety of *e*t*o*p*s operation and provided new market opportunities for airlines. *added to the 767-200*e*r and 767-300*e*r, our new 767-400*e*r is the latest evolution of this airplane, giving airlines yet more flexibility to match capacity to demand. *these three models, together with the 757, create one airplane family with a lot in common. *these fuel-efficient twinjets and their flight decks are so similar that a pilot who learns to fly one airplane is basically qualified to fly the other. § *value of the 757 *the range and capacity of the 757 allow it to effectively serve markets whose requirements fall between smaller capacity, standard-body airplanes and larger capacity, widebody airplanes. 1998 has been an exciting year for the 757 program. *the first *boeing 757-300, launched with an order from *condor *flugdienst of *germany, rolled out of the factory in *may, flew for the first time in *august and is now in the flight test program. *delivery is scheduled for early 1999. *the *boeing 757-300 is the largest single-aisle twinjet ever produced and has the lowest seat-mile cost of any single-aisle jetliner. *the 757 has no *airbus competitor - the *a321 has neither the capacity nor the range, and the *a310's high operating costs make it uncompetitive in this market. *the 757's exceptional performance allows it to operate out of almost any airport in the world, bringing large jet efficiency to small jet airports. *a number of governments around the world have selected the 757 as a *v*i*p aircraft. *in contrast to the one-size-fits-all constraint of the *a330-200, the comfort, capacity, and flexibility of the five member 757/767 family give airlines more choices for responding to changing markets. § *value of the *next-*generation 737 *family *not only do we create airplane derivatives in response to customer requirements, we've even developed a derivative of an entire airplane family. *this is that family, the four *next-*generation 737s, offered in sizes covering 100-189 seats. *designed as a family from the very beginning, the *next-*generation 737 represents the pinnacle of choice. *this new family of 737s - the 600, 700, 800, and 900 - has the lowest operating costs in its class and is taking reliability and maintainability to new heights. *we're proud that two of these models were launched by *european customers. *the new 737s fly faster, higher and farther than other airplanes in this market category. *and, about 13 years younger than the aging *a320 competitor, the new 737s were designed for the 21st century. *with the 737 family, passenger comfort is also knowing they're flying on the airplane with the highest dispatch reliability in the industry. *the *next-*generation 737 has continued to set sales records and to exceed even our own high expectations. § *fastest *selling *airplane *ever *the *next-*generation 737 *not only is the *boeing 737 the best-selling jetliner in aviation history, the *next-*generation 737 has added a new distinction by becoming the fastest-selling airplane of all time. *these charts show that when you compare the first six years of program sales, the *next-*generation 737 has not only won more orders, but won more customers as well. *it's done this by building on the success of the earlier models. § *value of the *boeing *business *jet *of course, knowing a good thing when we see it, we took the *next-*generation 737 and used it to create the *boeing *business *jet. *a high performance, ultra-long-range airplane, the *boeing *business *jet offers a new dimension in business travel: nearly three times the internal volume of the newest long-range corporate jets. *that additional space allows us to offer a business jet that - for the first time - fully supports the nonstop pace of the global economy. *but the *boeing *business *jet offers more than just space. *it offers space that really pays off - in comfort, versatility, productivity, and utility. *no other long-range business jet can be configured for so many uses. *with all the advantages, the *boeing *business *jet is still priced to compete with the *gulfstream *v and *global *express. *market acceptance has far exceeded expectations on the *boeing *business *jet, which has been selling more than one per month since opening for business two years ago. § *value of the 717 *just out of the factory in *june, the 717-200 twinjet is the newest member of the *boeing commercial airplane family. *we were very pleased to adopt this airplane from *mc*donnell *douglas because of the strength it brings to our product line. *it inherits the proven *douglas airframe durability and reliability, employs state-of-the-art technology, and has the lowest trip costs and most comfort of any 100-seat airplane. *it's also the quietest commercial airplane in the world. *while everyone else is still talking about plans for a new 100-seat jet, we have one. *the 717-200 was specifically designed to address the emerging high-frequency, short-haul regional market, and has no real competitor. *the program is an excellent demonstration of the *boeing view that value comes through working together with customers, suppliers and partners around the world. *that's especially true of our participation in *europe's aviation industry. § *european *companies *will *make *nearly *half of the *boeing 717 *the 717 was brought to market through the sharing of design, development and production tasks with several major *european supplier-partners, all of which hold a vested interest in the success of the program. *for example: *alenia of *italy is manufacturing the forward, center and aft fuselage sections. *fischer *advanced *composite *components of *austria engineered and is now building the airplane's interiors. *labinal *s.*a. of *france is providing cabin and flight deck wiring systems. *smiths *industries of the *u.*k. is furnishing flight deck display equipment. *andalucia *aeroespacial of *spain is subcontracting significant work on the wings, including leading edge slats. *and, representing about 20 percent of the total value of the airplane, the 717 will be powered with environmentally friendly *b*m*w/*rolls *royce engines. *for our suppliers, these partnerships facilitate exports, support local economies and create jobs. § *boeing *creates *business and *jobs in *europe *the *boeing *company is proud to work with nearly 500 *european suppliers in support of both our commercial and defense products. *a persistent theme in the media coverage of *boeing in *europe often seems based on the idea that any success for *boeing comes somehow at *europe's expense. *this is unfortunate, because *boeing brings so much business - so much economic value - to *europe. *the fact is, *boeing programs support about 90,000 jobs right here in *europe. *given that the company projects to spend well over $14 billion in *europe alone over the next five years, it's easy to see how a success for *boeing benefits not only *boeing, but many others here in *europe. *another example is *snecma of *france. *snecma has been a major contributor to the success of the 737. *boeing 737s are powered solely by *c*f*m56 engines produced by *c*f*m*i, a joint company of *snecma and *general *electric of the *united *states. *the *c*f*m56 program supports 11,000 jobs, and 81 percent of all *c*f*m56 deliveries are for *boeing. *in the past five years, this relationship has generated more than $2.5 billion in revenue for *snecma. *during the next eight years, *boeing expects to generate nearly $9 billion in sales for *snecma engines. *and here in the *u.*k., *boeing airplanes have generated almost $4 billion in jet engine sales over the past five years for *rolls-*royce. *over the next ten years, the projection is in excess of $13 billion. *we continue to make other investments in *europe. *for instance, last month we announced that *flight*safety *boeing *training *international had selected two *london sites as finalists for a proposed $85 million *european *training *hub. *we will train airline crews from around the world there. *earlier this year, *boeing made a strategic investment in the *czech aircraft producer *aero *vodochody through a joint venture with *c*s*a *czech *airlines. *aero *vodochody is a supplier of ours and *c*s*a *czech *airlines is a customer - and we're all partners together in this new endeavor. § *global *aerospace *market *having worked with international suppliers for more than 30 years, these partnerships are mutually beneficial in many ways. *for *boeing, our *european supplier network provides the company with access to talent, capabilities and solutions that enhance our products. *for *europe, the benefits are exports, job creation, and greater participation in the global aerospace market. § *so the two thoughts *i want to leave with you are these: *one, that we have a great family of airplanes that offers our airline customers more choices and a tremendous amount of value. *and two, that we're an active participant in *europe's aviation industry and that by working together, we benefit from each other's successes. *boeing is committed to a vision: *people working together as one global company for aerospace leadership. *as *harry said at the outset, this is a company that combines great people, great products, great customers, and great supplier partners. *we are very excited about the prospects for the commercial airplane business at *the *boeing *company. *with that, *i'd like to turn this back over to *harry, who will give you an overview of our information, space, and defense programs. § *fb. § 1999 *annual *meeting of *shareholders § *thanks, *phil. § *today, *i also want to talk about the future. *about our flight plan. *where *boeing is heading and how we are going to get there. *boeing is a great *american icon. *a brand with great leverage. *a company bulging with value. *we have a great future. *that's why *i joined *the *boeing *company. § *everywhere *i look, *i see opportunities. *opportunities to enhance our performance. *opportunities to expand our sources of profit. *opportunities to increase value for all stakeholders -- our shareholders, our customers, our employees. § *but business as usual won't get us there. *we need a new approach. *i'm going to spend some time talking about that new approach. *but first, let's take a few moments to look at how we did in the first quarter. § *the results show that *boeing is emerging from the turbulence. *we have both hands firmly on the controls. *we know where we want to go. *earnings are up at all three operating groups. *all the key measures are pointed in the right direction: margins, up; cash, up; stock price, up. *since the first of the year, *boeing stock has outperformed the *dow. § *commercial, which is reinventing the way it does business, saw operating margins jump from less than 1 percent to 3.9 percent. *operating earnings in *commercial increased from $23 million to $382 million 15 times better than its performance in the first quarter last year. § *a favorable model mix helped commercial in the first quarter. *we'll deliver a different mix of airplanes during the rest of the year. *so, it will be hard to sustain those margins without identifying incremental operating improvements. *and that's exactly what we're working on. *searching for the right combination of actions that will allow us to earn the kind of margins these great products deserve. § *space and *communications went from earnings of $44 million to $61 million an increase of 38 percent. *and *military *aircraft's operating earnings improved from $252 million to $322 million an increase of 27 percent. *a portion of the increase was due to favorable settlement of a contract from past years. *still, excluding that settlement, *military *aircraft and *missiles demonstrated improved performance in the first quarter. § *the point is: we're heading in the right direction and we're gaining momentum. *any engineer will tell you, momentum is hard to get started. *but once it starts, it's hard to stop. *and we're determined to make sure that it doesn't stop. *that's why we're putting in place a new way of doing business a disciplined approach to everything that we do. *this will help us manage risk, take advantage of new business opportunities and maximize total shareholder return. § *we have a new focus on creating value. *a new intensity. *a new urgency. *and a new velocity. *this is the way we're going to run *boeing. *there is a new emphasis on performance throughout the entire company. § *we've taken a close look at all our programs and product lines. *we now know which ones create superior value, which ones create marginal value, and which do not. *this is our baseline. *it's the yardstick we'll use to measure ourselves. *to make sure we continue improving. *continue gaining momentum. § *by the end of the second quarter, we'll establish a new financial framework for the entire company a disciplined framework based on a common set of metrics. *we're calling this our "value scorecard." *this scorecard will have concrete metrics with targets for reducing inventory reducing overhead, streamlining manufacturing, rationalizing our supplier base, and maximizing total shareholder returns. § *we'll use the same metrics in *seattle, *st. *louis, *california, *wichita and throughout the company. *we'll measure all manufacturing operations the same way. *in fact, we'll speak a common language, regardless of whether we're looking at a commercial product, a defense product or a space product. *the same is true for how we'll measure *engineering, *finance, *sales and *marketing, and other disciplines. § *and we'll report on our progress every quarter. *we want the world to track how well we're doing. *this scrutiny will put pressure on us to stay disciplined. *to stay laser focused. § *we're also establishing a common decision-making process. *one that makes sure we always look at multiple options when making business decisions. *we can no longer afford to ask ourselves "yes or no" questions. *we have to look at a wide range of opportunities so we can determine the best answers for all of our stakeholders. § *our emphasis is on fixing programs that don't add value, enhancing programs that are delivering, but could perform a whole lot better, and finding new opportunities. *our focus is on creating value by growing the business. *we'll continue to invest in *r&*d and capital expenditures. *we'll continue to invest in new programs, new processes and new lines of business in the aerospace market. *there are huge opportunities out there. *we're determined to capture them. § *we've made changes. *we've moved forward with new business opportunities. *once again, we've tasted success. *but *i want to emphasize that no one is running victory laps at *boeing. *not yet. *we still have a long way to go. § *compared to premier manufacturing companies, we want to be in the upper quartile in total shareholder return. *that's where we were between 1987 and 1997. *we have a plan to get there again. *we won't get there overnight. *but we will get there. *we know how to be successful. *we know how to add value. *now we have to do it consistently day in and day out in every corner of *the *boeing *company. § *in the past 12 months, there have been a lot of challenges. *a lot of disappointments, but a lot of triumphs, too. *i haven't been here for all of them. *but in just four months with *boeing, *i've seen enough to reconfirm my original opinion. *this company is bulging with value. *this company has a great future. § *now, *i'm going to turn it back over to *phil to share some of those successes with you and to provide more details about how we're creating value at *boeing. *phil. § *fb. § *washington *state *global-*competitiveness in the *new *millenium § *good afternoon. *thanks for the warm welcome. § *it's a privilege to be here today. *a privilege to be on the same agenda as *governor *locke, and *dick *mc*cormick and *sam *smith, the presidents of our two major universities known worldwide for their research in medicine, computer science and engineering. § *but most of all, it's a privilege to call *washington state my home. *a year ago, *i had my doubts. *it was a big leap to go from *zurich to *seattle; from cars to airplanes. *now, there's no doubt in my mind that *i made the right choice, none whatsoever. § *i love it here, despite the rain in *seattle. *and my husband, *david, loves it here. *my kids love it here. *my entire extended family loves it here. *i have trouble keeping them away. § *my in-laws have flown out here from *england and *new *zealand. *and it seems like my mother flies out from *detroit every third weekend. *when *i moved out here, *i'm not sure if *i bought a house, or opened the *hopkins *family *bed and *breakfast. *but if that's the price to pay to live in *god's country, it's worth it, well worth it. § *today, you asked for my perspective on what steps *washington must take to continue our success in the future...to compete globally in the new millennium. § *ask someone with a finance background a question like that, and they'll approach it like a typical bean counter. *first thing: we do an audit. *that's guaranteed. *and most audits basically answer two questions: what do we have, and what do we need? § *well, *i've done that audit - at least in my head. *this state has a lot of things going for it. *but we need a lot of changes to remain competitive. § *we're now living in a world where companies move at the speed of the *internet just to stay in place. *and the only rule of the *internet is "*the first mover wins most." § *is *washington prepared to be the first mover? *is *washington prepared to move at the speed of light? § *right now, *i don't think so. *we can get there. *but we have to take the right steps. § *when businesses set out to make changes, the first thing they look at is where they are. *what are their strengths? *what can they build on? § *washington state should use this same approach. *what are our strong points? *where do we excel? *this state has a lot of strengths. § *first, this is a glorious place: *puget *sound, *mount *rainier, the *columbia *river, the rolling hills of the *palouse and the jagged peaks of the *olympics. *i've lived in a lot of places in my life. *i've seen a lot of natural beauty. *yet none is as remarkable as sailing through the *san *juans at sunset, watching whales breach next to our boat. § *and there's more to *washington than just our beauty. *we are a global business leader. *in software, biotechnology, *internet commerce and, of course, aerospace. *we've built our economy around industries that will shape tomorrow. § *we're also a leader in traditional industries: agriculture, forest products, manufacturing of heavy trucks and equipment. § *we've got a good mix of traditional and cutting-edge; of services and manufacturing. *it's a good mix for today and for the future. § *so, when you look at it this way, the picture looks bright. *but we can't just look at where we are. *we need to know where we're going. § *we need to have a vision, and a plan to get there. *we need the determination to communicate it clearly, and to execute it decisively. § *i said *washington has a good mix of industries for today and tomorrow. *but are there any guarantees that the industries here today will remain tomorrow? § *are there any guarantees that ports in *california, *oregon or *vancouver, *b.*c. won't make strategic investments that lure away business? *are there any guarantees that another state - or another country for that matter - won't become more attractive for *washington state businesses to operate in? § *sure, we currently have a big home-base advantage. *but we can't take that advantage for granted. *just like any business, this state must constantly reinvent itself. *to grow our business base in this state, *washington must constantly be on the leading edge. *so, how should we go about accomplishing that? *how do we build on this foundation? *how do we make *washington an even stronger player in the world economy? *in short, how do we make *washington move at the speed of *e-commerce? § *that's where we must look at the other side of the ledger. *look at the things that need to be fixed; the things that *washington needs to sharpen its competitive edge. § *these items fall into three broad categories: § *the first is education. *competitiveness starts with a skilled, educated and motivated workforce. *a lot of progress has been made in this area recently. *but we have much more to do. § *the second item we need to work on is our infrastructure. *for *washington's economy to continue to grow, we need a robust infrastructure. *that means inexpensive sources of energy, outstanding utilities and communications systems, and a reliable transportation network. § *speaking of transportation: *let me talk for just a moment about *initiative 695. *we cannot allow this to become a partisan issue. *this is not a partisan issue. *this is not a *puget *sound issue. *this is an issue about whether our state can continue to function, and whether we continue investing in an infrastructure needed to grow. § *along with education and infrastructure, there is another item we need to work on. *that's our business climate. *we've got a lot of work to do in this area. *we need a climate that attracts and retains the best companies, that attracts and retains the best people. § *when *i agreed to address this group, people in my office told me about when *boeing's former chairman *frank *shrontz talked to the *seattle *chamber eight years ago. *he talked about his vision for the future, about *the *boeing *company's determination to remain competitive. *he also talked about challenges. § *he spoke gently, as was his style. *but in one brief comment, he asked whether *puget *sound could turn into an aerospace rust belt. *he said it could. *that's all it took. § *the next day the front-page headline of the *seattle *p*i read, "*boeing may go elsewhere for new jets." *and this came from page one of *the *news *tribune, "*boeing's growing but will it be somewhere else?" § *there have been some changes since *frank *shrontz made that speech. *but not enough. § *let me say this straight away. *we don't want *washington state to become an aerospace rust belt. *in fact, quite the opposite. *we want *washington to remain one of the leading aerospace centers in the world. *and we want *washington to remain a global leader in software, and trade, and biotechnology, and agriculture, and *e-business and all the other enterprises that call *washington home. § *we want *washington businesses to continue to grow. *but not at any cost. § *over the years, *boeing has made a major investment in this community. *we have deep roots in this community. *but we also have deep roots elsewhere. *we have major investments in communities like *st. *louis, *southern *california, *mesa, *wichita, *el *paso, *salt *lake *city, *toronto and *brisbane, *australia. *just to name a few. § *today, *boeing has operations in 27 different states, two *canadian provinces and parts of *australia. *we currently employ 202,000 people; 60 percent of them work outside the state of *washington. § *as a result of recent mergers, we have too many facilities for our business base. *we're constantly looking at ways to be more efficient, ways to consolidate like operations under one roof, ways to better serve our customers. § *i'm not saying that we're on the verge of making decisions to move entire operations to other states. *but we hold our managers accountable for driving cost out of our system. § *every day, mid-level managers throughout *boeing are involved in decisions that affect the bottom line. *they have parts and products to deliver at certain costs. *if they determine that these parts can be produced more efficiently somewhere else, they have the responsibility to recommend changes. § *so when it comes to determining the best place for us to do business, the decisions are not made solely by me, or *phil *condit, or *harry *stonecipher or any of our executives. *these are the result of day-to-day decisions about how to best run our business; the result of recommendations made by managers on the floor. § *to help our managers make these day-to-day decisions, we recently examined the cost of doing business in all the places we currently operate. *we looked at items such as labor costs, property taxes, energy costs and transportation infrastructure. § *i hate to say it, but out of the 27 locations where *boeing has plants and employees, *washington came out 16th. *and the main reason our state ranked that high - and *i don't consider the bottom half to be that high - is because of *washington's historically low energy rates. § *this is not a pretty picture. *compared to everywhere else we do business, *washington is below average. *to remain a global leader for aerospace - and a global leader for other industries - *washington has to rank a whole lot higher than that. § *raising *washington state's ranking from below average to top tier is very similar to the challenge facing *boeing right now. *we are a great company with great products, a great customer base, a well-deserved reputation for quality. *we're an international icon. *but in recent years, our financial performance has been average. *at times, it's even been below average. § *the way we addressed this situation was by benchmarking ourselves against other companies, and then setting new targets and goals. *average isn't good enough. *we want to be among the best. *we're aiming to be one of the top-performing companies in the *united *states. *and we're measuring ourselves against the 500 companies listed in the *standard & *poor's 500. *our goal is to be in the upper 25 percent of these companies. *or, as we say, we want to be in the top quartile. § *the way we'll achieve this goal is by being more efficient, more entrepreneurial and growing every aspect of our business. § *our first step towards this goal was establishing a new measurement system. *a public scorecard for the world to measure us against. *we unveiled this scorecard in *july. *now, we're asking customers, suppliers, investors, employees and communities to measure our performance. § *this scorecard reports not only where we are, but where we want to be. *this *value *scorecard will ensure that we always make the right decisions. *even when they're tough decisions. § *but scoring isn't something for businesses only. *scoring can work for the state of *washington. *it can help the state retain current industries - and grow our business base - by improving education, improving our infrastructure, and improving our business environment. § *if we established a similar scorecard for the state, where would *washington currently rank? *if we benchmarked ourselves against other states, how would we stack up? *as *i said before, we would be about average. § *i don't want to be average. *do you? *i don't think there's a person in this room who wants us to be average. *we all want *washington to rank right at the top. § *that's why it's time for the state to outline an agenda for business, to set specific targets, to implement a plan to get us to the top. *let's set some challenges. *tough challenges. *disciplined challenges. *let's turn *washington into a state that moves at net speed. § *so what do we need to do in the area of education? § *like *i said before, the best place to start is by looking at where we are. *in recent standardized testing, our fourth- and eighth-grade students ranked above the national average, but only slightly above average. § *there's that word again. *do we want our kids to be slightly above average? *that's not good enough. *we should aim to be in the top quartile of all the states in math, and reading and other skills. *interestingly enough, *washington hasn't yet deployed a program to test students for proficiency in science. *how can we compete in the high-tech world if we don't have standards for science education? *while we brag about our high-tech industries, other states are taking steps to train tomorrow's workforce. *other states are taking steps to surpass us. § *take *texas, for example. *it holds individual school districts - and individual schools - accountable for student proficiency. *and *texas rewards those schools that demonstrate improvements in student achievement. § *in *washington, we're just taking the first steps down this path. *we've formed a commission - the *academic *achievement and *accountability *commission - to talk about implementing accountability standards. *before other states pass us, we should stop talking about this, develop an action plan and implement it - decisively. *or, to borrow a phrase from a company in *oregon: *just *do *it! § *so, what should *washington do in the area of infrastructure? *specifically, how can we fix our transportation system? § *year-in and year-out, our area has topped the lists of the nation's most livable regions. *but traffic gridlock is threatening the entire state's ability to function. *threatening our livability and our jobs. § *now we're holding our breath, hoping state voters take time to educate themselves on this issue and defeat *i-695. *passage of this measure would be a huge step backward for *washington. § *our state depends on freight mobility: freight from the docks to the nation, produce from eastern *washington to the *port of *seattle, and parts from the *boeing plant here in *spokane to our assembly lines in *renton and *everett. § *every business in this state needs a transportation system that works. *today, our system isn't firing on all cylinders. *seattle already has the sixth-worst congestion in the nation. *and some studies paint an even bleaker picture. *one study says we're tied for the worst rush-hour traffic in the nation. *no wonder. *during the '90s, our state population has grown by nearly 1 million. *but our transportation system hasn't grown at all. § *last year, we finally began making progress. *we adopted an integrated approach to transportation in the *puget *sound corridor. *now, as we're about to see some visible sign of progress, we face the threat of *initiative 695. *if it passes, it will take more than a $2.4 billion dollars out of our transportation budgets during the next six years. § *don't get me wrong. *i'm not against tax cuts. *i am against misguided tax cuts. § *this one vote would not only take money out of the state's transportation budget. *it would also take money out of the transportation budgets of *spokane, and *walla *walla, and *richland, and *longview...and every other city across our state. § *it will also cut funding for local police departments, fire departments and public health departments. *the impact in the city of *spokane would be a loss of $2.7 million next year. $3.8 million the year after. *benton *county governments would lose $10.3 million next year. *spokane *county would lose $24 million. *grant *county would lose $3.4 million. *and the list goes on and on. *passage of *i-695 would be a big blow to every corner of the state. *it would hurt all of our businesses. *ultimately, it will hurt every person who commutes to and from a job. § *in addition to taking money away from transportation, 695 provides no mechanism to replace this funding. *any concept to replace lost revenues from 695 would have to go back to the voters. § *what's the likelihood of new taxes passing at the polls? *slim to none. § *so, who will end up paying? *businesses will pay. *and that will hurt *washington's ability to compete. *our transportation system is a valuable investment, an investment with paybacks any *c*f*o would approve. *as a state, we need to maintain this investment. *and that starts with defeating 695 next month. § *in addition to education and transportation, the final item the state needs to address is our business climate. § *this issue has had my attention since the day *i arrived in *seattle. *there's much to report. *some good news, but not all. § *our state's economic performance, business vitality and development capacity are among the best in the nation - among the best in the world. § *here is where we have an extraordinary home-base advantage. *the idea, of course, is to keep it going. *to keep it growing. § *the competition is getting tougher every day. *the other *washington is a case in point. *washington, *d.*c., has always been a government town, and not much else, until now. § *today, the *beltway around our nation's capital is home to 300,000 high-tech workers. *more are on the way. *experts predict that the *washington, *d.*c., area will soon have more high-tech workers than government workers. § *virginia is leading the charge. *it's leading the charge with incentives, a very supportive business environment and a leadership focus. *last year, *virginia was the first state in the nation to create a cabinet position dedicated to high technology, a position responsible for bringing high tech companies - and high-tech jobs - to the state. *it's working. *already, a large and growing proportion of the world's *internet traffic flows through *northern *virginia. § *if we're not careful, this kind of competition can chip away at our home-base advantage. *washington state is a leading high-tech center. *to maintain and expand our leadership position, why don't we adopt a similar approach? § *pick up any edition of *fortune magazine, or *forbes or *business*week. *you'll see ads from the states of *georgia, *tennessee and *north *carolina. *you'll even see ads from *thailand, *malaysia and *singapore. *they all deliver the same message: *our state - our country - is a great place to do business. § *so, why don't we have an ad? *why don't we have a cabinet-level position to promote high technology? *what are we doing to attract new businesses? § *but it'll take more than going on the offensive. *a positive business climate involves more than ads in national magazines. *it involves policy, tax structure and employment costs. § *three years ago, the state enacted a series of tax measures that helped improve the business climate. *washington decided not to assess property tax on intangibles such as intellectual properties, patents, trademarks. *that may sound insignificant, but it was great news for companies like *microsoft, *immunex and *go2*net. § *still, this change isn't enough of an incentive for all the "would-be dot coms" to come to *washington and grow into the next *amazon.coms. *it might not even be enough of an incentive for the established "dot coms" to stay in *washington state. *right now, *boeing is looking at where we should locate any future *e-commerce subsidiaries. *and *washington state isn't even among the top 10 choices. § *i don't mean to imply that we haven't made some strides in *washington. *we removed the sales tax on manufacturing equipment. *that was significant. *this was a big help for companies like *boeing, *paccar, *weyerhaeuser, *tree *top and *longview *fiber. *more importantly, it was a big help for our suppliers: for small machine shops and factories in every part of the state, from *spokane to *seattle, from *yakima to *chehalis. § *still, in *washington state, we have the fourth-highest unemployment insurance tax liability in the nation. *this is nearly three times the national average. *the majority of employers pay more in taxes than their workers collect in benefits. *what we pay at *boeing more than covers the costs of our employees - by a wide margin. *and this is costing us millions and millions of dollars. § *at *boeing, we want to pay our fair share. *we have no problem with that. *but we don't want to subsidize other employers. *yet, due to an antiquated tax structure, we also pay the unemployment cost of seasonal and part-time employers. § *one of the first things *i did when *i joined *boeing was look at ways to address this issue. *i challenged our tax consultants, and they came up with methodologies to drastically reduce our unemployment insurance tax liability. *but all this would have done was shift the burden to other *washington state companies. *that's not right. *that's not the way to address this problem. *but if *washington wants to attract businesses and keep businesses, this problem needs to be fixed. § *washington ranks ninth highest of all 50 states in fees and assessments on businesses. *compared with the six other *western states, we pay the highest business taxes as a percentage of gross state product. *our labor costs in *washington are among the highest in the nation. § *when you add it up, it's not the best environment for business. § *at *boeing, our focus is on growth. *we're looking for new ways to meet the needs of our customers. *instead of just building airplanes, we're moving into the business of maintaining airplanes, modifying airplanes, training pilots and crews, selling engineering services to military and commercial customers, expanding our financing operations and growing our space business. § *we have many core competencies in aerospace. *now we want to expand our horizons. *we want to grow and capture a larger piece of the aerospace pie. § *we're going to grow in ways we've never grown before. § *that is good news for *boeing, for our communities, for our shareholders and our employees. *this growth will provide new job opportunities throughout the company. § *when we look at where to grow our business, we'll look everywhere: around the country, around the globe. § *we'll look at a number of variables, including where our customers are located, where can we find the best-trained workforce, and where is the most cost-efficient place to conduct business. § *we want to grow in *washington. *unfortunately, right now, *washington isn't a top competitor. *the business climate isn't right. § *collectively, we can fix that. *we can put our state back on top. § *now's the time to raise the standards. *now's the time to make *washington the world's best place to do business. § *in this state, industry, government and schools have a long history of working together. *together, we've created one of the most vibrant economies in the *united *states. § *we must build on this foundation. *together, we must create a vision to make *washington the best place to do business. § *let's set tough targets to strengthen our education system. *let's adopt a disciplined plan to bolster our infrastructure. *and let's significantly improve our business environment. *and this starts with defeating *i-695, fixing our unemployment tax system, and making the investments needed to grow the business base here in this state. § *that's what it's all about. *finding a way to grow. *but we've got to act quickly and urgently. § *let's build a plan, move forward and execute. *let's do it decisively - with velocity and at net speed. § *together, we can be unstoppable. *together, we will do great things. § *thank you. § *fb. § *architects of the *future § *good evening. *i'm delighted to be here. *thank you, *general *creighton and members of the faculty and, of course, the students of *westminster. *it's an honor to be in this great place where so many leaders have come over the last 50 years. *more than that, it is a thrill to receive an honorary degree on the eve of the 150th anniversary of this great college. *i am also delighted to be in this building designed by *sir *christopher *wren. *i actually dreamed of being an architect when *i was a young girl. *i dreamed of creating something just like this, something lasting, and strong and beautiful. *this building has an amazing history. *just think about it: *it was originally built in the 12th century, destroyed in the great *fire of *london in 1666. *it was then rebuilt by *sir *christopher *wren and bombed in *world *war *i*i during the great *blitz, and left then blackened and without a parish until, of course, it was brought to back to life again after a trans-*atlantic voyage to be built right here in *fulton. *you have to admire the people who kept this building vibrant, people who looked at a pile of rubble twice and said, "*let's bring that back again." *what is it about this building that made people say, "*let's rebuild it," twice. *well, it certainly has a lot of value and not just dollar and cents value. *it has that great thing we all talk about now - intangible value. *the fact that this building remains so vibrant is a great tribute to its architect. *so what makes a great architect? *technical skills are a must, *they're an assumed given. *you have to have those understandings of engineering, of the strength of the materials you are going to use, of the building techniques. *we assume you know how to do that, but it takes much more than that to be a great architect. *an architect must have creativity to be able to take an empty space and turn it into something useful and beautiful. *ability to take different materials and maybe use them in a way they've never been used before. *ability to pay homage to a building's roots as *sir *christopher *wren did in borrowing from the *gothic roots of *st. *mary's original building in the 12th century. *ability to reshape old ideas into new. *an early architect in 2600 *b*c, *imhotep, was the first architect who was able to successfully create the smooth-sided pyramid. *and it was later in this century that a similar gentleman, *i. *m. *pei, used those same ideas to create the glass pyramid outside the *louvre. *an architect must have vision. *sometimes it's a vision at first that no one else sees. *sometimes it's intuition, a spark, a picture in his mind's eye. *but an architect must have the courage to act on that vision and turn the vision into a reality. *to convince his client to fund the venture. *to supervise the translation from blueprint to the materials. *to ensure the spirit of the design comes alive in its form. *in short, an architect must be a great leader. *these are the same skills that business leaders need today. *somewhere tonight, a group of people is probably working in a garage or maybe in a dorm room on this campus. *they have already been working 15 hours and they are still not finished. *and they'll be back tomorrow to work another 15 or 20 hours, and they'll keep going because they have a great vision, a great idea and courage to turn it into reality. *these are the people who will be the architects of tomorrow's business world. *instead of worrying about the future, instead of trying to manage the future, they're designing the future. *they are building a future with unlimited possibilities. *tonight *i want to talk about several things: that entrepreneurial spirit of startup companies, of companies working out of garages, of how established companies are working to recapture just that spirit. *i want to talk about how to leverage intangible assets, how to generate value out of those assets and how old economy companies are working very hard at becoming new economy companies. *in fact, there is a *c*e*o at a *fortune 10 company who has been known to say, "*you know, the last five years has been the '*revenge of the *nerds.' *the next five years, '*the *empire *strikes *back.'" *but mostly, *i want to talk about leadership. *i want to talk about traits of great leaders, roles of leaders, and *i also want to talk about how to develop great leaders. *at times of great change, and certainly you have to agree that that's what we're going through right now, questions come to mind about leadership. *how can you possibly be a leader when everything is in flux, when no one knows exactly where we're heading, when today's discoveries quickly become discarded ideas tomorrow, when nothing is stable. *that's the challenge facing leaders today. *it is possible to be a great leader and, frankly, the possibilities are endless. *as we enter this new millennium we are witnessing an historic period in business. *we've been all talking about it today. *billionaires are being created seemingly overnight. *the number of new ventures is frankly staggering. *if you're not involved in an *i*p*o or in some kind of a dot.com business, you're just out of it. *is it all just a craze? *can you wake up tomorrow and hope to be back in the good old days? *i'm sorry, the answer's no. *and the urgency to move forward is paramount. *many of today's blue-chip companies were architects of the 20th century business. *when they started out, those same companies pushed the boundaries. *they were entrepreneurial, they wrote the rules, they constantly explored new ideas. *they grew successful. *they grew big, and now some are in danger of growing obsolete. *successful companies must constantly reinvent themselves, over and over again, much like this building has been reinvented over and over again. *a neighbor down the road, *bill *gates, said it best: "*success is a lousy teacher. *it seduces smart people into thinking they can't lose. *and it's an unreliable guide to the future." *i can't agree more. *there's a new book out called "*blur," and it was written by a couple of guys from *ernst &*young. *they suggest a new model for corporations - that maybe companies should be viewed in the same way as - catch this - bacteria. *now hang with me a moment here. *bacteria was on *earth long before all of we were. *it will thrive long after we're all gone, and the reason is that bacteria doesn't get set in its ways. *it changes every time it comes in contact with another organism. *this same organic model can be applied to companies. *every day companies deal with customers, competitors, suppliers, partners. *they are the oxygen and the sugar and the other substances that companies need to thrive. *these are the nutrients for new products and new services - the nutrients needed to continuously reinvent themselves. *now, *i really like this analogy, but *i would frankly suggest to you not to go up to a current *c*e*o and say, "*congratulations, you look like bacteria," but *i think you understand what *i'm getting at. *companies are certainly in business to deliver value and everybody uses that term these days. *building products used to be the traditional way of creating value. *but we also now understand it can be done in many other ways, providing services, financing, leveraging the strength of a brand, leveraging the intellectual capital a company may own. *traditionally, companies were valued in an accounting sense by their tangible assets, by the value of the factory or the value of the tooling or the inventory of the finished products. *it was when book value was more closely aligned to market value. *but there are other ways to measure companies, ways that are much more meaningful. *cisco *systems is a great example. *many people love to look at the *fortune 500 list. *i think *cisco is about 192 on that list, but in terms of value it is *no. 1. *it's one of those companies that *i think is a great example that has created more value out of its intangible capital than the tangible capital that it has in its hands. *today's companies are spending a lot of time asking themselves: "*how much is our information worth? *what's the value of our intellectual property, our trademarks and our patents? *what's the value of our computer network? *how much value resides in the brains of our engineers or the enthusiasm of our marketing team? *companies that answer these questions will be the architects of tomorrow's business world. *everybody's focusing on providing more value - there's that word again - for customers, generating more value for shareholders and allowing employees to participate in valuable new opportunities. *now here's some interesting points: *companies have to think differently about intellectual property - in fact that's exactly what's going on. *if you look at the *fortune 100, you'll see that an estimated 76 percent of their value is related to intangible property, not tangible assets. *that's quite a big difference in the last 10 to 20 years. *historically, companies held that intellectual property kind of in the back room. *the legal department managed it and sought to protect the company's rights rather than capitalize on the company's assets. *that's a huge distinction. *the *new *york *times recently wrote, "intellectual property has been transformed - from a sleepy area of law and business, to one of the driving engines of the high-technology economy." *there's in fact a knowledge explosion going on with valuable ideas being created every day. *the annual number of patents has almost tripled since 1980. *in fact, 155,000 of them were issued in 1998, that's 2-1/2 times the average for the entire 20th century - a pretty profound set of facts, *i think. *and revenues from those patents increased 700 percent during the 1990s from $15 billion in 1990 to 100 billion in 1998. *you may not know, but *i*b*m actually generates 11 percent of its pretax profit from patent revenue. *now, what's even more interesting to me is that patents aren't just for tangible things any more. *dell *computers has patented its manufacturing distribution in marketing systems. *these are the assets that provide the value of *dell. *they are the discriminators that make *dell more successful than its competitors. *amazon.com is another great example. *whoever thought that you could patent the click of a button. *they have done just that, and the courts have upheld it over and over again. *intellectual property has become the reason behind many mergers and acquisitions that are going on. *a*o*l and *sun *microsystem's coming together for *netscape was exactly just that. *in fact in my own company, our acquisition of *hughes was all about intellectual property. *knowledge is key to business success. *according to *lester *thurow, a great economist, skills and knowledge have become the only source of sustainable long-term competitive advantage. *that's why stock values are out of line with traditional asset values. *that's why we can't go back to the way it used to be. *that's why this period of unprecedented value creation is not irrational exuberance. *markets are now coming to understand the value of intangible assets. *let me give you an example of a *boeing customer. *a*m*r is the parent of *american *airlines and they have recently spun off *s*a*b*r*e, which is a computer reservation system. *some of you may actually have used it. *a*m*r has about 22 billion in working assets, 700 jetliners - fortunately, most of them are *boeing - nearly 100,000 employees and landing rights in 52 cities. *s*a*b*r*e is just a computer reservation system. *it's the most used reservation system in the world, but it's still just a computer system. *its market cap is the same size as *a*m*r. *a single intangible asset worth the same value as a *fortune 100 company. *and that's not an example of markets acting irrationally. *let me tell you why. *if you look at the situation in a traditional approach to measuring assets, maybe it doesn't make any sense. *but if you look at the potential to generate revenues, market values make a lot of sense. *seven hundred airplanes, *i mean, that's a lot of airplanes. *it's huge, but it's finite. *its capacity to generate revenue is limited. *you can fly on *american *airlines, but on *christmas *eve - when they'd like to sell more seats - they can't just borrow 50 planes from somebody else. *so there's a finite limit to that. *s*a*b*r*e's potential, however, is not limited. *they can handle a million-plus customers every day and not change their amount of equipment, their employees or their tangible assets. *in fact, they now know they can scale to two million or three million a day and not change a thing. *that's what the value is all about. *success in the new economy means more than looking at value in a different way. *it means throwing the whole business model up in the air, and asking basic questions. *who are we? *what are we? *are we in the right business? *are we in the right market? *do we make the right products, and offer the right services? *companies just have to be constantly challenging their reason for being. *they have to be willing to change everything. *they have to be willing to explore new frontiers and be like *trekkies and boldly go where no man or woman has gone before. *they have to be comfortable in dealing with ambiguity. *that requires a special type of leader. *let me go back to the architect analogy. *architects ask, how will my client use this building? *a business leader may ask, "*what do my customers want, and how can *i add value to their enterprise?" *an architect determines the strengths of a structure. *a business leader looks at the foundation of a company and how to build on it, what to keep and what to divest. *now architects often come up with solutions that aren't always traditional, in fact the best ones are most often controversial, kind of like *i. *m. *pei. *a business leader also pushes the envelope. *they know that a radical idea for something new will often meet with grand resistance from all constituents, at least until those averse to risk understand that the peril of standing still is much greater. *a business leader and an architect need creativity and vision. *but what they both really need is courage. *now, courage is an interesting word. *it always conjures up the image, for me anyway, of the cowardly lion in the *wizard of *oz. *the lion always had courage, he just didn't know it. *he needed a medal to realize that he had it. *he needed someone to push him out of his comfort zone. *a lot of what we are witnessing in business today can be summed up in a few short words. *transforming ideas into value and with a lot of courage. *when you pursue a new idea, you don't know all the answers. *you have to trust your instincts; you have to deal with ambiguity. *you have to be willing to make mistakes and have the courage to admit it and change. *you have to be willing to go down an unlit path and you have to be able to take others along with you and get them to follow. *you have to convert naysayers often stuck, firmly stuck, and standing still. *you have to feel the fear and do it anyway. *that's really what *i mean by courage. *companies that are succeeding in the new economy have several things in common. *they didn't start with a rigid plan. *instead, they kind of started with an idea, a spark, an intuition. *they had a vision of where they wanted to go, but they weren't exactly sure of how to get there. *they were willing to make decisions before they had all the data. *there was no paralysis by analysis going on here. *and they had the courage, the intestinal fortitude to follow their convictions. *leadership is all about seeing opportunity and having the courage to take your entire team there with you, and that requires knowledge and creativity and vision and the willingness to turn that vision into reality and the ability to communicate the vision and above all, that lionly courage. *that's where *i think schools like *westminster fit into the picture. *every school teaches technical skills, but are you teaching leadership skills? *companies today are looking for people with skills that just can't be taught in a regular classroom. *let me address a few questions to the faculty here tonight. *are you teaching people to take risks or just to recall a few details from a lecture? *are you teaching people that it's okay to fail? *are they learning there is only one right answer to every question? *teaching leadership is hard. *it can't be learned from a book or a lecture. *it can only be learned by doing. *other leaders with proven track records can be a source of inspiration, but students need a laboratory for leadership. *so what about creating a leadership lab? *we have labs to practice chemistry and biology in. *why not have a lab to incubate future business leaders, a place to let students take risk, to form a new company, to transform their ideas into value. *practicing going public, or even doing it. *to practice being leaders, motivating others, challenging themselves. *you could form an adjunct faculty of current *c*e*os or past *c*e*os, security analysts, venture capitalists to come in and challenge their plans. *i am hearing about many students who are actually leaving school to join dot.com companies and other new economy environments. *they want that experience that they are reading about. *they want to feel the fear and do it anyway. *so why not start right here? *i promise you, there's a hot market for just that and after all, this establishment has a track record for tackling big ideas. *i mean, *dr. *mc*clure had the crazy idea to ask *winston *churchill here and look what's happened - 50 years of incredible leaders from all over the world coming here and talking about leadership. *dr. *davidson came up with another idea of transporting this magnificent church here to commemorate *winston *churchill's famous "iron curtain" speech. *in fact, he was even quoted by saying, "*we were younger then, and crazy." *well, *i say, let's get crazy one more time. *let's build a leadership lab right here at *westminster. *now let me address some questions to the students. *every business graduate has mastered financial analysis and management theory, and all those good things that we learn, but how are your leadership skills? *can you think on your feet, can you make convincing presentations, do you have the courage to take risks? *do you have the willingness to fail? *and do you have the wisdom to change direction when you recognize that you are going down the wrong path? *can you create a vision that others will follow? *i challenge you to seek and demand leadership experiences as part of your education. *it is every bit as important as the rest of your curriculum. *in today's business world, we need people who are passionate - who express ideas clearly, who can sketch a vision that everyone understands and then drive like mad to get there. *we don't need people who want to manage the future. *we have far too many managers already, far too many people who want to play it safe, who focus on the smallest details and never see the broader picture. *we need architects, people who can listen, people who can synthesize complex ideas and turn them into simple pictures, people who can create a vision and aren't afraid of change. *we need people who can lead, people with the courage to say, "*let's just do it." *people who like to work hard - good news for you - and play hard, and people who see unlimited possibilities. *we need people who will build the future. *and *i hope that includes many of you here this evening. *thank you very much. § *fb. § "*aircraft *manufacturing in the 21st *century *the *challenge *ahead § *thank you (*michael), and good morning ladies and gentlemen. § *i'm delighted to take part in this the 12th *annual *financial *times conference, to be with all of you, and to have the opportunity to share this platform with *adam *brown. § *i also look forward to the discussion and your questions. § *as most of you are aware, this has been a rather hectic year for *boeing. *we've had some extraordinary moments on the "up side," some major disappointments on the "down side," and a few moments in between. § *it has been anything but dull, and that's probably a bit understated. § *given the pace and intensity of the past year, there's been little time for reflection. *i trust that's true not only from *boeing's point of view but also from most anyone's perspective. § *that's part of the reason *i'm grateful for this conference. § *at least here, and now, we have the opportunity to step back from the pressures and deadlines of our day-to-day working world and spend a few moments to look at our industry from the vantage point of a broader horizon - aircraft manufacturing for the 21st *century. § *ours is an industry that can look ahead with well-founded optimism. *the opportunities before us are simply breathtaking. § *boeing forecasts that worldwide air travel will grow at nearly five percent a year for the next 20 years; air cargo traffic at more than six percent annually. § *as a result, we expect the airline industry to add 17,650 new jetliners, worth $1.25 trillion to their fleets during that time - pretty serious money. § *here in *europe, airlines will need almost 5,000 airplanes, second only to *north *america. *interestingly, *asia's requirements are third, at 4,800 jetliners. § *when you add up the numbers, it's no wonder *airbus and *boeing come to this conference in good humor and fine spirits. § *but we are also realists. § *the world's airlines are shopping for value as never before. *cost-based pricing is long gone. *for some time now, value-based pricing is the name of the game - and it's going to stay that way. § *yes, the economics of air travel will continue to guide the development of new airplane design and production. § *we also know what economic cycles can mean for our industry and our business, as we've seen most recently in the *asian market. § *the road ahead will always present significant challenges. *it already does. *the competition will be fierce. *it already is. § *but based on experience - and at *boeing, that's 82 years of experience - we expect aircraft manufacturing in the 21st century to be nothing short of spectacular. § *indeed, *i believe experience offers useful guideposts for the years ahead, and the challenges ahead. § *now, let me focus on this 82 years of experience. § *first on my experience list is the importance of a long-term view. § *over a period of decades, air travel within and between different regions of the world has grown at a consistently faster rate than underlying regional and global economic growth. *in addition, there is a need to replace aging aircraft. § *so, while there always will be downturns in the economy and in the commercial airline ordering cycle and while the aircraft manufacturing industry must be prepared for them at no time can we afford to lose sight of the long term. § *indeed, without a long-term view it simply would not make sense for any manufacturer to launch a new airplane, or derivative. *you don't build an airplane for one customer. *you must wait for the market to justify the decision. § *second on my experience list is the breadth of our common interests. § *whether we are manufacturers or regulators; primes or suppliers, *boeing or *airbus; scheduled carriers or charter operators; and whether we live and work in *europe, *asia, *africa or the *americas, each of us share much in common. § *all of us are working hard to make very safe airplanes even safer. *we all want to find ways to increase passenger comfort. § *we are all sensitive to the environment. *we are all interested in making airplanes more efficient, more reliable, with better economic performance and greater operating efficiency. § *it's also in everyone's best interests to have a sensible and uniform regulatory environment. *and who among us isn't looking for better technology focused on solving real problems in ways that make good economic sense? § *there's much we can do, and are doing, to move these frontiers forward. *that work must continue. § *third on my list is the importance of strong, capable industrial teams. § *it takes a lot to build commercial jetliners: + sophisticated design and engineering; + enormous resources, + precision in manufacturing, demanding levels of reliability, + and complex large-scale systems integration. § *this work, to be done right, requires the collaboration of the best in class in our industry - and that, perhaps more than anything else, requires understanding and teamwork. *when it's there, everyone benefits. § *the record is certainly clear on this point - and to find the record, we can begin right here. + *boeing airplanes have generated almost 4 billion dollars in jet engine sales for *rolls *royce. *over the next ten years, the projection is an additional 23 billion dollars. + *on the continent, *snecma builds engines for our next generation 737 - a program expected to generate about $9 billion revenue for *snecma during the next eight years. + *boeing recently rolled out its newest jetliner, the 100-passenger 717. *the engines are from *b*m*w-*rolls *royce. *about half of the airplane is built by *european companies. + *boeing *commercial *airplane *group alone expects to spend almost $14 billion with *european suppliers over the next five years - supporting more than 90,000 jobs in *europe annually. + *boeing works with nearly 500 *european suppliers and partners, large and small, in more than 20 countries. *all told, *boeing's supplier base internationally includes some 3,000 suppliers in nearly 40 countries. § *boeing partnerships on the military side are just as striking: + *british *aerospace has been a close partner for many years - each of us builds half of the *t-45 jet trainer and half of the *harrier jump jet. + *the partnership of *c*a*s*a, *alenia, *b*a*e, and *boeing developed a key new radar upgrade for the *harrier - the *harrier two plus. + *g*k*n *westland here in the *u*k is building *apache helicopters, one of the stars of *desert *storm. *boeing in *mesa, *arizona produces *apache kits, powered by *rolls *royce engines. *the nacelles and horizontal stabilizers are built by *shorts in *northern *ireland. + *all told, *boeing's military work include over 40 industrial participation programs in more than 25 countries. § *on the space side of our business, the *international *space *station is a 16-nation partnership with *boeing as prime contractor. *the space station program has created 100,000 jobs worldwide. § *there are 11 partners from *e*s*a, the *european *space *agency. § *these examples from *boeing's side of the ledger are, of course, replicated elsewhere. § *that's why *i believe it is fundamentally important to remove every obstacle that prevents understanding and break down every wall and barrier that hinders a robust, capable and efficient supplier base. § *it's good for all of us on both sides of the *atlantic - primes and subcontractors alike. § *the result will be sharper competition and a more capable aircraft manufacturing industry that will be better able to give operators the jetliners they need to win in their marketplace. § *yes, there is much that brings this industry together. § *now, let me turn for a few moments to a somewhat narrower perspective, but also relevant to the future of aircraft manufacturing and the challenges of the 21st century. § *the new *boeing company was formed thirteen months ago when *boeing, *mc*donnell *douglas, and *rockwell began operations as a single company. § *it's been quite a ride. § *much public attention has been focused on the struggles of our commercial business. § *in pushing to double production rates to meet the demands of a booming jetliner market, the company experienced serious cost and schedule problems. § *short-term financial performance suffered. *recovery plans are still underway - and they're on or ahead of schedule. *nonetheless, the public spotlight on our difficulties is understandable. § *and, as we announced earlier this week, the ride isn't yet over. § *the commercial side of the business has a new management team, led by *alan *mulally. *alan was formerly president of the company's information, space and defense group. *earlier, he headed the company's 777 program, has been introduced. § *but there's been another part of that ride, one that's received far less public attention. *it has much to do with aircraft manufacturing in the 21st century. *and for the remainder of my remarks, it has my full attention - beginning with the *breadth and balance* of the new *boeing. § *before the merger, the commercial side of our business accounted for the bulk of revenues - about 75 percent. *that's changed substantially. *today, the ratio is about 60 percent commercial, and 40 percent information, space and defense. *each segment has an amazing range of products. *in a cyclical business like ours, *breadth and balance* is the right stuff. § *speaking of the right stuff, *boeing has developed and launched ten airplanes in the last five years, each one meeting a 21st century market need and each one focused on its economic viability: utilization, maintenance and airplane price. § *last year alone, we launched the 737-900 and the extended range 767-400. *we rolled out the 737-800, the 777-300, and certified and delivered the first 737-700. § *since *january this year, we rolled out the 717, the 757-300 and our new business jet. *we rolled out and certified the 737-600. *the 737-800 was certified and the first triple 777-300, which will be at *farnborough was certified and delivered. *and there's still four months to go. § *in *june, we delivered 61 airplanes, the highest monthly total in nearly 30 years. *and last month, *boeing delivered 13 different models of jetliners, which, by the way, is more than *airbus produces. § *when you add it up, the *boeing product line is the best definition of *breadth and balance* that *i know. § *today's complete family of *boeing commercial jetliners offers more choice than ever before - from 100-seat aircraft to nearly 600 seats with nearly a score of passenger and freighter models in between. § *this family concept allows carriers to match capacity to demand, serve multiple markets efficiently, and reduce cost through crew and system commonality. § *the concept brings unmistakable value to customers today, and it will bring unmistakable value to customers in the 21st century. § *breadth and balance is also at the core of our information, space and defense business. *balance is reflected in the fact that no one program accounts for more than 15 percent of this segment's revenue. § *when it comes to breadth, it's difficult to figure out where to begin. *the product line is that extensive, ranging: + *from jet fighters to rocket propulsion - today's and tomorrow's; + *from heavy lift military transporters to advanced military helicopters; + *from the world's most modern tiltrotor aircraft to the world's most renowned *a*w*a*c*s aircraft; + *from *national missile defense to tactical missiles; + *from space transportation launch vehicles including the acclaimed *delta rockets to the space satellite business; + *and from the *space *shuttle to the *international *space *station. § *from *boeing's point of view, the bottom line on breadth and balance is rather clear cut. *meeting the challenges of aircraft and aerospace manufacturing in the 21st century - whether commercial or military -- begins with the right product line. § *meeting the challenges successfully also requires the right infrastructure. *and by the right infrastructure, *i mean: + capability coupled with efficiency; + facilities that bring world-class value to customers and good returns to shareholders, + and ensure a more competitive company offering terrific job opportunities. § *for *boeing, the drive for that kind of infrastructure has been another part of the ride for a long time. *as you would imagine, since the merger 13 months ago, the ride has sure picked up speed. § *but first, a few comments on our longer-term efforts on the commercial side of the business. § *we are now in the fifth year of a six-year program that is vastly simplifying the way the company creates, tracks, communicates and shares all the date involved in aircraft manufacturing - from customer orders through production, delivery and support. § *this major initiative is also simplifying the many processes used to schedule and order parts and manage inventory. § *all told, about 400 old "legacy" computer and information systems are being replaced with four, new, commercial off-the-shelf system - just in time for the 21st century. § *then there's our "lean manufacturing" program, another long-term commercial airplane manufacturing initiative designed to cut out waste and promote greater efficiencies throughout the production process. § *one of its key components is the *kaizen* workshop -- where individual manufacturing teams, using the widely-respected *japanese continuous improvement model, work together to find ways to rapidly reduce cycle time on the factory floor and eliminate defects in the manufacturing process. § *last year, 700 week-long workshops were held, resulting in as much as an 80 percent reduction in cycle time and manufacturing defects in individual manufacturing areas. + *sealing 737 wingtips, for example, used to be a seven-day job. *today, 16 hours. + *installation of 737 engines had been a five-day job. *today, eight hours. § *based on the number of workshops held so far this year, we expect that more than 1,800 will be completed by year's end. § *last month, *boeing launched its newest lean manufacturing initiative, in partnership with *thyssen *a*g of *dusseldorf, *germany - an initiative consolidating the purchase of aluminum. *and *boeing buys a lot of aluminum. § *before this initiative was launched, *boeing and its 500 aerostructure suppliers dealt individually with more than 50 distributors and 21 mills. *during the next several years that's going to change dramatically. § *by restructuring the aluminum supply chain - establishing a single distributor and a minimum number of mills for both external suppliers and *boeing parts shops -- speculative demand will end, costs will go down, and a continuous supply of raw material will be assured. § *deliveries under this new system will begin before the end of this year. § *now, let me now address several of the most prominent merger-related infrastructure initiatives, most of which relate to consolidations and realignments. § *with *u.*s. operations at more than 100 separate locations in 27 states, employing about 238,000 men and women, the infrastructure challenge has been as much about dd1998 as it has been about the 21st century. *it's been a challenge all around. § *the objectives were simply stated: *eliminate duplication, find production efficiencies, reduce cost, and increase competitiveness. § *in a series of announcements throughout the past year, all targeted on these very objectives, *boeing has met the challenge in a straightforward and hard hitting fashion. § *during the next 16 months, though production will be rather steady, efficiencies will allow the company to reduce the work force by 18,000 to 28,000 employees. § *in terms of consolidation, the company will close 18 million square feet of office, warehouse and manufacturing space within the next 28 months. *the consolidation is well underway and though important savings in overhead costs will be secured, we will not lose one iota of capability. § *to give an idea of the scope of what's going on, we're reducing the number of fabrication centers from 110 to 10, and the number of laboratories from 600 to 450. § *in terms of individual business segments, the consolidations and realignments will result in the company having one major location each for the company's fighter business, military transport business, satellite business, space transportation business, and our information and communications activities. § *on the commercial airplane side, the realignments give new flexibility to 737 assembly operations. § *with a new 737 line opening in *southern *california, *boeing can grow the business and more effectively utilize the company's assets. *importantly, the move to open a new 737 line was part of a detailed agreement with the union - and this opens a new and promising chapter in *boeing-union relations. *taken together, these actions are also very promising for 21st century aircraft manufacturing. § *when you add it all up the challenges of manufacturing aircraft in the 21st century require both effectiveness and efficiency from everyone in our industry. *we must do the right things-build the right products for the marketplace and maintain strong, capable industrial teams and we must do things right-use lean and efficient design and production systems to keep costs down and keep quality up. § *when we do, we will successfully meet the challenges of the 21st century. § *thank you very much. § *fb. § *economic *value *through *global *relationships § *introduction *thank-you for joining me this morning. *i hope you're enjoying the air show as much as *i am. *for us at *boeing, it's an irresistible chance to talk some business, "show our stuff," and of course, check out the competition. *last year, in *paris, our "competition" included *mc*donnell *douglas, and not too many years before that, *rockwell *international. *things certainly have changed! *this has been an extraordinary year for the new *boeing company, a mix of success, challenge, disappointment and tough decisions that's been anything but dull. *collectively, these experiences have underscored for us how interdependent we are within our immediate and extended enterprise, and within industry as a whole. *our work - whether building commercial airplanes or advanced defense and space systems - is complex and tough, and we welcome the challenge. *but no company has all the resources, all the talent and all the answers to do the job itself - including *boeing. § *the *boeing *company *our ability to respond to market demand and industry change depends on the quality of the relationships we have with our customers, shareholders, suppliers, employees, labor unions and the agencies that regulate us. *relationships. *it's what our business is all about. *it's what *boeing is all about. § *vision *this concept even is embedded in our vision: *people *working *together as *one *global *company for *aerospace *leadership. *today, *i want to focus on the varied relationships we enjoy with our suppliers and partners - and more importantly, the value they create. *this is a particularly important issue for me. *as president of *boeing *europe, strengthening relationships and building partnerships is a big part of my job, and many of our most exciting and satisfying activities in this area are happening right here in *europe. *specifically, *i want to address three things: *our worldwide supplier base and how we're changing the way we look at supplier and partner roles, *how we're strengthening our supplier relationships, and *reciprocal benefit and value § *bringing *value ... *worldwide *supplier *base *boeing has often been characterized, and *i think unfairly so, as a company operating in a global market but with a regional mindset. *but over the 82 years we've been in business, our view of the world - and our place in it - has expanded considerably. *the truth is, our interests have always taken us beyond our factory doors and our national borders. *in 1916, *bill *boeing, one of our founders, saw the potential when he put the *b&*w to work carrying mail between the *united *states and *canada - the first international postal route. *and our first airplane sale was to an international customer, too. *we sold two *b&*ws to the *new *zealand *flying *school where they were used for pilot training and airmail deliveries. *today, the amount of business we do outside the *united *states is sizeable. *twenty years ago, about 50 percent of the world's in-service commercial fleet was in the hands of *u.*s. carriers. *since then, we've seen that percent slowly decline. *looking 20 years out, we forecast that seven out of every 10 commercial airplanes we deliver will go to non-*u.*s. customers. *and our defense and space products also are in service worldwide with governments and military alliances such as *n*a*t*o. § *bringing *value ... *worldwide *supplier *base *our supplier base is just as international. *we currently have nearly 1,000 suppliers outside the *u.*s. *we invest more than $5 billion annually with them, and that supports more than 150,000 jobs each year. *this chart shows by region the number of international suppliers we have: *europe 495 *americas 236 *asia/*pacific 147 *middle *east 39 *africa 3 § *bringing *value in *europe *boeing is equally at home in *europe, where nearly half of our international suppliers are located. *our involvement with *european industry spans more than a quarter of a century and some of our relationships, such as the one we have with *shorts *brothers in *northern *ireland, goes back almost as far. *we currently work with nearly 500 firms in 21 countries. *in this region alone, we expect to spend more than $14 billion over the next five years. *and that means about 90,000 jobs annually. *let me say that again: $14 billion. 90,000 jobs. *that's enough money to finance 11 *millenium *domes at the current project budget 34 *national *stadiums like the one being built at *wembley *park, or 226 new football stadiums for the *reading *football *club *and *boeing work each year supports jobs for 90,000 people - more people than the *u*k's *wembley *stadium, *france's *stade de *france or *berlin's *olympic *stadium can seat. *but the story really goes deeper than the numbers. *we have redefined the role suppliers play in our operations and have offered them opportunities to share fully in our work through strategic partnerships, risk-sharing, service provider agreements, and industrial participation programs. § *boeing 717 *the 717 is a recent example of how supplier participation has changed. *fourteen companies in 10 countries - more than half of them in *europe - shared design and development tasks, and now are engaged in production. *in fact, about half of the airplane bears the "made in *europe" stamp, with supplier-provided parts and components accounting for about 40 percent of the total cost of the program, over the life of the program. *major supplier-partners *alenia of *italy, *labinal of *france, *fischer *advanced *composite *components of *austria, and a joint venture between *b*m*w of *germany and *rolls *royce of the *united *kingdom, all have a vested interest in the success of the program, which also benefits from the contributions of *smiths *industries of the *u*k and *spain's *andalucia *aeroespacial. § *f/*a-18 *through our military aircraft and tactical missile business, we've created more than 40 industrial participation programs in more than 25 countries. *an outstanding example is the *f/*a-18 program in *finland and *switzerland. *both of these countries are assembling *f/*a-18 aircraft in-country from kits provided by *boeing. *in addition, *boeing has established more than 400 offset projects in 11 of *finland's 12 regions. *and in *switzerland, *boeing has set up more than 300 projects in 24 of that country's 26 cantons. *in both countries, we are well ahead of our industrial participation commitments, which makes us confident that our partnerships and relationships with our international customers are paying dividends. § *engine *partners *our engine story is familiar to many of you, but one that *i believe is worth repeating, because engines represent a big portion of the overall value of our aircraft. *in fact, on the 717, engines supplied by *b*m*w-*rolls *royce represent about 20 percent of the value of that airplane program. *snecma of *france has been a major contributor to the success of the 737, the best-selling family of jetliners in aviation history. *all models are powered by the *c*f*m-56 engines produced by *c*f*m*i, a joint company of *snecma and *general *electric of the *u.*s. *this program alone supports 11,000 jobs, and 81 percent of all *c*f*m56 deliveries are to *boeing. *that's translated into more than $2.5 billion in revenue for *snecma, and during the next eight years, we expect to generate nearly $9 billion in sales for *snecma engines. *there's an equally positive outlook for *rolls *royce, too. *over the past five years, we've generated almost $4 billion in sales, and over the next 10 years, we forecast the dollar value of *rolls engine deliveries to be in excess of $13 billion. *w*a*h-64 *apache helicopters for the *u*k are equipped with engines provided through a joint venture of *rolls *royce and *turbomeca of *france, which will bring even more economic benefit to these companies. § *international *space *station *our space projects are further examples of partnership on perhaps the grandest of scales. *as the prime contractor for the *international *space *station, *boeing is leading a team of space agencies and industrial concerns from the *u.*s. and 15 other nations, including *belgium, *france, *germany, *italy, *spain, *sweden, *switzerland, *russia, *denmark, *norway, *the *netherlands and the *united *kingdom. *collectively, these partners contribute $10 billion to this unprecedented, cooperative scientific endeavor, and in return, the project provides thousands of jobs around the world. *not to mention the technology and industrial benefits that partners stand to gain from their participation. *boeing also is one of four partners in the *international *sea *launch consortium, which will provide a sea-based launch service for commercial satellites. *ours is a 40 percent stake. *kvaerner *maritime of *norway has a 20 percent interest, *r*s*c *energia of *russia has 25 percent and *k*b *yuzhnoye/*p*o *yuzhmash of *ukraine has a 15 percent interest. *the effort will employ more than 10,000 people worldwide - 10,000 alone in *russia and *ukraine. *the consortium also has several long-term global alliances, some going as far back as 30 years. *for example, since the 1970s, consortium members have provided engines for *japanese launch vehicles, and in return, *japanese industry has provided fuel tanks for our *delta rockets. *alliances like these will position us to compete in the rapidly growing commercial space business by helping us realize a full range of launch services for satellite builders, and giving us access to the technologies we'll need to ensure the lowest possible launch costs. § *international *support and *services *boeing products represent more than just airplanes, defense systems and spacecraft. *we see them as total packages of training, spares, and lifetime customer and product support. *recently, we made some major announcements which further demonstrate our international commitment, and which should be welcome news for our customers. *a couple of weeks ago, we announced plans to open a new customer services center in *amsterdam, near *schiphol *airport. *that facility, which represents an inventory investment of $34 million, will ensure *european carriers can get spare parts in the shortest possible time to support demands for high schedule reliability. *boeing will oversee the operation, but the center will be managed and staffed by people from the local area. *and the center could later evolve to include repair and overhaul services for aircraft components, as well as serve as a site for logistics training and other logistics support services. *flight *safety *boeing *training *international, a joint venture between *boeing and *flight *safety *international, also has announced plans for an $85 million investment in the *u*k for a *european *training *hub. *it will be located at either *heathrow or *gatwick airports - we plan to make an announcement soon. *the hub is our first outside the *u.*s. and will employ more than 55 people, who will train about 1,000 to 1,500 pilots and 1,800 maintenance technicians who come to the center each year. *as visitors, students at the hub will generate additional economic stimulation for the area, spending an average of $250 per day. *and on the defense side, we recently completed a joint venture agreement with *g*k*n *westland *helicopters to provide the *u*k *ministry of *defence with training services for their new *apache helicopters. § *bringing *value ... *stronger *partnerships *as you can see, a lot of responsibility rests with our suppliers, especially those who step up to expanded, non-traditional supplier roles. *but a lot of responsibility for our mutual success lies with *boeing, too. *that's why nurturing and investing in our relationships is paramount. *we believe that fundamental to working with suppliers is working with them. *they are our allies in the success of the *boeing extended enterprise, and we are taking steps to support and encourage our suppliers to become as lean and efficient as possible. *in doing so, we are strengthening our competitiveness through initiatives that will allow us all to cut costs and cycle times, deliver product innovations and increase our flexibility in the marketplace. *this includes training and other support to suppliers in their efforts to implement *lean *manufacturing techniques. *and we are leveraging our global purchasing power through strategic sourcing arrangements that allow us to combine orders across *boeing to take advantage of higher business volumes. *in *commercial *airplanes, for example, we've initiated a 10-step strategic procurement process to optimize the supply chain. *the process promotes superior quality, reduces lead times and lowers total costs. *we want to align the entire supply chain to put the focus on total customer value, where it should be. *in our defense, space and communication businesses, we are implementing strategies to strengthen our supplier partnerships, too. *next month, we are hosting our second annual conference for up to 500 top suppliers from 18 nations. *we'll expand the certification system for preferred suppliers, pursue new ways to measure and evaluate supplier performance, enhance earlier supplier involvement in our acquisition process, and significantly improve other processes. *in all segments we are getting to know our suppliers better - listening to them, understanding their goals and challenges, and sharing our experiences and philosophies. *like the principles behind some of our production initiatives so they also can benefit from streamlined production systems and lower costs. *our dialog includes honest discussions about our expectations so they have a clear understanding of what they must accomplish and when. *and we'll give them feedback on their performance so they know how they're measuring up and we know how to help and reward them. § *strategic *procurements - *stronger *partnerships *we also have established councils aimed at everything from making process improvements and providing suppliers with the production forecasts they'll need to better plan their resources to respond to the cyclical nature of our business, to leveraging our buying power across the company. *our recent move to streamline our aluminum procurement strategy is a great example of how we're making our procurements more lean. *under this new strategy, we'll work through a subsidiary of *germany-based *thyssen *a*g and a small number of mills to meet our needs for aluminum products. *it's a 10-year commitment worth about $300 million. *last week, in fact, we announced our selection of five mills to supply us with the aluminum flat-rolled products and extrusions that will be distributed to other *boeing suppliers by *thyssen. *one of the five mills is located in *europe: *hoogovens *aluminum *walzproduckte of *germany. *it's a firm owned by *koninkijke *hoogovens of *the *netherlands. *another mill, *universal *alloys in the *u.*s., has as its parent company *a*l*u *menzekin *industrie of *switzerland. *when finalized, all the agreements will be worth $4.3 billion. *we think it's a smart deal because it ensures we'll have adequate aluminum supplies at a reasonable price. *we've formed a similar alliance with *russia's *verkhnaya *salda *metallurgical *production *association (*v*s*m*p*o) for titanium ingot and milled products for our commercial airplane models. *the contract for milled products alone is worth $175 to $200 million. § *bringing *value ... *mutual *benefits *now, *i want to talk about the other side of the equation - how suppliers benefit beyond the direct revenue that doing business with us represents. *what *boeing gets is clear: access to the best people and resources available in the marketplace. *and we benefit from the loyalty and commitment of our suppliers, especially when the market surprises us and the going gets tough. *in return, suppliers have access to opportunity. § *bringing *value ... *mutual *benefits - *technology *transfer *boeing is working with *metronor, a *norwegian firm, to integrate *boeing-developed software and technology tools, called *advanced *integrated *mathematical *systems, or *a*i*m*s, into *metronor's photogammetry measuring systems. *this enhanced system will be used by *boeing to measure and calibrate advanced tooling structures. *and it will result in additional sales for the company to *boeing and our suppliers. § *bringing *value ... *mutual *benefits - *market *access *boeing and the *industrial *development *board of *northern *ireland have collaborated on a number of initiatives aimed at helping *small *medium *sized businesses meet *boeing suppliers to discuss business opportunities. *through a *boeing industrial participation program and these discussions, *moyola *precision *engineering has secured a first-time contract from *fairchild *controls, a supplier to our *apache *longbow helicopter program. *moyola now has an opportunity to expand its business base to markets outside the *u*k. *tumo *oy, a producer of small machined parts in *finland, sought us out for help in upgrading its capabilities to qualify as a supplier of machined titanium parts under our *f-18 industrial participation program. *we provided them with training and upgraded their equipment and processes. *as a result, *tumo won international certification and successfully competed for its first aerospace subcontract. *tumo's work has since expanded to include the *f/*a-18, *f-15, *c-17, *f-22 fighters and *r*a*h-66 helicopter. § *bringing *value ... *mutual *benefits - *strategic *partnerships *a prime example of our commitment to global partnerships is our relationship with *aero *vodochody. *together with *c*s*a *czech *airlines, we formed a joint venture known as *boeing *ceska, to take an equity position in *aero *vodochody. *this investment is more than capital infusion. *it provides access to modern aerospace technologies and processes, training and *western management know-how. *it also is an opportunity to bid on *boeing military and commercial aircraft work packages. *we'll also provide the avionics, and avionics and weapons integration support for the *l 159 trainer. *and we've committed to helping them market the airplane. § *working *together ... *partnership, *benefits and *value *community *commitment *not only can our suppliers count on us to be good business allies, they can count on us to be friends. *when an earthquake hit *central *italy leaving some employees of *umbra *cuscinetti, one of our suppliers, homeless and in need, *boeing employees through what we call a "good neighbor fund," reached out with a $2000 grant to an organization formed to assist the families of workers there . *and the employees returned the favor, laboring all day in spite of the earthquake to ensure a critical shipment of hardware was sent to us. *that's one of the many reasons *umbra *cuscinetti was awarded the *president's *award for *excellence, our highest honor for suppliers. *under other programs, *boeing also provides substantial support to education at all levels. *one such program is aimed at equipping schools and students in the *u.*s. and abroad with computing equipment and software. *a school in *uzbekistan, for example, is among the most recent to benefit. *we think this is a smart investment, because we're taking an active role in educating the people who someday may build or design parts for our products. § *bringing *value ... *opportunity and *prospects *our presence in the global marketplace means a lot - offices and operations overseas, jobs, customer participation, economic vitality and stability, opportunity and prosperity. *if we do it right, if we make good decisions, everyone will benefit from the value we bring. *finding ways to maximize this value will drive our business decisions. *but as global competition intensifies, we will be more reliant on each other as companies, countries, and people, making the quality, stability and longevity of our relationships all the more important. *our mission is aerospace and we are here to lead, to be the best. *our shareholders, our suppliers, our customers, our employees expect nothing less. *but whether it's getting people from one place to another, defending a nation's ideals or traveling to the stars, we simply cannot achieve our goals alone. *that's why we work with companies and people who are the best at what they do. *now, *i'd be happy to answer your questions. *and afterward, *i invite you to visit the 777-300 and our other products on display outside - some very real and impressive examples of global teamwork. § *fb. § *farnborough *press *conference § *farnborough *press *conference § *as *jerry said earlier, we have made tremendous progress on *j*s*f. *we took advantage of the information revolution and the best of our design/build approach developed on the *boeing 777 and other programs. *we built on and improved these approaches to design and produce our *j*s*f concept demonstrators significantly faster, better, and more affordably than any other developmental aircraft we've ever produced. *furthermore, these lean approaches allowed us to design and build different parts of the demonstrators in *st. *louis, *seattle, and in *england, and have all the pieces fit together perfectly during final assembly in *palmdale, *california. *on the *j*s*f forebody alone, we were able to reduce design cycle time by 50 percent, assembly hours by 60 percent, and tools by almost 90 percent. *we are leading a revolution in aerospace, and our one-team, design anywhere/build anywhere philosophy will lead to the development of more international partnerships in the future. § *as *i said earlier, *i think *boeing and *phantom *works are leading a revolution in aerospace, characterized by major breakthroughs in the ways we are designing and producing systems, not only to be more affordable, but also to have higher quality and higher performance. § *these breakthroughs are coming from the use of commercial technologies and processes to develop, produce, and support open systems avionics' architectures in less than half the time and less than half the cost of what we used to do. § *these breakthroughs are coming from the use of advanced manufacturing processes, such as friction stir joining -- which we are currently using to produce propellant tanks for our *delta rockets much better, faster, and cheaper than using arc weld - and with another process called stitched/resin film infusion -- which promises to provide large, sturdy composites structures at an affordable price. § *and all of these advanced technologies and processes are being used in the development of such revolutionary new low-cost systems as the *unmanned *combat *air *vehicle, the *x-37 reusable space plane, the *blended *wing-*body transport, the *canard *rotor-*wing, the *solar *orbit *transfer *vehicle, and the tiltrotor-wing *advanced *theater *tranport. § *these systems - along with *boeing's vast array of other products and capabilities - are allowing us to move up the value chain even further to provide new, highly integrated *system-of-*systems solutions for our customers - such as the *deepwater *program for the *u.*s. *coast *guard and the *future *combat *system for the *u.*s. *army. § *exploring all these new frontiers for *boeing is very exciting for us because, in effect, we are defining the future of aerospace. *it's a future with a lot of promise for improved performance, reliability, quality, and safety - all for a more affordable price. *it's a promise that *boeing plans to keep, and *i'm excited to be a part of it all. § *working *together *globally § *significance of the *paris *air *show - *reflects the complexity, interdependence of the industry. - *underscores the importance of working together globally to meet mutual challenges. - *lots of change in the industry = lots of opportunity. *boeing brings value - *boeing brings value worldwide through its understanding of its customers and markets, its diverse portfolio of products and services, its global vision. - *boeing has tremendous depth and breadth -- unique in the industry. *goal is to be the preferred supplier of aerospace products - *the things we excel at (detailed customer knowledge and focus, large-scale integration, lean and efficient design and manufacturing) combined with our portfolio of products and services will distinguish *boeing in the marketplace. *business units position us with best products and services in the market - *we bring value to our customers through this rich mix. -*no other aerospace company in the world has the resources, talent, product base and potential of *boeing. § *market - *the market continues to change, so our ability to respond quickly is critical to our success. - *there is lots of opportunity and we are positioning *boeing to take advantage of that. *products and services - *it is all about having the right products, at the right time, at the right price. - *the highest quality, lowest cost supplier will bring the most value to our customers and earn their business. - *we intend to be the preferred supplier by delivering on our commitments, knowing our customer and producing high-quality, low-cost products and services that help them be successful in their markets. *leadership - *we have a great team, we have a plan. - *we are thinking globally -- strengthening relationships and establishing strategic partnerships. - *we are moving forward to achieve the potential of our great company. § *overall, the world market for commercial airplanes is robust - *we spend a lot of time analyzing the marketplace; our assessments are the most comprehensive and definitive. - *our market outlooks are the most respected because we go to great lengths to share this important information with our customers, suppliers and investors. *over the next 20 years, we project the world's airlines will need 20,150 more airplanes to satisfy growth and replacement requirements. - *replacement demand is driven by *stage 3/*chapter 3 noise requirements that take effect year-end 1999; year-end 2000. *by 2018, more than 28,425 airplanes will be in service worldwide - *the majority of the worldwide fleet will be *boeing. - *this presents us with a major opportunity in the services business. § *deregulation in the *u.*s. domestic market spawned liberalization internationally - *the biggest effect has been in the *north *atlantic. *the *chicago-*europe market is a good example - *in 1987, there was one 747 flight per day from *chicago to *europe -- a *t*w*a flight to *london. - *during this same time, 60 percent of *u.*s. airline flights in the *north *atlantic were 747s because the *u.*s. flag carriers were *pan *am and *t*w*a whose service was concentrated at coastal gateways. § *today, fragmentation in the *north *atlantic is mature - *united and *american are operating 21 daily flights to 11 destinations using a mix of 767 and 777s -- *london, *manchester, *paris, *milan, *zurich and *stockholm are shown as examples on the map; *dusseldorf, *frankfurt, *birmingham, *glasgow and *brussels also are destinations. - *several city-pair markets were receiving multiple daily flights. *smaller airplanes -- more direct routes. - *today, 60 percent of *u.*s. airline flights in the *north *atlantic are 767s and only 5 percent are 747s. *the major *u.*s. airlines in the market are *delta, *american and *united, with a significant share of the service they provide coming from their domestic hubs. *fragmentation will continue over the next 20 years - 767s and *a330s will be in service. - *these airplanes will open up more than 160 airport pairs, which did not receive nonstop service in 1998. § *frequency spawned liberalization in international markets - *there are now 10 open skies agreements in the *north *atlantic. *significant change in service - *decline in *u.*s. airline 747 service from a share of more than 60 percent in the mid-1980s to less than 5 percent today. -*during the same period, the share of service provided by smaller, long-range airplanes, primarily the 767, increased from ground-zero to almost 60 percent. *evolution brought new strategies - *movement of the *u.*s. airline *atlantic fleet away from 747s, originated in strategies to compete from *u.*s. connect-hubs, stressing high-frequency service. - *though intermediate-size twinjets such as the 777 have been the fastest growing airplane type in this market in the past few years, note that single-aisle airplanes in the form of the 757 have reappeared. § *business plan is based on a 10-year assessment of the market - *because airplane programs are huge investments, we have to look further than this, usually out 20 years. *total market over the next 20 years is $1.38 trillion - *increased competition will lead to fragmentation of the *transpacific and *europe-*asia routes, leading to a strong demand for intermediate-size twin-aisle airplanes like our 767 and 777. *regional jets are the hottest segment - *regional jets are used to extend the geographic reach of major airlines' hubs, augment larger airplane operations in off-peak hours, replace larger jets on these routes and substitute for propeller-powered airplane flights. - *the *boeing 717 is well positioned for the upper end of this market segment. *the market for the largest commercial jets has changed - *fragmentation of long-haul markets means airlines are buying the 747 only for routes that need its unique payload-range combination. *many of these routes are linked to *asia, and demand has been weak as *asia works through its economic recession. § *over the next 20 years, *europe, *asia and *north *america each account for just about one-third of the business. § *this is our product line today -- the base from which we will grow our products and services business going forward - *all *boeing products are backed by world-class customer services and support -- no one flies alone. § *we offer the most complete range of products for the market going forward - *our commercial airplane family of products fills every market need -- from the 717 to the 747. - *every product brings value. *all *boeing airplanes are backed by world-leading customer services and support § *this is our single-aisle airplane family -- from the 717 high-end, regional jet, to the new 757-300. *all *boeing airplanes are backed by world-leading customer services and support. § *this is our twin-aisle airplane family -- from the 767 intermediate twin to the 747 -- often called *queen of the *skies. *all *boeing airplanes are backed by world-leading customer services and support. § *customer support is a tremendous opportunity to bring more value to *boeing and our customers. - *we have a huge installed base of more than 12,580 commercial airplanes in our world fleet today and it will continue to grow over the next 20 years to a predicted 28, 425 airplanes in service around the world. - *airlines are asking for more support, especially in areas where our detailed product knowledge and expertise are needed. - *areas of interest: modification, training, spares and logistics support, engineering services, and digital data. - *estimated business growth of 15 percent annually. - *boeing *airplane *services represent the greatest growth area, especially in engineering and modifications. *boeing *business *jets - *we are seeing outstanding response in the market. *as of our last announcement, we have 46 airplanes on order. *we have delivered more than 20 and expect to deliver another 20 this year. *the first fully finished airplane will go into service this summer. § *the 717 -- a great example of value - *the 717 is a great product that complements the *boeing family of commercial products, but one that stands alone on its own merits to fill a growing regional market need. *the 717 -- a great example of global partnership - *under *boeing leadership, it combines the talents and resources of some of the best firms in the aerospace industry. *the 717 is on display here at the *paris *air *show, and will depart for a 10-day demonstration tour of *europe. § *the 717 -- a great example of working together globally - *nearly 50 percent of the supplier content of the 717 is supplied by *european companies; 35 percent of the entire airplane (*boeing suppliers included) is provided by *european companies. - *designed and built for *europe, by *europe - *great supplier-partners -- relationships that will serve us well for the life of this program and beyond. § *boeing is committed to bringing value worldwide - *the 717 is just one example of *boeing bringing together the best in the industry. - 20 years ago, about 50 percent of the world commercial fleet was *u.*s. owned; in the next 20 years, we expect 7 of every 10 airplanes will go to non-*u.*s. customers. - *the globalization of the industry spreads beyond our customer base -- that is why we seek to work with the very best firms around the world. *boeing brings economic value to economies around the world - 33,000 suppliers worldwide in 46 countries -- parts and services. - *nearly 4,000 suppliers outside the *u.*s. *boeing brings economic value to *europe - *nearly 1,000 suppliers from 30 countries -- supporting 70,000 jobs annually -- about enough to fill the *u.*k.'s *wembley *stadium, *france's *stade de *france or *berlin's *olympic *stadium. - $6 billion spent with *european suppliers in 1998 -- enough to finance five of the *u.*k.'s *millennium *domes. *working together globally - *boeing leads by example -- forming the best partnerships, seeking out the best resources and innovation, providing the best products and services. - *our leadership will further globalization -- establishing a prosperous global economy, creating opportunity, enabling the exchange of ideas and helping people explore. § *fb. § *farnborough *press *conference § *our principal focus is meeting our customer commitments, and, as *phil mentioned, we've fully recovered from the strike and are on track with deliveries to meet our airplane commitment for this year. § *we're also committed to world-class support for the 11,000-plus *boeing airplanes flying today. *we've opened a new spares facility in *amsterdam with 50,000 different types of parts. *and our *rapid *response *center offers technical support all day, every day. § *we're also expanding our family of airplanes, the most complete and capable family ever built. *i hope you've had a chance to see the 767-400*e*r*x, with the new 777-style interior, that's on display here at the show. *by now you've heard the good news from our customers about the 777*x, the airplane consistently preferred by travelers. *there's tremendous customer interest in the 747*x, an airplane that provides an elegant solution to the limited market for very large airplanes. § *but customer focus also includes making the process of buying an airplane more efficient, so we've computerized the process of configuring an airplane, shortening a process that once took weeks down to days. *we're also focusing our options' catalogs on features the customers really want, making their choices simpler and easier. *in the end, that means a more efficient build-process for us as well. § *and we're looking at every aspect of our production process to shorten the flow from order to delivery. *we're forging new partnerships with our suppliers around the world so that we receive fewer, simpler parts that go together easier and with even higher quality. § *as you know, *phil, we always provide great flight and maintenance crew training for *boeing customers. *today, with our joint venture partner, *flight*safety, we are the world's largest and most comprehensive provider of airline training. *flight*safety*boeing is truly global, with simulators in 20 training locations around the world. § *in the past, we also offered our customers limited modification services. *today, *boeing *aviation *services has teamed with partners around the world to offer modification and engineering services on a much greater scale. *these include: major passenger-to-freighter conversions, avionics enhancements, interior reconfigurations and installation of in-flight entertainment systems. § *another major initiative for us is to leverage our knowledge of *boeing airplanes to win a larger share of the airplane engineering and maintenance services market. *eighty-five percent of the current fleet was built by *boeing. *the market is worth more than $50 billion-plus, and our current share is about six percent. *we will be very aggressive players in the future. § *phil, we're in the total customer solutions business, and our arrangement with *d*h*l is a great illustration of how that works for the customer. *last year *d*h*l decided that they needed to replace older airplanes and grow their market with newer, quieter, and capable airplanes. *the 757 is the perfect airplane for them, but they didn't need new 757s to meet the requirement. *so we agreed to buy passenger airplanes, convert them to a special freighter configuration, and provide them to *d*h*l under a multi-year lease. *we're also going to maintain these airplanes for *d*h*l. *to make this come together, we involved *boeing *capital *corporation to help with financing and then brought in others to assist with the modification work. § *american *trans *air is another example of being innovative to support the customer. *a*t*a has a great future, but they needed a smaller, more capable fleet to meet its goals. *we leveraged the resources of *boeing, *i*l*f*c, and *g*e*c*a*s to make a 47-airplane acquisition possible. *we had a major contribution from *boeing *capital *corporation in structuring a deal that would support *a*t*a's future growth. *it was a win-win for *a*t*a and *boeing. § *myboeingfleet.com is designed for our customers, too. *it is a secure online access to a huge amount of information that used to be on microfilm. *now millions of engineering drawings, service bulletins, service letters, maintenance manuals, and other important documents are available online, 24 hours a day, seven days a week. *it's the equivalent of about three million 350-page books. *point-and-click technology makes the site easy to use, and customers can personalize this page. *preston *group technology also opens new frontiers for *boeing. *this software is to simulate airport and *a*t*c environments, and our users include the *f*a*a, *n*a*s*a, airlines, airports, and others. *myboeingfleet.com and the *preston *group represent another aspect of total customer solutions. § *whether it's the right model of airplanes, the right deal to help the customer acquire that airplane, or a full-service maintenance agreement once it has been acquired, our focus is on total solutions for our customers. § *the *future of *defense *logistics § *good morning, ladies and gentlemen. *i'm delighted to be here with you this morning. *as you know, the theme of this conference is "*do*d *emerging *trends: *what is the *future of *logistics?" *discussing the topic of the future, much less the future of a complex subject such as defense logistics, is obviously influenced by our individual experiences and views. *nonetheless, we in industry and government even the leaders of this country and the world as a whole must confront tomorrow's challenges today, and make the changes which will decide our future, in this case, the future of logistics support. *as a matter of coincidence, a few weeks ago *i had the opportunity to be part the second-annual *logistics *reform *day at the *pentagon. *the forum was a roundtable discussion with the *do*d's senior logistics commanders. *the theme of the roundtable discussion in the *pentagon was "*seamless *support for the 21st *century *warfighter." *it is clear, that roundtable theme and the topics on this conference agenda are totally aligned. *those of us who participated in the *pentagon roundtable were, as we said, in "violent agreement" that we, who are in the business of providing products and services supporting the defense needs of this country, have one mission: **to assure we provide to the warfighters who depend on us everything they need, when they need it, to enable them to successfully accomplish their mission.* *i hope all of you here today are equally in "violent agreement" that that is our mission! *as you know, effective, efficient logistics support is vital to the defense needs of this country and our allies. *addressing improvements in cycle time, quality and affordability is the key to supporting the warfighter's mission. *the future of logistics support must be addressed in the context of *reducing customer cost of ownership*, and that must be the focus of this conference. *i'd like to spend some time this morning giving you my views on how we achieve that future and what *i believe we need to do to get there. *let me frame my comments in the context of a management process many industry and government leaders use to chart a course for organizational change and growth. *there are three major tenets: + *first, we must understand and define our current state; + *then, we should project the attributes of our desired future state; + *and finally, we must define the key actions and strategies necessary to fill in the gaps to achieve our future state. *let me start by offering my views of the current state of logistics support. *the industry and government infrastructure that today provides logistics support has developed over the last 75 to 80 years. *if we look back at history over those decades and the changes related to aircraft logistics support, we are provided some insight as to where we find ourselves today. *early pilots not only in many cases built and flew, but, as well maintained, repaired and supported their own aircraft, even if it meant sleeping under the wings. *with the advent of commercial air travel and more rigorous operational schedules, airlines established logistics support and maintenance capabilities as a stand-alone function. *then came *world *war *i*i. *at first, the military was desperate for all the help they could get in supporting their rapidly growing defense fleets. *they invited in reality they commandeered the support services of the private sector to maintain military fleets. *later on, the military services began to worry that private contractors, in returning to civilian pursuits, would abandon the business of support and maintenance. *as a result, the military began to establish infrastructures of their own, both inside and outside the *united *states. *to some extent, the concern of the military services regarding support by the private sector of defense products is well founded. *internal to our industry, our infrastructure was, and in many cases still is, focused on providing weapon systems and component product sales, not the business of providing logistics support of those products as a *business*! *in my view, the current state is manifest in a number of different attributes endemic to our industry: + *support of products has been viewed by some as a "cost of doing business," rather than an essential, required and profitable business opportunity; + *organizational infrastructures exist that are disproportionate to the level of support they are required to serve; + *support organizations are largely transaction focused; + *clearly many redundancies remain in competencies between the customer and the supplier public and private; + *in many ways, the result of these attributes are large stocks of spare parts and supply inventories sitting in multiple warehouses with slow inventory turns and long lead times for delivery; and finally, + *as often is the case, the parts needed are not the parts readily available in the warehouse or the supply system! *i firmly believe a clear focus on our common logistics support mission - putting in the hands of the warfighters everything they need, when they need it - will bring all of us in both the public and private sectors to the second stage of my management process, that is our desired future state. *here is what that means ----to me. *the future state will be founded on attributes such as: + *largely commercially based support systems and infrastructures that allow the cost efficiencies inherent in peacetime to be flexibly deployed to support rapid transition and surge capability when our warfighters are called upon; + *prime contractors partnered with their military customers as well as preeminent suppliers with complimentary, integrated competencies; + *fewer, more preeminent suppliers who are willing to invest the brainpower and resources on behalf of the support mission to be preeminent in their competency; + *paperless, electronic supply systems that take advantage of the seemingly unlimited electronic infrastructures that enable boundless communication; + *support requirements dependably delivered anywhere in the world in an extraordinarily fast system, just like *fed*ex and *u*p*s do today. + *concepts such as prime vendor support, flexible sustainment, supply chain management, and trigger-based item management deployed in support of all essential military products; + *a streamlined acquisition process institutionalized that has a fundamental bias for ease and speed. + *a cultural change evident within industry such that innovative business-based solutions to customer support needs exist to the same extent innovation is focused on cost-effective development of complex weapon systems. + *and lastly, and perhaps the result of those preceding elements being brought to bear, future logistics support budget levels that are lowered and thereby evidence we have in fact reduced the customer's cost of ownership. *progress is being made. *events like this one show that our industry and our customers recognize change is essential to reducing cost of ownership. *but if we look honestly, it's clear significant gaps remain in where we are today and were we need to be. *again, following my management process approach, let me present five thoughts as to how we might close these gaps. *first , culturally, both the *do*d and industry must recognize we need to be in this together. *public/private partnerships are powerful tools. *they allow both sides to better understand each other through closer communication, and they allow innate competencies on both sides to be captured so public and private organizations become complementary rather than redundant. *when *boeing formed a partnership with *ogden *air *logistics *center earlier this year to compete for the *mc*clellan workload, there were a good number of people who were skeptical on the eventual outcome. *could a public/private team come together in a relatively short period of time to first, collectively produce a winning proposal for the competition, and then put the planning in place to execute effectively? *in the process of doing that, we learned a lot about each other, found ways to capitalize on our unique capabilities, and came up with a solution that offered the *air *force real cost and effectiveness benefits. *in fact, the *air *force estimates taxpayers will save $638 million over the nine-year span of the contact. *that's a 30 percent reduction in the customer cost of ownership! *as an aside, *i will note the team at *ogden found out how hard it is to compete and how complex and incredibly laborious are the requirements of the government acquisition processes. *that insight alone may have been a worthwhile reason for our partnership. *secondly , we need to continue to eliminate redundancies. *on both the *do*d and industry sides, we need to find the overlaps and make rational decisions on where the competencies should reside. *this should be based on a simple criteria the competencies should reside with the provider who is committed to preeminence in that competency, and is committed to investing the brain power and resources necessary given the core military need! *second best isn't good enough! *this redundancy issue is one that applies to both the public *and* private sector. *as an example, as a prime system contractor, we at *boeing have traditionally had design teams overseeing suppliers in the detailed design of their systems. *it baffles me as to why we believe we have to know as much about component design as the supplier providing the system. *we are now dealing with those redundancies and we are in the process of collapsing to those staffs that support value-added requirements. *our infrastructures, which remain today, in some cases, result from a question of trust or confidence between the parties and a willingness to "let go." *we need stronger, slimmer, more efficient and responsive organizations focused on value-added benefit, not oversight for oversight's sake. *we need to sort out our roles and missions. *our suppliers should be fewer, but preeminent in what they do. *in true partnership fashion, we must work together to deliver the promised end product to the customer, with the quality and at the cost we promised. *through our preferred supplier program at *boeing, we've been able to reduce our number of suppliers by about 50 percent by partnering with preeminent companies, both large and small, with the specific competencies our customers require. *as well, we have seen a reduction in cost to our customers of approximately 6 percent per year in real terms over the last four years as a result of focusing on improvements with suppliers, rather than investing our resources maintaining poor performers. *third , we need to focus on systems, processes, skills and cost infrastructures aligned to the business needs of supporting products and services, rather than maintaining those which are primarily focused on defining and producing weapons systems and components. *if we use the right tools, systems, skilled people, processes and cost infrastructures, we in industry have seen incredible cycle time and cost improvements. *in our *boeing structural repair business, for example, we assigned a dedicated team with dedicated tools and processes, and a rate structure tailored to the "business" of repairing and modifying aircraft structural flight control surfaces. *with this new business focus on an area that was once viewed as a necessary but generally undesired customer-support activity not a business we have seen turnaround times slashed by a factor of five and repair costs reduced by more than 60 percent. *we are looking to expand our product repair competency to other products, including non-defense opportunities. *fourth , we need to recognize that consolidating, reducing and even closing operations, including those resulting from the *b*r*a*c process, doesn't need to be the end of the world. *today a substantial business is being built in *texas in a former *air *force facility. *our *boeing *aerospace *support *center at *kelly *air *force *base is succeeding because it was built on a strong business plan and makes good business sense. *we have taken a tremendous facility with a skilled work force, and by applying many tailored, commercial processes, we are creating a low-cost, quick-response, top-quality maintenance and modification center for large, missionized aircraft. *that facility is dedicated to preeminence and we have taken the actions required to institutionalize that capability. *c-17s, *k*c-10s, *k*c-135s and even *m*d-10 passenger-to-freighter conversions will all benefit from that preeminence! *the revitalization of *kelly is an on-going success story that provides a future for thousands of people who only several months ago believed they had no future. *in turn, it's important to recognize that some facilities need to be closed down, both public and private. *we cannot continue to shelter ourselves from making hard decisions with the hope that the future will somehow rationalize today's infrastructure. *i believe in that context, the future is today. *fifth and finally , we have to address some fundamental issues in the acquisition and contracting processes. *while we strive toward commercial practices and contracting, it clearly is not as innovative as it should be. *let me draw a contrast. *through a joint venture between *boeing and *g*k*n *westland *helicopters, the *united *kingdom *ministry of *defense is acquiring a helicopter training capability for its *apache helicopters. *the joint venture, known as *aviation *training *international *limited, is using private financing to develop the training systems and facilities. *the training services are being provided to the *m*o*d under a commercial business arrangement based on a pay-for-services concept, which includes a 20-year guaranteed student throughput from *mo*d. *we as the training provider warrant the quality of the student to perform the required mission. *that type of contracting is difficult in the *united *states because of acquisition regulations and the inability of the services to make long-term commitments. *this needs to change if the benefits of commercial contracting are to be made available to defense contracting. *that having been said, we must also recognize that commercial practices are not always the right solution. *while they allow more flexibility, and may have the perception of being faster, better and cheaper, commercial practices at times are not totally structured for meeting defense needs. *it is hard for industry to warrant the outcome of battle, unlike commercial airline reliability. *so we need to carefully tailor commercial approaches to military needs. *in closing, let me summarize what *i believe are the keys to achieving our future state: *both industry and the public sector must be prepared to go out of some businesses as we reduce redundancies and focus on preeminent competencies. *we need to institutionalize the mechanisms that make possible rational public/private partnerships enabling the easy exchange of work in both directions to take advantage of preeminent competencies on both sides. *and lastly, we need to take the message to *congress that doing business in these new ways is absolutely required. *there must be a balance between maximizing efficiencies and reducing logistics support costs, and the political objective of retaining jobs. *is change underway? *yes, *i think we all see it. *we have a long way to go, and the gaps are deep in places. *but *i'm confident that if we first have a clear focus on those changes that result in better, faster, cheaper preeminent logistics support and second, have the resolve to make the hard decisions required to drive those changes, we will deal with today's challenges *and* move to a future state of logistics support founded on industry and government partnerships, which provide timely, cost-effective "seamless" support, thereby enabling fully mission-capable warfighters in the 21st century. *that must be the mission we collectively undertake here today! *thanks very much for listening. *i've enjoyed being here with you this morning. § *fb. § *hard *realities: *transforming *defense *logistics § *thank you, and good morning ladies and gentlemen. *welcome to *st. *louis! *on behalf of those of us from *the *boeing *company in *st. *louis, we are delighted you're here in our city. *i hope you'll take advantage of some of the tours of our *boeing operations we have available for you tomorrow. *bob [*mason] and *roger [*kallock], welcome to *st. *louis as well. *we've shared the podium numerous times over the past year or two, and *i'm glad we have the chance to do it again here in *st. *louis. *i'm sure we will once again find we share similar views with regard to what we in industry and government need to focus on to support the defense needs of this country. *it's an honor for all of us in *st. *louis to host an important gathering like this *do*d *maintenance *symposium. *the agenda is full of opportunities for information exchange in support of the symposium's theme: "*transforming *maintenance with *technology." *effective development and timely application of the technological improvements that are so rapidly becoming available is clearly essential to providing faster, better, cheaper support of our warfighters. *this morning *i want to offer my views on a number of overarching hard realities with which we are all dealing to support and sustain the defense products of this country. *in turn, *i have a number of "imperatives for change" that *i suggest we need to understand and embrace to drive the current environment to more efficient and effective levels of performance. *the hard reality for all of us in government and industry is that there are fewer budget dollars for sustainment and modernization of our military defense products, notwithstanding ever-increasing demands. *this is a time for creativity and initiative *perhaps we can learn from a story *i recently heard about the creativity and initiative of a matronly lady in *new *york. *the story has it an elderly woman walked into one of the major banks in *new *york *city and sought out one of the bank's senior loan officers. *she told him she was leaving for *europe on vacation later that day and needed to borrow $5,000. *surprised, the loan officer told the lady her request was highly unusual, and that the bank certainly would need collateral to make the loan that quickly. *she replied that was not a problem in that she had her *rolls-*royce double-parked outside the bank and the bank could keep it until she returned and repaid the loan. *the loan officer walked to the door, and sure enough, there was a magnificent *rolls-*royce parked outside. *recognizing the value of the collateral she offered, the banker filled out the loan papers, cut the woman a check for $5,000 and immediately cashed it. *she took the cash, gave him the keys and left in a taxi for the airport, after which he immediately had one of his staff put the *rolls in the bank's parking garage. *a week later, the woman returned to the bank, sought out the same senior loan officer and provided him with her check for the $5,000 principal and $15 in interest. *the banker thanked the lady for her business and said, "*your request for a $5,000 loan was so unusual that, quite frankly, *i did a little checking up on you while you were away. *i found out that you are one of the wealthiest women in *new *york *city. *why on earth would you need to borrow $5,000 for just one week?" "*it's quite simple, young man," the woman answered. "*where else can you park for a week in *new *york *city for only $15?" *clearly she was creative and dealt with the realities of living and parking in *new *york *city! *the hard realities *i want to discuss today, however, are more serious. *they involve financial and process challenges to operational readiness, ever-increasing costs of ownership and, in my opinion, a continuing "state of denial" that radical change is required. *the military logistics system has more than a $185 billion annual price tag more than double the total military budgets of *european countries. *the infrastructure of our logistics system in many cases maintains the operating processes and related technologies of the *cold-*war era. *we are eager to talk about the need for change and streamlining our logistics system, but tentative in the actions we are willing to take to make change a reality. *let's talk about some facts. *first, according to a report published by the *business *executives for *national *security organization, the *department of *defense estimates it will have to add between $4 billion and $5 billion to the operations and support budget over the next five years in order to fund the ever-increasing costs of ownership necessary to maintain current readiness levels. *in a fixed top budget line context, that roughly equates to the loss of an entire wing of modern fighter aircraft. *second, with the 30 percent reduction in *do*d budget authority that has occurred over the last 10 years, sustainment of older military aircraft is planned well into the next century. *the *k*c-135 is expected to remain in service with the *air *force beyond the year 2030, more than 75 years since that model-type made its first flight. *the *t-38 *talon, which first flew in 1959, is expected to continue to train *air *force pilots until the year 2040, thanks in part to a *boeing avionics upgrade program. *and as recent trade and service publications have reported, the venerable *b-52 is expected to outlast both of its successors the *b-1 and *b-2 in terms of maintaining a minimum operational fleet size. *the required upgrade, maintenance and modification of fielded systems to allow them to perform effectively and reliably over these extended service lives are not insignificant investments. *thus, there is a mandate for faster, better, cheaper solutions to our logistics sustainment needs. *another fact: *over the past 10 years, the budget for procurement of new systems has decreased by 50 percent, while operation and maintenance funds have decreased by a relatively minor 13 percent. *clearly, this represents a shift in emphasis. *accepting these realities dramatically lower defense budget levels, a shift from products to services , and the mandate to sustain existing systems over long periods of time generates the $64,000 question: * *how do we respond to the need for revolutionary changes to our respective government and industry roles to become complementary to each other in responding to the required changes? * *in fact, *dr. *gansler stated it perfectly in one of his speeches. *he said, and *i quote: "*the *do*d logistics system must be dramatically transformed. *it costs far too much, takes far too many people, and doesn't provide the desired performance in terms of readiness, responsiveness or sustainment. *world-class companies have demonstrated that similar tasks can be done at significantly lower costs, with significantly fewer people, and with dramatically better performance." *ladies and gentlemen, let me suggest to you that we collectively must become world-class. *let me outline a few of what *i believe are "imperatives for change" that must be addressed if we are to achieve the logistics transformation that *dr. *gansler and others advocate. *first, in my opinion, we must re-engineer our logistics sustainment template for the weapon system platforms we have in service. *i believe this starts by defining what *i characterize as the essential "mission retention" competencies that must be retained within the military infrastructure for security reasons or operational effectiveness. *we need to deal with the issue of "core" and define the essential mission competencies, whether they are in logistics systems, depot maintenance, or operational support areas. *clearly there are areas where the military services need dedicated people, facilities, processes and tools focused on critical defense mission needs. *the support and staffing of our nation's strategic systems is an obvious example. *however, *i maintain that repair of landing gear and composite structures is not inherently a competency that the services need to maintain, and invest in, to achieve their missions. *some tough questions need to be asked, and some tough decisions made. *a visionary road map must be structured of the support infrastructure of the future so we can collaborate on where we in industry appropriately play a complementary role in supporting the government and the warfighter. *this will enable the collective energies, competencies and resources of industry and the *department of *defense to be focused and complementary, rather than duplicative and, in many cases, competitive. *industry should not be competing with government. *we in industry want to invest our resources and our critical personnel skills in those areas in which we can be preeminent, and partner with our government colleagues to assure that the warfighter is provided with what is required, when it is required. *this leads to my second imperative. *we must optimize public/private partnerships and focus our respective competencies on collaborating to meet mission sustainment requirements and eliminating costly redundancies. *here's another reality to think about: *there are more than 3 million people in our country's active duty and reserve armed forces, and in civilian *do*d jobs. *the *do*d estimates there are twice as many people in uniform involved in logistics as there are warfighters in command or combat roles. *further, there are about 100 separate *do*d operating facilities focused on supporting the warfighter and defense systems. *now, add the more than 2 million employees working in the defense-related industry deployed throughout some 100 operating facilities. *i don't think it takes a leap of faith to believe that among 5 million government and industry people and some 200 operating sites, there are bound to be redundancies, and in turn opportunities for synergy. *we have a choice to make: *we can continue to operate as we are and ignore current levels of total ownership costs, or we can collaborate to define and implement ways to capture efficiencies and reduce total ownership costs. *we should apply a simple criterion: *required competencies should reside with the government or industry provider who is committed to preeminence in that competency committed to investing in the critical skills in personnel, including training, and providing the requisite financial resources necessary to be preeminent. *second best isn't good enough! *public/private partnerships are powerful tools, but implementing them requires from all of us in the public and private sectors a willingness to shift paradigms. *as an example, the *air *force estimates taxpayers will save about $650 million as a result of industry's partnership with the *ogden *air *logistics *center for the workload transferred from *mc*clellan *air *force *base in *sacramento, *california. *that public/private partnership brought complementary interests of both parties together, resulting in a 30 percent reduction in the customer cost of ownership. *now let's turn to my third "imperative for change": *once we are clear on the role industry can play, *i believe we must transition to innovative performance-based contracting . *we must transition to contracting for the " what ," not the " how ." *in return, industry must provide weapon-system performance guarantees and tie financial rewards to performance. *when performance-based contracting is coupled with the flexibility provided by seamless funding which allows, for example, the trading of repair and spares costs against engineering changes that produce long-term reliability and cost benefits, the end result is improved readiness with significant cost-of-ownership reductions. *what *i've said up to this point is: + *let's define the sustainment and modernization roles government and industry will play to assure world-class performance. + *let's put in place the public/private partnerships required to assure the interfaces are seamless in support of the warfighter. + *and let's establish performance-based contracting relationships with industry that pay for performance. *if we can successfully work through that process, then *i believe we can drive reduced total ownership costs by taking another step, by implementing innovative, integrated life-cycle customer support, or *l*c*c*s, solutions to both fielded systems as well as those coming in the future. *we in the aerospace defense industry need to be offering support solutions that move up the value chain, much like what is available in the commercial aircraft sector. *our traditional ways of providing defense support have been largely dysfunctional through separate and non-integrated requirements and acquisition silos. *as we move through the value-chain progression, which begins with traditional, stand-alone products and services, the benefit in customer value increases, recognizing the increase in customer investments. *moving to life-cycle customer support solutions must be founded on trust between government and industry and a collaborative partnering of interests in support of the warfighter's needs. *what is the true benefit of life-cycle customer support? *one word: *accountability. *total life-cycle customer support puts singular accountability on one organization for system sustainment. *one entity has the accountability and responsibility to get the warfighter what is needed, when it is needed. *that contrasts with the traditional, silo-based approach to support we just discussed, which is largely transaction-based with multiple points of accountability. *let me draw an analogy between moving to life-cycle customer support solutions and the way design, development and production of new aircraft has transitioned. *until fairly recently, the aerospace industry generally began the aircraft development process with engineers producing a design optimized for system performance. *again, working in silos, production operations became involved after the designers had done their work. *their challenge was to figure out how to build what the designer had come up with. *and generally further down the development phase, the logisticians had to develop the means to maintain and support whatever came out of the design. *today there are some very high-performing systems out there that were very hard to build and are difficult to maintain. *it is a very different world now. *we transitioned to *integrated *product *development because we realized the process was not integrated, thus cycle time, cost and even quality were jeopardized. *in the new designs, such as the *joint *strike *fighter, integrated product teams address producibility, maintainability and supportability from the very earliest stages of development. § *philosophically, *i believe this transition to an integrated process is what we need to do in supporting all products both existing and new. *as an aspect of *integrated *product *development, we need *integrated *product *supportability, and *i would suggest that is what life-cycle customer support truly is an integrated process with singular accountability. *let me speak a little more in depth about life-cycle customer support. *i would suggest to you that there are eight overarching enablers to effective, innovative total life-cycle customer support solutions. *embedded in them are key elements of logistics modernization as well as fundamental acquisition reform. *first, performance-based contracting , as *i previously mentioned, allows providers to look for cost of ownership reductions by not being burdened by prescriptive "how-to" requirements, but instead being incentivized by performance-based business structures. *secondly, supply chain and materiel management processes offer increased materiel availability, thus improving readiness, while driving down cost of ownership by precluding obsolete inventories and reducing the logistics footprint. *thirdly, maintenance and repair services provide comprehensive full-life support of a platform, focused on world-class, cycle-time improvements based on linkages with supply systems and ready-access of required assets. *fourth, data and integrated data management integrates single-database information in innovative, electronic, interactive media format providing usable information instantly to the maintainer, where and when needed. *fifth, training, training systems and support equipment deploy technology, enabling affordable and effective learning to guarantee "ready-to-fight" students, in devices always concurrent with the actual weapons systems. *sixth, reliability-based analysis and in-service engineering provides "closed-loop" accountability for supportability improvements driven by enhanced trend analyses, and total access to design and manufacturing data bases and resources. *seventh, modification and maintenance overhaul focuses on fast cycle-time, affordable cost and preeminent quality by using specialized facilities founded on public/private partnerships. *and finally, configuration management transitions design authority and focuses on the "what," thus providing the agility to introduce technological improvements that greatly enhance system performance and reduce cost. *in sum these enablers result in an overarching, integrated *l*c*c*s approach that offers program manager visibility and focused accountability for the total ownership costs associated with a weapon system. *the content of each and the degree to which each is implemented must be tailored to each product-specific opportunity. *the *air *force *flexible *sustainment program for support of the *c-17 airlifter is a great example of this. *while *flex *sustainment does not at the moment deploy all of the eight enablers *i just spoke of, it does include an integrated package of support elements, including program management, sustaining logistics, spares management, sustaining engineering, and aircraft modification responsibility. *the contract structure implements streamlined processes to reduce cost and cycle time, as well as enabling innovative technology insertion, all in a balanced incentive structure that rewards based on performance. *to date, *c-17 readiness exceeds every *air *force expectation and metric, and the reduction in program cost has earned exceptional incentive rewards. *another interesting example is the *total *system *performance *responsibility program for the *f-117 stealth aircraft. *this contract is structured, similar to *c-17 *flexible *sustainment, with performance incentives that reward the contractor to meet or exceed readiness objectives while reducing costs, ultimately lowering total cost of ownership. *the contractor in this case acts as an "extended *system *program *office," in partnership with the *air *force *program *office staff that is 10 percent of the staffing level prior to the program implementation. *the *air *force projects the *f-117 program will save 8 to 10 percent per year versus the previous program funding plan. *another great *l*c*c*s example is contractor logistics support of the *navy's *t-45 *training *systems at *kingsville, *texas, and *meridian, *mississippi. *under this contract, the industry provides full support of these training assets, essentially requiring the *navy to provide the instructor pilot and student to fulfill its mission. *the contractor *boeing, in this case ensures that aircraft are ready, training devices and courseware materials are current and available, and spare parts are available where they are needed. *through this integrated *l*c*c*s approach, the cost per flight hour for the *navy's *t-45 fleet will be reduced by almost 40 percent, a significant cost of ownership reduction. § *i'm sure you will agree paradigms are changing. *the process of collaborating, partnering and moving more innovatively to total program support solutions has started. *at the end of the day, success will only be measured as we streamline the process of providing system readiness by capturing the lower costs of ownership resulting from these supportability innovations. *the objective of *l*c*c*s is simple: *reduced total ownership cost on any given weapon system. *lastly in my list of "imperatives for change" is this: *we must obtain governmental support and flexibility . *saying it more directly, *congress needs to realize lower defense budgets and ever-increasing needs will demand reductions in government and industry infrastructures. *political interests must be balanced with military and business realities. *i contend that in almost every case, jobs are jobs, whether with industry or in government service. *either source of jobs is beneficial to the affected communities of congressional interest. *there are those who would assert that growth in jobs is potentially greater through private industry due to greater sources of commercial opportunities than are currently available under government rules and regulations. *in closing, *i believe dealing with these five imperatives for change that *i have identified can have a significant impact on bringing forth real logistics transformation. *it will be an arduous task, as many of the key champions, like *dr. *gansler and you, *roger, know from your efforts to date. *it is essential that we continue to bring passion to the need for change. *we must deal with the constraints to change, both real and perceived, if we are to judiciously "shepherd" the limited budget dollars available to assure our warfighters have what they need, when they need it. *we must remember that all of us in this room are part of a larger process, a continuum that is focused on the success of the end user, the warfighter. *we are not an end unto ourselves! *i urge all of you to take home to your respective organizations the benefits of this symposium, passionately apply your energies, think innovatively and push for change. *this is a great forum for access to technology and innovation. *the challenge for all of us in government and industry and, in turn, our opportunity, is to collaborate, partner, then undertake the actions which will deliver needed, modernized systems and support services to our warfighters faster, better, cheaper. *thank you. § *fb. § *economic *implications of *european *security:*a perspective from *the *boeing *company § *thank you *mr. *josefson, distinguished guests, ladies and gentlemen. *i'm delighted to take part in this, the fifteenth *n*a*t*o *workshop, and to have the opportunity to talk about the economic implications of *european security from my vantage point in the defense industry. § *n*a*t*o, the most successful alliance the world has ever seen, has lasted longer than any other alliance this century. *and we in *america value it. § *forums like these help to build a better understanding of key issues, and foster the kind of cooperation so essential in successfully meeting *n*a*t*o's enduring challenges. § *our alliance is always looking for that kind of leverage. *indeed that is what we're all about, and what this workshop is all about. § *alliances that endure do so because the partners have shared cultural values. *n*a*t*o partners believe in freedom, both political and economic, and security. *when called upon, they are ready to defend them. *shared cultural values in our approach to military affairs shared values in our way of doing business. § *sharing is two way. *that's why as a leading member of the international defense community, we at *boeing believe that understanding and cooperation have now become essential to industry's ability to deliver high quality, low cost systems to our *n*a*t*o forces. § ...*understanding our military customer's requirements...cooperation with local industry. § *we believe that it is through cooperation in the form of expanded industrial partnerships that true economic opportunities exist for *n*a*t*o partners. § *when it comes to the defense acquisition process, we at *boeing see it as our responsibility, § + *first, to really understand the objectives and requirements of our military customers. *not to tell them what they should have, but to listen to what they want and need. + *then, to turn loose our technological creativity, + *to make the necessary investments in plant, equipment, and people, + *to lead or participate in the best industrial team for each program, + *and to be relentless in our commitment to better quality and lower cost. *that's what we're in business to do. *and, therein lies one of the most important economic implications for *european security. § *when we look to carry out those responsibilities in the *n*a*t*o marketplace, we understand that we cannot be effective here in *europe unless we work at it, day-in and day-out, on the ground, full time... not simply as a provider from afar, but also working with *european governments, and as a partner with *european industry. § *we must become part of the fabric of life in the communities and countries in which we intend to do business. § *our *c*e*o, *phil *condit, has said publicly on more than one occasion that *boeing must go further than it has ever gone before in expanding our international presence. *and we must work vigorously to enlist cooperation and participation in the design, development and production of new generations of aerospace products. § *plain and simple, we are committed to significantly expanding our participation in customer markets. § *and, in fact, the process has already begun, as demonstrated by the fact that: § + *the *boeing *company is an important export customer for many *european countries. *in the *u*k for example, *boeing is a bigger buyer of aerospace exports that any single nation. *in 1997, we bought 1.5 billion pounds worth of *u*k aerospace products, supporting over 70,000*u*k jobs, and more than 225 separate companies. § + *also, our partnership with the *czech *republic aircraft manufacturing *aero *vodochody is a signature example of the way we intend to participate globally. *through it, we're working hard to better understand the *czech *republic, and its military and civilian markets. *and we've identified a partner capable of designing and producing high quality, low cost aerospace products that will help us compete more effectively around the world. *right now, we are in the process of transferring 25 to 30 *boeing executives and technicians who will work in this *czech aerospace company...day in, day out. § *and finally, as many of you know, *boeing recently expanded its *brussels office by naming one of its most senior and experienced executives, *dick *james, to the position of *president of *boeing *europe. § *we've also named *bud *mitchell vice president of *europe for our military aircraft and missile systems business. *bud is located in *london and is with us today. § *establishing our presence among our *european customers to better understand their expectations and requirements is one of the economic implications of *european security. *but it is only part of the answer. *the products we in the aerospace industry provide *n*a*t*o must be of the highest quality possible, at a price member countries can afford. *to do that, we in industry must develop a network of global partnerships. § *which leads me to this...to genuinely understand the economic implications of *european security is to understand one key truth: § *none of us here today can provide for the security of *n*a*t*o alone. *no one country...no single industrial enterprise has all the know-how, all the resources, and all the answers. § *whether its aircraft, missiles or any other defense system, it's an industrial team that's out on the edge -- developing and producing equipment that will do things never done before, at levels of reliability and accuracy never achieved before, with costs pressures beyond any we've experienced before. § *it's tough and demanding work -- on the technical and management sides of the equation. § *and, as *i see it, this work, to be done right, requires the best of *n*a*t*o's industrial base. *no one of us has a monopoly on leading edge technology or brilliant scientists. § *that's not to say that competition is going to somehow go away. *competition will remain strong and tough, as it should. *it will continue to make all of us in the industry better -- finding ways to advance technology, lower costs, improve program performance...and to deliver all that to our armed forces. § *my main message today is simple: § *strong transatlantic partnerships generate economic and technological benefits for all of us. § + *these links provide direct work on aerospace products. + *they advance the technological development of member nations. + *they strengthen economies, and we all know that strong economies contribute immeasurable to the security of the alliance and generate resources to focus on other important needs. *we at *boeing, and many of you here, have seen it work. *we have a history of developing successful partnerships with *european industry. *these partnerships have developed and produced some of *n*a*t*o's best peacekeeping equipment. *and they have brought economic benefits to both sides of the *atlantic. § *as an example, for *mc*donnell *douglas, and now *the *boeing *company: § + *british *aerospace has been a close partner for many years -- each of build half of the *t-45 trainer and half of the *harrier. *these two programs are excellent examples of *european involvement in products used by *american defense forces. *in the future programs like the *joint *strike *fighter offer true growth opportunities for continued industrial and military cooperation of this kind. § + *the partnership of *c*a*s*a, *alenia, *bae, and *boeing developed a radar-equipped *harrier -- the *harrier *i*i *plus, which is in service with *italy, *spain and the *united *states. + *g*k*n *westland in the *u*k is building 67 *apache helicopters. *boeing in *mesa, *arizona, produces *apache kits, powered by *rolls-*royce engines, and nacelles and horizontal stabilizers built by *shorts in *northern *ireland. *assembly is in *britain. *westland is the prime; *boeing is the sub. *a partnership, all the way around. + *then there's the *harpoon. *most of us here today know that the *harpoon anti-ship missile system has been a leader in international collaboration in both development and production for many years. + *boeing partnerships on the commercial side are just as striking: + *snecma builds the engines for our next generation 737 -- a program expected to generate about $7 billion in revenue for *snecma during the first eight years of the program. + *less than two weeks ago, *boeing introduced its newest jetliner, the 100-passenger 717, at a rollout ceremony in southern *california. *half of that aircraft is built by *european companies, including *fisher *advanced *composite *components here in *austria. + *boeing *commercial *airplane *group alone expects to spend almost $14 billion with *european suppliers over the next five years. *this will support more than 90,000 jobs in *europe annually. + *an example on the space side of our business, the *international *space *station, is a 16-nation partnership, with 11 partners from the *european *space *agency. + *all told, *boeing works with more than 435 *european companies, large and small, in 19 countries. *we are prime contractor on some programs, and a subcontractor on others -- just as it should be. *in all this work, from our perspective, it is abundantly clear: § *when we "think global" and "act global," our customers get the highest quality, produced by the most skilled teams, wherever those teams may be, and they get it at the best price. § *understanding our customers and their requirements... § *developing trans-*atlantic links and industrial partnerships... § *providing higher quality and lower cost defense systems... § *to accomplish these takes time...*and it takes dedication, commitment and vision. § *the commitment is demanding, but the rewards are worth it. § *if we do our jobs right, the security benefits for *n*a*t*o, and the economic opportunities for its member countries, will continue to grow. § *and we can all look forward to the new century with hope and confidence in the future of this great alliance. § *thank you. § *fb. § *acquisition and *logistics *reform: *bringing *velocity to *public-*private *partnerships § *we've made remarkable progress in acquisition and logistics reform since we embarked on this journey in 1994. *the achievements, *i think, are real. *the hard work is beginning to pay off. *the transformation in how we do business is well under way. *but *i also think that the saying of the *super *bowl-bound *st. *louis *rams applies to us: "*we gotta' go to work." § + *truly seamless support for our warfighters, who are, after all, the bottom line. + *even closer partnerships between industry and our customers. + *commercially-based support systems, and an infrastructure that is cost-efficient and able to respond quickly when called upon. + *and paperless, electronic supply systems with the speed and efficiency of commercial dot-coms. *but getting to this vision means we "gotta go to work" on three significant challenges. *first, we must optimize private-public partnerships by focusing on the core competencies that each party brings to the table. *second, we must accelerate the use of life cycle customer support to bring a single point of accountability to the system. *and third, we must step up the pace of regulatory and legislative reform. *on the first point, optimizing private-public partnerships is something in which we've developed expertise. *as an example, the *boeing partnership with the *ogden *air *logistics *center thrives because each party is focused on what it does best. *we teamed with *ogden to win a contract for the complete package of work that was being transferred from *mc*clellan. *with each of us taking responsibility for what we do best, the result was a win-win-win for the team. *the *air *force estimates it will save about $650 million - about a 30 percent reduction in its cost of ownership. *ogden has added to their workload, and *boeing secured new *k*c-135 business for our growing *san *antonio center. *this center, by the way, is a real success story for both the company and our customer. *now a year and a half into operation, our *san *antonio maintenance and modification center is nearly at capacity and sustains more than 1,700 jobs in the area. *my second point - accelerating the use of life cycle customer support - is another challenge we face in the coming decade. *through such contracts, we can offer our customers a single point of responsibility and accountability for ensuring readiness and performance. *in the process, the cost of ownership will decrease. *in the *c-17 *flex *sustainment program, for example, *boeing is responsible for the overall support of the *c-17 fleet under a performance-based contract that rewards readiness and efficiency. *we manage logistics and spares, modify aircraft and provide sustaining engineering support. *today, *c-17 readiness stands at more than 90 percent. *and, contractor depot repair turnaround times have been reduced by more than 25 percent. *boeing is also the single point of accountability for *t-45 *contractor *logistics *support. *we literally provide everything but the instructor pilots and the students. *this includes aircraft maintenance and modification, simulators and supply chain management. *through this approach the cost per *t-45 flight hour is being reduced by nearly 40 percent with the aircraft maintaining high rates of readiness. *we've just begun to tap into the benefits of life cycle customer support. *working closely with our customers from all services, we are extending these concepts to the *f/*a-18*e/*f *super *hornet, the *apache *longbow, and, of course, the *joint *strike *fighter. *lastly, to achieve the future state, we must also continue to be diligent in reforming our acquisition and contracting processes. *we must have increased flexibility to introduce more commercial practices into procurement. *as an example, *boeing and *g*k*n *westland are working under a commercial business arrangement to provide *apache helicopter training in the *united *kingdom. *this deal is based on a pay-for-services concept and includes 20-year guaranteed level of students. *the contractor-owned and operated training facilities were built with private financing. *this type of arrangement, even though it offers tremendous benefits to our customers, is difficult to execute in the *united *states because of acquisition regulations. *so we must wrap up with an assertion that our success in acquisition and logistics reform over the next decade will all come down to one point. *velocity. *let me give you an example where velocity through acquisition reform has made all the difference. *when *operation *allied *force began, the *joint *direct *attack *munition had been in service for only three months. *it quickly became a mainstay of the fighting forces. *with its *g*p*s targeting system, it cut through overcast conditions and found its mark time and time again. *our warfighters didn't care that we cut production costs in half because of acquisition reform. *they didn't care that it became a template for supplier and customer partnerships. *what mattered to them is that the system was ready a full year earlier than planned - and just in time to make a difference in *kosovo. *so, finding better ways to support our warfighters is what it's all about. *velocity is the key. § *fb. § *aerospace in the *new *millennium § *greetings *good afternoon and thank you. *it's great to be here, and a wonderful honor to be the first *william *e. *boeing lecturer at *purdue *university. *it's something *i certainly did not envision when *i first set foot on this campus as a freshman, all those years ago. *purdue is a very special place for me and my family. *my wife *debbie and *i met here on campus as undergraduates, and our son is here as an undergrad now. *and my four brothers and sisters are all *purdue grads! *so a long and wonderful relationship with the university. *today, *i've been asked to talk about the future. *one thing in the future is *saturday's game with *michigan. *and *i see a big win for the *boilers. *however, football, while a true interest of mine, is not an area of expertise, nor what you came to hear about. *but the future is near. *with the year 2000 just three months from tomorrow, *y2*k is on everybody's mind. *we all wonder what's in store for us for our world, our nation, our society, and if you're my age, our children and grandchildren. *it's an exciting time as we open a symbolic door to the future. § *aerospace in the *new *millennium *those of us in the aerospace business have a special reason for eagerly anticipating this milestone. *our industry is about the future it always has been and always will be. *our heritage has been to reach beyond our grasp -- to the skies, to the moon, the solar system and even beyond. *and we've taken our world, our society, into the future with us. *we're driven to go faster, higher and farther than we've ever gone before .and to do it within the means available, using the most advanced technologies we have. § *aerospace , *part of *everyday *life *as we approach the end of a millennium, things are very different than when we started it. *aerospace has become an integral part of our everyday lives. *we get our *t*v by satellite; *we get our traffic reports from helicopters; *global positioning systems are in our cars; *we fly across the country or around the world -- to attend a business meeting; *and, *air *force *b-2 pilots flew from *western *missouri to fight in *kosovo and returned the same day. § *a *look *back *but historians will look back and write that only in the final century of the 2nd *millennium *a*d did human beings successfully conquer gravity and take up the business of powered flight. *they may even write that flight itself was the defining act of this century. *but even though we have accomplished so much in the 97 years since *kitty *hawk, one could say that in the context of history, we're only freshmen in the school of aerospace. *in fact, we've only learned to walk when it comes to flying. *and that's where you come in. *as men and women of my generation step out of leadership positions over the next few years, it will be people like you with your energy, talent, passion and ideas who will carry on our heritage of leadership in the 21st *century. § *where *are *we *going *as you and *i look to *aerospace in the *new *millennium, there are three over-arching trends that will have a profound influence on our industry. *first, is the trend toward globalization. *aerospace may lag behind other industries in becoming truly global, but it's coming, and there's no stopping it. *we can no longer simply produce in *america and sell overseas. *global partnerships are required for access to markets, new technology and good ideas. *the second is that we are in the midst of an information revolution. *the incredible advances in the speed and efficiency of information processing are causing great advances in technology, and the rate of that change continues to increase. *the final trend draws from this information revolution, and it is a concept we call *systems of *systems, where individual systems are linked into a collective system. *as *i go through my presentation, you will see the influence of these three trends, again and again. *at this point, *i'll add a disclaimer. *much of what *i'll talk about today will come from the military side of *boeing because that is the business *i'm running today. *but *i'll be highlighting a few space-related projects, and some commercial ones, to give you a sense for the overall picture. *and *i'll be sure to leave time today for your questions. § *dramatic *changes *when we think about the past accomplishments in aerospace, we tend to think of individual aircraft, or platforms airplanes, rockets, or spacecraft and their individual contributions to the objective they were designed to achieve. *but when we look to the future, the picture is dramatically different. *we don't simply see individual aircraft or spacecraft. § *system of *systems *we see a system of systems, which means all of these platforms aircraft, spacecraft, unmanned vehicles and others -- will work together as if they were a single unit. *data from surface, air and space-based sensors will be merged and transmitted throughout an information network to commanders, battlespace managers and weapon systems. § *enabling *technology *and the enabling technology that will make this happen will be the revolutionary use of information. *information networks will allow our systems to analyze a battlefield, identify targets, and attack them with tremendous speed and accuracy to limit civilian damage and keep our forces out of harm's way. *every element in this system must have the ability to process, send and receive information. *as *i mentioned, they will communicate with each other so quickly that all of the elements will work together as if they were a single unit. *without a doubt, the information revolution has spread to our aerospace customer. *access to information and the effective use of information is the battlefield of the future. § *information *revolution *no one has to tell an engineering student at today's leading universities that we are living in the midst of an information revolution. *ten years ago, e-mail was unheard of. *today, it's the communication method of choice for students, office professionals and even aircraft carrier battlegroups. *this system-of-systems approach takes full advantage of this information revolution. *a good example, if we open our mail, comes from the recent hostilities in *kosovo. § *total *systems *approach *b-2s, taking off from *whiteman *air *force *base in *missouri, carried the *joint *direct *attack *munition, which is an unguided bomb that we at *boeing convert into a smart weapon by installing a new steering kit that includes a *global *positioning *system receiver. *by relying on information gathered by other surveillance assets, and by using the *g*p*s satellite constellation, *b-2 crews were able to designate targets and use their *j*d*a*ms to destroy multiple targets in one mission. *and they were able to do this regardless of weather conditions, at night, and from very high altitudes that kept them out of danger. *technology and a total systems approach have been the keys to this very successful program. § *what *will *fly *while integrating platforms within the *system of *systems is critical to the future, new aircraft designs will continue to astound us, in terms of what they will do, and how they will do it. *we will always be reliant on new innovative aircraft and spacecraft -- whether they are spaceships or airplanes, have fixed wings or rotorwing, piloted or unpiloted. *we will continue to design and make them fly faster, higher and farther, perhaps stealthier, and always at the lowest cost possible. *and information-based design and manufacturing tools will help us produce these aircraft of the future. *here's a peek at what some of these platforms will be and do . § *v-22 *osprey *a good starting point is the *v-22 *osprey, an aircraft that can take off like a helicopter and fly like a fixed-wing turboprop airplane. *the *v-22 program will soon bring the benefits of tiltrotor technology to the *u.*s. *marine *corps and international customers. *with engine nacelles that can be rotated for vertical or forward flight, the *v-22 can fly forward in excess of 300 knots, twice the speed of a helicopter, and stop, quite literally, on a dime. *and it will do so carrying troops or trucks, search and rescue teams, medical evacuation crews or anything that would be benefit from the basing flexibility of a helicopter and the range, payload and speed of a turboprop. § *canard *rotor *wing *tomorrow, *canard *rotor/*wing technology will take this concept a step farther. *in this technology, exhaust from the conventional, turbofan engine will be diverted to the rotor or to the aft nozzle, or both, as the aircraft transitions from vertical to forward flight. *this will eliminate the need for a mechanical drive train, transmission and anti-torque system, greatly reducing the complexity of the aircraft, its weight, maintenance and cost. *we are designing and building two demonstration vehicles to assess and validate this technology. *we expect to see applications in both manned and unmanned aircraft. § *x-36 *tail-less *aircraft *like the *canard *rotor/*wing, the *x-36 is another revolutionary design we are pursuing for the future. *the *x-36 is a tail-less aircraft. *with no tail, these aircraft will be lighter, stealthier and cheaper to build than current designs. *together with *n*a*s*a, we designed and built two 28-percent scale, remotely piloted, tail-less aircraft. *we put them through an aggressive flight test program. *the *x-36 uses split ailerons to provide yaw control, and the ailerons raise and lower asymmetrically to provide roll control. *the aircraft has proven to be more agile than current fighter aircraft, and we have generated a database that explores these split-aileron and thrust-vectoring flight-control technologies. *also, like the *canard/*rotor *wing, this technology will be valuable for both manned and unmanned aircraft. *in fact, we are using what we have learned from the *x-36 on an important new opportunity . § *unmanned *combat *air *vehicle ... the *unmanned *combat *air *vehicle technology program. *we're in the process of developing two air vehicles, a mission control station and support systems to demonstrate how ground crews can fly these airplanes into combat from mobile, truck-based units that would be hundreds of miles from the battlefield. *this concept will require robust satellite-relay and line-of-sight communications links, as well as the advanced aircraft design technology from programs like the *x-36. *the *department of *defense envisions employing these aircraft, called *u*c*a*vs, after the year 2010 to work in concert with piloted aircraft. *unmanned aircraft could be valuable on high risk, high priority missions, such as knocking out enemy air defenses ahead of the manned air combat force. § *airborne *laser *the aerospace industry is also responding to the changing threats in our world. *no longer are we faced with a monolithic threat from the likes of the *soviet *union. *rather, we are seeing the threat of ballistic missiles spread to other regions, with unpredictable leaders. *two programs are under way that will provide our nation and others with a blanket of protection against ballistic missile strikes. *the *airborne *laser weapon system will operate at altitudes above the clouds, where it will autonomously detect, acquire and track missiles in boost flight, and then accurately point and fire its laser to destroy the missiles before they can do any harm. *at the heart of this extremely complex system is a chemical oxygen iodine laser. *firing a laser through the atmosphere from a moving aircraft to attack a speeding ballistic missile requires some of the most advanced engineering ever conceived. *for instance, air turbulence distorts lasers, so on-board computers must compensate for distortion as the laser focuses on the target. *the aircraft will have 2 illumination lasers to acquire the target and locate distortion in the air. *the main laser will then adjust to these conditions. *in addition, a beam control system also compensates for the aircraft bouncing in flight. *quite an accomplishment. § *national *missile *defense *the aerospace industry is also responding to the changing threats in our world. *no longer are we faced with a monolithic threat from the likes of the *soviet *union. *rather, we are seeing the threat of ballistic missiles spread to other regions, with unpredictable leaders. *two programs are under way that will provide our nation and others with a blanket of protection against ballistic missile strikes. *the *airborne *laser weapon system will operate at altitudes above the clouds, where it will autonomously detect, acquire and track missiles in boost flight, and then accurately point and fire its laser to destroy the missiles before they can do any harm. *at the heart of this extremely complex system is a chemical oxygen iodine laser. *firing a laser through the atmosphere from a moving aircraft to attack a speeding ballistic missile requires some of the most advanced engineering ever conceived. *for instance, air turbulence distorts lasers, so on-board computers must compensate for distortion as the laser focuses on the target. *the aircraft will have 2 illumination lasers to acquire the target and locate distortion in the air. *the main laser will then adjust to these conditions. *in addition, a beam control system also compensates for the aircraft bouncing in flight. *quite an accomplishment. § *sea *launch *from national security to exploration, the space-based side of the aerospace industry will continue grow in the new century. *one exciting program that we're already working on is *sea *launch. *sea *launch is a launch system that boosts payloads from a converted off-shore oil platform in the middle of the *pacific *ocean. *launching from the ocean allows us to position the launch platform on the equator. *taking off from the equator provides the most direct route to geo-stationary transfer orbit, the orbit for telecommunications satellites. *that means it requires less fuel to place the satellite in orbit compared to other launch sites. *with more fuel efficiency, *sea *launch can place the satellite in higher orbit for longer life, or carry a heavier satellite, with more payload, to orbit. *in addition, launching from the sea platform cuts down on infrastructure costs, and *sea *launch customers are not limited by the availability of the few ground-based launch sites presently available. *sea *launch is a global partnership that includes *boeing and teammates from *russia, *norway and the *ukraine. *it's a great example of how global partnerships and innovative thinking will meet future demands for affordable access to space. § *x-37 *unmanned, *reusable *space *vehicle *the *x-37 is another exciting new space technology development program that will some day lead to the successor to the space shuttle. *the *x-37 is an unmanned, re-usable space vehicle that can be launched into orbit by the space shuttle, or by an expendable rocket. *it will demonstrate 41 airframe, propulsion and operations technologies that are aimed at significantly cutting the cost of getting to space from 10 thousand dollars per pound to one thousand per pound. *the technologies include new highly durable, high temperature protection systems; storable, non-toxic liquid propellants; and new aerodynamic features. *current plans call for it to be carried in the payload bay of the space shuttle. *it will be autonomously operated and will perform a variety of experiments in orbit for up to 21 days before re-entering the atmosphere and landing. *we'll see the first orbital tests in 2002. § *blended *wing *body *in the commercial transport world, we've been making each successive airplane more efficient and cost effective. *but eventually, we will reach our limits with traditional aircraft designs. *to go farther will likely require a revolutionary approach to transport, and we're working on concepts to do that. *for example, here is a concept we're working on that blends the forebody of the aircraft into the wing. *compared to traditional aircraft designs, the *blended *wing *body could have 25 percent lower takeoff weight, 10 percent better aerodynamic efficiency, and require 25 percent lower thrust for transport aircraft carrying between 250 and 500 passengers. § *how *we *will *build *them *these are just some of the advanced aerospace concepts that industry will be working on in the new century. *it's truly exciting stuff. *from an engineer's standpoint, how we design and build them will be equally exciting. *let's face it to a traditionalist in the aerospace industry, some of these things don't look like they can fly. *our ability to bring these new craft to life depends on exciting new processes, new materials and new approaches to doing our business. *and the information revolution is providing the keys to unlocking the potential of these new processes and techniques. *without a doubt, the importance of delivering affordable systems has fundamentally changed the way we do business. § *cutting *development *costs *no longer can we concentrate on aircraft that only go higher, faster, farther, or with more stealth. *we must build them at lower cost. *development programs will soon rely solely on 3-*d modeling, simulation and virtual reality tools like we see here on the *joint *strike *fighter program. *we're cutting design times in half, as we eliminate costly mock-ups, drawings and test hardware. *the two *j*s*f concept demonstrator aircraft we're building in *palmdale, *california, were assembled a hundred times using virtual tools before we actually built them. § *c-17 *composite *horizontal *tail *a critical objective for affordable design and manufacture is larger, unitized structures. *future aircraft will be made of fewer, larger substructures and assemblies. *for example, we have developed a new horizontal tail, made of composite material, for the *c-17. *compared with the old metal tail, the new composite tail has two thousand fewer parts, 42 thousand fewer fasteners, is 500 pounds lighter and costs half as much to produce. *the new tail has been tested and is now part of *c-17s being delivered to the *air *force. § *high *speed *machining *one key manufacturing technology that we have inserted into our processes is high-speed machining. *this process allows us to greatly reduce the number of parts in our aircraft, thereby reducing weight and improving first-time quality. *for instance, the *f/*a-18*e/*f cockpit forward pressure bulkhead is now made of one piece of high-speed machined metal. *on the earlier models of the *f/*a-18, the same bulkhead was made of 90 separate pieces fastened together. *those were 90 pieces that had to be made, fitted, drilled and fastened. *that costs time and money. *in fact, thanks mainly to the benefits of high-speed machining, the *super *hornets we're building today are 25 percent larger than the earlier *hornet models, but have 42 percent fewer parts. § *fiber *placement *unitized structures are also being produced using advanced fiber placement techniques. *by using the power of computer-based design and manufacturing, and innovations in composite material technology, we have developed multiaxis fiber placement machines that allow us to make large, complex structures by laying down layer after layer of composite fiber. *a great example is the inlet ducts for our two *j*s*f concept demonstrator aircraft. *our automatic fiber placement machine allowed us to produce the large, complex-shape inlet duct as a strong, one-piece structure. *and we did it in half the time, at half the cost of using a traditional hand lay-up approach. § *stitched *resin *film *infusion *here is another technique for making large, even more complex composite structures, called stitched resin film infusion, developed with help from *n*a*s*a. *this technique captures the low-cost automated features of an industrial textile machine -- we actually use a type of sewing machine to build up stringers, spars and other substructure elements into a single preform structure. *resin tiles are then placed on the stitched pre-form. *a vacuum is established, and heat and pressure are applied in an autoclave to melt and infuse the resin into the fabric of the preform. *we are using this process to make a 42-foot wing structure under a contract we have with *n*a*s*a. *when completed, it will be the largest composite wing structure in the world. *compared to an aluminum structure, it will have 80 percent fewer fasteners and 60 percent fewer parts. *it will also be 20 to 25 percent lighter and cheaper to produce. § *friction-*stir *welding *as a final example, here is friction-stir welding, which is a new technique that is being inserted to improve current product lines as well as used on new programs. *this technology actually welds by transforming metals from a solid state into a plastic-like state, and then mechanically stirring the materials together. *the solid-state joint is of higher quality, and is 30-50% stronger than if we used traditional gas-metal arc welding. *we are using this technology today on the liquid fuel tanks of *delta launch vehicles, and we are evaluating it for aircraft components as well. *in fact, we have a new five-story friction-stir welding facility and our new *delta plant in *decatur, *alabama. § *joint *strike *fighter *no program brings together the disciplines of new aircraft designs and processes better than the *joint *strike *fighter. *it is the tactical aircraft of the new century, and it could be the last manned tactical fighter aircraft ever built. *boeing and *lockheed are competing for this program, and the winner will get the opportunity to build about 3,000 aircraft. *the challenge of *j*s*f is to design an aircraft that will meet the needs of the *air *force, *navy, *marine *corps and the *british *royal *air *force and *royal *navy. *that means we need to develop a common design that will fly from conventional runways for the *air *force; meet the *navy's requirement for aircraft carrier operations; and conduct short takeoff and vertical landing operations for the *marines and *royal *air *force and *navy. § *x-32*a *j*s*f represents one of the greatest challenges in aerospace. *and we're using the advanced design and manufacturing techniques *i just described to make it happen. *as part of the competition, we're building two *x-planes to demonstrate our concepts and technologies. *we assembled the first, the *x-32*a, six weeks ahead of schedule, in *palmdale, *california. *even though major structures were built thousands of miles apart in places like *st... *louis, *seattle, *tulsa and *palmdale, the pieces fit together perfectly. *it only took six hours to attach its unique, one-piece wing to the fuselage, even though it had 138 attach points. *no shimming was required. *the second aircraft, the *x-32*b, is also ahead of schedule. *because of our information-based tools and processes, we can design anywhere and build anywhere -- and it's right the first time. *j*s*f is a real-life example of where the future of aerospace is headed. § *what to *bring *our *j*s*f team is doing a wonderful job responding to the challenges of the 21st *century. *like them, all of us in aerospace must be ready to respond and perform. *our industry is changing rapidly, and it's operating differently than it did just a few years ago when defense budgets were higher and airlines were regulated. *our people will need different skill sets, more creativity, and the flexibility to tackle a wide range of opportunities with new and innovative approaches. § *creativity and *innovation *of course, we're focused on technological expertise and engineering excellence. *we will always be a technologically driven industry, and our skills must be of first team, all-conference caliber. *but we're also looking for innovation and creativity in ways you might not associate with aerospace. *in the past, aerospace was truly the nation's driver of new technologies, and applications would flow from it down to other industries. *but because of the accelerated rate of change brought on by the information revolution, we are now pulling in technologies and ideas that have been first been used in non-aerospace segments. *for example, we are drawing from commercially developed computer technology to develop open-systems avionics architectures for our current and future military aircraft. *in addition, our fabrication and manufacturing teams have applied rapid prototyping technologies from the ship-building industry and applied it to our aircraft designs to shorten cycle times and lower costs. *creativity and innovation are required to find the best solution for our customer-- whether we find it in commercial practices, or from our own traditional aerospace research and development. § *teamwork *the skills and creativity of individual people, however, is only one ingredient to success in our industry. *real-life, no-kidding teamwork is what separates winners from the rest of the pack. *integrated *product *teams are the way we do business. *we integrate with our customer; we integrate with our industry teammates; we integrate across functions and disciplines. *remember those group projects you hate? *well, get ready. *everything we do is a group project. *this puts communication skills the ability to write and speak effectively -- at a premium. *the same can be said for the ability to work together with others on high performance teams. § *quality *there are other attributes and attitudes that we're fostering in response to a demanding, challenging industry. *we are committed to driving an emphasis on *quality throughout our entire company. *we have a quality policy that states that all employees are responsible for the quality of the work we do; that we use documented processes and procedures; and that we continually strive to improve the quality of everything we do. *we work in a world where *a*l*l of our customers face tough budget pressures, and our revenues come from taxpayer money. *and people's lives depend on the quality of our products. *so we must demand of ourselves to get it right the first time. § *business *results *and we will continue to see a strong focus on business results in the new millennium. *aerospace companies no longer have the luxury of applying new technologies and pushing the envelope of flight without fitting new developments within a structured, comprehensive business plan. *a big part of my job is measured in terms called operating margins, return on net assets and inventory turnover. *as a business, we have several groups that have a stake in what we do: *our shareholders, our customers, our employees, and the communities where we live and work. *we are responsible to each of them. *and the best thing we can do to uphold these responsibilities is to run our business well... to keep our business healthy by growing revenues, improving our productivity and making the most efficient use of our people, plant and equipment. *a healthy business returns value to its stakeholders through better earnings and a higher stock price; high-quality, low-cost goods and services; long-term job stability; and support for community needs. § *financial *objectives *everyone on our team must understand our financial objectives, the measurements we use and the data and tools with which to accomplish our objectives. *our *chief *financial *officer would be the first to tell you that to leave financial objectives strictly in our financial group's hands would be a mistake. *with today's emphasis on affordability, every employee must understand the impact they can have on the cost and value of our products and services...and on our overall financial performance. *and like our commitment to quality, the responsibility for running a healthy business belongs to everybody on the team. § *why *aerospace *well, that's pretty much what *i see in my crystal ball, looking to the new millennium. *i'm sure you're doing the same thing, searching for a glimpse of the paths your careers will take in the years ahead. § *our *heritage *in closing, *i just want to reiterate that we need the best and brightest to carry on the heritage handed to us by pioneers like *bill *boeing and *j.*s. *mc*donnell. *this industry needs you. *the *wright *brothers launched the world's leading technological field at the beginning of the 20th *century, and as the century closes, *i believe we are still the most innovative, captivating and exciting field in the world. § *new *pioneers *and to keep our industry in the forefront of technology and innovation, we will always need new leaders with the vision that will take us to the next planet, meet the newest threat and keep our companies healthy and prosperous. *the challenges we face tomorrow may be different than those faced by those who designed the first airplanes, helicopters and spacecraft. *i don't know what all the challenges will be. *but *i do know that *bill *boeing, *mr. *mac and others have left us a legacy of going toe-to-toe with the obstacles they faced in making machines that fly. *they left us a legacy of hard work, innovative thinking, strong confidence, a tireless attitude, often a dash of humor and personality. § *great *vision *as an institution, *purdue has shown great vision. *and as a collective body, *purdue graduates have carried it forward, to the point where our university is known for engineering and technical excellence around the world. *whether it is the 20 astronauts who call themselves *boilermakers, or the thousands of graduates who haven't flown into space or walked on the moon, we have followed the vision of our teachers and our school to make our own contribution to aerospace. *soon it will be your turn, and your timing couldn't be better. *you will lead us into a second century of aviation, and a new millennium. § *go *boilers! *and to the faculty and staff: *we're counting on you to continue the *purdue vision of research and teaching to enable your students to grow and learn, and become our future leaders. *and mark my words: someday, some of you, during exciting aerospace careers, will be up here giving the *william *e. *boeing *lecture. *and you will understand the pride and excitement that *i am feeling today, looking out at you the future of aerospace. *work hard, have fun it's a great career. *thank you very much, and *go *boilers! § *fb. § *working *together *globally § -- *introduction - *we're particularly excited about this year's event because it is giving us our first opportunity to present *military *aircraft &*missile *systems as a complete business unit within *boeing. *at *farnborough last year, we had just announced the organization of the company you see represented here by *alan, *jim and myself. - *so, *i'm going to take a few minutes to tell you about our business, what's happening in the defense market, and why we feel we're uniquely positioned to compete for the near and long term. § *our *business - *i first want to paint a picture for you of the value *military *aircraft &*missiles is bringing to *the *boeing *company. *our primary objective is to run a business that generates steadily increasing returns and adds greater and greater value to *boeing and its customers. - *today, we contribute $12-13 billion annually to *boeing revenues generated by an extraordinary array of well-managed, high-performing programs. - *nearly all of our programs are generating double-digit pre-tax returns, and we contributed just under $1.3 billion in earnings last year. - *our asset turns are a solid 4.6, which compares favorably with businesses inside and outside the military market. - *our performance to these metrics is what we're using to judge the health of our business. *we've got a focus on growing revenues through sales; improving productivity and margins through lean enterprise initiatives and by streamlining our operations; and, getting our return on net assets up by reducing asset costs and focusing our capital investment in areas that directly support our core competencies. § *business *environment - *within our business environment, things are beginning to look up. - *after well over a decade of steady declines, the *u.*s. defense budget has bottomed out and is moving up. *president *clinton's fiscal year 2000 budget will increase spending a combined total of $112 billion over the next six years. - *we're developing and building several defense products that the *u.*s. government plans to buy in high numbers. *among these are the *c-17, *f/*a-18*e/*f, *v-22, *f-22, and *apache *longbow. *these planned increases in defense spending have us more confident than ever that there will be budget available to buy these products as planned. - *within the *u.*s. market, there is growing opportunity in services and support areas. *in order to free up funds for modernization, the *u.*s. is opening for competition services and support work that has traditionally been performed within the armed forces. *we've structured a business to compete for that work and are doing well in winning it. *i'll talk more about our *aerospace *support segment in a couple of minutes. - *outside the *u.*s. we see the next 10 to 15 years as a fairly robust period for transports, fighters, rotorcraft, and missiles. *in fact, by 2003, we think there's about $10 billion annually in this market. *this will create significant opportunities for several of our new products which have yet to go international *i'm talking about products like the *c-17, *v-22, *f/*a-18*e/*f, and *j*d*a*m. *i'd also include in that mix the *apache *longbow and *harpoon *block *i*i. *international opportunities for aerospace support work also are rising. § *portfolio of products - *to go after these growing markets, we couldn't ask to have a better portfolio of products and services. *we're fortunate to be able to offer our customers a complete set of solutions to their defense needs. - *our fighter aircraft are in all three branches of the *u.*s. armed forces and more than a dozen different nations. *of the seven *u.*s. fighter aircraft in production or development, we're involved in six of them. *it's not just about lineage, but a current capability that can't be matched. - *tactical weapons is a small, but profitable part of our portfolio. *it completes our connection with military customers, allowing us to provide integrated systems that identify and locate targets, and accurately and effectively deliver force when needed. *rapidly increasing in profile for us in this segment is our *j*d*a*m, which *i'll get deeper into in a moment. - *our rotorcraft products start with one of the oldest, but is heavily weighted with three of the newest the *apache *longbow, *v-22 *osprey, and the *comanche. *including the improved variant of the *c*h-47, there's great potential for this business line all around the world. - *airlift and tankers is our team based in *southern *california that recently won the *u.*s. government's most prestigious award for quality the *malcolm *baldrige *award. *this is where we build the *c-17, which continues to exceed all expectations. *it is an exceptional airplane. - *and while we're not building new bombers right now, we have a good business upgrading *b-1s, *b-2s, and even *b-52s. *current *u.*s. *air *force plans have work on a new bomber beginning in 2013. *we expect to be there to compete when that happens. - *finally, we used to jokingly refer to *aerospace *support as the place where you'd find the cats and dogs of our business where we provide support and services to our customers. *not any more. *those cats and dogs have become a growing business that provides between 20 and 25 percent of our 13 billion dollars in revenue. *within *aerospace *support are a series of business lines that include: maintenance, modifications and upgrades; training and systems; logistic support services, avionics upgrades and more. § *product *life *cycle - *showing you our product segments really doesn't give you the whole picture. *what we've represented on this chart is an attribute to our business that keeps us very encouraged about the future. - *if you look at how our programs are positioned within their life cycles, you get a very positive picture. *we have a healthy balance of programs in all stages of their life cycles from future concepts, to emerging development programs, to growing production programs, mature production programs, and programs in their later years. - *this is a picture that says while we're healthy today, we've also got the right stuff in the pipeline to ensure our future in this business for the next 15 to 30 years. § *super *hornet - *i'd like to quickly touch on a few specific, current accomplishments that are taking shape almost as we speak and that we'll be talking about throughout the week. *the first of which is the *super *hornet. - *last month, the *super *hornet successfully completed its 31/2-year development flight testing program, which included more than 3,000 flights, 4,600 flight hours, and 15,000 test points. - *this airplane does what we and the *navy said it would for the price we said it would, on the schedule we said it would, when we started seven years ago. - *the airplane has entered operational evaluation in the *california desert, on cost, on schedule, and underweight. *o*p*e*v*a*l concludes this fall. - *we've done so well on this program that the *u.*s. *congress has voiced unanimous support so far for a multi-year contract for the next 222 airplanes for the *u.*s. *navy. *only one of the four defense committees has yet to rule on the proposal, but we're optimistic that a multi-year contract for the *super *hornet will happen this year. - *finally, like the original *hornet before it, we see meaningful export opportunities for the *e/*f. *while the aircraft isn't licensed yet for global sales, we believe that once we successfully complete *o*p*e*v*a*l, this process will begin moving forward. § *joint *strike *fighter - *a few years ago, it was generally accepted within the industry that the cost of future fighters was spiraling out of control; that every subsequent system would cost more. *j*s*f is breaking that paradigm. - *winning the *joint *strike *fighter is our top company priority. *no other defense program on the horizon is as big or as important to industry as *j*s*f. - *the *boeing team, which includes an impressive array of *european partners, is performing extremely well. *we're leveraging lessons learned from other successful programs throughout *boeing and infusing lots of new ideas to bring this program together like nothing we've ever seen before. - *our cost and schedule performance on our concept demonstrators is excellent, and our preferred weapon system concept is an outstanding technical solution. - *the photo we're showing here is the wing mating of the first of our two concept demonstrators that took place just recently. *both of these airplanes are coming together beautifully, with significantly less time and manpower than we originally forecasted. § *aerospace *support - *earlier *i talked about our focus on growing revenues, *aerospace *support is where we expect a lot of that growth to come from. - *we used to be in services and support as a favor to our customers. *a couple of years ago, we recognized the potential and committed to running it like a business. - *today, we have a backlog of firm contracts plus options of $14 billion. *our annual revenues are over $3 billion, and we expect to more than double that over the next 8 to 10 years. *and the returns are solid double-digit earnings. - *over the past 12 months alone, we've won eight key contracts worth more than $4 billion, including $1.5 billion over nine years for the *air *force's *k*c-10 contractor logistics support; $650 million over five years for the *navy's *t-45; and a $500 million, nine-year deal to provide depot maintenance for the *air *force's fleet of *k*c-135 tankers. - *in *august of last year, we opened a large aircraft *aerospace *support *center in *san *antonio, *texas, at the former *kelly *air *force *base. *we opened it on the strength of *c-17 support work and some cargo conversion work we could do for *commercial *airplanes. *that enabled us to compete for and win even more work. *and as you can see from this photo, we're operating at full capacity in *san *antonio with *k*c-135s, *k*c-10s, *m*d-10s, and *c-17s. - *as governments worldwide see the benefits of partnering with industry in these areas, the market will expand steadily. § *c-17 - *there are two major stories on *boeing products that are being highlighted out of *kosovo one is the *c-17, the other is *j*d*a*m. - *with its ability to go where others cannot, the *c-17 has done the bulk of the heavy lifting for *n*a*t*o on military and humanitarian missions in the region. - *operating 24 hours a day, about two dozen *c-17s have flown more than 800 of the 1,400 airlift missions flown by the *u.*s. *air *mobility *command in *europe. *the remaining 600 missions have been split among *c-5s, *c-141s, *c-130s, and commercial aircraft. *c-17 reliability is running at greater than 96 percent. - *we've delivered 38 consecutive *c-17s ahead of schedule, and we've been driving down the cost of the *c-17 with productivity and lean manufacturing initiatives. *under the current multi-year contract, a *c-17 costs about $198 million, compared to the *air *force's $249 million should-cost a few years ago. *and we've offered the *u.*s. government 60 more at $149 million, which is 15 percent lower than the last airplane under the current multi-year. - *we believe *u.*s. procurement of at least 180 *c-17s is likely, and we're confident that the aircraft's price and unique performance characteristics will help push open the door to export opportunities in several regions of the world. - *the shot you see here is a *c-17 arriving at *tirana, *albania, after flying relief supplies in from *ramstein *air *base in *germany. *no other large transports are able to make use of this airfield due to its small size and remote location. *it has just one runway and virtually no parking apron. *because it can taxi in reverse and execute pinpoint turns, *n*a*t*o officials have credited the *c-17 with being able to maintain a continuous flow of supplies through this airport. § *j*d*a*m - *in addition to the *c-17, the other system that *n*a*t*o forces couldn't seem to get enough of was *j*d*a*m. - *the commander of *u.*s. *air *forces *europe, *general *john *jumper, recently paid a visit to our employees who build the *j*d*a*m, to thank them for doing such a great job with the *j*d*a*m program. *and for rising to the challenge to accelerate production once *n*a*t*o found out how good it is. - *j*d*a*m is our revolutionary system that turns your average free-fall gravity bomb into a near precision munitions for a small price in defense terms about $18,000. *it is accurate within less than 10 meters, which means little, if any, collateral damage. *according to the *air *force, two *b-2s flying from the *united *states were dropping 32 *j*d*a*ms 16 a piece on a daily basis in support of *operation *allied *force with exceptional accuracy. - *j*d*a*m is licensed for export to more than 19 different countries, with more to follow. *because of its cost and capability advantages, we expect substantial interest. § *phantom *works - *i'd be remiss this morning if *i didn't talk for a few minutes about our *boeing *phantom *works. *as a *boeing corporate senior vice president, *i also oversee this valuable company resource. - *phantom *works is where we're both developing our future with products like the unmanned combat air vehicle, the *x-37 experimental reusable space vehicle, and advanced transport concepts like the blended wing body and applying technologies to make us better at what we're doing today. *it stretches across all three business units and is making significant contributions to each of us. - *as an incubator for new manufacturing processes and technologies, it allows us to migrate better ways of doing things to programs within our business units saving money and improving the quality and capability of our products. - *one example is an all-composite horizontal tail that is being introduced on the *c-17. *this new tail has 90 percent fewer parts, 80 percent fewer fasteners, is 20 percent lighter, and requires 70 percent less tooling to build. *we expect at least a 50 percent reduction in unit cost for the horizontal tail and a 25 percent reduction in production cycle time. - *phantom *works manufacturing concepts and technologies are also being used with great success on our *j*s*f concept demonstrators. - *phantom *works is a key ingredient to the future success of all three *boeing business units. § *fb. § *acquisition *reform: *it's *time *to *act § *thanks for that introduction, *general *skibbie, and thank you for all the work you and your organization have put into this very important event. *good morning everyone. *as your industry co-chair, and along with your *navy's co-chair *eileen *roberson, our role during these two days is to help ensure an open, honest and thorough discussion of the key issues affecting the *u.*s. *navy and the industrial base that supports it. *we have a wonderful opportunity here with such a great array of participants. *and it's an opportunity that we truly need to take advantage of. *we need to ask the tough questions and work our way through to the best answers. *we owe it to ourselves, to our *navy and *marine *corps teammates, and to the *american taxpayers. *most of my professional life has been spent on the aerospace side of the defense business. *but *i've been around enough to know that the shipbuilders, electronics companies, support contractors, and all the others who make up our industry share many of the same issues and concerns. *and while there are unique aspects to each of our business sectors, we are far more alike than we are different, and we share a common customer in the *u.*s. *navy. *it's critical to fully understand this common ground if we are to achieve the true *revolution in *business *affairs that we all believe is necessary to sustain our industry for the future. *much progress has been made since the first of these conferences, which was hosted by *john *douglass in *norfolk in 1994. *the reins were passed to *vice *admiral *john *lockard and now onto the *honorable *lee *buchanan. *like his predecessors, *mr. *buchanan is totally committed to having the *navy and the nation reap the benefits of acquisition reform. *and he is equally committed to a continuing and frank dialogue between the *department of the *navy and its industrial teammates. *acquisition reform should no longer be simply a goal that we pursue on individual projects or programs. *it must become standard business practice. *we have passed the point where we can afford to *just talk* about process or potential for improvements. *given the fiscal and management challenges faced by both government and industry, it's now time to act. *there is no alternative . . . no more time to delay. *admiral *steidle put it well in a recent news article when he said, quote: *we face a significant challenge. *our resources continue to decline while fleet requirements for high-performance systems and shorter cycle times are demanding as ever. *there isn't a single, neat answer to this challenge. *across the team, we're taking positive steps to improve fleet support and reduce cost. *i'd like to emphasize the last portion of that statement: *improve fleet support and reduce cost. *isn't that the bottom line? *we often try to find more complicated ways to say it, but those are words that everyone can understand. *by all accounts, the *navy has responded well to these challenges. *in fact, *n*a*v*a*i*r was honored this year by *aviation *week for its *acquisition *streamlining efforts. *as always, though, the true measure of our success is whether we and here *i mean all of us involved in the acquisition process can deliver goods and services to the warfighter faster, better and cheaper. *i say to the *navy, on behalf of your industry team, we understand the need . . . + to reduce cycle time, + to provide unquestionable quality, + and to make our products more affordable. *not only is it important to your success, but it is also important to ours. *for if we cannot achieve these objectives, we cannot remain competitive in today's global marketplace. *during the next two days, there will be four panel discussions. *each has been designed to respond to the issues that industry has identified as areas of concern or interest. *three of the panels will include industry representatives that span the *navy industrial base. *these panels will address contracting reforms, industry-government partnering, and competitive sourcing and privatization. *the fourth panel, the *system *commanders *corner, will take on issues which fall into other topic areas identified by industry. *for all intents and purposes, *we* have set this agenda. *so let's each of us take an active, participatory role. *jump in and help advance the discussion wherever you can. *listen and learn. *our success over the next couple of days will depend upon how well each of us gets into the fray. *thank you and enjoy the conference. § *fb. § 10th *annual *international *integrated *program *management *conference § *good morning. *it's a pleasure to be here today to help lead a discussion of a favorite topic of mine, *earned *value *management. *before *i start, however, *i want to congratulate our hosts on the 10th anniversary of this important forum. *to say that our industry has changed a lot over the past ten years is an understatement. *we've moved from near the peak of the defense build-up to the hollows of the post-*cold *war era. *and we've absorbed all the change that came with this incredible shift. *the ideas and information exchanged at this forum have helped our industry manage its way through that change. *for this contribution, we thank you. *and we encourage you to help us deal with the change that is still to come. *with that, let me get started. *i noticed that the agenda this morning is jam-packed, so *i'll do everything *i can to hold the schedule performance index (*s*p*i) for my remarks to a 1.0 or better. *those of you who are familiar with my background know what *i mean when *i say that without *earned *value *management (*e*v*m), *i probably wouldn't be here today. *it has been that important to my career and to my company's performance through this decade. *i have found no single management tool to be more useful, more effective, or more important to successful program management. *so unless there are any objections, that's what *i'd like to talk about this morning . . . our experience with *earned *value, the lessons we've learned, and some thoughts about where we need to focus *e*v*m for the future. *i'd like you to turn your clocks back for me to the beginning of the decade. *the early nineties was a very difficult time for us at what was then *mc*donnell *douglas. *we were struggling to overcome a series of business mis-steps. *we were not performing well financially, and our government customer didn't think much of our program management capabilities. *a big part of that negative perception came from the government-industry experience on the *a-12 program. *without dwelling on the details, suffice it to say that the *a-12 program taught all of us industry and government alike lots of lessons . . . and some very hard lessons about program management. *but in the silver lining of this dark cloud, we discovered the need for, and the value of, *e*v*m. *as we geared up to start the *f/*a-18*e/*f program with the *navy in 1991, some very frank discussions took place between our customer and us. *the *navy, too, had suffered a series of program management setbacks and was feeling the heat from *congress and *do*d. *it was imperative to get it right" this time around. *the future of naval aviation was riding on the *f/*a-18*e/*f. *so, too, was our credibility as a supplier to the *u.*s. government. *while we had always run our business with a dedicated program management organization, we had not developed a common set of management processes and tools to be used across our programs. *therefore, as you might expect, different program managers applied different program management approaches to their programs. *the result . . . a lot of inconsistency in our programs' performance. *it was then that we made a commitment to ourselves and the government to manage all our programs with the same basic set of tools, and a common overall program management system. *working with the government's cost / schedule control system experts, people like *wayne *abba and *gary *crystal, we embraced *earned *value as the cornerstone of our program management tool kit. *this tool kit, by the way, also included processes for systems engineering, integrated schedules, disciplined configuration management, proactive supplier management, risk management, and how to ask for help when you needed it. *we established processes and systems to provide weekly cost performance index (*c*p*i) and schedule performance index (*s*p*i). *these assessments would give managers as early an indication as possible that things were not going as they had planned. *we provided this information in user friendly formats directly to the manager's desktop and to our customer's desktop by 0600 every *wednesday morning through our management information system. *the implication of this was that individuals and teams would be making decisions based on data that was several days old; not weeks old. *finally, we organized ourselves around integrated product teams that included our customers and our supplier-partners. *and we established for those teams clear lines of responsibility, authority, and accountability for the work they were doing. *the results speak for themselves. *we flew the *f/*a-18*e/*f on cost, a month early, and under weight. *today, more than six years after we established the original baselines for cost, schedule, and technical performance, the 4.88 billion dollar *f/*a-18*e/*f development program is 96 percent complete and remains on schedule, on cost, and under weight. *no adjustments. *no asterisks. *no footnotes. *no kidding. *the industry-government team that made it happen deserves every accolade they have received and will continue to receive as we move toward full rate production of this outstanding aircraft. *e*v*m is now one of a handful of our company-wide program management best practices. *i require that it be used on all our programs, and we've established a small group of experts who help our program managers understand, tailor, and apply *e*v*m on their programs. *these experts also certify the design and implementation of these tailored systems. *i'm very proud to report that we have *e*v*m in place and working on our *joint *strike *fighter, *c-17, *f-15, *v-22, *f-22, *f/*a-18 *c/*d, *f/*a-18*e/*f, *a*v-8*b, *t-45, *s*l*a*m *e*r, *comanche, *brimstone, and *j*d*a*m . . . *we have even migrated *earned *value to the commercial side of our business. *in 1996, as head of *douglas *commercial *aircraft, *i insisted *e*v*m be tailored for application on the development of the *m*d-95 passenger jet, now called the *boeing 717. *this program was similar in nature to the *e/*f a major upgrade to a proven product, the *d*c-9 and it possessed similar risk levels. *it was the perfect commercial candidate for applying an *earned *value *management mentality. *today, with more than 38 test flights recorded on the first test airplane, *e*v*m on the 717 is proving its worth and its adaptability outside the military environment. *a *few *observations *that's a quick run-down of my history with *earned *value. *as you can tell, *i'm a true believer. *it is a process that works. *when properly applied, it will become central to decision-making on your programs. *while it is just one of the tools of the modern program manager, it provides information that is critical to all program decision-making processes. *as a company, we are committed to using some measure of *e*v*m on all of our programs. *whether it's a large development program like the *joint *strike *fighter, or a small production program like *j*d*a*m, *e*v*m can be tailored to provide a cost-effective, high-value tool for program management. *a couple of other observations about *e*v*m . . . *e*v*m is a mindset that requires a cultural change. *like any cultural change, it will not take root without the full support of senior management. *senior management must establish the vision for *earned *value, take ownership of it, demonstrate their commitment to it, and put their personal time and energy into ensuring it gets achieved. *in not so many words, if you want cultural change, management must lead that change. *the *e*v*m cultural change is no exception. *another friendly reminder . . . *e*v*m measures performance against a baseline plan, and alerts you to deviations from that plan. *for its output to be credible, the plan must be credible and well thought out. *this is the part of *e*v*m that is so difficult. *detail planning is a key underlying principle, and management must instill the discipline in the organization to make it happen. *a *tip of the *hat *i've made several references this morning to the role of government in the continued development of *e*v*m. *with *c/*s*c*s, the government had an established system for monitoring program performance. *in allowing us to redefine *e*v*m, the government stepped back and recognized the contractors' desires to make *c/*s*c*s a genuine management tool rather than just a contractual reporting requirement. *we applaud this action wholeheartedly. *we are now working with the government in a joint *i*p*t environment to provide insight into our performance, versus oversight of our activities. *and we are sharing the rewards through healthy programs like the *f/*a-18*e/*f that come in on time, on budget, and do what they're supposed to do. *the *next *steps *so, where do we go from here? *is there more we can do with *e*v*m? *the answer *i would offer is a resounding *y*e*s! *i believe we have barely scratched the surface of the value *e*v*m can bring to programs, businesses, and industries. *this is where your homework assignment comes in. *i would like to challenge this group to do three things with *e*v*m: *institutionalize it ... modernize it ... and globalize it. *institutionalizing *e*v*m *if you are applying *e*v*m only when you are contractually required, you are missing a golden opportunity. *in an increasingly market-driven environment, where our customers want more product for less money, we're all striving to get faster, better, and cheaper. *e*v*m will help you get there. *all programs come with some inherent risk. *there is nothing to keep you from applying *e*v*m on every program. *with a little creative thinking you can tailor an approach to meet any program structure or purpose. *firm fixed price contracts, independent research contracts, even overhead projects are candidates for *e*v*m application. *all it takes is a willingness to drive the initial cultural change and the discipline to stick with it when the old guard resists. *once *e*v*m is in place, and your program managers see what it can do for them, they will draw to it like moths to a flame. *institutionalizing *e*v*m doesn't cost. *it pays, and it pays big. *it will boost your bottom line, increase customer confidence and satisfaction, and give *uncle *sam more defense for every dollar he has to spend. *as a company officer *i insist on the use of *e*v*m at *boeing. *as a taxpayer, *i ask you to consider installing it unilaterally across your companies. *modernizing *e*v*m *as the practitioners and overseers of *earned *value, it is up to all of us gathered here to find ways to continually modernize it and make it even better. *we must work to reduce the administrative cost of the system . . . to infuse new electronic technologies and processes . . . to make it transparent to the people doing the work, and integrate it seamlessly with other management tools. *in fact, we should be investigating ways to integrate all our management tools into a single system. *for example, if a technical performance measurement (*t*p*m) deteriorates, have it automatically feed the risk management plan, which updates the estimate at complete, which will drive resource requirements, which will alter the staffing plans that feed into *human *resources. *e*v*m modernization must also pursue cost effective ways to bring our supplier communities into the system. *with up to 75 percent of the value of our products coming from outside suppliers of all sizes, it only makes sense for them to have access to the benefits available through *e*v*m. *globalizing *e*v*m *the ongoing globalization of our industry has expanded our relationships with international suppliers and partners all around the world. *the international attendance this morning attests to that fact. *the proliferation of these relationships makes it more and more desirable to create a multinational standard for measuring program performance. *e*v*m could easily become that standard. *it is nearly universal today. *there's no language barrier in an *s*p*i or a *c*p*i. *and the infusion of international best practices will, ultimately, further improve the *e*v*m system for use at home and abroad. *in closing, *i will leave you with one final thought: *having spent the last decade of my career redefining, applying and managing with *earned *value, *i believe it is time for all of us to lead the transition away from *e*v*m as a defense program management system, to *e*v*m as a mainstream industry best practice. *our experience with *e*v*m has demonstrated its readiness for universal application and its flexibility to support projects of all sizes and all risk levels. *through that experience, we have the evidence to support an answer to the first question a private sector business always asks: will *e*v*m improve my bottom line? *that answer is *absolutely*. *an investment in *e*v*m provides a broad range of returns that comes from consistent performance. *you will see your products and your financial results improve. *and whether you operate in the public sector or the private sector, a record of good performance leads to greater investor and customer confidence, and more opportunities for growth and winning future business. *and that's what business is all about. *thank you, and *i'm more than happy to take any questions you might have. § *fb. § *the *future of *aerospace *defense *manufacturing: *collaboration or *competition § *it's a great privilege for me to have been invited to speak at this renowned forum. *and *i'm delighted to once again share the stage with my good friend and colleague *john *weston. *recently, at the *n*a*t*o *workshop in *vienna, *john and *i participated in a similar discussion before an audience of key *n*a*t*o staff and officials from member states. *today, we're on *john's home turf. *and soon *i hope to catch him speaking in the *states. *not because it would offer me some kind of advantage in oratory, but because the issues of globalization, international collaboration and the restructuring of the world's aerospace industry are so vital to all of our futures. *we need to exchange ideas on these subjects as often as possible and with as many audiences as possible. *the more we build understanding, and the more we foster open communication and cooperation, the healthier our industry will become. * * * *as we see it at *boeing, the future for aerospace defense manufacturing does not come down to a simple choice between collaboration or competition. *the winners in the global aerospace race will not be determined by those who choose to team and partner versus those who choose to compete alone. *instead, in the next century the winners will be determined by which companies choose to both collaborate and compete. + *the *u.*s. is a world leader in technology. *but we do not have it all. *without collaboration, we will not have access to all the technology we need for our products to maintain their world lead. + *the *u.*s. is the largest market in the world for defense products. *but it is no longer possible for *u.*s. companies to rely on the domestic market alone. *we need other markets if we are going to prosper. + *the *u.*s. also provides a highly competitive environment. *but we need international competition to keep us sharp so that we continue to produce the systems that our customers *want* and our nations *need* to protect their peoples, their values and their freedom. *i suggest to you that these are the new rules of engagement. *and we believe that companies which execute the best global strategies under these new rules will be the companies that win. *so, to us at *boeing, collaboration and competition are not mutually exclusive. *indeed, if our industry is to grow, and we are to provide jobs for our employees, dividends for our shareholders, and better value to our customers, then these are mutually dependent. *why have things changed? *because *our world*, and more specifically *our industry*, is fundamentally different. *today the aerospace industry bears little resemblance to what it has been throughout most of the first hundred years of powered flight. *no longer is it fueled by the entrepreneurial achievements of men with names like *douglas, *mc*donnell, de*haviland, *northrop, *mitchell, or *boeing. *nor is it fueled by the high levels of spending necessary to support hot and cold wars. *no . . it is the relentless drive toward greater efficiency . . . lower costs . . . higher quality . . . and products that give our customers more "bang" for every defense "buck" that has become the power that drives our industry today. *for aerospace companies around the world to play and win under these conditions, it is critically important that they have the freedom to choose when to collaborate . . . with whom to collaborate . . . and, of course, when to compete by themselves. *this freedom allows the marketplace to guide our decisions on partnering and competing. *it also allows customers to decide which company -- or team of companies -- provides the best value solutions. *no restrictions should be imposed on our ability to find the best solutions for our customers. *no limitations should be set on our customers to prevent them from freely selecting the systems and services that best meet their needs. *at *boeing, we began to recognize the importance of international collaboration in the business strategies we evolved in the early 1980s. *to gain greater access to world markets and to better meet the needs of global customers, we have been expanding our international collaboration every year. *we have put our money where our mouth is in many countries, including here in the *u*k. *for more than 30 years, *u.*k. companies and customers have teamed with us in significant partnerships that exceed simple buyer-supplier transactions. *this transatlantic relationship has been so successful, in fact, that *boeing is now the largest export customer in the world for *u.*k aerospace products. *larger, even, than any nation buying aerospace products from the *u.*k. *let me repeat that in slightly different terms because it is an excellent example of international collaboration and surprises most people when we tell them about it. *boeing is *britain's biggest export customer for aerospace products. *bigger than any single nation. *that means that if *the *boeing *company were a nation it would be the top nation for *british aerospace exports. *no nation buys more of *britain's aerospace products than *the *boeing *company buys. *we are proud of that. *and *i think we have every right to be. *we get superb products from our *british partners. *our relationship is good for you and it's good for us. *here are the numbers which, *i suspect, will also come as a surprise to many of you. + *in 1997, *boeing purchased 1.5 billion pounds worth of high technology aerospace systems, assemblies and components from the *u.*k. + *we purchased these goods and services from more than 225 *u.*k. companies. *companies like: *g*e*c *marconi, *shorts *brothers, *smiths *industries, *lucas *aerospace, *messier-*dowty, and, of course, *british *aerospace. + *these purchases supported more than 70,000 *u.*k. jobs. *that's 1.5 billion pounds in 1997 alone, supporting more than 225 companies, and securing 70,000 jobs here in the *u.*k. *i said earlier that we believe in both collaboration and competition: *so let me be a little competitive for a moment. *all of you know that *british *airways recently decided to buy some airliners from our competitors. *we are disappointed, of course. *however, it's a free market, and that's their choice. *i read in the local newspapers that this purchase will secure 38,000 jobs in the *u.*k. *as *i said, today *the *boeing *company secures - and will continue to secure in the future -- 70,000 jobs annually in the *u*k. *so when *britain buys from *boeing it is looking after its own national interest just as well or better than when it buys from other -- including other *european -- manufacturers. *now lets get back to collaboration. *beyond the facts and figures is a highly creditable history of true partnership. + *together, we teamed with *british *aerospace to design and deliver the second generation of *harrier *v/*s*t*o*l aircraft and the *u.*s. *navy's *t-45 *goshawk trainer, a derivative of the *u.*k. *hawk. *both of these programs were trend-setting examples of transatlantic teamwork that continue to support the industries and armed forces on both sides of the *atlantic. + *similarly, the *u.*k. armed forces and *u.*k. companies have participated in developments on the *harpoon anti-ship missile. *today, each and every launch canister and capsule for the *harpoon is built by *lucas here in the *u.*k. *while these collaborative success stories reach back decades, we are even more excited about new and dramatic initiatives that will carry the *boeing-*u.*k. industrial partnership well into the next century. *these advances in industrial cooperation are unconventional for *boeing, but they typify our new strategy and the next generation of international collaboration. *the *w*a*h-64 attack helicopter for the *british *army is a prime example of this new wave of collaboration. *g*k*n *westland is the prime contractor on the program; we are a subcontractor. *we will produce kits at our production facility in *mesa, *arizona, and *westland will perform final assembly, program management and other traditional prime contractor roles. *the *u.*k. variant of this fearsome attack helicopter is being called the *westland *apache. *when this arrangement was announced, many people wondered why *boeing would cede its role as prime contractor on a variant of a product it originally designed and still produces. *the reason is that we understand the value of industrial cooperation. *it helps create new opportunities in today's global business environment. *another case in point is the contract we signed last month with *westland for aircrew and maintenance training on the *u.*k. *apache. *in an innovative approach, we formed a joint venture company with *westland, which holds a 30-year contract to provide these training services. *the joint venture uses commercial financing here in the *u.*k under the *public/*private *partnership program to cover the initial investment in equipment, infrastructure and personnel. *for the *u.*k. government, our *u.*k. partners, and the *boeing *company, this is great business for all of us. *the contract has a potential value of one billion dollars, and the work will be performed in *yeovil. *again, it's an outstanding example of how teamwork and innovative collaboration are allowing us to expand with the global marketplace. *our efforts in the *u.*k. are indicative of the strategies we have put in place around the world to compete in the next century. *we know that becoming truly global means much more than being a big *american company that sells its goods and services overseas. *it means immersing ourselves in the cultures of the countries where we want to do business. *we must listen closely to our customers' concerns and requirements; and act as a good citizen, and a good partner, in a global industry. *our strategies span the entire spectrum of industrial participation and collaboration -- from strategic investments, to technology transfer, to export growth and development. *for example: + *through a joint venture with *c*s*a *czech *airlines, we now own more than one-third of the *czech aircraft manufacturer *aero *vodochody. *this investment directly links us to a *european partner capable of producing high-quality, low-cost products. *and it gives us insight into the *czech culture and *czech markets for future business opportunities. + *in *finland, training and technology made available through our industrial participation program helped turn *tumo *oy, a small enterprise producer of metal parts, into an *i*s*o 9000 certified company that is competing successfully for work on major aerospace programs. + *in *switzerland, our industrial collaboration efforts are broad and deep, with more than 300 industrial projects established in 24 of its 26 cantons. + *in both *finland and *switzerland, where local companies assemble *f-18s, we are ahead of schedule with our industrial commitments. *and we are certain that both countries will realize economic benefits greater than the acquisition cost of the aircraft. *looking toward the future, we find the *joint *strike *fighter . . . a program with the potential to become the first true global fighter aircraft. *it may, in fact, be the most important fighter program in history. *international collaboration is already a key aspect of the *j*s*f program. *the *boeing team currently includes *rolls-*royce, *g*e*c-*marconi, *flight *refueling and *messier-*dowty in the *u.*k.; *fokker and *philips in the *netherlands; and others in *europe. *stay tuned, because *i believe we'll be hearing even more about the international nature of the *joint *strike *fighter as the program continues to develop. *the examples *i've listed this morning illustrate the benefits of collaboration to customers, countries, and companies. *they help explain why collaboration will shape our future so significantly. *which leads me to this, to genuinely understand the global aerospace market of the future is to understand one key truth: *none of us here today can succeed and thrive by going it alone. *no one country . . . no single industrial enterprise has all the know-how, all the resources, or all the answers. *whether its aircraft, missiles or any other defense system, it will be an industrial team that's out on the edge, developing and producing the needed equipment. *and it will be done within unbelievably difficult cost constraints. *it's tough and demanding work -- on both the technical and management sides of the equation. *and as *i see it, this work, to be done right, requires the best of everyone in the international aerospace industrial base. *if you recall my earlier premise . . . *our future calls for collaboration *a*n*d competition. *becoming a truly global industry does not mean that competition is somehow going to go away. *in fact, competition will remain strong and tough, as it should. *it seems to come naturally to each of us, making all of us in the industry better -- finding ways to advance technology, to lower costs, to improve program performance, and to deliver all that to our armed forces. *collaboration, on the other hand, does not come as easily. *creating teams and building bridges across cultures takes conscious effort, commitment, trust and even courage from companies and the governments that oversee their activities. *while collaboration may make us more dependent upon one another, it will also unleash the creativity and innovation that once was provided by the aerospace entrepreneurs of the first half of the twentieth century. *i'd like to leave you with one thought today as we look forward to spending time together at *farnborough '98 -- the last *farnborough of the 1900s: *from our perspective, it is abundantly clear that when we "think global" and "act global," our customers get the highest quality, produced by the most skilled teams -- wherever those teams may be -- and they get it at the most affordable price. *this reality is not new to industries outside of our own. *in fact, in a lot of ways, our industry is playing "catch up" in the march toward true globalization and worldwide industrial collaboration. *one only needs to look at the recently announced intentions of *chrysler and *daimler, and *british *petroleum and *amoco, to see the direction in which our industry must head. *while barriers to arrangements like these may exist for our industry today, ultimately they will fall like the wall that separated *east from *west and was well named '*the *iron *curtain' by one of *britain's greatest men. *churchill was one of the world's great internationalists. *his vision was lofty and courageous. *if we are all ready to be internationalists in our approach, the second century of aerospace is guaranteed to be as dynamic, challenging, and rewarding as the first. *thank you. § *fb. § *farnborough *press *conference § *thanks, *phil. *and good morning, everyone. *for those of you who may have missed our second-quarter earnings last week, it was an exceptional report. *first, we kept our promises on performance and had a truly outstanding quarter. *second, we revised upward our guidance on some key aspects of our forecast for the remainder of this year and next year. *to hit a few highlights .our operating earnings for the quarter were up over 16 percent from last year. *operating margins were up a full point from last year from 5.2 percent to 6.2 percent - a big step in the direction of our target for consistent double-digit profits from operations. § *cash flow was exceptionally strong due to our rapid recovery in commercial airplane deliveries and advance payments on strong new orders. *and earnings per share were up by nearly 34 percent when adjusted for non-recurring items. § *all in all, it was a great quarter for *boeing and evidence that our focus "on running healthy core businesses" is solidly on track. *we expect to achieve the stretch goal we established last year of maintaining our 2000 earnings per share around the same level as 1999 -- despite a planned $8 billion reduction in revenue. § *on top of our outstanding results for the quarter, our outlook for the future is even better. *as a result of external market factors and internal performance improvements, we've: § + *revised our revenue guidance for 2000, up by a billion dollars. + *increased our cash flow guidance for 2000 from $2.5 billion to between $3 billion and $4 billion. + *boosted our revenue projections for 2001 by $2 billion due to growing strength in the commercial airplane market. *in fact, we expect to deliver 5 to 10 percent more commercial aircraft in 2001 than in 2000, which we've said has an expected delivery total of about 490 planes. *looking further out, with commercial airplane demand appearing stable, we anticipate deliveries in 2002 to look similar to 2001. *to summarize when you look at the substantial improvements we're seeing in our operating performance, plus the strong demand for our current product and service offerings, plus the new frontiers we're entering, you have to conclude that this is a very different *boeing - better in many, many ways - than the one that came to *farnborough in '98 or *paris in '99. *we know what we need to do to keep our business healthy for the long haul, and we're executing our plan for doing it. *that's it, *phil. § *address to *shareholders § *it is great to be back in *st. *louis and to see so many familiar faces. § *i have vivid memories of the annual meeting that was held in this same room a year ago . . . and that was, of course, the last annual meeting of *mc*donnell *douglas as an independent company. § *speaking then as the chief executive of *mc*donnell *douglas, *i told you how much *i liked the idea of the merger that would make our company a part of *the *boeing *company. *today, speaking as *president of *the *boeing *company, *i am here to tell you: **i still like it*. *i like it more than ever. § *in the bringing together of heritage *rockwell, heritage *mc*donnell *douglas and heritage *boeing, *i believe we have created an awesome force. *if you look at us and compare us with other aerospace companies, you see an unparalleled array of strengths and capabilities. § *we have the markets . . . we have the products . . . and we have the talents . . . to be a great company. § *the possibilities for synergy within our different aerospace businesses are almost unlimited. *we learn things every day in defense work that can make us stronger in our commercial aircraft business. . . and in defense contracting we are seeing a major push for adoption of commercial practices and commercially developed technologies. *we also have major assets and a wealth of knowledge in space products that can and will strengthen our ability to serve both commercial and military customers. § *who, if anyone, is going to stop us? *certainly, it won't be *airbus . . . *it won't be *lockheed *martin -- with or without *northrop *grumman . . . *and it won't be *raytheon. § *the biggest threat to our future success is a failure to execute inside. *delivering airplanes on time . . . that's what it's all about. *that and driving costs out of our system so we make good returns on the money that all of you have invested in this company. *that is what we are concentrating on right now. *we are working the cost side hard -- across all of our businesses. § *we have changed our compensation policies in order to align the interests of the top 2,000 executives in our company directly with you -- the *boeing shareholders. *we have done that by making long-term incentive payments conditional upon at least a 10 percent compounded annual increase in shareholder value over the next five year period. § *phil *condit has pointed the way, and we are going to move the company in that direction. § *let me leave you with one thought. *it is the same thing *i told a group of financial analysts in *california last week: *don't bet against *the *boeing *company. *it's a bad bet. § *fb. § *flower *power and *fire *power: *new *directions in *defense *technology § *these are exciting times for anyone who cares about innovation and technology. *it will be my pleasure to provide an industry perspective on the new frontiers of knowledge and know-how in the defense and aerospace community. *i will begin with a set of paired elements that may strike you as a little odd at first. § *orchids . . . and ordnance. § *gene guns . . . and machine guns. § *flower power . . . and fire power. § *those are some of the associations that came to me as *i was watching a recent television show about the cultivation and propagation of orchids. *in the defense industry, we make sea-skimming missiles and we use all kinds of names like the "*phantom *works" and the "*skunk *works." *if there is any other industry that is any more exotic and specialized than ours, it is probably the breeding of orchids. § *orchids occupy a place on the evolutionary ladder in the plant world that is comparable to human beings or dolphins in the animal kingdom. *they grow from the smallest of seeds into the most sought-after of flowers. *in their various forms or genera, they are the ultimate expression of uniqueness. § *in recent years, the introduction of new technology has changed the orchid business almost beyond recognition. *technological innovations have combined genetic engineering with space-age environmental control systems. *as a result, you can now buy an orchid for thirty or forty dollars that would have cost several thousand dollars a few years ago. *and you don't have to know the grower in order to buy it. *you can pick up a world-class orchid at *home *depot or your local supermarket. § *technology has speeded up cycle times in the reproduction of orchids and it has led to quantum jumps in quality and predictability. *let me put that another way. *in the orchid business, we see a great demonstration of *f*a*s*t*e*r, *b*e*t*t*e*r, *c*h*e*a*p*e*r. § *the question for us is: *can we use technology to similar effect in our field? § *can we use technology to shorten the development cycle and speed production? *can we use it to simplify and commercialize procurement? *can we use it to modify and improve existing platforms or systems? *most of all, can we use technology to project power or to fight wars in new and different ways that conserve both human and economic resources? § *given the accelerating pace of scientific and technological progress in today's world, the answer to each of those questions must be a resounding *yes. *i will cite some examples of great things that are already happening. § *before doing so, however, *i would draw your attention to one way in which the *u.*s. military-industrial complex - as *eisenhower called it - differs from the horticultural society. § *with the introduction of new technology and new distribution channels, commercial growers of orchids and other plants know that they have one choice: change, or die. § *the *u.*s. defense community has another option, which is to put off change, or to procrastinate. *to my mind, that means forfeiting responsibility and tacitly agreeing to pay a huge future price . . . to be levied in some future year over the next decade or so. *i do not even like to contemplate the deadly consequences that await us . . . if we can't force ourselves to act with the same energy and passion as people in other businesses and professions that are in the throes of change. *and this is because . . . believe it or not . . . we are in the throes of change. § *the problem here is the perception - and, to a degree, the fact - of overwhelming *u.*s. defense supremacy. *there is no other nation on earth that comes close to matching our military strength. *you have to go back to the *roman *empire to find a comparable situation. *success - especially overwhelming, seemingly complete success - is the deadly enemy of innovation and vigilance. § *however, the perception of *u.*s. defense supremacy is one part fact and one part illusion. *the part that is fact is our ability to overwhelm any single adversary in the world of nations. *the part that is illusion (and it is a very dangerous illusion) is the notion that the security of our country is no longer at risk. § *we face a growing multiplicity of threats. *this includes the spread of weapons of mass destruction and the proliferation of a new class of longer-range ballistic missiles. *general *lyles has pointed out a new "axis of cooperation" among hostile or potentially hostile nations including *north *korea, *iran and *pakistan - with the further support of certain *russian entities. § *beyond that, there are the threats posed by terrorist groups or individuals, with growing access to high-grade but low-cost weapons . . . and with cheap and instant communication and information systems that permit the forces of evil as well as the forces for good to operate on a global basis. § *already, our forces are being stretched thin by the multiple roles that the *u.*s. is playing as an all-purpose *superman in a dangerous and unstable world. *in 1999 alone, the *air *force was tasked to provide earthquake relief in *turkey and *taiwan, hurricane relief in *central *america, lifeline support to displaced people in *albania, along with drug enforcement assistance in various parts of the world - and all of this was in addition to carrying out major military operations in *kosovo. § *the high tempo of operations around the world is taking a toll. *exit surveys show it is the leading cause for the exodus of married personnel with families. *for the first time, the *air *force is using paid advertising to stimulate recruitment . . . to make up for lower-than-desired retention rates for enlisted personnel. § *clearly, it behooves us to find new ways of leveraging technology - both to meet a growing array of future threats and to ease the real and present strain on our warfighters in the field. § *we do have some good success stories to talk about. *unmanned *aerial *vehicles have done a superb job of providing surveillance in *kosovo and *bosnia. *now we need to go to the next step - and *boeing is working on this right now - of designing and building *unmanned *combat *air *vehicles, or *u*c*a*vs, that will do actual warfighting in the suppression of enemy radars and other missions. § *will the introduction of *u*c*a*vs present any kind of threat to traditionalists in the fighter pilot community? *well, of course it will. *innovation, by definition, is a destabilizing force. *that's why we will need real leaders in the *air *force to champion the use of *u*c*a*vs in performing certain missions that have hitherto required putting highly skilled people in very expensive aircraft directly into harm's way. *part of the role of leaders is to motivate people to think and act differently. § *no doubt, at some time in the future, we will see remotely piloted vehicles dispatched from a mother ship that attack and destroy manned aircraft in aerial combat. *we need to make sure that we are on the winning side of new technologies. § *i, for one, am in favor of anything that will bring greater urgency and velocity to the search for new products, or upgrades of existing ones, that are truly innovative. *we can find some clues on how to act by studying the history of innovation. *here are some lessons learned. § *first, the impulse to create or innovate can be encouraged, or discouraged. *to some extent, we can institutionalize or systematize innovation by encouraging bright people to work together in teams with a real diversity of talent. § *that is exactly what *edison did with his laboratory in *menlo *park, *new *jersey - the world's first great *r&*d facility, dedicated . . . and *i quote . . . "to the rapid and cheap development of invention." *as innovative products have always done, products from this laboratory often displayed a profound grasp of many things that were already known, combined with a willingness to strike out in new directions. § *the phonograph, for instance, drew on past work on telegraphs, telephones and electric motors. *in six years, the invention factory at *menlo *park secured more than 400 patents. *the *u.*s. *patent *office eagerly awaited packages that were wrapped in a certain type of red tape - because that meant a package from *menlo *park. *if you talk about "cutting red tape" to get something done in hurry, that is where the expression comes from. § *second, nothing stimulates innovation more than the rapid exchange of information, knowledge and ideas. *faster transmission begets greater discovery. § *we see this today in the area of e-commerce. *amazon.com may constitute the greatest innovation in the distribution of the written word since *gutenberg's printing press. *just think of how easy *amazon.com has made it to buy a book. *without leaving your own home, you browse around on their web site, look up reviews and critiques, and then "click" - you make a purchase with no waiting in line and no need to pull out a credit card! § *just think of how far *amazon has gone in reducing transaction costs and how it has shortened the connection between the buyer and the seller of a book, eliminating all kinds of middle men or distributors who added little in the way of value! § *third, and last, there must be clear financial incentives for successful innovations. *in the well-turned phrase of *abraham *lincoln, it is necessary to add "the fuel of interest to the fire of genius." *clearly, there has been no lack of financial incentives adding fuel to the fire for high-tech companies in the commercial world. *but frankly, there is still a dearth of attractive and compelling financial incentives in defense procurement, despite many positive developments initiated by *dr. *gansler and others. § *in a recent front-page article, the *wall *street *journal drew attention to the fact that many of the companies that are leading *information *revolution have turned their backs on military *r&*d and defense contracting due to poor profit margins and excessive red tape. *according to the *journal, three-quarters of country's top 75 or so information-technology companies won't do research for the military. *intel is one of several leading chip-makers that have quit the business of supplying *m*i*l-qualified components to the military market. *that is something that should shock every one of us in this room. § *to our credit, we have succeeded in institutionalizing innovation in parts of the defense industry. *it goes without saying that the *lockheed "*skunk *works" is known around the world as a great center for innovation - the creator of such products as the *blackbird, the *u-2, and the *f-117. § *the *boeing "*phantom *works" is less well known, but *i can assure you that it is having a huge impact on our whole business. *the *phantom *works captured the *x-37 and the *u*c*a*v programs and it has played a key role for us in the *joint *strike *fighter program. *it has been responsible for shorting production cycle times and lowering costs in existing programs like the *c-17 and the *delta *i*i launch vehicle. *more than just a laboratory for invention, the *phantom *works acts an agent for change and a champion for innovation throughout *the *boeing *company. § *like others in the industry, we are using the *internet, or the company *intranet, in conjunction with other technologies, to do some remarkable things. *our *joint *strike *fighter team, for example, operates as a virtual company - pulling together people and resources in *seattle, *st. *louis, *tulsa, and the final assembly site in *palmdale, outside of *los *angeles. § *we have put together the major assembly pieces with lasers, which were fully integrated into the three-dimensional engineering database. *we assembled the first *x-32, which will fly later this year, in just over 52 weeks with 58 people. *in just six hours, we attached its one-piece composite wing to the fuselage. § *the result: *the *x-32 is costing 75% less than our original estimates, and there are about 80% fewer defects in the first *x-32 than in the equivalent build of the *y*f-22. *that's pretty amazing when you consider the *y*f-22 is flying but not yet operational, while the *x-32 concept demonstrator will soon be going into flight test. § *everywhere you look, businesses are opening up e-commerce portals. *i think that what we have just done in the defense and aerospace community is a great example of an industry coming together to make things better for everybody. *just a few weeks ago, a group of the leading companies - *boeing, *lockheed, *raytheon and *british *aerospace - joined together in announcing the creation of an *internet trading exchange. *based on the *commerce *one *market*site *portal *solution, and powered by *microsoft software, this exchange will create a secure, electronic marketplace where buyers and sellers around the world can conduct business. § *the system will be totally open. *anybody can join in. *and the implications are huge. *the global market for commercial and military aerospace products totals more than $400 billion, and - due to the critical nature of maintaining fleets of airplanes that are always ready to go - our airline and military customers maintain some of the most massive inventories in the world. § *with this new electronic exchange, our customers - and that certainly includes the *air *force - will be able to substantially reduce inventories without sacrificing readiness. *you will be able to move from *just-*in-*case to *just-*in-*time in the stocking of many parts. § *an airline that is missing a wheel for an airplane will be able to find and get one quickly - most likely from another airline. *we expect our customers will be trading with each other. *they will certainly find a much broader, deeper . . . and more responsive . . . supplier base. *this can only lead to massive savings in transactions costs that will benefit just about everyone. § *the combination of new technology and massive networking capability is also the key to all of the major developments in space-based defense and communications systems. § *let me say a word here about the *national *missile *defense program. *in the first test last year, we proved, in effect, that we could hit a bullet with a bullet in deep space. *we did that by launching a missile that was successful in intercepting and destroying a dummy warhead from an intercontinental ballistic missile. *it did this at an altitude of 260 miles above the *pacific *ocean. § *now, after a failure on the second test, we have to prove it again. *to my mind - and *i hope to all of yours - this program is a critical element in safeguarding our future security against the growing threat of long-range missile attack by rogue nations. § *working together, industry and the services have made real progress in streamlining and commercializing defense acquisition. *i hope *general *lyles will forgive me if *i repeat one of his own jokes. *as *i heard it told: *not too long ago, if you had looked into the *air *force dictionary for the word "commercial," you would have found a single definition - "a sixty-second pause that will allow you to get a beer during a football game." *there is a much different view of commercialization in the *air *force today, even if we are still a long way short of the kind of "civilian / military integration" that many of us desire. § *acquisition reform has meant major reductions in paperwork and oversight, along with a growing sense of partnership between industry and the services. *we see that every day across a variety of programs. *and certainly, the *evolved *expendable *launch *vehicle program represents an outstanding example of harmonizing military and commercial requirements. § *in closing, *i will return to some of questions that were posed at the outset: *can we use technology to shorten development cycles, speed production, reduce costs, and improve existing platforms? *can we use technology to ensure our warfighters will have all the resources they need to respond swiftly and accurately to a growing multiplicity of threats? § *absolutely. *we have the technology that will permit us to do all of those of those things. *technology can be the enabler. § *but we - meaning everyone who shares my view of the growing risks to national security - must be the doers. *the need for greater urgency and velocity in upgrading, improving and rethinking defense systems is not readily apparent to everyone . . . not within government, not within the services, and not within industry. *nor is the need here strongly apparent to most of our fellow citizens. *it is up to each of us . . . therefore . . . to act as a leader in motivating others to think and act differently. § *in doing so, you may even want to exercise some gentle persuasion . . . with $30 gift from *home *depot that shows the connection between flower power and firepower in using technology to transform the given world. § *fb. § § *technology in a *networked *world § *dean *kirkpatrick asked me to talk to you about the future of technology, with particular reference to aerospace. *now that's pretty big topic. *i am going to make it even broader - but *i hope more manageable - by introducing two other elements. *a working title for these remarks could be, "*the *networking *effect . . . *the *future of *technology . . . and *you." *let's begin by acknowledging just how limited our vision is when we try to look into the future. *one can take a trend - such as the growing importance of bandwidth - and make some projections about where it will take us in the future. *but there will always be twists and turns in the road, and we are quite simply incapable of seeing around the next corner. *when *steve *jobs introduced the first home computer, no one foresaw *amazon or *priceline or any of the other *internet businesses. § *if you are a student between the ages of 18 and 25, there are many things you take for granted . . . that none of us from the *dark *ages a generation or two before you could have begun to imagine. *it's not just laptop computers, e-commerce, and the *internet. *it's transistor radios, handheld calculators, faxes, pagers, cordless phone, cellular phones, supermarket scanners, microwave ovens, *c*ds, videocassettes, videogames, and much else besides. § *when *i was studying for my undergraduate degree in physics, we prided ourselves on being able to produce precise and lightning-fast calculations with this instrument. *it's called a slide rule. § *now that may cause some of you to laugh. *but here is one prediction that *i can make with absolute confidence: *it won't be too long before many of you are laughing at the antiquated methods and technologies that you used to employ when you were still in school. *the *palm *pilots or *d*v*ds of today may be the slide rules of tomorrow. § *in its *january 2000 issue, *discover magazine notes that about 80 percent of all the scientific discoveries ever made occurred in the last 100 years. *what's more, as the magazine goes on to predict, the 21st century will far exceed the 20th in terms of scientific and technological progress. *simply put, the advancement of knowledge is accelerating. § *why is this? *are people any smarter today than they were 100, 200 or even 5,000 years ago? *are they innately more creative? *any biologist would tell you that is not the case. § *the big difference, almost certainly, is in the transmission of useful information, knowledge and insight. *this is happening at a faster and faster pace; and it is becoming less and less costly in the bargain. *faster transmission begets greater discovery. § *you can see the effect of this most clearly in the development of agriculture. *beginning about 10,000 years ago, our ancestors began to improve their harvests and animal stocks by systematically restricting mating to organisms that displayed desirable characteristics. *in other words, they successfully selected food grains and domestic animals by directing evolutionary forces toward useful ends. § *there were no newspaper headlines or technical papers heralding the first plantings of wheat or the domestication of the dog and the earliest cattle. *in fact, the most important early developments in agriculture predate the development of written language. *with no trade in ideas through the written word and with little trade in a physical sense, there was no mechanism for transmitting knowledge. *what was invented in one place had to be reinvented somewhere else . . . again and again. *it was not until *roman times that farmers were issued any kind of detailed written instructions on best practices for cultivation and animal husbandry. § *today we have much faster and more precise methods of modifying life. *scientists use a so-called "gene gun" to transfer specific traits between species - even if the organisms are as far apart biologically as a fish and a plant. *the large-scale use of genetically modified field crops began in this country in 1996. *only three years later, one third of the *u.*s. corn crop and almost half of the soybean crop were genetically modified, with large improvements in productivity through reduced requirements for chemicals and tillage. *if there were a time machine to bring him here, *i think that hard-working *sumerian farmer of 5,000 *b.*c. would be favorably impressed!!! § *the explosion of knowledge within the whole field of biotechnology is based upon the intellectual foundation provided by *darwin, *mendel, *frick and others. *but it is also very much driven by bioinfomatics - which is to say, the development and operation of massive databases and other computing tools to collect, organize, interpret and disseminate data. *indeed, it is impossible to even contemplate the *human *genome *project - which will decipher the entire human genetic code - without the extensive use of bioinfomatics. *all around the world, scientists and technicians are both drawing from and contributing to a growing base of knowledge about the human genome. *it is a fantastically collaborative process. § *this brings me to the so-called "networking effect," which states that the value of networked products will rise quickly with the number of people using them. *in other words, the bigger the network, the better it is, in most cases, for just about every one. *take e-mail. *if only a couple of your friends and associates are using e-mail, there is little incentive for you to join it. *but if virtually everyone you know is using it, then it quickly becomes an essential tool for you too . . . and you may be expected to promote it with your own parents, grandparents and other stragglers within your extended family or workplace. § *like our counterparts in other fields, we in aerospace are using web-based networks to lower costs, improve communication, stimulate innovation, and deliver greater value to our customers. § *just over a month ago, a group of aerospace firms - including *boeing, *lockheed, *raytheon and *british *aerospace - announced the creation of an independent enterprise that will develop an *internet trading exchange for the global aerospace and defense industry. *based on the *commerce *one *market*site *portal *solution, and powered by *microsoft, this exchange will create a secure, electronic marketplace where buyers and sellers around the world can conduct business. § *we expect this open business-to-business exchange to lower transaction costs by as much as a third, in some cases. *the global market for commercial and military aerospace products and services totals more than $400 billion, so the potential savings are huge. § *at the same time, we expect the exchange to stimulate new thinking and innovation. *let's say your company wants to investigate everything there is to know about a new laser application. *now you can solicit a response from anyone and everyone . . . across both academia and the commercial and military worlds. *think of the flood of ideas that will suddenly be displayed for you. § *technology is an enabler. *it is the means to an end - not the end itself. *the great inventors have seldom been the solitary geniuses of popular myth. *they have always been great borrowers and adapters. *where breakthroughs have occurred, it has often been because of their ability to combine a profound grasp of what is already known . . . with a willingness to think and act differently. § "*what we call innovative ideas are never completely novel," *thomas *ward and *ronald *finke at the *creative *cognition *group at *texas *a&*m *university have written. "*they are always a marriage of new and old. *to fathom creativity, we have to examine not just how new ideas break with the past, but how they carry it forward." § *thomas *edison, to take one example, was not the first to think of using electricity to heat an element to the point of glowing. *sir *humphry *davy had demonstrated that as early as 1808. *however, in inventing the incandescent light bulb in 1879, *edison took the idea a crucial step forward. *he did it within a vacuum . . . to prevent the element from burning up. § *in fulfilling man's age-old dream of controlled flight, the *wright brothers also borrowed from the past while breaking free of the conventional wisdom in crucial ways. *one of them was in visualizing the aircraft as an inherently unstable and yet eminently controllable mechanism - like the bicycles they worked on in their own shop. *a bicycle is unstable in both roll and yaw. *they further visualized the way a bird flies - and they warped the wings of their aircraft as one of the keys to achieving lateral control. § *how does all this apply to our own businesses . . . and to our own careers . . . in the present environment? § *first, we must make the most of what we have been given. *in today's world, we have been given almost free and instant access to great amounts of information and knowledge . . . and the ability to communicate with others . . . anywhere and everywhere . . . all over the world. *we fail to use this gift at our own peril - because it has been given to everyone. § *second, we must be willing to change, and to take risks. *we must recognize the likelihood . . . or, indeed, the inevitability . . . of declining security in traditional businesses, skills and professions. § *third, we cannot stop learning at any point in our lives and careers. *thinking differently is no longer the exclusive province of the *tom *edisons. *it is something we all must do in the business of running our own careers. *the most dangerous rut in today's economy is mental or intellectual stagnation. *regardless of where you are, if you continue to learn . . . and grow . . . new opportunities and options will open up in front of you. *they may not be in the job that you begin with. *they may not be in the company you begin with. *but they will be there. § *let me say a bit more about networking. *networking has changed the way that we do business at *boeing. § *a couple of years ago, we said we would "design anywhere, build anywhere" in order to create the greatest value for the customer. *you can see how that has come to fruition in the *joint *strike *fighter program. § *technology has been a true enabler in permitting us to do all kinds of things differently in building this next-generation concept demonstrator. *our *joint *strike *fighter team operates as a virtual company - pulling together people in *seattle, *st. *louis, *tulsa, and the final assembly site in *palmdale, outside of *los *angeles. *we have put the major assembly pieces together with lasers, which were fully integrated into the three-dimensional engineering database. *we assembled the first *x-32, which will fly later this year, in just over 52 weeks with 58 people. *in just six hours, we attached its unique, one-piece composite wing to the fuselage. *the result: the *x-32 is costing 75% less than our original estimates, and there are about 80% fewer defects in the first *x-32 than in the equivalent build of the *y*f-22. § *the combination of technology and networking is also the key to almost everything we are doing in space-based information and communications and space-based defense system. *all of our efforts in this area require fantastic teamwork in bringing together people from different places and different disciplines in the integration of complex systems. *how difficult do you think it is to hit a bullet with a bullet - and to do it at an altitude of 260 miles over the *pacific *ocean? *that is essentially what we did in a major test in the *national *missile *defense program when we destroyed a dummy warhead from an intercontinental ballistic missile with a test interceptor missile. § *we see a huge future in what we are calling global / mobile communications. *the idea is simple. *almost any moving platform - airplanes, cars, trucks, trains, ships or tractors - can benefit from valuable information, insight or guidance relayed from space. *for instance, we see a whole new market opening up in providing broadband service at cellular rates for commercial airline travelers. *if you are flying across the country, you will be able to send and receive e-mails, use the *world *wide *web or your company's *intranet, watch live news and sports, or tune in to a movie of your choice. § *let's return to the subject of agriculture. *this is another area where global / mobile communications can lead to another major leap in productivity. *right now we are working on a program called *resource21 in which we may partner with others in setting up a *g*p*s-based system that would enable farmers to be extraordinarily precise and economical in the application of fertilizers, chemicals and other inputs. *this would provide an on-line link between space-based sensors and the operator of a farm vehicle that is going across a field. *in effect, it would tell the operator to apply a little more here, a little less ten feet from here, and so on. § *for most of our history, we at the *boeing *company have thought of ourselves as a builder of airplanes, space vehicles, satellites, missiles and other hardware. *today we are endeavoring to be a provider of integrated products and services to all of our customers . . . and we are also looking for whole new avenues of growth in newly emerging markets that are much different than anything we have encountered before. § *this has forced us to think of ourselves in new ways. *it will test us in new ways. *certainly, it will test our capacity to relate to new customers and to forge new alliances and networks. § *but that is a challenge that each of you will face as you go along in your own career. *it is nothing to be afraid of. § *i began with a title that was intended to pique your curiosity - "*the *networking *effect . . . the *future of *technology . . . and *you." § *in closing, *i would urge you to think of networking not just in bits and bytes per second, but in the most personal of ways. § *no man - as *john *dunne said - is an island. *each of us is dependent upon others. *it is well not just to accept that but to act upon it in a positive way. *as you go from one stage of your career to the next, always try to reinforce and enlarge your inner circle of friends, mentors and teachers. *this is not an easy task. *it demands personal growth and a willingness to explore new territory. *you won't find many new recruits to your inner circle if you are content with the status quo; if you are content with your current level of knowledge or expertise; or if you fail to develop your skills as a listener and a communicator. § *on the other hand, if you can succeed in building a growing and robust personal network through a variety of assignments, you should have no problem in making your way in a fast-changing and increasingly interconnected world. § *fb. § *the *c-17 *delivers § *to deliver means to "liberate" or to "set free." § *this is the third major *c-17 delivery ceremony, and every one has been a "liberating" experience. § *the first *c-17 was delivered to *charleston *air *force *base on *june 14, 1993. *at this time, the *c-17 program was in deep trouble -- behind schedule, over cost and under scorching attack in the news media and *congress. *getting the first plane delivered was cause for celebration -- and relief. § *it was a much different situation when we delivered the first *c-17 to the *training *center at *altus *air *force *base, *oklahoma, on *march 23, 1996. § *in less than three years, the *c-17 had done an amazing 180 degree turn -- winning aviation's highest award, the *collier *trophy, and becoming firmly established as the nation's airlifter of the future. § *since then, the good news has become even better. *last year we -- and *i am speaking of the "new" *boeing formed from the merger with *mc*donnell *douglas -- won the *malcolm *baldrige *award for excellence in manufacturing in recognition of continuing improvement in quality and cost in *c-17 procurement. § *truly, this program has been delivered -- or "set free" -- from a troubled past and an uncertain future. *this is still a young program for us, one with all kinds of untapped potential -- for winning new orders both at home and abroad. § *but our focus today is not on us, but on you, the *u.*s. *air *force, *air *mobility *command, *air *force *reserve *command, and, especially, the 4th and 15th *air *forces. § *this bird is ready to fly . . . and *i know that you in the 62nd *airlift *wing . . . and the 446th reserve *airlift *wing . . . are eager to fly her. § *this marks a bright new day for *mc*chord. § *half the world -- or more -- is your oyster. § *what better place than this to act as staging area for the *pacific region??? *you have the *u.*s. *army next door at *fort *lewis; you have ready access to other forms of transport by sea, land and rail; and you have *boeing headquarters just up the road, with a sizable contingent of our people right here on the base, providing day-to-day technical assistance and logistical support for your *c-17s . . . and training for your crews. § *most of all, you have the trust that you have earned in a wide range of difficult and challenging missions flying *c-141's. *the recent flight to airdrop critical supplies at the *south *pole is a perfect example. *all of us living in this area were proud to watch and listen as that mission progressed. § *as someone who has always regarded trust as the key to success in any relationship that stands the test of time, *i would like to quote a few lines from the writer, *c. *s. *lewis. § "*you never know how much you can really believe anything," *lewis wrote, "until its truth or falsehood becomes a matter of life or death to you. *it is easy to say you believe a rope to be strong and sound as long as you are merely using it to cord a box. *but suppose you had to hang by that rope over a precipice. *wouldn't you discover how much you really trusted it. *it's the same with people." § *that is one of the continuing lessons of military procurement and operations. § *when *i joined *mc*donnell *douglas, the *c-17 program was indeed hanging over a precipice. *yet the company and the *air *force agreed to drastic changes, keyed not to increased oversight, but to the very opposite -- with new leaders both inside the company and in the *procurement *office who were absolutely serious about trusting each other and working together as team. § *that was the beginning of a great relationship. § *when you find that you can trust someone to deliver the goods, it is a truly liberating experience. *it sets everyone free to do his or her job in the best possible way. § *here at *mc*chord you are being entrusted with a great mission. *our people in the flexible sustainment contract are excited about being a part of that mission. *they also want to be able to say, "*depend on us -- count on me." *there is no doubt in my mind that together we will do a superb job. § *fb. § *getting *it *right: *defense *acquisition for the 21st *century § "*acquisition reform" -- as we all know -- is a journey, not a destination. § *it has been discussed, and debated, for decades . . . and indeed centuries. § *the bill of particulars drawn up by warfighters against their suppliers usually contains some, or all, of the following complaints: § -- *the weapons you are giving us are too old; § -- *they are too expensive; § -- *they are too difficult to operate and maintain; § -- *and we can't get enough of them. § . . . and *oh, one more thing . . . § -- *the food's terrible!!! § *if you look at defense procurement through the lens of folklore and history, it brings certain aspects of the picture into sharp focus. *as *i see it, many of the complaints in the relations between warfighters and war suppliers may be traced to a lack of understanding, communication and trust. *a major defect in any of those areas makes it easy to overlook or disregard a problem until it is too late. § *consider the well-known story of *achilles and *vulcan. *vulcan is the master arms builder with a workshop on *mount *etna. *lame, halt and enamored with his own artistry, *vulcan is the exact antithesis of the warriors he serves. *with his depiction of *vulcan, *homer lets us know that the arms makers were not the most popular people in town. § *vulcan fashions a magnificent suit of armor for *achilles -- and this is significant only as a classic example of a gold-plated defense that proves useless in the field. *the mighty *achilles -- as you all know -- is felled by an arrow that strikes him in the heel. § *but if *vulcan fails, so too does the procurement officer in this story. *the mother of *achilles dipped him in the *river *styx when he was baby, making him completely invulnerable . . . except for the heel by which she held him. *surely, she, of all people, should have recognized this weakness in ordering the suit of protective armor!!! § *let us turn now to a shining hour in the annals of procurement -- the performance of the *u.*s. economy during *world *war *i*i. *never before, or since, has a nation's economy been so actively and heroically engaged in the support of its warfighters and those of all of its principal allies. § *our economy underwent the largest, most rapid and sustained expansion ever witnessed to support the war effort. *between 1941 and 1944, *u.*s. factories raised their output of planes and ships more than tenfold. *what's more, the ships, planes and other weapons produced at the end of the war were vastly superior to earlier models in quality and performance. § *the harnessing of *u.*s. productive capacity in *world *war *i*i was an amazingly inclusive and cooperative enterprise. *there was no disconnect between the people making the weapons, the people buying them and the people using them. *in a metaphorical sense (and often a literal one), *rosie the *riveter was married to *g*i *joe. *and both were happy to be working for *uncle *sam. § *what can we do to re-create more of that spirit in the radically different circumstances of today? *is there . . . any way . . . to do it, given that fact that our country is more or less at peace (despite a continuing stream of low-intensity conflicts and peace-making operations) . . . and given a defense procurement budget that has shrunk by 70% over the past decade and a half? § *and as long as we are asking difficult questions, let me add two more to the mix. *how are we to come to grips with the growing multiplicity of threats caused by the spread of technology? *and what are we going to do to ensure that there is no fundamental disagreement between the changing needs of the warfighter and the focal points of our procurement system? § *obviously, there are no easy answers to these questions. *that is all the more reason for addressing them. § *as *dr. *gansler (*jacques *s. *gansler, *u.*s. *under *secretary of *defense for *acquisition and *technology) has observed, we are moving toward a future where "massed forces will be replaced by massed firepower, precisely placed on targets." *this constitutes a "*revolution in *military *affairs" -- to quote the *under *secretary. *to bring it about, while guaranteeing the supremacy of our forces, he has called for a tandem "*revolution in *business *affairs" within the defense procurement system. § *as president of a company that addresses both the commercial and the military markets with a wide array of aerospace products and services, *i am in full and enthusiastic agreement with *dr. *gansler on the need for change. § *as *i see it, there are three critical success factors to bringing about a *revolution in *business *affairs in the procurement system that will deliver real value to our warfighters in the field. *they are: § -- *cooperation. § -- *competition. § -- and *commercialization. § *in some ways, we are seeing more genuine cooperation . . . more true creative partnering . . . between industry and the services today . . . than ever before in the history of *u.*s. procurement. § *this is most striking in the design and development of new programs, such as the all-important *joint *strike *fighter. *we have made winning the *j*s*f competition the top priority of *the *boeing *company today. *without crossing the line into becoming our employees, some fine engineers from different services have joined us as members of our *j*s*f team; just as others have joined *lockheed *martin on their *j*s*f team. *these engineers, with their intimate knowledge of the requirements of their services, are very much part of the team in making decisions that go into how we define and configure the aircraft. § *this kind of cooperation represents a giant step forward because the design-and-development phase is absolutely the best time to reduce cost and improve performance. *it is very hard to change most of the cost in building an advanced weapon system once the design is finalized. *and, as the story of *achilles reminds us, you may not have the ability to go back and correct an oversight before real damage is done. § *cooperation -- in this case -- has clearly enhanced competition. *boeing and *lockheed *martin have produced distinctly different concept demonstration aircraft -- not two look-alike vehicles. *this tell us that competition is working as it should . . . in promoting innovation and experimentation, as well as efficiency and cost reduction. § *this brings me to commercialization. *this is a big word with several possible meanings. *some people might suppose that the word was invented to describe the extraordinary debut of the latest "*star *wars" movie. *maybe the critics don't like it, but "*star *wars" certainly shows the power . . . or perhaps *i should say the force . . . of *hollywood's brand of commercial practices. § *for our purposes, commercialization means getting the most bang for the procurement buck. *in a word -- *value. § *this is partly a matter of making the procurement system more inclusive . . . casting a wider net for commercially-produced products, particularly at the subsystems and component level. *but it is also a matter of organizational effectiveness -- or *best *practices. § *heaven forbid that anyone think that the corporate world has a monopoly on *best *practices. *better, faster, smarter ways of doing things are just as likely to get started in the military world as they are in the large corporate world. § *to cite one example, *i think *do*d's *earned *value *management *system is terrific. *we have used it to great effect in the *c-17, the *f/*a-18 and other military programs. *now we are thinking of adapting this concept for use in our commercial airplane business. *earned *value *management provides front-line supervisors with the information they need to stay on top of cost and schedule commitments. § *commercial practices seek to create marketplace-like disciplines and behavior in the absence of a naturally-occurring market. *as a general rule, commercial practices are at the opposite end of the spectrum from the most exacting forms of government contracting and oversight. *commercial practices accentuate flexibility and trust, while contractual arrangements -- taken to the extreme -- act as a straitjacket in restraining the behavior of someone who is presumed to be dishonest, incompetent, or both. § *i applaud the emphasis that the *under *secretary has put on giving more weight to past performance as a selection criterion. *this gives us the incentive to do an even better job today so we can get more work tomorrow. *and it allows us to extend this same incentive to all of our suppliers and subcontractors. § *part of acting in a commercial or business-like way is seeking to resolve conflicts in the fastest and least costly manner. *no one (except a lawyer) builds a business on law suits. *and litigation is not how you build armies either. § *i am very proud of the excellent work that our contracting officers at *boeing and their counterparts in the *air *force have done in making use of the *alternative *dispute *resolution process contained in *lightning *bolt 99-4. *working together, they have disposed of some long-running disputes . . . and done so to the satisfaction of both sides. § *along the same lines, *i promise you will never see the day when *harry *stonecipher lodges a protest against a contract award that goes the other way. *while it is important to learn from defeat, it is even more important to get on with what you are doing . . . most especially, to get on with the task of finding new ways of satisfying the customer. § *as a practical matter, *i don't think we will ever reach a point where defense procurement no longer involves "defense contracting." *it is hard to imagine any other way of fixing primary responsibility for the design and production of a major defense systems. § *nevertheless -- even at the prime-contractor level -- there is enormous potential for moving much further in the direction of commercial practices. *we at *the *boeing *company are striving to think and act as "one company." *but that is difficult to do when government regulations require us to adopt accounting and reporting practices for our military businesses that are far different and much more burdensome than those we use in our commercial businesses. § *one upshot of this is that we keep military and commercial in separate facilities, even though there would be considerable economies of scale to be gained from combining them. *we would love to end the separation between military and commercial. *and many of our commercial suppliers would love to follow our lead in that regard. *but for many of them -- even more than for us -- more progress in streamlining the acquisition process is needed to make this happen. § *right now, our commercial facilities -- principally in *puget *sound -- are mostly running flat-out. *but that is going to change drastically in 2000 and 2001 as we work down the order book. § *make no mistake about it: *there is great untapped potential in the commercial world for building high-tech, military-type products. § *that is one reason why *dr. *gansler is calling for "greater civilian/military integration." *and frankly, a more inclusive approach to procurement is needed for another reason as well. *that is: to keep the defense sector from becoming a technological ghetto -- cut off from rapid change and progress that is going on all around it in the commercial world. § *to cite a most important example, avionics systems account for about one-third of the fly-away cost of a military aircraft and a significant amount of its life-cycle cost. *it goes without saying that our warfighters are increasingly dependent upon the use of avionics systems for everything from navigation to targeting and to battlefield management. § *having said all that, we must face up to the fact that the military community is no longer a dominant voice in the electronics industry. *in fact, total *do*d spending on *r&*d in the area of electronics and information technology is completely dwarfed by the effort that commercial companies are now making in this same area. § *some time ago, *motorola, *intel, and *advanced *micro *devices -- three of the most dynamic and innovative companies in commercial electronics -- announced their intention to quit the business of supplying *m*i*l-qualified components to the military market. *that is something that should shock every one of us in this room. *we must get them back . . . and others like them. § *in fact, *boeing has brought one of three back into the fold through *operation "*bold *stroke, " as our people at the *phantom *works are calling it. *the objective of *bold *stroke is to make maximum use of acquisition reform initiatives and commercially available computer technologies to dramatically cut the cost of avionics development, production and support. § *bold *stroke has developed a major upgrade that has already flown successfully three times on an *f-15 where it has replaced two on-board computers. *it is our hope to use the same open-architecture system on virtually every tactical and *c *cubed *i aircraft *boeing makes or is developing. *at the heart of the system is the same *motorola *power *p*c chip used in many laptop computers. § *part of the beauty of the system comes from the fact that it is highly modular with plug-and-play replacement capability. *as and when the power of the chip is increased, the military operator can simply unplug a box and send it back to the *o*e*m supplier, who will replace its *power *p*c module with the latest upgrade. *we expect this system to cut support cost by as much as 60%, while also resulting in the timely insertion of new technology that will support the need for an ever-increasing war-fighting capability. § *there are many other examples that *i could cite of ways that we and our suppliers, working with our associates in the procurement agencies, have found to do a faster, better, cheaper job of supporting the warfighter in the field. *and *i hope to pick up some good ideas from some of you on other things that you may be doing that we could apply to our own programs. § *in closing, *i would like to return to the three magic words: *commercialization, *competition and *cooperation. *each is vitally important in bringing about needed change in the procurement system. *but the greatest of the three -- without question -- is cooperation. § *cooperation is based on mutual understanding and respect. *it is based on good communication. *and it is based, most fundamentally, on trust. § *if all those elements are present, there will be no trouble injecting more competition . . . and more commercialization . . . into the system. § *even more importantly, we will have a situation in which the warfighter, the procurement offices and industry come together as one team. *if we can do that, there is no challenge that will be too great for us in the 21st century. § *fb. § *cost: *the *new *frontier in *aerospace *engineering § *how many of you have seen pictures or old newsreels of the collapse of the *tacoma *narrows *bridge? *this ranks as one of the most celebrated engineering failures in the 20th century. § *the saga of the *tacoma *narrows *bridge is told in an instructive and very readable book, called "*to *engineer is *human." § *when the bridge, connecting the *olympic *peninsula with the mainland, was opened in 1940, it quickly became known as *galloping *gertie, and it drew thrill-seekers wanting to experience a roller-coaster ride in their own cars. *fortunately, the bridge gave fair warning of its final fling, and was closed to traffic on the day of its collapse. *but film crews were on hand to record the wild gyrations of the roadway as it twisted to destruction. § *the people who designed the *tacoma *narrows *bridge were not dumb, but in striving to combine grace and beauty with functionality, they failed to take account of a critical difference in the external forces operating upon their bridge -- as opposed to more conventional bridges. § *they did not foresee that a long, slender bridge deck would, in fact, act like an airplane wing when subjected to a stiff cross-wind. § *in somewhat similar fashion, the aerospace industry as a whole has been slow to recognize the need for taking account of a critical performance factor in the way we design and build our products. *that factor is cost. § *i see cost as the new frontier in aerospace engineering. *we have to make great strides in driving down cost ... both to satisfy our customers, and to satisfy our shareholders. *and it is my belief that the key to doing that is making our most creative people -- the people who design our products and systems -- responsible for cost, just as they have been responsible for other parameters of performance, such as weight, range and payload. § *it may strike some of you as strange to think we are only now addressing the issue of cost in this way. *but you have to understand the background of the aerospace industry. § *we developed a certain way of thinking and behaving in the defense and space side of the industry during the *cold *war, and that had nothing to do with cost, and everything to do with beating the *russians. *we had a simple yardstick. *anything they did, we had to do better. § *the *russians launched the first *sputnik in 1957. *just 12 years later, we landed that first man on the moon. *that was a brilliant scientific and technical achievement. *but no one was overly concerned about the cost. *the important thing was that we did it. § *now, of course, the *cold *war is over and the defense procurement budget has fallen more than 50% from its peak. *suddenly, our customer -- *d*o*d and each of the services -- is demanding more performance for less cost. § *for an entirely different set of reasons, we face similar conditions in the commercial aircraft business. *airlines in this country and around the world used to operate like regulated utilities. *if the cost of fleet ownership went up, they could expect to pass that along to the passenger under a regulated fare structure. § *of course, all of that has changed, too, as aviation has become an intensely competitive business ... all over the world. § *having said all this, let me re-emphasize the point that we have been slow to change. *our customer on the defense side of the house saw the need for change well before we and other defense contractors did, and they really had to beat us over the head in the first half of the '90s to take the cost message seriously. *i would like to think *i have had some effect -- both here at *boeing and, before that, at *mc*donnell *douglas -- in helping to drive home the same message to our people. § *traditional but outmoded ways of thinking and acting also persisted for far too long in our commercial aircraft business. *until recently, it was a standing joke among *boeing people that the only one who knew what one of our jetliners cost was the *c*f*o ... and he wasn't telling anyone. § *but change we have, and change we are -- at an accelerating pace. § *the effects of this change have been very visible in a number of programs -- especially the newer programs. § *one of the great things about a new program is that it is new. *that gives you a chance to do everything differently -- from day one. *the fact is, it is very hard to change 80% of the cost of building an airplane (or other kinds of high-performance products or systems) once the design is finalized. *but there is a heck of a lot that you can do to change the great preponderance of your eventual cost when you are still working on the design. *this is the moment of greatest opportunity both in improving performance and reducing cost. § *that is something we were able to demonstrate to our *air *force customer last year in winning the lion's share of the *evolved *expendable *launch *vehicle (*e*e*l*v) program. § *the *air *force set a goal of reducing the cost of putting medium and heavy payloads into orbit by 25%. *our *delta *i*v family of launch vehicles will do substantially better than that -- reducing the cost to orbit by up to 50%. § *in preparing our bid, we made radical cost reduction a critical part of the design requirement. *this in turn led to radical simplification of an inherently complex system. § *with a lean design that eliminates the number of parts by 93% and the number of welds by 95%, the *boeing *r*s-68 engine that will power our *delta *i*v on 19 missions between 2002 and 2006 will be built at a fraction of the cost of the *space *shuttle *main *engine -- and yet it will have 50% more thrust. § *similarly, we believe our approach to the extremely important *joint *strike *fighter competition will deliver an unbeatable combination of performance and affordability. § *the *joint *strike *fighter, or *j*s*f, has been designated as a high-volume, low-cost replacement for no fewer than seven different aircraft. *as such, it must be extraordinarily versatile, stealthy, and very, very affordable (at about a third the price of the *f-22, the only other all-new fighter aircraft program anticipated in the first decade of the next century). § *just as we did with *e*e*l*v, we have concentrated from the start on doing everything with the objective of keeping cost down to a targeted level. *this has involved new metal and composite technologies ... toolless assembly techniques ... and 3-*d, computerized design and test to ensure that everything fits together perfectly the first time. § *we are assembling the first two prototypes with just 30 mechanics. *further, we have drastically reduced the number of engineers required to design and test the aircraft, both as a result of automating more and more design tasks, and as a result of radical simplification and drastic reduction in parts count in the final product. § *this is not to say you cannot make substantial improvements in an existing program. *we proved that with the *c-17, which was far behind schedule and over cost a few years ago, and threatened with early termination. *today the *c-17 stands as a model procurement program and a shining example of how to take cost out of an existing program -- while improving quality and performance at the same time. *in fact, last year, largely as a result of the *c-17, our people received the *malcolm *baldrige award for excellence in manufacturing. § *our first task when the *c-17 program was in dire straits was to get it back under control through new leadership and through disciplined management processes. *once that was done, we could begin to concentrate on simplifying work and applying lean design and assembly techniques to different parts of the aircraft. § *that is the kind of stage we are at right now in our commercial airplane business. § *for much of the last year, we have had our hands full in restoring schedules and work sequencing following what amounted to a meltdown in late 1997 -- when we had to shut down our 737 and 747 lines for about a month. *the good news is that we are pretty much back on our delivery schedules as a result of delivering record numbers of airplanes. *we have made great inroads in reducing shortages. § *with the installation of new leadership, and with the return to more normal conditions, we are now able to focus on really improving our processes and using innovative design or re-design for cost reduction and other improvements that come through ease of manufacture and assembly. § *using digital tools, for instance, we have begun to re-design major sections of the 747 -- so that it becomes a better airplane (nearly shimless) that we can build faster and cheaper. § *there is no single cookie-cutter approach that works in re-engineering a program to inject lean production methods. *everything depends on attitude, leadership and teamwork. § *clearly, people cannot make good decisions without good information -- and without the rapid sharing of that information inside of teams and between them. § *we have sent our financial people out on a mission to generate better cost information inside programs. *and we are also taking steps to make sure that is used and acted upon in targeting and eliminating cost. *again, this gets back to making the people who design parts or sections of an airplane responsible for cost. § *if anyone in this room thinks this is imposing an unwanted burden upon our engineers, let me disabuse you of the notion. *to the contrary, we are giving them greater freedom to exercise their creativity and to have a real impact for the good. § *by nature, engineers are highly numerate. *if they do not already possess good financial skills, it is not difficult to teach them. *second, and more important, good engineers are always highly motivated to find good solutions to the most pressing problems. *and today -- for most of us in the aerospace world -- the most pressing problem is cost. § *in closing, *i would like to challenge all of you with a final thought. *most of you, *i know, are in the financial function ... and that is a function that *i have always regarded as critical to the health of every company. § *however, in the ideal world that most of us are now striving for, one should hope for the financial function to wither away. *that will happen when everyone who is involved in the creation of products and other things of economic value becomes his or her own *c*f*o. § *with that in mind, some of you may even want to go to night school to learn engineering. § *fb. § *israel at 50: *an *appreciation § *first of all, congratulations to all of you . . . on the 50th *anniversary of the founding of the *state of *israel! *it is this anniversary that *i would like to dwell upon today, more than *israel's place in the global economy, which is both thriving and secure. § *some people think it is silly to pay attention to anniversaries. *i am not one of them. *anniversaries are worth celebrating, *i believe, because of the strange and sometimes wonderful things they can tell us about ourselves. § *the *united *states of *america celebrated its 50th anniversary in 1826. *there were the usual speeches . . . celebrations . . . and fireworks in that year. *but something else happened that caused people to stand back and wonder . . . as though they had witnessed a miracle. § *two of our *founding *fathers -- *thomas *jefferson and *john *adams, the authors of the *declaration of *independence -- lived just long enough to observe the 50th anniversary of the very day that their document was signed. *they died on *july 4, 1826, within a few hours of each other. § *in his last words, *adams, who was the first to die, paid tribute to his friend, saying: "*the *republic is saved; *jefferson lives." § *indeed, *jefferson does live . . . as far as most *americans are concerned . . . as someone whose ideals and values are imprinted in our hearts and minds. § *there are some striking similarities between the *united *states of 1776 and the *israel of 1948. § *both were made up of immigrants who had come looking for freedom and a better life. *both nations had to fight for survival from the moment of birth. *both were led by remarkable people . . . real giants among men in both intellect and character. § *but what of the *united *states of 1826, celebrating its 50th *anniversary, compared with the *israel of today? § *clearly, the *united *states of 1826 had a few advantages that you might wish for yourselves. *we enjoyed a kind of splendid isolation from the rest of the world's troubles. *more than that, we had all the room in the world to expand in our own backyard, which is to say, the *american west. § *finally, no one questioned our right to exist as a nation. *that had stopped with the successful conclusion of our *war of *independence. § *from my viewpoint as an *american, the fact that you have had to overcome so many obstacles . . . on the way to establishing the *israel of today . . . makes the greatest of your achievements all the greater. § *let me single out three of those achievements. § *first is the establishment of a homeland for *jews from around the world. § *second is the creation of a democratic state. § *and third is the defense of your borders while making the desert bloom and otherwise building a thriving and prosperous economy. § *if they were alive today, *i believe that your founding fathers -- *weizmann, *ben- *gurion, *golda and, going a little further back, *herzl -- would weep for joy at what you . . . in this generation . . . have done . . . in absorbing 700,000 *jews from *russia and other parts of the former *soviet *union. § *that is no mean feat. *it is, in fact, an incredibly generous one. *what other nation would put out the welcome mat for so many people at one time? *it stands in contrast to the stinginess of spirit displayed by most wealthy nations of today -- the *united *states included -- when it comes to accepting new arrivals from other countries. § *the recent spread of democracy to many new parts of the world has exposed the fragility of this form of government in many of the places where it has been tried. § *by contrast, it is hard to imagine a more robust democracy than that which exists today in this country. *it is democracy that has survived all kinds of cruel blows, including the assassination of *prime *minister *rabin three years ago. *this is, without question, a durable and sturdy democracy. § *last, the mere fact that we are here today at a global business summit is proof of your success in both the military and economic arenas. *through six wars and a cold peace you have devoted all the human and economic resources needed to maintain your security. *at the same time, this has not become a lumbering, militaristic state along the lines of the old *soviet *union. § *to the contrary, you have a thriving private sector that has shown it is more than equal to the task of competing and winning in a global marketplace. *with that you have achieved a standard of living that puts you on a par with the most advanced nations of the world. § *chaim *weizmann was certainly right when he said, "*a people does not get a country on a silver platter." *nothing you have done has come easily. *and you have confounded the so-called "experts' every step of the way. § *the "experts" predicted that the arrival upon the world scene of a new country called *israel would never happen. *and when it happened, they said it would never survive. *and when it survived, they said it would never last. *and now that it has lasted for half a century, they say . . . and *i am quoting from a well-known publication . . . that "the national mood is sour" and "nobody wants to celebrate." § *you know what *harry *truman said about "experts"? *it is something he said to *rabbi *wise, of the *american *zionist *emergency *council, when the rabbi warned him that none of the *experts* on the *middle *east -- including those in his own *state *department -- would go along with him in supporting *israel. *truman replied, and *i quote: § "*i know all about *experts*. *an *expert* is a fella who is afraid to learn anything new because then he wouldn't be an *expert* anymore." § *of course, *truman, acting with his usual courage and wisdom, did give immediate recognition to the state of *israel. *if there was one compliment, above all others, that moved *truman, it was the one he received from *isaac *halevi *herzog, the *chief *rabbi of *israel. *herzog said: § "*god put you in your mother's womb so you would be the instrument to bring the rebirth of *israel after two thousand years." § *speaking as an *american, *i am proud of the role that my country -- and, indeed, my company -- have played both in the establishment and in the continuing development of *israel. § *you have a great deal to celebrate, and *i am absolutely delighted that you have invited me to be a part of your celebration. § *i just wish a few of your founding fathers were still alive to see how strong and tall this country stands on its 50th birthday . . . and how true it has remained true to its original values and ideals. § *in closing, then, *i would like to recite two passages from the *bible: § *i will restore my people *israel. *they shall rebuild ruined cities and inhabit them; *they shall plant vineyards and drink their wine; *they shall till gardens and eat their fruits. *and *i will plant upon their soil, *nevermore to be uprooted from the soil *i have given them *said the *lord your *god. § *that passage is from *amos *chapter *nine. § *the next passage is from the 137th *psalm, verses *five and *six. § *if *i forget you, *o *jerusalem, *let my right hand wither, let my tongue stick to my palate if *i cease to think of you, *if *i do not keep *jerusalem in memory even at my happiest hour. § *this is a happy hour. *you have not forgotten your *jerusalem. *you have achieved great things in your first 50 years. *may your children . . . and your children's children . . . do even better in the next. § *fb. § *prospering in *lean *times: *lessons *learned *in *restructuring the *u.*s. *defense *industry § *when *i think of the difficult issues facing us today in the area of defense production and procurement, *i am reminded of an old story. *it is the story of *joseph in the *bible. § *as you will recall, *joseph is summoned by the *pharaoh to interpret a pair of troubling dreams. *one is of seven beautiful cows which are set upon . . . and devoured . . . by seven foul-looking creatures of the same species; the other is of seven healthy ears of grain . . .which are swallowed up by seven parched and withered ears. § "*they are the same dream," *joseph tells the *pharaoh. "*they mean you can expect seven years of rich harvests . . . followed by seven more . . . of the most devastating famine." *joseph suggests a policy of laying up a tremendous store of corn . . .through the good years . . . so that people will still be able to eat . . .when the land is scorched by famine. *so impressed is the *pharaoh that he lifts *joseph out of slavery . . . and puts him in charge of restructuring the *egyptian economy. § *would that all of us were as wise as *joseph . . . both in divining the future . . . and in taking timely and appropriate action!!! § *unfortunately, our foresight is not equal to that of *joseph's. *and even if it were, none of us enjoys the total authority . . . that *joseph was given . . . in commanding and directing the resources of an entire populace. § *but we must do our best . . .with what we have. § *over the past seven years -- what *i am going to call the lean years for our industry -- the *u.*s. defense procurement budget has fallen by nearly a quarter. *hundreds of big and small companies have left the defense business, and the number of prime contractors has been reduced from eight to just three. § *nevertheless, the *u.*s. economy as a whole has hardly missed a beat as a result of distress in our industry. *and, though smaller, the *u.*s. defense industry is very much alive. *in fact, profit levels within the industry are higher today than they were several years ago. § *we must have done something right!!! § *here is my view of six lessons learned from the recent restructuring of the *u.*s. defense industry. *i believe they are relevant to all of you who are concerned about the approach of hard times in the *israeli defense industry. § *lesson *learned #1: *there is a need for mutual understanding and respect between industry and government during a time of downsizing and consolidation. *restructuring is a tough job; government and industry shouldn't make it any tougher than it already is by beating up on each other. § *beginning in the early part of this decade, the *bush *administration made a clear decision to enable the defense industry adjust to a period of falling demand by permitting the consolidation process to proceed more or less unhampered . . . with the series of mega-mergers and acquisitions that created today's *lockheed *martin . . . as well as the new *boeing *company, which includes the old *mc*donnell *douglas and the aerospace and defense businesses of the old *rockwell. § *the hands-off approach that began under *president *bush has been largely reinforced and extended under *president *clinton. *three successive administrations have taken the view (the wise view, in my belief) that it is our business -- and not the business of government -- to determine our own destinies in the midst of changed circumstances. *we have not been subjected to elaborate (and, in my view, foolhardy) "defense conversion" schemes cooked up by outside planners or social engineers. § *lesson *learned #2: *acquisition reform can be and should be accelerated during a period of downsizing . . . for the good of all parties. *the *u.*s. *department of *defense has shown that it is possible to push streamlining and commercial practices while paring the budget and encouraging contractors to lower costs and prices. *if the point is that we must learn to do more with less -- as surely it is -- contractors must have the opportunity to earn a bigger profit by building a better product at a lower cost. § *i can't overstate the importance of profitability to the future of this (or any other) industry. *even in lean years, defense companies must have the profits . . . the seed corn, if you will . . . to plant for next year's harvest. § *lesson *learned #3: . . . *consolidation, on its own, is not synonymous with restructuring. § *you do not solve a problem of excess capacity simply by reducing the number of players through mergers and acquisitions. *consolidation must be accompanied by the elimination of excess facilities and, yes, excess employment. § *to deny that, or to delay and procrastinate, is to be -- in *shakespeare's phrase -- " un kindly kind." *the faster restructuring occurs, the faster people move on to more productive jobs, which is better for them . . . and better for everyone else. § *lesson *learned #4: *the adjustment process may be easier . . . and more humane . . . than some people would have you believe. § *in the early 90s, many "experts" predicted that the *u.*s. economy would be shaken to the core by the sudden downsizing that was occurring in the defense sector. *those fears were greatly exaggerated, to say the least. § *i don't want to minimize the difficulties of people who -- through no fault of their own -- are forced out of jobs. *but even in plant cities where we have been obliged to make major reductions in the workforce, local economies have continued to flourish . . . and the vast majority of our former employees have gone on to find gainful employment . . . either by joining other companies or setting up their own businesses. § *this leads me to *lesson *learned #5. *don't underestimate the power of the private sector to make the adjustments that are necessary to match people who want work with jobs that need to be done. § *just as we do in the *u.*s., you have a strong and growing private sector here in *israel. § *our representative in *tel *aviv has told me that *israel is second only to the *u.*s. in having the most new company start-ups per capita of any country in the world. *i also know that *israel has been up among the world leaders in *g*n*p growth. § *this brings me to my final lesson learned in this age of consolidation. *no company -- no matter how big, or how self-sufficient it may seem to be -- is an island . . . complete in itself. *to varying degrees, each is vitally dependent upon a mix of suppliers. *that may be a plus . . . or a minus. § *at *the *boeing *company, we feel that the excellence of our suppliers and partners represents a major . . . long-term . . . global . . . competitive advantage. § *we aim to be the best customer . . . of the best suppliers . . . around the world. § *we have placed over $1 billion in orders with *israeli companies in recent years. *two out of *boeing's 11 *gold *medal suppliers worldwide are *israeli . . . along with two *silver *medal suppliers. *israeli companies rank #1 and #2 in dollar volume among airframe suppliers to the *f-15 program. § *intellectual capital represents another form of seed corn. *it is grown and nurtured over a period of time . . . taken from one year's harvest . . . passed to another year's planting. *your companies possess some of the world's best engineering, technical and manufacturing talent. *we are proud of our role in helping to develop that. *we see it as a resource for the future . . . something that will serve our customers . . . our company . . . and the larger family of *boeing suppliers and partners, of which you are a part . . . for many years to come. § *in closing, let's return for one moment to the *biblical *joseph. *as the *pharaoh's economic czar, he had seemingly unlimited powers. *but consider this. *he was dealing with one of the most rigidly hierarchical societies in human history. *restructuring the economy . . . in such a society . . . must have been like turning a battleship. *maybe that's why it took him all of *seven* years to do it. § *to the leaders of business and government in this room, *i say to you: *if change is what is needed, how can you possibly fail??? *you have what every leader wants. *you have a vigorous, dynamic and forward-looking people who have proved . . . again and again . . . that they are afraid of nothing. § *you will succeed. *i am sure of it!!! § *fb. § *part *flows and *dinosaur *toes: *a *new *approach to *supplier *relations § *good evening, ladies and gentlemen. *this is truly "a room with a view," isn't it? *it is a great view of one of the busiest ports in the world. *and there's a story to this port which underscores one of my principal messages to you tonight. § *a few decades ago, when *san *francisco, *new *york and other ports were flourishing, the *port of *seattle was going nowhere. *it was dying. *now the roles are reversed. *those ports are in decline, and the *port of *seattle is booming. § *the difference is that the *port of *seattle was one of the first to recognize the possibility of achieving a quantum leap in productivity in the handling of cargo -- through the use of standardized containers. *seattle invested heavily in new technology and new procedures that have revolutionized the whole business of ocean-going shipping. *and it is reaping the benefits today. § *the lesson here -- and it applies to all of us -- is that you don't get very far by trying to do the same things better; if you want to improve anything in a big way, *you have to do things differently.* § *we are doing a lot of things differently in *the *boeing *company these days. *and one of the areas where we are pushing for the most change . . . and the most improvement . . . is in our relationship with you, our key suppliers. § *boeing is a big company with a bright, bright future. *we have a great business in military aircraft and missiles. *we are confident of continued rapid growth in our space businesses. *and our only problem in the commercial airplane business has been a failure to execute inside. *while this is a cyclical business -- and while we have ourselves to blame for missing out on the opportunity to achieve outstanding earnings from the current upswing in the cycle -- this has been . . . and will continue to be . . . a long-term high-growth business for *the *boeing *company. *it is -- justly -- what we are most famous for. *and we are going to get it right! § *the *boeing *company will top $50 billion in sales this year. *we are the nation's biggest exporter. *but what we call *the *boeing *company is really something of an optical illusion. § *sixty five percent or more of what we book as sales and 65 percent or more of what we count as exports represent the value added that is created by you, our suppliers. § *in a real sense, therefore, you are most of *the *boeing *company. *you are just as big a part of it . . . and even bigger . . . than the 235,000 people who wear *boeing badges to work every day. *it is our aim to be your best customer. § *let's talk about the relationship between us in terms of our vision of the future and what we see as our core competencies. § *our vision statement consists of just ten words. *they are, "*people *working *together as *one *global *company for *aerospace *leadership." § *we take the "working together" very seriously, and it refers not just to relationships inside the company, but, most certainly, to relationships with our customers and to relationships with our suppliers. § *we have defined our core competencies as: § + detailed customer knowledge and support + large-scale integration, and + lean design and production. *how does that relate to all of you? § *there are "customers" and there are "customers" . . . up and down the supply chain that goes into a complex high-performance product . . . but clearly, the customer who counts the most, at the end of the day, is the end user. § *that is to say, in our case, it is the world's airlines and the traveling public; it is the war-fighters in the *u.*s. *air *force, *navy and *armies, and their counterparts in other, allied countries; and it is *n*a*s*a . . . and the communications companies and government agencies . . . that rely on our rocket engines, launch vehicles, satellites, shuttles and space-related services. § *in the different parts of our business, we know all of those hugely important customers . . . extremely well. *we can be your means of access, or your conduit to them, for decades to come. *we will do everything we can to promote your work and to support the idea that we have the best damned suppliers in the business. § *among other reasons, that is something we want to do because . . . as a large-scale integrator of complex systems . . . we don't want to do everything ourselves. *we would rather buy than build whenever and wherever that is the most economical and practical means of supporting the end user. *in fact, that is one of the reasons we have not gone as far as our principal competitor in the defense market in terms of vertical integration. *we don't want to limit our ability to get great products and great ideas from the outside. § *as *i have already mentioned, 65 percent of the final value of our products is the result of the work of our suppliers. *for the remaining 35 percent or so, we aim to distinguish ourselves through lean design and production. § *i'm going to be blunt with you. *when it comes to lean design and production, the aerospace industry as a whole has some catching up . . . and catching on . . . to do. *all of us have grown up with a cost-plus or a performance-at-any-price mentality. *instead of driving down costs relentlessly from one year to the next, we have been used to steady increases in the cost and price of just about everything. *the real world -- whether military or commercial -- won't support it any more. § *if that's the bad news, the good news is that there is no end of opportunity for improvement when we stop trying to do the same things better and begin to focus on doing things differently. § *let me give you an example of what *i mean. *it is the same kind of story as the *port of *seattle -- only in miniature. § *we have a plant in *portland, *oregon, that manufactures components and subassemblies for our commercial airplane group. *our people up here found that they could not get an intricate subassembly -- the flap supports for the *boeing *triple *seven -- at the cost they wanted, nor in the quantities that would be required with increasing production of that airplane. *the plant's management therefore realized: *either they would have to come up with a plan for increasing production . . . and decreasing unit cost . . . or *boeing would have to out-source the work. *moreover, those two objectives would have to be met without new spending on capital equipment. § *what to do? § *a team of engineers and production workers at the plant re-examined the entire process by which the flap supports are machined out of large blocks of aluminum. *and they got together with their suppliers to fashion a joint solution. § *as part of an airplane, the flap supports may be likened to dinosaur toes seen in a museum. *they are surprisingly large and highly complex assemblies . . . when isolated from the gigantic creature to which they belong. § *one of the suppliers suggested that high-speed machining could be greatly facilitated, even revolutionized, through the provision of aluminum blocks made in a new way that reduces residual stress -- the theory being that blocks forged in the old way had greatly complicated the machining process. *in effect, the machine operators were forced to whittle away at the sides of the block, rather than sculpting it as you might if you were carving something out of a block of butter. *this -- the idea that you carve straight into the new kind of block -- was tested and confirmed. § *it proved to be the key insight leading to a whole series of changes between our *portland plant and its suppliers. § *for one thing, replacing a pattern of spot competitive purchases of aluminum of varying alloys, our plant has firmly committed to fixed purchases of precisely-defined aluminum blocks over a two-year period from two suppliers in the *los *angeles area. § *the plant and its suppliers -- including a third supplier in the *l.*a. area which is responsible for heat treatment at an intermediate stage of the process -- have totally overhauled the transportation system linking them all together. *they are now on a just-in-time system which has minimized wasted movement and excess inventory. § *but the real bottom line is this: *the people who are doing final assembly of the 777 in *everett are now getting all the flap supports they want . . . exactly when they want them . . . at a unit cost that is 30-to-35 percent lower than it was a year and a half ago. *and both our *portland plant and its suppliers are locked into a growing piece of business. § *i said before that we want to be your best customer. *over the past several years, we have been concentrating more and more work with fewer and fewer suppliers. *that trend will continue even as *boeing becomes a bigger and bigger company. *what *i am saying is that you can expect to grow . . . and profit . . . as a result of being identified as best-in-the-class in whatever it is you are doing for us. § *many of you, *i believe, are out in front of us in terms of what you have already done in finding new and innovative ways of reducing cost and improving quality. *as the president of *the *boeing *company, *i am not too proud to say: **show us how to do things differently . . . and do them better*. *i trust that every manager of every program and every plant that we have around this company feels the same way. **let me know if you find one who doesn't.* § *before closing, there are a few general observations *i'd like to make on what *i see as the identifying traits of a great relationship between customer and supplier. § *the first is predictability. *that means that each of us always does what he says he is going to do. *it means sticking to plans . . . and enabling others to plan based upon having a high degree of confidence in your future actions and performance. § *next is a real sense of partnership. *each of us must have a genuine stake in the other's success. § *third is continual improvement -- and a constant willingness to embrace change in the development of new and better ways of doing things. *once again, we not only welcome your ideas and insights; we insist upon having them. § *if an airplane may be defined as "millions of parts flying together in close formation," then, in my book, an aerospace company may be defined as one company and a few hundred of its best suppliers thinking and acting together in the closest harmony. § *that's certainly the way *i look at *the *boeing *company . . . and all of you. § *in closing, *i'd like to thank everyone of you, in advance, for doing an outstanding job of helping us to reduce costs . . . and improve quality . . . this year, next year, and every year to come. § *thank you. § *fb. § *pushing the *envelope of *flight: *a *tribute to the *test *pilot *community § *when *lord *kelvin -- the great physicist -- was invited to join the *royal *aeronautical *society in 1896, he responded with these words: § "*i have not the smallest molecule of faith in aerial navigation other than ballooning, or of the expectation of good results from any of the trials we heard of. *so you will understand why *i would not care to be a member of your society." § *a couple of years later, the greater inventor *thomas *edison voiced the opinion, "*it is apparent to me that the possibilities of the aeroplane . . . have been exhausted, and that we must turn elsewhere." § *and in 1901 -- two years before *kitty *hawk -- *wilbur said to *orville -- "*man will not fly for 50 years." § *these stories prove *casey *stengel's point that "*predictions are difficult, especially about the future." *but my reason for citing them is to point up a larger truth. *even the *wright brothers -- who were the first to use a wind tunnel to make precise measurements of all the forces operating on a model wing -- could not know exactly what to expect until they took their invention into the air. *and from that day to this, despite all of the progress that has been made in wind tunnels, computational fluid dynamics, and other forms of ground-based research, no one has been able to figure out in advance all of the surprises that *mother *nature holds in store every time we attempt to build an aircraft that marks a significant advance in the state of the art. § *as a result, the crucible of invention and progress in our industry is the flight test regime. *flight test is . . . and always will be . . . a critical laboratory in which new ideas and new procedures are developed, refined, perfected or rejected. § *as someone who has never piloted an aircraft . . . but who has spent 43 years in this industry . . . "piloting" programs and companies . . . *i would like to pay homage tonight to those of you who are the real "pioneers" of flight. *i stand in awe of the kind of leadership that is exemplified by the members of your society and your profession. *you lead in the truest sense of the word -- being the first to go into unknown territory . . . putting your skills and lives on the line in blazing a path for others to follow. § *our industry was founded and built by experimental test pilots. *it began even before the *wright brothers with the contributions to the young science of aerodynamics made by *otto *lilienthal and *octave *chanute in designing and test-flying the first gliders. § *it continued after the *wright brothers through the work of such people as *bill *boeing, *glenn *curtiss, *anthony *fokker, *howard *hughes, *glenn *martin, *james *mc*donnell and *igor *sikorsky -- to name a few of the entrepreneurs who both built and tested airplanes in the course of creating great companies. § *what other industry has contributed so many heroes to the folklore of our nation and the world? *if you think of the automotive industry, there is but one name that comes instantly to mind -- that of *henry *ford. *but if you think of aerospace, there are more than half a dozen -- *wilbur and *orville, *charles *lindbergh, *jimmy *dolittle, *eddie *rickenbacker, *amelia *earhart, *chuck *yaeger, *john *glenn and *neil *armstrong. *and all of them, of course, including the astronauts, were experimental test pilots. § *neil *armstrong once paid tribute to *lindbergh, saying. "*he did it alone. *we had a cast of a million." § *that may be true, but it is also true -- to quote an old aphorism -- that the more things change, the more they remain the same. *there is a wonderful continuity to the story of experimental test piloting. *it is the old story of man against the elements. *more than that, however, it is the story of people who are consummate professionals in both senses of the word -- both in the sense of possessing great mental and physical skills . . . and in the sense of pursuing a real calling. § *lindbergh frankly admitted that he tackled the *new *york-to-*paris challenge out of a sheer love of adventure. *but he was also powerfully motivated by another objective -- moving aviation from a form of entertainment into commercial practicality. § *that is why he moved from stunt flying to airmail before his historic flight. *and that is why he went on a 48-state tour following his return -- landing at 2 *p*m at 81 airports. § *people might write the transatlantic flight off as nothing more than a great adventure, like being the first to climb *mount *everest . . . but two *p*m at 81 airports . . . that was solid proof of the idea that aviation had arrived as a reliable means of transportation. § *obviously, there is no comparison between the airplanes of old and the airplanes of today in terms of complexity and performance. *nevertheless, the bond between the people who design advanced aircraft and the people who test-fly them is an enduringly close one. § *we have about two dozen experimental test pilots at *the *boeing *company, and *i can assure you we bring them in at the front end of the design and development process, not just the back. *a team composed only of deskbound engineers can design an airplane that flies; but a team that includes the experimental test pilot / engineer is far more likely to design an airplane that is superior in terms of how well it responds to being flown or piloted with a human being at the stick. § *this is not to underestimate the importance of flight test in the final stage of design and development. *the test pilot has the awesome responsibility of making a new aircraft safe for other (to be frank) less gifted pilots. *that means taking the machine to the edge -- and beyond -- so that others will have an idea of what to expect and how to respond in the event of any one of dozens of emergencies. § *what's more, there has never been the perfect "paper" airplane . . . or even, in our computerized age, the perfect "paperless" airplane. *from *kitty *hawk to today, with every advance in aircraft, there have always been significant modifications and improvements made during flight test. *again, through his communication with the engineering team, the experimental test pilot doubles with the designer as co-inventor of the aircraft in its final design and integration. § *just as *orville briefed *wilbur after that first flight (telling him, among other things, about a fault with the elevator), so, in years to come, will test pilot and designer continue to work together in pushing the envelope of flight. § (*pause) § *it has been a real honor to address this meeting of the *society of *experimental *test *pilots. *in looking around this room, *i know that *i am in the presence of real leaders, including, *i suspect, some of the people who are destined to become the *glenn *martin's, the *jimmy *dolittle's, and the *neil *armstrong's of tomorrow. *may you all -- in your personal endeavors -- continue to have shiny side up and greasy side down! § *in the spirit of the evening, *i will close by reciting a few lines from aviation's *homeric poet, *gill *robb *wilson. *it seems to me that they capture some of the practical realities of test flying as well as some of the romance: § *ten thousand grand for a dozen g's, *and no one can take thirteen of these, *and all *i do for this princely dough *is climb as high as the ship will go, *and dive until the needle hits the pin *in the gadget that shows how far *i've been. *then throw her in reverse control *to see if *i and the ship stay whole, *if the wings stay on and the fittings tight . . . *i climb again with like intent *to prove it wasn't an accident, *pick up g's with a spinning fall *to see if she's weak that way at all, *i loop for balance and stall for glide *and whipstall hard with flaps out wide, *and spiral and slip and slam about *in landings rough as the tank can stand *to prove each step the designer planned. § *fb. § *people *working *together... *building the *future of *flight to *fly... to *defend... to *explore... to *inform § *good day, ladies and gentlemen. *i am *harry *stonecipher, the president and chief operating officer of *the *boeing *company. § *the *boeing *company *we had some big announcements recently regarding changes in the management of *the *boeing *company. *i can sum up what those changes are all about in a few words: *performance...*performance...*performance. *as you all know, the last year, in many ways, has been a difficult and disappointing one for *boeing. *it is not just that our financial performance has suffered - and the performance of our stock. *worse, we have shared some of our own misery with our customers. *in particular, we've let down many commercial airplane customers through late deliveries. *that's not tolerable, or acceptable. *so what are we going to do about it? *where we are too big, we are going to get smaller. *where we have been doing too many things - in too many places - we are going to do fewer things, and just the things that we do better than anyone else. *most of all, where we have been too arrogant, too distracted, or too self-satisfied, we are going to be much more intense and much more focused on the things that really matter. *i am speaking here of satisfying the customer in every way, while providing the highest quality for the lowest cost. *we have put a superb leader - *alan *mulally - in charge of the commercial airplane business. *unfortunately, *alan cannot be here today because of a long-standing family commitment. *however, as anyone who knows him will attest, *alan *mulally is a man of tremendous energy, vision and purpose. *he is also one of the best team builders and leaders *i have ever known. *two years ago, *alan accepted the *collier *trophy on behalf of *the *boeing *company for the then brand-new 777. *alan was vice president/program manager for the 777. *over the past year, he did a great job in pulling together and leading our merged information, space and defense businesses. *a new team under *mulally is now in place at our commercial airplane group. *at the same time, we have streamlined and reorganized our information, space and defense businesses. *we expect these operations - which have been doing very well all along - to do even better. *the *boeing *company has suffered from a single cause over the past year, and *i want to be very clear about what that is - and isn't. *it isn't *airbus, or *lockheed, or anyone else. *it has been our own failure to execute inside. *there is nothing else that can possibly stop this company - with all of the intellectual and human resources that we have gathered together under one roof, reaching as they do across the entire spectrum of aerospace. *this is a company with a great past and an even greater future. *all we need to do is execute. *and that is exactly what we are going to do. § *thank you, *bruce. *today's *boeing is a company that specializes in the design, development, production and support of almost anything that flies - from jetliners and business jets to fighters, military transports, helicopters, missiles, satellites and other space transportation systems. § *space, *information & *defense *businesses *what we used to called the *information, *space and *defense *systems *group may be viewed as the confluence of three great rivers into one. *it represents the bringing together of the *rockwell *aerospace and *defense, *mc*donnell *douglas and home-grown *boeing businesses in these same areas. *the *group recently completed its first full year of operation as part of one company, and the results have been absolutely excellent. *so good, in fact, that we have now decided to streamline and consolidate what had been four operating units into two. *they are: *our newly-formed *military *aircraft and *missile *systems *group, headed by *mike *sears, and *our newly-formed *space and *communications *group, headed by *james *albaugh. *what these two new groups have in common with each other - and with our commercial airplane group - is a great breadth of talents and capabilities, combined with a dedication to providing integrated solutions to the most challenging customer requirements. *let's talk about what that means. § *military *aircraft and *missile *systems *boeing is the only aerospace company in the world with four front-line fighters in current production. *and that is combined with an equally formidable position in next-generation fighter aircraft. *we are now producing the *f-15, the *a*v-8*b, the *f/*a-18 *c/*d, and we are in low-rate production and flight test of the *e/*f *super *hornet. *at the same time, we are in competition for the *joint *strike *fighter. *further, if you look at rotorcraft, we have the leading attack helicopter in the *apache, and we believe our *v-22 represents the future of rotorcraft in the 21st century. *with the *c-17, we hold both the present and the future of large military transports. *this is a relatively young production program - one that is widely looked upon as model production program - and it is also an aircraft that is performing superbly well in the field. *we see considerable export potential for the *c-17 - as well as continuing sales to our own government for many years to come. *with this array of products - and others *i have not even mentioned - we have the ability to sell integrated solutions to our customers. *we can offer the right airplane for every requirement, and the right mix of airplanes, where that is required. *that is something we are uniquely capable of providing. *we regard detailed customer knowledge and support as one of our core competencies. *not only are we going to support our customers with the best defense products of today and tomorrow, but we are dedicated to providing superb lifecycle support to our products. *that's why we created a major new business segment dedicated to *aerospace *support. *with this unit, we aim to become the preeminent provider of maintenance and modification for large transports and other types of aircraft. § *space and *communications *you can see a similar approach in our space and communications group of businesses. *there are approximately 525 satellites in space today, and many experts estimate there will be 2,000 more in the next ten years. *certainly, we look forward to rapid growth for ourselves across an array of products - with some interesting linkages between our different products and services. *our goal is always to offer customers the best solution from an assortment of options or alternatives fitting every possible requirement. *we are clearly doing that in the launch business, where we offer everything from the dependable *delta *i*i, the new *delta *i*i*i, to *sea *launch and the *delta *i*v, now under development, which will provide very heavy lift capability. *while the *delta *i*i*i failed on first launch on *august 26, we are on our way to identifying and fixing the error, and we are very confident of achieving success in our next launch early next year. *we count large-scale integration as another one of our core competencies, and that is certainly highlighted in our role as prime contractor for the *international *space *station - a cooperative venture of unprecedented complexity involving no fewer than 16 countries. *our capability as a large-scale integrator is further illustrated by our role in designing, building and operating the *space *shuttle, the world's only reusable launch vehicle. *let me add that we have made significant investments in *teledesic and *ellipso, and we continue to play a major role in the evolving *global *positioning *system. *we built the initial 40 *g*p*s satellites, and we are now preparing to build 33 more satellites of the *g*p*s *follow-on generation. § *people *working *together *this chart demonstrates a new way of thinking - and acting...linking together all kinds of products, operating at different altitudes, from 22,000 miles away to the altitudes suited to conventional airplanes...and on down to the ground. *most people are at least vaguely aware that the *g*p*s system was one of the keys to the rapid victory achieved by coalition forces in *operation *desert *storm. *that, clearly, was only the beginning. *let me tell you about one program that we are really excited about. *the *u.*s. *air *force has called it "a revolutionary development." *it is the *airborne *laser program that *boeing, *lockheed and *t*r*w are jointly developing for the *air *force. *as all of you know, theater ballistic missiles - such as the *scuds used by *iraq in *desert *storm - constitute a large and growing threat. *today, there are more than 20 countries, including *iraq, *iran and *north *korea, that possess these weapons, and many are also developing chemical, biological and nuclear warheads. *our team of companies is building a laser system to be mounted on modified *boeing 747-400 *freighters. *using a long-range infrared search and tracking system, the system will detect missiles from afar - as they rise from their launch sites. *then it will point and fire a powerful laser - destroying the missiles while they are still in the boost phase of flight, over the launching country and before separation of their warheads. *just a couple of months ago, *boeing was selected as lead integrator of a system to protect the *u.*s. from long-range ballistic missile attacks. *it is a scaled-down version of what was popularly known as "*star *wars," but it is the real thing. *using an array of space- and ground-based assets, we are going to build a system for detecting, tracking and destroying ballistic missiles before they reenter our atmosphere. § *joint *strike *fighter *does the intensification in the use of information have any bearing on the way we design and build aircraft? *you'd better believe it. *take the *joint *strike *fighter. *we regard this program as a must win. *we have to win this program if we are going to keep our title as the world's preeminent designer, producer and supplier of high-performance fighter aircraft in the 21st century. *what is it that makes the *joint *strike *fighter so special? *the customer wants a *j*s*f aircraft that can combine the extraordinary attributes of half a dozen aircraft - and do it at an exceptionally affordable price. *the *joint *strike *fighter may be described as the first tactical aircraft designed to take maximum advantage of the highly integrated, system-of-systems-type world that *i have been describing. *this is a plane that will be exceptionally stealthy, versatile, supportable and lethal. *it will be lightning quick - not just in a dogfight, but also - and even more importantly - in capitalizing on a system that provides enormous quantities of usable information. *we are pursuing this competition in a way that is fully in keeping with the nature of the prize we seek. *and it is a prize we fully expect to win. *first of all, we are making this program a showcase for lean design and manufacturing - which we see as the third of our three core competencies. *fewer than 15 people currently support the *j*s*f program in *palmdale, and, using virtual co-location, we are drawing on resources across the company. *we are two months ahead of schedule in beginning assembly of the mid-fuselage of the *x-32*a concept demonstrator aircraft. *we are designing and building under an open architecture system - bringing out and bringing together - the best ideas, and the best technologies, across all of *boeing - and throughout our network of suppliers and subcontractors. *we are weighing every decision and every option on the basis of cost and real effectiveness. *does it make sense, for instance, to have this or that sensor on board, or should we rely on the larger system for the necessary input? § *the *boeing *company *most people think of us as a company that builds airplanes and other things that fly. *certainly, we are that. *but, increasingly, we are a company that designs and builds aerospace systems that provide the kind of solutions the customer wants - within the context of a complex, interlocking array of assets. *while the defensive applications of linked ground-, air- and space-based systems are awe-inspiring, so too are the commercial applications, and the potential economic and social benefits that may flow from them. *within the next decade - or even sooner - *teledesic, *ellipso and other such systems will enable developing nations and communities to leapfrog several steps in the development process. *no longer will it take years of digging trenches to wire a region or country. *commercial satellites will provide not only instant and ubiquitous telephone service, but also the means of expanding education and job opportunities to remote areas. *you are going to see increasing use of space-based systems to direct the movement of cars on the road; of tractors and other equipment on the farm; and of airplanes and their information and entertainment systems in the air. § *people working together as one global company for aerospace leadership *it is exciting to think about, and we, at *the *boeing *company, are thinking about it...and acting out our view of the future...every day of the week. *it's right there in our mission statement: *people working together as one global company for aerospace leadership. *as *phil *condit likes to say when he talks about the future of *the *boeing *company, *there's no limit to this flight. § *fb. § *a *place to *stand: *reaffirming *affirmative *action *from a *market-based *perspective § "*give me a lever . . . and a place to stand . . . and *i will move the world." § *so said *archimedes. § *there are many kinds of leverage -- not just physical or mechanical, but moral and social, personal and political, financial and economic. *every one represents a means by which the few become capable of lifting the many. § *that is something that *dr. *george *campbell and others who serve this organization understand very well. *you have demonstrated your mastery of the concepts of leadership and leverage again and again over the past 25 years. § *the *national *action *council for *minorities in *engineering was founded in 1974 following an event like this one at the *national *academy of *engineering. *it began as a coalition of leaders from government, academia and business who saw a need for positive action in creating greater opportunities for minorities inside the profession. § *tonight is an occasion for celebrating a quarter of a century of progress under *n*a*c*m*e's leadership. *it is also a time for rethinking old strategies, for brainstorming . . . and for considering new challenges. § *let us begin by recognizing how far we have come . . . and how far we have yet to go. § *in 1974, *african *american, *latinos and *american *indians made up a grand total of one percent of the engineering workforce. *one percent! § *today minorities account for about 10 percent of all *bachelor of *science and *engineering graduates at *u.*s. colleges and universities. § *no fewer than 6,700 out of roughly 70,000 non-*asia minority engineers today obtained their degrees with the help of *n*a*c*m*e scholarships. § *by any yardstick, there is still a great shortage of people from minority groups within the engineering profession. *n*a*c*m*e is reaching out to groups that make up 28.5 percent of the population and a third of the birth rate. *notwithstanding the progress that has been made, less than six percent of the engineering workforce of today comes from these groups. § *some people would say: *what is wrong with that? *should every profession, every career path, precisely reflect the population distribution? § *in his address to the *n*a*c*m*e *forum last year, *dr. *campbell addressed that very question. *he pointed out a crucial difference between the relatively small number of minority engineers and -- as a counterpoint -- the small number of white male basketball players in the *n*b*a. *there is a clear "legacy of exclusion" on the one side. *whites have had every opportunity to compete in basketball from grade school on up. § *let me add a couple of thoughts from my own perspective. § *as the president of engineering-based company that is one of this country's largest exporters, *i know that *i cannot afford to compete with one hand tied behind my back -- and that is the situation when we as a nation conspicuously fail to tap much of the intellectual and creative potential of large segments of the population. § *we need great engineers, and we need to draw them from every group. *engineering is problem-solving and creativity... at a high level. *to get the best results, we must have the clash... the interplay... and the resolution... of many different viewpoints and perspectives. § *second, as someone who first went to college on a "*grandma scholarship," which is to say, on the savings that my grandmother had accumulated as a school teacher in *tennessee hill country, *i know something about the value of an engineering or science degree (mine was in physics) to someone who comes from a less-than-affluent background. § *i skipped two grades and graduated from high school at age 16, but *i was two years behind some of my original school mates in graduating from college -- as a result of a four-year interval in which *i worked as lab technician and went to summer school and night school. § *a degree in engineering or science is a bootstrap that eliminates poverty by pulling up multiple generations of people. *among my friends who are engineers, *i can think of a number who worked their way through school, but none who were unable, unwilling, or less than totally dedicated, to putting capable children of their own through college or even graduate school. § *like many of my friends, *i was lucky. *i grew up in a family that prized books and learning. *from first grade on, *i went to schools that were rigorous, disciplined and, in their own way, caring. *every child in this country should have those advantages. *but we all know that is, emphatically, not the case. § *the $64,000 question is: *what are we going to do about it? *the original coalition that *n*a*c*m*e began with in 1974 is still intact -- and, indeed, bigger and better than ever. *we must take advantage of that. *right here in this room, we have a plenitude of resources . . . comprising minority engineers who have been there and done that, and leaders from academia, business and government who retain the ability to act as powerful access providers. § *today, we see a continuing backlash against affirmative actions programs in courts and legislatures around the country. *already we have seen a sharp decline in minority engineering enrollments in *california due to the impact of *proposition 209. *at *boeing, we are strongly opposed to any measures that reduce the national commitment to hiring and promoting people from minority groups. *boeing is among the companies that have stood up and asked to be counted in opposing a negative initiative of this type in the state of *washington. § *at the same time that we do battle against a variety of measures aimed at rolling back affirmative action, we should recognize that today's world is awash with new possibilities for progress. *if there is going to be less push on the legislative and judicial side in support of greater participation by minorities, then there can be . . . and there must be . . . more push coming from business and industry. § *companies everywhere are looking to become more creative and entrepreneurial. *surely we can apply more of the same kind of thinking in accelerating the recruitment and development of minorities in engineering and other fields. § *that is certainly what we are trying to do at *the *boeing *company. *we are taking more and more of a results-oriented approach versus the old way of making uncommitted funds available for scholarships and grants. *we should all look for the highest possible *return on *investment on money spent in this area. § *we are tying *boeing scholarships more closely to summer internships with the clearly understood goal of having the inside track on hiring outstanding graduates. *we see these scholars and interns as an important part of our future in 10 or 20 years time. § *in addition to supporting *n*a*c*m*e with $640,000 in giving over the years, we are active with *n*a*c*m*e in a wide variety of projects aimed at school reform and insistence on high academic standards for all students at the *k-12 level. *each year we bring *n*a*c*m*e scholars into our company to work side by side with *boeing engineers. § *we have close working relations with 16 *historically *black *colleges and *universities and other *minority *institutions. *in addition to providing more than $250,000 in annual scholarship support to the *h*b*c*us, we are moving into new and promising growth areas in our relations with them.. § *for instance, at our *phantom *work advanced research and development center, we are outsourcing more than $600,000 a year, or nearly 5% of our annual government research dollars, with *h*b*c*us. *this includes a total of $200,000 in contract awards over the past two years to *tennessee *state *university and *central *state *university for doing advanced modeling work to assist *boeing in the development of lean design and manufacturing processes. § *this is a win-win-win situation. *it helps us. *it helps the schools. *and it helps the students. *and it brings all three of us into a working partnership that takes on a life of its own, leading to new opportunities and projects. § *one of the areas where you see the worst under-representation of minorities is in doctoral engineering programs, where they account for just two percent of all doctoral candidates. § *can we do something about that? *you bet we can. § *now we are preparing to award contracts of as much as $50,000 to individual students at *h*b*c*us that they will be able to take with them in applying for admission in masters and doctoral programs at *stanford, *m*i*t and other prestigious universities. *in going forward in their studies, these students will continue to do work for us in such areas as development of advanced sensors or solid state electronics. *we intend to grow this program to eight or nine students a year. § *those are some of the things that we are doing at the *boeing *company. *i expect that many of you have exciting programs of your own, and *i look forward to discovering more about them. *there should be no patents on good ideas in this organization. § *there are many things we can do to put new drive and impetus into all the things that *n*a*c*m*e stands for. § *in a sense, it is payback time for *american business. *if, back in 1974, *n*a*c*m*e and its supporters in the business world had a lever . . . and a place to stand . . . it was due to the *civil *rights movement. § *american business has never properly recognized the debt we owe to the *civil *rights movement. *this is something that goes beyond diversity and inclusion . . . important as they are. *it goes to the heart of our ability to think and act in new and better ways. § *concepts such as empowerment and self-directed work teams have roots in the *civil *rights campaigns of the 50s and 60s. *so, too, does the basic, activist idea that big organizations are capable of large-scale change; and that people, even within the bowels of a big organization, can determine their own destinies. § *in closing, then, *i would like to quote the eloquent words of *martin *luther *king. § *as he put it so well, "*the greatest progress we have made... and the greatest progress we have yet to make... is in the human heart." § *fb. § *the *power of a *vision § *when *i accept a speaking engagement, *i always try to be a good soldier. *i do my best to follow orders. *kirk *thomson, who invited me to address you this morning, said it was your wish that *i should talk about my "vision for the future" of the new *boeing *company. *so that is what *i will talk about. § *let's begin with the question: § *what is a vision? § *is there any power in a vision? *any substance? *for our purposes, is a "vision" anything more than the latest fad or buzzword to hit the corporate world? § *the dictionary defines a vision as "the act or power of anticipating that which will or may come to be." § *that doesn't take us very far. *some people may be able to imagine the future in brilliant *technicolor -- with a sound track that puts the **titanic *to shame. *but for a vision to matter, it must have the power (when enunciated by strong leaders) to move people and events. § *that is to say, the power to move them in a set direction . . . over a long period of time . . . toward a distant goal . . . that is worthy of hard work, perseverance and sacrifice. § *let me tell you a story that demonstrates the power of that kind of vision. § *the story is about *abraham *lincoln, at an important turning point in the *civil *war. *union *general *george *meade had just won a great victory over *robert *e. *lee at the *battle of *gettysburg. *but as *lee was beating a retreat, *meade was slow in his pursuit. *as a result, *lee escaped, back to *virginia, with much of his army intact. § *when *meade boasted of his success in "driving every vestige of the invader from our soil," *lincoln was not at all pleased. *he was infuriated. § "*drive the invader from our soil!" he cried. "*my *god! *is that all? *will our generals never get the idea: *the whole country is our soil." § *lincoln had a vision. *to him, it was a mighty compass -- guiding his action through every crisis and through every twist and turn in the war. *at the center of his vision was the idea of one country -- whole and indivisible. § *from the inception of the conflict, *lincoln never wavered in his commitment to the idea that the *united *states must endure as one country, dedicated -- in his words -- to the proposition of "government of the people, by the people and for the people." *if that was only possible through unconditional victory, so be it -- he would keep changing his generals until he found the one who would produce it. (*it turned out to be *ulysses *grant.) *even in the darkest days of the war, *lincoln would not contemplate a compromise solution that would end the bloodshed at the cost of giving up the ideal of union. § *think of how much different the history of our nation . . . and the world . . . would have been . . . if *lincoln had lacked a vision, or if he had faltered in his purpose, as he could so easily have done. § *if the *united *states had not survived as one country, it is doubtful whether freedom and democracy would have survived and flourished as they have on this continent. *it is even more doubtful that the *american people would have become a beacon of hope and freedom to other peoples -- and that this nation would have come to the rescue of other nations in two world wars and countless other conflicts. § *as a company, we, too, have a vision. *like *lincoln's vision, it is a compass, not a placebo. *it will lead us to a better future. *but only by helping us remain true to ourselves and to the best that is within us. § *our vision statement reads: "*people *working *together as *one *company for *global *aerospace *leadership." § *i will break that into several parts, and review each in turn. § *it starts with **people*, and *working together*. § *i won't repeat the old cliché that "*people are our most important asset," because *i think the statement is demeaning, or even insulting. § *first, a company owns its assets, but it doesn't own people. § *second, one expects company assets to depreciate -- to wear out with time and lose their value. *but if you do your job right, in leading a company or business, you enable people to appreciate -- to increase in value, as a result of being given the opportunity to grow and develop, and to become increasingly involved in and excited by the business of the company. § *in fact, that is one of the single most important lines of demarcation in the business world. *the best companies almost always run a surplus in developing and producing highly motivated and capable people. *they are net exporters of leadership talent. *the not-so-good companies run a chronic deficit in this regard. *they are net importers. § *we don't want our company to be dependent upon others when it comes to developing future leaders and filling top jobs . . . nor can we afford to lag rather than lead when it comes to enabling people at all levels to develop to their maximum potential. § *for this reason, we have thoroughly revamped and upgraded our *people *policies over the past nine months. *as one example, we are prepared to invest a considerable amount of money in enabling people to go back to school . . . and to pursue other interests . . . that fit under the banner of "lifelong learning." * *working together* is not just a nice-sounding phrase. *it is a competitive necessity -- at both the micro and the macro level. § *we must make rapid progress in many parts of our business in driving down costs and improving first-time quality. *we won't get there by doing the same things better; we have to *do things differently*. *thus, we must find new and creative ways of *working together* at the micro level -- in enabling and encouraging the people who do the work to take matters into their own hands to achieve major improvements in cost, quality and flow times. § *it is equally imperative that we find new and creative ways of *working together* at the macro level. *there is a superabundance of opportunities for synergy within the new *boeing *company -- given good communication, teamwork and a constant cross-fertilization of ideas ... from military to commercial . . . and back the other way . . . and between all space businesses and our other businesses involving things that fly within the earth's atmosphere. * *one *company. * *those two words stand at the very center of our vision statement. § *for all the talk about synergy, we will reap no real benefit from amassing a $45 billion business (apart from the elimination of duplicative costs in some areas), until we develop the habit of thinking . . . and acting . . . *as one company*. § *by one company *i mean a company where people are bound together by a sense of common purpose and shared destiny, yet, at the same time, are free to move about and seek new opportunities within the farthest boundaries of the company. § *think of what that can mean to you! *within the limits of your own ambitions and capabilities, you can aspire to any position you want in this great big company, and you will find yourself surrounded by friends and colleagues wherever you go. § *perhaps we have spent too much time talking about heritage *rockwell, heritage *mc*donnell *douglas, and heritage *boeing. § *i say: *i*t'*s *t*i*m*e *t*o *s*t*o*p *t*h*i*n*k*i*n*g *a*n*d *t*a*l*k*i*n*g *i*n *t*r*i*p*l*i*c*a*t*e *a*b*o*u*t *t*h*e *n*e*w *b*o*e*i*n*g. § *how many of you agree ??? § *we are all one company. § *to paraphrase *lincoln, we should have the feeling, deep in our bones: *the whole company is our soil. *it belongs to each and all of us. § *this is a message that applies as much to the purchase, distribution and conservation of energy as it does to any other activity in our company. § *right now, we are spending upwards of $200 million a year just for electricity. *but the cost per kilowatt hour is twice as high in some states -- notably *california -- as it is in others. *why not buy electricity where we can get it cheaply -- and transmit it to points of need, wherever they are? *why not, indeed, given the advent of energy deregulation in *california and the prospect of liberalization in other states as well? § *i know that some of you are already putting together a strategy for making that happen. *once you come up with a strategy, you will have to sell it to all of our businesses -- from commercial aircraft and fighter aircraft to missiles, space and electronics. *you will have to persuade a lot of people to *do things differently. * *i therefore challenge each of you to act as a real leader in carrying the *one company* message forward to every city and state where we have significant operations. *you can make a real difference, in cutting costs, conserving resources and promoting change. § *the last few words in our vision statement concern the mission or purpose of our company, which is **global *aerospace *leadership*. § *as *phil *condit has said, "this is not about being second best." *it is about being the best in the global aerospace business in every important way -- first in the excellence of our products, first in value delivered for the cost, first in timeliness and in customer satisfaction, first in the estimation of people who work in the aerospace industry, and, finally and critically, first in financial performance and return to shareholders. § *i do not intend to launch into an extended discussion here about the current performance of our different groups and businesses, and of the company as a whole. *we can talk about those things in the *q & *a, and *i urge you to ask me anything you like. § *but *i will make a couple of points before sitting down and inviting your questions and comments. § *the first is: *everything you *heard* that *i *said* about recent financial performance is absolutely true -- including the use of words like "rotten," "terrible" and "embarrassing." *i haven't been misquoted in any of the news stories. § *yes, *i am extremely unhappy, and *i would like to think that my unhappiness over our recent failure to produce either a decent profit or better results for our shareholders is shared by everyone in this company. § *our overall financial position is still very strong . . . and our reputation as a company is still very solid. *nevertheless, it would be a grave mistake for any of us to think we haven't been jolted by some of the negative events of the past six months . . . and that we aren't being tested right now. *news about the troubles at *boeing has circulated around the world -- to every airline, to every member of the traveling public, to every customer and supplier, and to every serious investor. § *the whole world's watching . . . to see whether we have what it takes to bounce back and show that *boeing is better than ever. *without a doubt, we have to wage a war on cost and inefficiency inside this company that will go beyond anything we have done before. *each of you has a role to play in helping us win the war on cost. § *my second point is this: *be dissatisfied, but not despondent. § *this is a great company with a great future. § *nobody can beat us but ourselves. § *and it is totally within our power to go out and beat every one of our principal competitors in the aerospace industry. § *we are . . . or we can be . . . that good. § *there is a new *boeing *company. § *i am thrilled to be a part of it. § *and *i hope you feel the same way. § *fb. § *the *unknown *soldiers in *our *midst § *one morning long ago, a small band of volunteers in this town were asked to surrender a fort to a large army that had surrounded them during the night. *they answered with a canon shot. *in the furious battle that followed, every one of the volunteers was killed. *though the effort was doomed, the heroism of the volunteers has been an inspiration for generations of *americans. *to this day - 174 years later - we "remember the *alamo." *this morning, *i would like to join you in remembering another all-volunteer force that has played, and continues to play, a prominent role in *san *antonio. § *i am speaking, of course, of our *all-*volunteer *armed *forces. *san *antonio, or "*military *city, *u*s*a," as it is sometimes called, is home to no fewer than five military bases. *your city has done a great job of integrating the military into the community. *your *armed *forces *week - sponsored by the *greater *san *antonio *chamber of *commerce - is one sign of that. *what other city holds so many events to commemorate the military? § *as *i have heard it told, the story of how *armed *forces *week got started in this community is even more instructive. *it began, almost defiantly, in 1970, when our soldiers, sailors, marines and airmen were being shunned and spat upon when they returned from *vietnam. *at that time, your community . . . and the *chamber of *commerce . . . took a stand, saying "*we welcome the *stars and *stripes." § *there is a great sense of partnership between the military and the political and economic leadership of *san *antonio. *in fact, that was one of the factors that led us to put our large and growing *boeing *aerospace *support unit here at *kelly. § *we now have about 2,000 workers at *kelly. *that is more than ten times the size of the force that *w. *b. *travis had under his command at the *alamo! *but *i must admit that it is still less than half of what *santa *anna had!! § *now, to return to the real theme of these remarks, the *all-*volunteer *armed *forces that are with us today are doing heroic service. *but they are operating under growing strain - performing all kinds of dangerous and difficult missions around the world with ever-diminishing manpower and resources. *with good reason, our hard-working soldiers, sailors, marines and airmen have a growing sense of being out-of-sight and out-of-mind as far as the *american public is concerned. *in some ways, you - those of you in uniform - are truly the "unknown soldiers in our midst." § *this is true even though recent polls indicate that the *american public has more confidence in the military than any other *u.*s. organization or grouping, including organized religion, organized labor, the *u.*s. *supreme *court, the police, the computer industry and others. § *but this high level of esteem and confidence has been a very mixed blessing. *with it has come an increased disposition to use our military in a wide variety of short-term deployments to distant places. *and, if you are looking for any sympathy for the frequent family separations and other hardships that has imposed on the services, forget it! *the *american public is simply unaware of any problems in this area. *how, then, is one to account for this strange dichotomy, where our *armed *forces are concerned, between public appreciation and respect, on the one hand . . . and public indifference, or apathy, on the other? § *i see a twofold answer to that question. *i think that it is partly a matter of demographics, and partly a matter of our forces having had almost too much success in recent time. *at the same time that our *armed *forces have been shrinking in size, they have allowed our country to project force with increasing precision, and with a decreasing sense of the kind of commitment that the pig, as opposed to the hen, is said to have in the making of ham-and-eggs. § *twenty-seven years have passed since the end of the draft in 1973. *that's an entire generation. *to paraphrase *john *f. *kennedy, the torch has been passed to a new generation, one with greatly diminished military experience and little understanding of and contact with those who serve. *less than a third of our *congressmen are veterans. *that's down from three-quarters or more a few decades ago. *neither the *president of the *united *states, the *secretary of *defense, nor the *secretary of *state is a veteran. § *most *americans who were teenagers when the draft ended have grown into middle age without ever having to serve. *they have been exempted, in other words, from having to devote an extended period of their lives to the defense of their own freedom and security and that of their fellow countrymen. § *this duty has been contracted out to a relatively small number of people who are both volunteers and professionals. *i say "relatively small" because they constitute less than one half of one percent of our total population. *there is now one person on active duty for every 202 citizens in this country. *that compares to one soldier, sailor, marine or airman for every 84 citizens back in 1973, when the draft was ended, and to one service man or woman for every 11 citizens at the height of *world *war *i*i. § *well, so what, many people would say. *the *cold *war is over, isn't it? *peace has broken out. § *that is the kind of reasoning that inspired a great many newspaper editorials in the early post-*cold *war era. *in late 1989, after the fall of the *berlin *wall but before *saddam *hussein became a household name, a sarcastic headline in the *new *york *daily *news noted that the "*pentagon *needs a *few *good *enemies." *in *february, 1992, the *new *york *times accused the *pentagon of scare mongering in order to justify inflated defense budgets. *in *august of that year, the same newspaper was calling for air strikes in *serbia and the use of *u.*s. and allied military force in the *balkans. § *down through history, there are many examples of how the optimists have urged us to throw away our umbrellas with the first ray of sunshine. *my favorite is from *time magazine in 1938. *the editorial writer took note of the seemingly amazing fact that the *u.*s. military budget had risen to $492 million, or almost half a billion. *now that, according to some careful research of my own, amounted to a miniscule 0.6% of *u.*s. *g*n*p at the time. *nevertheless, the editorial writer was thunderstruck. *he demanded to know: "*where, how, and for what does the *u.*s. *army expect to fight?" § *the best-kept secret in *american public life today is the increasing utilization of the *u.*s. military in general and the *u.*s. *air *force in particular. *while the *u.*s. *air *force is 40% smaller than it was during the *cold *war, the actual workload that it is carrying, measured in days deployed, has risen by a factor of four. § *no one anticipated the multiple roles that the *u.*s. would begin to play as an all-purpose *superman in the dangerous and unstable world that has emerged since the collapse of the *soviet empire. *in 1999 alone, the *air *force was tasked to provide earthquake relief in *turkey and *taiwan, hurricane relief in *central *america, lifeline support to displaced people in *albania, along with drug enforcement assistance in various parts of the world. *and all of that was in addition to carrying out more than 35,000 sorties in *kosovo. § *the high tempo of operations around the world is taking a toll on our service men and women. *while the *air *force tries to limit annual temporary-duty rates to no more than 120 days a year, many units are spending far more time than that in overseas deployments. *exit surveys show that family separations are the leading cause for lower-than-desired retention rates for enlisted personnel. *to make up for the shortfall, the *air *force is using paid advertising for first time to stimulate recruiting. § *when *i look at our *all-*volunteer *armed *forces, *i am astounded at all they have accomplished. *i can remember what it was like back in 1973 when the transition was made. *respect for and morale within the services were at all-time lows. *within the next decade or so, the *armed *forces executed a complete "turnaround," as we call it in the corporate world. *only this turnaround was bigger, broader and more impressive than anything *i have witnessed in four-plus decades of corporate management. § *the hope was that a volunteer force would soon become a leader's dream - being highly motivated, highly dedicated, and highly trainable. *all that has come to pass - along with development of many outstanding leaders. § *today - and for some time now - our country has had the best damned army, the best damned navy and the best damned air force in the world. § *it is absolutely imperative that we maintain the edge that our warfighters have achieved. *let us always pray for peace but be prepared for war. *we still have seen and unseen enemies who watch for weakness. *as *plato said, "*the only people who have seen the end of war are dead." § *certainly, *f. *whitten *peters, the *secretary of the *air *force, does not expect the tempo to let up anytime soon. "*the *air *force is entering a new era," he noted in a recent report. "(*it is) one in which . . . continuous temporary deployments of *air *force resources are the norm." § *i would be exceeding my competence . . . as well as my authority . . . if *i tried to tell you how the military budget should be set to accommodate the requirements of such an era. *but clearly there is a need for higher spending levels. *and just as clearly, the *air *force *association has been doing a great job of bringing that to the attention of our legislators in *washington. § *i can promise you that we at *boeing . . . along with our partners and competitors in the defense industry . . . are working hard on many new or improved weapon systems that are designed to ease the strain and up the gain when they go into the hands of our warfighters. *in *kosovo and *bosnia, *unmanned *aerial *vehicles have already shown that they can do a superb job of providing surveillance. *now we must go to the next step - and *boeing is working on this right now - of designing and building *unmanned *combat *air *vehicles, or *u*c*a*vs, that will do actual warfighting in the suppression of enemy radars. § *but *i don't think that all of the answers we are looking for lie just in having more money and more innovative weapon systems. § *beyond all such considerations, *i would welcome some new and even radical ideas on what we could do to bridge the growing gap between the civilian and military worlds. *i would welcome some new and even radical ideas on what we can do to facilitate greater movement back and forth between those two worlds. § *should we have a new *g*i *bill with beefed-up incentives . . . for people who sign up for a tour of duty . . . to pursue college or graduate degrees upon their return to civilian life? *it's an idea. § *we employ a huge number of veterans at *boeing - not out of altruism, but because we know they make great employees and they come to us with terrific knowledge about our products and (very often) our customer. *we wouldn't have opened up a huge *aerospace *support unit at *kelly if we didn't think that way. § *can we improve conditions inside places of employment for our reservists? *we have already done that at *boeing. *when reservists are called into action, we not only guarantee them jobs upon return, we also make up the differential between their military pay and what they would have received with us. § *i think that it is great that the *air *force is stepping up its advertising efforts. *maybe it is something you should have been doing a long time ago. *nobody can tell your story better than you can tell it yourself. *certainly, you don't want to leave that task entirely to the press. *advertising is one medium for communicating with the *american people and making them more aware of who you are and why you are an important part of the larger community. § *it has always been my observation that the general public is fascinated with the military - if given half a chance to indulge its curiosity. *that is something that many of you can capitalize upon, if you are willing to make the effort of going into the schools or out into the community to give speeches and talk about your experiences. § *there is an old tradition in the military in many parts of the world that finds glory in defeat. *we remember the *alamo for the heroism of the doomed volunteers. *in *kosovo and *bosnia, one of the sides celebrates a centuries-old defeat at the hands of its enemies - the better, it seems, to nurse a grievance. *our task, as *i see it, is to build upon a more solid foundation . . . centered on a record of success . . . and a high level of trust and respect within the *american public. § *when you think about it, that is not a bad starting point. § *in closing, then, let me just say that it is time for the unknown soldiers in our midst to stand up and be counted . . . not just in the field of battle, but here at home, where you are needed as well - for the benefit of your advice, counsel and wisdom. § *fb. § *the *boeing *company 10th *annual *minority-*owned and *woman-*owned *small *business *conference *vision 2016 § *good morning! *that was a great video, wasn't it! *it shows just how tremendous our team is. *and what fantastic and awe-inspiring products we build! *what great teamwork! *i think that you our suppliers deserve a round of applause for your support in helping *boeing build the best aerospace products in the world. *we're definitely one team working together for global aerospace leadership. *thanks for your support! § *boeing has a very simple vision for its future: *and that is to be one global team who leads the world in providing the highest quality, most affordable aerospace products. *we call it *vision 2016 because that's the year that *boeing celebrates its one-hundred-year anniversary. *the road to *vision 2016 is straightforward. *we'll lead the industry by being responsive to our customer's needs . . . and by becoming the leanest, most efficient, most cost-effective designer and integrator of large-scale systems. *today, our company faces many challenges. *but there's no doubt that our future is bright and full of promise. *together, we can tackle these issues head-on. *and help our team realize its full potential. § *this conference is all about how we work together to move our performance to new heights. *our success in achieving *vision 2016 depends in large part on how well we work with you our suppliers. *it doesn't matter whether you are a big . . . medium . . . or small supplier. *your participation and commitment is vital. *working together, we're going to move the performance of this team forward. § *there's a simple reason why suppliers are perhaps the most vital cog in our success. *a full 60 percent of our product costs on average are provided to *boeing by suppliers like you. § *by 2016, we expect this percentage to grow to 75%. *so, it's clear that our success and yours are intertwined. § *this is our 10th annual conference for minority owned and women owned businesses. *boeing hosts other supplier conferences but this is the only one that exclusively focused on helping companies like yours grow and develop. *it's a key program in our efforts to expand and strengthen our diversity of its supply base. *we've placed over $200 million in new business with minority-owned and woman-owned businesses as a result of contacts made through this conference. *this conference is a great place for our buyers and supplier managers to do some one-stop shopping. *i encourage everyone here to take full advantage of the opportunity to learn more about the capabilities of the companies here today. . . . *and to continue the dialogue that we've started with each other. § *i thought that *i'd share some interesting information about the 83 companies that are here today. *thirty are new to the conference. *welcome we trust you'll find this conference valuable and we thank you for joining us. *as this chart shows, nearly all the companies here today already do business with *boeing. 70% of you do work for more than one part of *boeing. *in fact, 10 percent do business with four *boeing businesses *commercial *airplanes, *space and *communications, *aircraft and *missiles, and *phantom *works. 30% do work for three groups and another 30% of you do business with two groups. *and all of our strategic sourcing or commodity groups are represented. § *boeing has one goal and that's our vision of working together as one team for global aerospace leadership. *we will know we have succeeded when the *boeing name and that of our suppliers becomes synonymous in our customers' minds with best value. *we will be the recognized leaders in customer satisfaction . . . *we'll return great value to our shareholders . . . and we'll be the most efficient and lean enterprise in the aerospace industry. § *equally important, suppliers will consider *boeing to be their preferred customer. *you'll put a premium on our partnership . . . and value our business over others. *this conference is all about strengthening the teamwork between ourselves and your company. *we want to hear from you on how we can do a better job of supporting you . . . and helping you boost your performance. *your commitment . . . your ideas . . . your enthusiasm are vital to our continued success. *please let us know what's on your mind. *there's plenty of opportunity throughout the conference for your input. *plus, there's a feedback form in your registration package. *so let's get to the heart of our presentations today. *i'd like to first talk with you about the *boeing *supplier *diversity *program . . . *then a quick overview of how *boeing operates today . . . our strategic supplier management initiatives . . . and highlights of the business outlook for *military *aircraft and *missile *systems, the unit where *i work. § *companies like yours are important to *boeing because small businesses are the engine for economic growth and the source for much of the innovation in our industry. *when small businesses compete for work from *boeing, they win the competition nearly 70% of the time. *that's because small businesses are more flexible and can produce lower cost products more efficiently. *they can introduce innovations much more quickly. *boeing is committed to expanding our supply base of small businesses especially minority owned and woman-owned businesses. *we have a supplier diversity program focused on helping companies like yours thrive. *we've dedicated resources throughout the company to promote supplier diversity . . . to expand your access to business opportunities at *boeing . . . to get you involved earlier in the procurement process . . . to provide technical and management assistance . . . and to recognize and promote exceptional performance. § *companies like yours are important to *boeing because small businesses are the engine for economic growth and the source for much of the innovation in our industry. *when small businesses compete for work from *boeing, they win the competition nearly 70% of the time. *that's because small businesses are more flexible and can produce lower cost products more efficiently. *they can introduce innovations much more quickly. *boeing is committed to expanding our supply base of small businesses especially minority owned and woman-owned businesses. *we have a supplier diversity program focused on helping companies like yours thrive. *we've dedicated resources throughout the company to promote supplier diversity . . . to expand your access to business opportunities at *boeing . . . to get you involved earlier in the procurement process . . . to provide technical and management assistance . . . and to recognize and promote exceptional performance. § *this fair is one example of how we are trying to expand the access of minority-owned and woman-owned businesses to opportunities at *boeing. *another is our strategic sourcing effort. *we have identified our suppliers by eight commodity groups. *and we have established teams to manage the supply base within each commodity category. *we've put supplier diversity representatives on our strategic sourcing teams to ensure that minority owned and women owned businesses are considered early in the process of placing new contracts. *these teams allow us to: strengthen our long-term relationships suppliers identify candidates for preferred certification lead technology roadmapping and execute lean initiatives and acquisition reform strategies. § *the *d*o*d *mentor-*protégé program is another key element in our efforts to provide development opportunities for minority owned and women owned businesses. *boeing has had 17 mentor-protégé partnerships since the program began in 1991. *today we have 5 active programs. *last year, *boeing awarded more than $6 million in new business to these protégés. *these special relationships help put the protégés on solid footing for future growth . . . *through this program, we help companies improve their financial systems, develop technologies, and increase their access to new markets. *we're fortunate to have representatives from four mentor-protégés with us today. *as *i call your name, *i'd like you to stand. § *first is *don *dugger of *general *technology *corporation. *they manufacture printed circuit boards and electronic assemblies. *squire *clemons is president of *technology *management. *his company provides engineering and support services to *boeing. *next is *dr. *paul *hsu, president of *manufacturing *technology *incorporated, a gold supplier and long-time supporter of *boeing. *m*t*i builds electronic components and avionics for many of our military aircraft programs. *i've saved our newest mentor-protégé, *shawnee *manufacturing, for last. *edward *thomas is the majority owner of the company. *and *mike and *glenda *ennis are his partners and co-owners. *shawnee builds parts for our missiles and for many of our tactical aircraft programs. *we recently honored *shawnee with the *boeing *affordability award for its success in cutting costs by 17%. *congratulations to each of you and your teams. *thanks for all your great work. § *this government program encourages technology development by small and minority owned and women owned businesses. *boeing is currently supporting 10 small businesses including three minority owned and women owned companies. *we've helped our *s*b*i*r partners secure over $1 billion in awards. *and we sponsored the agency's *tibbett's *award for the past two years. § *this program focuses on partnerships with *historically *black *colleges and *universities and *minority *institutions. *there are 14 schools in this program, some of which are listed here. *we have *r&*d programs with half of these schools. *the goal is to support development of the schools' engineering capabilities and to provide more well-rounded learning experiences for students. *last year, we placed more than $300,000 in research purchase orders with these schools. *these programs are an excellent recruiting resource for *boeing. *and they prepare the entrepreneurs of tomorrow. *students who may one day become suppliers like you. *our senior executive in charge of the program for *aircraft and *missiles, *dr. *allen *atkins, is a speaker later this morning. § *boeing has a number of recognition programs for its suppliers and especially minority-owned and woman-owned businesses. *our top award is the *boeing *small *business *supplier of the *year, which was awarded last year to *baszile *metals *service company. *barry *baszile, founder and president of *baszile is with us today. *barry, would you please stand? *baszile is the only *african-*american firm that produces aluminum products for the aerospace industry. *it's on-time delivery rate for 1998 was 97.6% -- a phenomenal accomplishment. *congratulations, *barry and to your team. *we have many award winners with us today . . . *companies that have received recognition for their efforts to cut costs and improve quality . . . businesses that have worked hard to become preferred certified suppliers . . . companies that have gone out of their way to help us meet our business goals. *i'd like every company that's gotten an award from *boeing to stand. *we owe you a big round of applause and our heartfelt thanks for your excellent support. § *the reason we are here today is today is to help all of us become a better supplier to our customers. *one of my objectives today is to give you as much insight as possible into the new *boeing *company . . . our philosophies . . . our operating principles . . . our organizational structure . . . and the relationships that we intend to build with you so we can be more successful as a team. *our revenue and earnings picture pretty well sums up the challenge facing *boeing. *in 1998, our revenues were 56 billion dollars. *billion. *our revenues were 1.1 billion. *total return on net sales was 2 percent. *we made some progress in 1998. *for example, we delivered 563 commercial airplanes as planned. *and all three operating segments achieved their financial projections. *but clearly the company has a long way to go. § *phil *condit, *harry *stonecipher and our executive leadership have a single, simple strategy for improving our performance and in the process, achieving our vision. *we're focused on delivering value . . . to our shareholders . . . to our customers . . . to all our key stakeholders. *we're going to maximize value by focusing our business base, eliminating non-value added activities, reducing costs and become more efficient and productive. *the strategy is not about shrinking *boeing. *it's about growing *boeing. *we intend to fix and maximize, enhance and grow, and build upon the strategic competitive advantages of our team. *and our suppliers have a big role in our success in achieving this. § *behind me is just a sample of the many great products that *boeing and its suppliers build. *they are fantastic products. *no other company in the world has such depth and breadth . . . and such a tremendous aerospace heritage. *we're fortunate to work in an industry that we love. *now we plan to move the performance of extended enterprise to new performance heights. *how are we going to do this? § *first, we've organized our company to be able to focus better on its core competencies. *in *september, the company dissolved its *information, *space and *defense *systems *group and established three operating groups. *one is *boeing *commercial *airplanes *group, headed by *alan *mulally, and headquartered in *seattle. *the second is *boeing *space and *communications *groups led by *jim *albaugh and based in *seal *beach. *the third is *boeing *military *aircraft and *missile *systems *group led by my boss, *mike *sears, and headquartered here in *st. *louis. *we have a fourth group *shared *services which manages and administers the nuts-and-bolts services that keep our businesses running. *services like facilities management, information systems support, and security and fire services. *this is led by *jim *palmer and is based in *seattle. *we also have an *r&*d organization called *phantom *works. *it's headed by *dave *swain and supports technology development at all the business groups, including *commercial *airplanes. § *next, we've set up process councils to ensure that we work together across all functions as one company. *phil and *harry established 15 *process *councils in *january. *they're listed here. *these councils represent each functional area and are made up of leaders from each business group. *their purpose is to: ensure that best practices are shared across our enterprise, make the best use of resources set agreed-upon standards and to assure that information is shared to that decisions being made are in the best interest of the company as a whole. *each council establishing a performance measurement metrics for its function and for implementing common processes. § *the *supplier *management *process *council is headed by *russ *bunio, who is my counterpart at *boeing *commercial *airplanes. *the leaders of supplier management at each business group are also part of the *council. *we've been meeting since *january to discuss how we can implement a consistent approach for supplier management within *boeing . . . and work toward a common strategic vision for our organizations. *we are continuing a lot of the work that was started by the former *boeing *i*s*d*s *supplier *management *council last year and by *b*c*a*g. *we've linked these activities together through the *process *council and you can expect us to move out quickly on several key strategic supplier management initiatives. *the bottom line is that we plan to make more strategic use of our supplier partnerships. *and to involved our suppliers earlier and more deeply in our efforts to: *reduce costs *cut cycle times *deliver innovations, and *increase our competitiveness. § *the *supplier *management *process *council has formed these six teams to coordinate and integrate best practices . *they will focus on supply chain processes that are enterprisewide and affect the image that we project to our suppliers. *each business group, in turn, has teams that link to these companywide teams. *our highest priority is to support our customers. *and to operate *supplier *management as a business. *we intend to work as one team and to project one customer image to our supply base. § *some of the initiatives begun last year to develop a world class supply base are continuing under the *supplier *management *process *council. *in particular, we have a two new programs to help all of our suppliers track and improve performance. *one is a *supplier *performance *measurement system and the other is an expanded *preferred *certification program. *there are brochures in your packages on both of these programs. *and some of our speakers are going to talk about these initiatives in more depth. *so *i just want to share a few highlights now. § *this is a five-tier rating system for all suppliers to *boeing. *it measures four elements: *product quality *on-time delivery *overall affordability, and *customer *satisfaction *beginning this quarter, we plan to deliver the first performance reports to suppliers to suppliers who were invited or attended the *boeing *supplier *conference in *october. *in time, the program will be expanded to suppliers to all the *boeing businesses. *how well suppliers perform under this new rating system will determine whether they are invited to participate in the new preferred certification program. § *our updated certification program puts more emphasis on supporting suppliers in their efforts to successfully implement lean practices. *we have strengthened the threshold requirements for bronze certification. *we have streamlined and upgraded the criteria used to assess supplier and have strengthened our follow-up activities to make certain that supplier performance continues to improve. § *our *lean initiatives are a very important set of tools that we are using to help the *boeing extended enterprise become more efficient. *there's nothing magical about lean. *it's a collection of common-sense tools and techniques that can help an organization maximize its productivity and eliminate waste. *but, man, is it powerful. *we're already seeing some dramatic results at *boeing. *the only way *boeing is going to realize the full potential of these initiatives is to embed them in every aspect of designing . . . building . . . and supporting our products. *this includes our suppliers. *at *a&*m, for example, we have just created three new executive jobs in managing our lean efforts. *one of these jobs is focused exclusively on our suppliers. *that job belongs to *leland *williams, who is a speaker later today. *he will be working closely with his counterpart, insert name nere, at *b*c*a*g, to develop and deploy programs that will help our supplliers make full use of lean principles. § *i don't want to steal *leland's thunder, but *i do want to give you a peek at how powerful this lean training can be. *g*t*c is part of the mentor-protégé program. *last year, we helped them hold two *accelerated *improvement *workshops. *these workshops only last a week, but they are intense. *teams really tear apart processes and analyze areas for improvement. *as a result, one team improved the utilization time of its drilling and routing machine by 76% and cut its drill bit inventory in half. *the other team reduced cable assembly floor space by 70 percent and cut cycle time by 38 percent. *it's really great stuff and *i urge you to take full advantage of it. *there's a flyer and book in your package on lean. *i think you'll find the information very valuable. § *now comes the part in my presentation where *i put my *a&*m hat and tell you about what's going on in the *military *aircraft and *missile *systems group. *you are going to hear the same philosophy . . . and the same operating principles that you've heard for the *boeing *company. *we've truly made great strides in becoming one company. *when you hear any of our group presidents talk or *phil or *harry or our new *c*f*o *debby *hopkins, you hear the same themes. *we're focused on delivering value and improving business performance. *i work for *mike *sears, president of *a&*m. *our group consists of all the great programs you see here. *a&*m had a strong performance in 1998. *our operating revenues were nearly $13 billion and operating earnings were nearly $1.3 billion. *that's an operating margin of 9.9 percent. *but as good as this performance is, we are challenging ourselves to do even better. § *a&*m has three primary strategies to maximize value. *we are focused on: *growing revenues *improving margins, and *improving asset utilization. *we have marvelous products great supplier partners. *we should be able to compete exceptionally well if we as a team work on the right stuff. *the first thing *a&*m had to do to execute these strategies is to organize itself for success. § *a&*m has about 50,000 people who work in a three-dimensional organization. *inside the block are our programs. *this is where our teams focus on products and customers. *people assigned to these program areas know their job is to run the program, know and satisfy the customer, and build and deliver products. *along the bottom is the functional dimension of *a&*m. *the functions are *business *development, *engineering, *production *operations, *supplier *management, *quality, *people and *business *resources. *the chiefs of each function are responsible for knowing what going on in each program and make sure that their function is supports these programs. *along the side here are our sites *st. *louis, *southern *california, *seattle and *philadelphia. *these sites . . . and how well they operate . . . drive our bid rates. *each of these have site managers who are responsible for making sure that the site is being run as efficiently as possible. § *this is the model that we use to run our business. *across the top are the five macro processes that we use to conduct our businesses and interact with our customer. *the arrows indicate that the higher that we operate in each of these processes the more productive and healthy our businesses will be. *a&*m is in the midst of figuring out where its activities fall within these processes. *and what we need to do to push ourselves higher and farther up the value chain of each of these processes. *let's take at what this strategy means for the *buy processes? § *as we move up the value chain, we are going to rely even more on our supplier partners than we ever have. *we're not going to be successful, unless you are successful. *so we are going to take our relationships to the next level. *we're going to work hard to turn our relationships into true partnerships, to help you improve performance . . . get more lean . . . and become a more integral part of our extended enterprise. *the performance of our suppliers is a critical element in our ability to better manage our business and make more efficient use of our assets. § *this is a difficult market. *from 1985 to 1995, 90% of our *d*o*d market went away. 90%. *it's hard to say what 2005 will bring. *that's why we are taking steps now to strengthen our performance. *we have four opportunities to grow revenues: 1) *we've got to keep our current products sold. *the increase in the recent budget will be helpful in sustaining existing programs. *what it's really going to take, however, is for our team to perform. *to keep deliveries on time. *and costs under control. 2) *win the *joint *strike *fighter *program. *this is a biggie. *the *j*s*f is potentially worth 3,000 aircraft or more. *production is likely to continue well into the 21st century. *so it's imperative to win. 3) *international wins are very important to being able to continue our production programs. 4) *and we have to continue to expand our *aerospace *support business. *this is the most rapidly growing part of our business. *there are lots of growth opportunities here as our customers keep their products in the field longer . . . and as they put more and more government work out for bid. § *how do we improve margins? *very simply. *get costs down. *and do it by becoming more efficient. *mike *sears has challenged *a&*m to reduce defects per unit by 90% over the next five years. *and to cut cycle time in half. *we're going to need the help of our suppliers to do this. *in order to achieve these goals, we're going to have to change our business processes and take full advantage of lean tools and techniques. § *how do we improve asset utilization? *i've touched on this already. *we're going to move up the value chain and have even greater reliance on suppliers than we've had in the past. § *this is my leadership team and most of these folks are here today. *they're a great group. *i urge you to stop them and talk about any questions or concerns you have. *it's their job to listen . . . *and to act. *we've even included their phone numbers for your convenience. § *i'd like to very quickly now give you highlights from each of our program groups. *the first is *aerospace *support. *as *i mentioned, this is the fastest growing part of our *a&*m business. *in 1998, *aerospace *support accounted for 13% of our revenues. *we won in excess of $5.2 billion in new aerospace support business in 1998. *this group is on a hot streak. *two weeks ago, it won a contract to provide modification services to the *navy. *among the more major contract wins were: a *k*c-10 contractor logistics support contract worth $1.5 billion over nine years *k*c-135 programmed deport maintenance values at $1.1 billion over nine years and a $1.2 billion multi-year contract to support *c-130s for the *u.*s. *air *force's *special *operations *command. § *our new support center at *kelly *air *force *base in *san *antonio will celebrate its one-year anniversary in *august. *this center is now providing maintenance and modification work to about 20 aircraft. *the *t-38 *talon with upgraded avionics complements of *boeing made its first flight last year. *this year, the program will move from the development phase to the operational test and evaluation phase. *we expect to eventually equip 500 *t-38s with the new avionics suite. *in 1999, we plan to deliver the first two *f-15*c *distributed *mission *training systems. *this networked system will allow the *air *force to reduce training cost, while bringing training to the pilots in the field. § *f/*a-18*e/*f *biggest of the programs here. *super *hornet program continues on schedule and under budget since the program was started in 1992. *flight test program just completed its second sea trials including the first night landing on a carrier. *we are under contract for 62 *super *hornets and have delivered three aircraft. *we are discussing with our customer the potential for a multi-year buy of 222 aircraft from fiscal year 2000 through fiscal year 2004. *a multi-year buy would allow us to further reduce costs and deliver an even lower cost product to the customer. *the seven test aircraft have logged more than 4,000 flight test hours. . . . *and we are looking forward to getting the go-ahead in 2000 for transitioning to full-rate production. § *t-45 -- *the *goshawk just surpassed 200,000 flight hours and has made more than 12,000 carrier landings since entering service in 1992. *we are now delivering upgraded *t-45*cs with new avionics. *plans call for *boeing to deliver 90 *t-45*cs to *n*a*s *meridan by 2003. *and the current *t-45*a fleet at *n*a*s *kingsville will be upgraded to the *t-45*c configuration beginning in 2004. *v-22 -- *the *v-22 tiltrotor *osprey is the first aircraft designed from the ground up to meet the needs of all four *u.*s. armed services. *it can take off and land like a helicopter, but, once airborne, it can be converted to a turboprop airplane. *the first production *v-22 built by the *bell *boeing team is scheduled to be rolled out this spring in *arlington, *texas. *the rotorcraft is expected to complete is sea trials in *august and operational evaluation is due to begin in *september. § *can't begin a discussion of this business without first mentioning that this group was awarded the 1998 *malcolm *baldrige *national *quality *award. *what tremendous national recognition for the great work they've done in quality improvement and cost reduction. *much of their success is due to their work with suppliers. *here are just a few examples of what they've been able to achieve: *a new composite horizontal stabilizer that costs significantly less to produce, a redesigned main landing gear pod that can be installed in 80 percent of the time, and a new dry sealant that save $2 million a plane. *the *c-17 continues to have outstanding performance. *in 1998 we delivered 10 *c-17s the most ever for one year. *six of those were part of the *c-17 multiyear buy. *this year, we are scheduled to deliver 10 *c-17s. *the cargo jet is used around the world for military transport and humanitarian efforts. *c-17s flew mercy missions to *nicaragua, *canada, and the *people's *republic of *china last year. § *r*a*h-66 *comanche *returned to flight test status in *march. *comanche prototype number 1 has more than 130 hours in 116 flights. *and the second prototype is set to begin flight tests this month. *we are testing a redesigned main rotor pylon that's expected to reduce vibrations in the empennage. *the *comanche will be on static display at the *paris *air *show this *june. *and the program is within 2% of its budget and schedule. *apache *just sold eight *a*h-64*ds to *singapore, the fourth nation to buy the *apache. *this raises the total *d*o*d and international orders for the helicopter to 337. *we are about to deliver our 1,000th *apache and are committed to selling another 1,000 over the next decade. *this is a very solid program. *our *mesa production site is a *defense *reinvention *lab and a pilot for many acquisition reform initiatives. *we're currently under contract with the *u.*s. *army to remanufacture 232 *a models into the *longbow configuration. *the *army plans to remanufacture its entire fleet of 750 *a models. § *c*h-47 *chinook *the *chinook, which has been in service with *army for more than 30 years, is being prepared for a new round of modernization that will keep it flying to 2030 and beyond. *the first two *chinooks to be modernized arrived in *philadelphia in *february. *in all, 300 *chinooks will get fuselage modifications and upgrades to their avionics and mission systems. *the first production improved *chinooks are due to be delivered in 2003. *at full production, the program will completed 26 *chinooks a year through 2013. § *and last are our weapon systems programs. *many of you may have read about our decision in *january to consolidate our weapons programs in *st. *charles and to offer our *duluth, *georgia, facility for sale. *this decision is in line with our strategy to focus on our core competencies, reduce costs and increase our efficiency. *two big contracts on the horizon in this business. *harpoon *block *i*i *one is a go-ahead from the *navy to upgrade its *harpoon anti-ship missile into the more capable *block *i*i configuration for sale to our international customers. *the *u.*s. *navy has retained the option to buy *block *i*i in the future. *initial operating capability set for 2002. § *a*l*c*m/*c*a*l*c*m *the second big opportunity is a contract to convert the *air-*launched *cruise *missile into the *conventional *air-*launched *cruise *missile. *this contract is expected to be awarded soon. *it would allow us to supply missiles to replenish the inventory used in *operation *desert *fox. *the conversions will be done here in *st. *charles and engineering and logisitics support will be done in *seattle. *initial deliveries are scheduled for 2000. *j*d*a*m *a huge supplier and acquisition reform success story. *we've delivered more than 600 kits to date. *the potential market just to the *u.*s. armed services is over 87,000 units with production extending beyond 2003. *s*l*a*m *e*r *the missile passed its developmental and combined developmental and operational tests with flying colors. *we are now in the operational test phase. *we were approved for the second low-rate initial production lot. *and we are now under contract to deliver 157 *s*l*a*m *e*rs to the *navy. § *well, *i hope that *i've been able to give you insight on where *boeing is headed and how you fit into the big picture. *the future for the *boeing extended enterprise is bright. *we have the talent, the products, and great supplier partners to achieve our vision of global aerospace leadership. *the success of this enterrprise is all about learning how to work together. *the key to this is talking, sharing and respecting each other. *we must focus on satisfying our customer -- with high quality, lowcost products. *we must perform to plan. *meet our commitments and obligations and do what we tell our customers we're going to do. *and we must -- as a team -- continually strive for improvements. *do things better, faster, cheaper. *look for ways to cut cycle time, improve productivity and be open to new ways of doing business. *thank you for joining us today and tomorrow. *we appreciate your support. *and we look forward to a long and productive relationship with you. § *fb. § *what *if? § *thank you, *peter. § *first, *i want to thank you for inviting me. *it's great to celebrate almost a century of progress since the *wright *brothers' first powered flight at *kitty *hawk. *it's also great to share my views on our achievements since then and a perspective on our future. § *what *i want to do today is talk about how far we've come as an industry, how we can leverage that for our future, and how we have great opportunity to lead. *then *i'd like to take your questions and get some dialog going. § *first premise: *we have come far as an industry. *in 1900, *wilbur *wright said, "*it is my belief that flight is possible and while *i am taking up the investigation for pleasure rather than profit, *i think there is a slight possibility of achieving fame and fortune from it." *thanks to *orville and *wilbur, we are part of a great industry that has made a huge difference in the 20th century. *we have gone from a few entrepreneurs who became enamored with flying, to a few engineers who dreamt of designing great airplanes, to a few mechanics who dreamed of building great flying products, to one of, if not the most, complex industries on our planet. *we are about dreams, about leadership, and about complex thought. *relatively speaking, we have achieved greatness in such a short span of time, and our industry looks significantly different since *bill *boeing started eight decades ago. § *we have seen great change, not only at *boeing, but also in our industry. *we have gone from the novelty of flying just a few people, to being part of defense in *world *war *i, to carrying mail, to carrying more passengers. § *with the marriage of jet engines and swept-wing technology in 1947, we made huge leaps in speed and altitude. *and after *world *war *i*i, we made tremendous strides in technology and aerodynamic design to make trips longer and more efficient. *then deregulation came along, and there was a shift. *emphasis was more on cost, which resulted in lower passenger fares and greater access for many. *we graduated from the *jet *age to the *space *age in 1957 when the *soviet *union sent *sputnik, the first artificial earth satellite, into orbit. *but we would not be left behind, and our country met the call and landed astronauts on the moon 12 years later. *with the end of the *cold *war, our need to compete for higher, faster, better changed. § *we have other metrics too. *let me give you a few more examples of how we have changed. § *in 1927, *charles *lindbergh, with his single-seat monoplane, the *spirit of *st. *louis, set an aviation milestone by solo-flying the *atlantic from *new *york to *paris in about 33 hours with about 450 gallons of fuel. *in 2000, a six-story-high *boeing jet uses thousands of gallons of fuel to fly a few hundred people in a few hours from *new *york to *paris while they work on laptops, watch a movie, or sleep. § *my father owned a farm in *indiana, and in 1912 drove his horse and wagon 22 miles to buy goods and sell his animals at market. *that trip was a two-day event away from home. *today, my seven grandchildren are seasoned air travelers and have flown thousands of miles from home. *commercial flight, as we know it, has changed the world and continues to bring us more and faster access. § *our nation's defense has changed also. *world *war *i, started in 1914, was a four-year war fought on the ground with a good number of casualties, and *world *war *i*i went from 1939 to 1945 and was fought both on the ground and in the air. *contrast that with *desert *storm, which literally lasted from mid-*january to *march 3, 1991. *it was fought in the air with a handful of casualties. § *space has also seen great change. *when *sputnik was launched, *i was in high school in *indiana. *while *i didn't realize the significance then, it did impact my life because a recruiter came to our school to talk about a need for engineers to join a good profession. *it was an "attention-getter." *it got me to think about the adventure of space exploration and pursuing an engineering degree, so, *i went off to *purdue to study, and that eventually led me to *boeing. *today, 335 satellites pass overhead, and they were launched into orbit with *boeing vehicles. § *we have gone from putting people on the moon in 1969 to *space *shuttle *endeavour astronauts mapping almost 80 percent of the *earth with a radar laboratory earlier this year. *they filled 330 digital cassettes - enough radar imagery to fill more than 20,000 compact disks, according to *n*a*s*a. *we have witnessed a lot of change. *we are an industry that has gone from first powered flight to working in space - what a great century of progress. § *second premise: *we can leverage that for our future. *i believe we need to transition this same energy, knowledge, and zeal from the 20th century to the 21st century. *there is little room to grow higher, faster, farther that doesn't translate into a dead end. *there are huge challenges and problems to solve in our industry, and with the rapid rate of change happening in the world, we have an opportunity to embrace the future and adapt by working differently. § *let's envision what our future might look like for aerospace. *in commercial aviation, we will see dramatic change in countries such as *china and *india. *we will witness the same dramatic increase in air travel as we have seen in the *united *states over the last 100 years. *it won't be long before all the people in *china have access to travel within and out of their country. *so think about how airport runways could eliminate the need to build an expensive infrastructure of highways, bridges, and tunnels. *think what this means to air traffic, airports, air infrastructure, and global positioning satellites for more direct routes. § *air cargo delivery will grow, too, as people buy "anything, anywhere, anytime" online and have goods delivered directly to home and office 24 hours a day. § *on the defense front, we will see defense forces used for humanitarian missions and to keep the peace. *because we will have an integrated world economy, information warfare will be a real threat, and we will need protection from information attacks. § *on the space side, once the *international *space *station is assembled, there will be a venue for world-class, space-based scientific experiment and research. *pressurized living and working space that is greater than the volume of the passenger cabin and cargo hold of a 747-400 (46,000 cubic feet) will be home for engineers and scientists who live there. *they will even have their own windows to observe earth. § *all this holds great promise for civilian space travel and tourism as the *space *age comes into its own right. *there are many other scenarios but those are just a few examples of what the 21st century might bring. § *we also need to acknowledge that the accelerating pace of change on our planet is creating a global community. *the *information *revolution is allowing us to radically change, just as the *industrial *revolution took us from an *agricultural *age. *we will forever be different as cities, countries, and continents. § *technology is changing what we do and how we do it. *for example, soon travelers anywhere on the ground, air, or sea will be able to stay "virtually" connected all the time. *advances in information technology are allowing drastic cuts in transaction costs too. *so, we have to ask ourselves, "*how do we look as an industry in a dot.com world?" *easy answer dramatically different. § *at *boeing, we can now design an airplane in *st. *louis, *seattle, and *england, and have the pieces fit together and assembled in *palmdale, *california. *glass fiber carries the billions of bytes of data from one site to another and allows us to work in many different places. *we work differently too. *we used design/build teams on the *boeing 777, and that idea grew and was adapted into *independent *product *teams (*i*p*t) for other *boeing programs. *we also continue to adapt at our *phantom *works. § *now, if we believe that our industry has come far, and if we believe that we can leverage that for our future, we might conclude that we have great opportunity to grow even more. *to begin, *i believe we must recognize a few key things: the complexity of our industry, what it takes to work in this industry, what great position that gives us, and how we can leverage our history and expertise by integrating for future growth. § *first, the complexity of our industry. *aerospace is probably the most complex business in the world today and employs some of the brightest people on the planet. *people who work in our industry hold bachelor's, master's and doctorate degrees, sometimes in more than one discipline. *we carry an array of titles from fellows and technical fellows to researchers and scientists, from managers and directors to professors and associate professors. *we have degrees, experience, and expertise in chemistry and chemical engineering; electrical, mechanical, aerospace, nuclear, and manufacturing engineering; physics, math and modeling, computing, and standards; business, applied mechanics, materials science, and *r&*d; information technology, industrial engineering, and communication, among others. *we have a lot of "coordinates" and individually and collectively carry a lot of knowledge. *we need to recognize and acknowledge this. § *second, what it takes to work in this industry. *it takes a lot of intelligence, a lot of education, and a lot of stamina. *who else has studied *copernicus, *kepler, *galileo, *newton, and *einstein? *who else understands the works, theories and principles of da *vinci, *langley, *doppler, *lilienthal, von *zeppelin, *von *karman or *von *braun, among others? *who else understands what happens between velocity and gravity at thousands of miles above the equator? *who else knows how to integrate systems that put 1.5 billion people into airplanes in 1998? *who else works on the technologies of the future? *who else introduced artificial intelligence, integrated systems, virtual reality, and *velcro? § *i ask you, who else could design an air route system that began with beacons on hilltops, to radio aids, to high-frequency measuring equipment? *build a world air fleet of 13,000 jets in 45 years and double it in 16 years? *put people on the moon? *build a product for the *blue *angels to fly? *design and build jet airplanes that have 3 million parts, with 2,885 pieces of tubing, 1,300 wire bundles, and 14 tires, and uses 31,000 gallons of fuel? *allow 3 million passengers to travel daily to nearly every country on earth aboard 42,300 flights on *boeing jetliners? *leverage global aerospace leadership into e-commerce because of online delivery systems established long ago? *who else but many of you in this room? *we need to recognize and acknowledge this. § *third, this gives us a great position. *we have a rich heritage and a great knowledge base to solve challenges in our industry. *and we need to take advantage of our position as leaders in a complex industry and as people with advanced education. *we must ask ourselves, how do we as a community of engineers, scientists, researchers, program managers, professors, and experts in fluid dynamics transition from the old economy to the new global market economy? *what picture of our future should we model to make a reality? *what ingredients do we need? *how do we measure our progress? *how do we know we have succeeded? *how can we learn from our mistakes? *how can we lead as our ancestors did and drive change? *we need to recognize and acknowledge this. § *fourth and final, how do we leverage all of this to grow in the 21st century? *one word, "*integration," with a capital "*i." *integration is one of the secret ingredients to our future success. *we need to start by integrating more of our disciplines. *for example, we need to work together more and collaborate in multidisciplinary teams. *this will allow us to take advantage of the intellectual power and find the best solutions. § *let me share another story. *i need you to travel back in time with me. *the place is *dayton, *ohio. *the date is *october 21, 1948. *a conference room at *wright *field. *a *boeing team from *seattle, headed by *george *schairer, has just arrived to meet with an *air *force review officer about plans for a bigger, longer-legged, faster bomber that *general *curtis *le*may - the head of the *strategic *air *command - wants. *well, the *boeing delegation - armed with a proposal for a straight-wing, propjet bomber with counterrotating props - might as well have brought plans for a biplane bomber! *what they didn't know is that the review officer had separately consulted with a scientific advisor, who recommended that *boeing continue with the design of a bigger sweptwing pure jet bomber - not a turboprop. *upon review, the officer denounced the *boeing proposal and said, "*if you stick to that design, *i'm going back to the *pentagon and recommend that the *air *force reject it." *well, the team would not go away defeated. *instead, *schairer, *art *carlsen of *production, and aerodynamicist *vaughn *blumenthal returned to temporary headquarters at the *van *cleve hotel to solve the challenge. *they adapted. *their boss, *ed *wells, left *seattle to go to *dayton, and two other *boeing employees who were in *dayton for other business were drafted into action on the spot. *they would work the weekend to create the business model to complete their mission: "*work together to create a new model." *the team became very resourceful. *schairer bought balsa wood, glue, and a knife at the local hobby shop. *when *wells arrived, they all lent their expertise. *they fashioned a swept-wing bomber model with engine nacelles carved from drawings that were created by pencil and ruler. § *at a meeting the following *monday, the *air *force review officer, a colonel, told the team "to forget about" an airplane they already were designing, the *b-55, in favor of the new model they had just brought in, the *b-52. *that airplane still holds staying power for the *air *force almost 50 years later. *this is a great lesson on *integration with a capital "*i" integration of knowledge and expertise to win. *it can pay off big time, as this small story illustrates. § *rudyard *kipling wrote the poem, "*if," in 1910. *i say we write the chapter, "*what if," in 2000 and then do it. *what if we started to imagine ways to integrate technology outside of our industry into our products to become more efficient? *what if we took advantage of the *information *revolution and learned to work new ways? *what if we met the challenge by finding technologies already out there, and applying them to our systems by prototyping and validating? *what if we recognized that aerospace is the most complex business in the world today? *what if we tapped the elements of science, math, engineering, business, information technology, and communications, among other skills, to do whatever we want? *what if we leveraged our heritage, knowledge, and expertise by integrating our disciplines more right now? *what if we learned from da *vinci, *newton, the *wright *brothers, *lindbergh, *schairer, and *wells? *what if we ask who else can do it in the 21st century? § *now let me wrap this up. *it's great to celebrate that we have come so far as an industry in almost 100 years. *i believe the *wright *brothers' upcoming anniversary of first powered flight gives us a unique opportunity to pause, to reflect, and to look in our rearview mirror. *but more importantly, to give us courage and conviction to embrace change and take the future as ours, because we have a lot to accomplish yet. *this conference provides a steppingstone to make that transition. *here we have a chance to step away from daily routines, to place accomplishments within a larger context, and to put life and our amazing industry in perspective. *if we paint a "what if" picture and honor it, it will be the greatest tribute we could make to our aviation past. § *we must remember that the aerospace work we do has a significant impact on the day-to-day lives of so many people on this planet. *we can't forget that! § *we must remember that few industries give the kind of opportunity or the kind of satisfaction that *i have just talked about today. *we can't forget that! § *we must remember that our first century of powered flight is our blank canvas, our foundation, to make the next leg of the journey. *we can't forget that! § *in the 15th century, *leonardo da *vinci led the way with "what ifs." *we can learn from that and honor the future by doing some incredible work by working together. *and if we allow ourselves to embrace the future and what wonders it will bring, our grandchildren's children can benefit just as much as you and *i in this room. § *i challenge you to join me and lead that effort so we reach far into the 21st century. § *fb. § *normal *trade with *china - '*sooner' *rather than *later § -=introduction=- § *good morning and thank you for inviting me to speak with you today. § *before *i say anything else, let me take this opportunity to thank *governor *keating and the *oklahoma *chamber for bringing us all together to talk about this critical subject. *given *president *clinton's upcoming summit visit to *china in *june and the progress we see being made every day in the *u.*s.-*china relationship, this conference couldn't come at a better time. § *thank you, *governor *nigh, for that warm introduction. *i also want to thank *minister *sun for his determined efforts to strengthen commercial and economic ties between our two countries. § *trade with *china has been a focus for us at *boeing for 27 years. *i'd like to ask your indulgence for a few minutes while *i show a short video. *the video captures the essence of the importance of trade with *china. § *the video you just saw is a perfect illustration of how critical *u.*s.-*china trade is to our nation's economy and to *american workers in every state in the union. *since every $1 billion dollars in aircraft sales supports 11,000 jobs (according to the *bureau of *labor *statistics) - we were able to support 33,000 *american jobs with that single order. § *that signing mattered a lot to people in *oklahoma, too, because *boeing has about 2,000 employees here in the state - and more than 200 key suppliers across the state. *one of those key suppliers - and we're sorry he couldn't be here today - is *ned *kaled from *tri *star *aerospace in *tulsa. *ned was in *washington, *d.*c. with us last *october for the signing ceremony. *his business is among dozens in the state who benefit from airplane sales to *china. § *oklahoma's involvement with *china covers more than just airplanes. *over the past five years, *oklahoma exported directly more than $366 million dollars worth of goods. *many millions more in services were sold to *china. *oklahoma businesses - those people here in this room, understand the potential represented by the *china market. § *as remarkable as this individual sale was, it represents the kind of strong relationship *boeing has had with *china for nearly a generation. *i'd like to spend some time talking about that relationship - how it started, where we see it going, and what kind of positive steps we as a nation could take to strengthen that relationship. -=boeing and *china -- *how it *started=- § *in 1972, *president *nixon paid a historic visit to the *people's *republic of *china, opening the way for the purchase of 10 *boeing 707s. *as the *chinese might say, that visit was the first step in our thousand-mile journey to success. *today, 288 of the 400 jetliners operating in *china are *boeing airplanes, giving us a market share of 72%. § *the *boeing-*china relationship is complex - it involves working with *china in other areas besides just airplane sales. *we realize that without a solid aviation system, you can't successfully - or safely - handle the number of *boeing airplanes *china requires. *that is why we are working with *china to help to further develop *china's aviation industry infrastructure. § *our efforts have focused on helping strengthen the regulatory systems governing certification, inspection, and operation of *china's airplane fleets, along with the operation of airlines, airports, and the air traffic control system. *we're continuously providing aviation-safety training and consultation to the airlines in *china and to *chinese government officials. § *when we started doing business in *china, we all knew *china's potential market demand for jetliners was big. *our investment in infrastructure has expanded that potential. *it has § + improved air safety + improved capacity, and + strengthened our relationships. -=the *future for *boeing and *china=- § *with a population of more than 1.2 billion, *china is the world`s largest and fastest growing international market for commercial aircraft. *this growth is fueled by an economy that is expected to grow faster than any other in the world. *for the past 23 years, it has been expanding 2.5 times faster than the economies of *north *america or *europe and it is predicted to be the world`s largest within 20 years. § *such statistics sound impressive, but what do they mean for companies like *boeing? § *it comes down to this: *china`s aerospace market is critical to preserving *u.*s. leadership in the commercial aircraft industry. § *the numbers speak for themselves. *domestic air travel growth in *china has averaged 20 percent per year over the past ten years. *in 1996, *china`s airlines alone carried nearly 57 million passengers and 1.2 million tons of cargo! *we project a total market for approximately 1,800 commercial jet aircraft sales in *china worth $125 billion dollars over the next 20 years. § *obviously, there is substantial business opportunity over the long term in *china. *today, you either buy your airplane from a *u.*s. manufacturer, or from a *european one. *american companies and their employees are at risk if trade relations with *china are strained. -=barriers to *trade=- § *instability in *u.*s.-*china relations is the biggest hurdle we face when it comes to selling airplanes in the world's fastest growing market. *any time there's a chill in *u.*s.-*china relations, our employees feel it acutely - right here in *oklahoma and across *the *boeing *company. *our suppliers feel it in all 50 states and in countries around the world. § *and when this occurs, *airbus celebrates. § *that is why three years ago, *the *boeing *company launched a major initiative to achieve normal commercial relations with *china. *since then, we have led a nationwide effort to ensure that our government clearly understands both the practically limitless potential of the *china market and - just as important - what needs to be done to ensure that *american workers have access to that market. § *this "*commercial *normalization *initiative" has been joined and complemented by thousands of businesses, organizations and cultural groups across the country - people like all of us here today who understand the importance of continued progress between the *united *states and *china. § *this year provides a window of opportunity for dramatically advancing *u.*s.-*china relations. *the immediate goal is, of course, to keep trade flowing by once again extending normal trade with *china (*m*f*n) for another year. *ultimately, however, we must create a more stable, predictable and reliable trading relationship between the *u.*s. and *china. § *china's accession to the *world *trade *organization - the international club that sets and enforces trading rules among its members" - is critical to this effort. *besides providing a forum for resolving trade disputes, admission for *china in the *w*t*o would § + help bring *china's trade regime into compliance with international norms, + improve market access for *u.*s. firms, workers and farmers, and + help *china lock-in the economic reform process that *premier *zhou and the *chinese leadership has so boldly embraced. *when *china joins the *w*t*o - and *u.*s. *trade *representative *charlene *barshefsky is working hard to negotiate a fair accession agreement - it will be time for the *united *states to move beyond the annual debate and make *m*f*n permanent. *we must remind everyone, including our elected officials in *washington, that *m*f*n is normal treatment - the kind of status held by virtually all our other trading partners. § *it is important to remember that trade with *china will § + generate high-paying jobs in industries supporting millions of people in the *united *states, + strengthen the overall relationship between the *united *states and *china, and + further support *china's continuing drive to reform its markets. *just as *china's fast-growing economy affects the market for airplanes, the aviation market will contribute to *china's economic development. *as *i explained earlier, full access to *china's market is vital to maintaining *u.*s. leadership in commercial aerospace, and in providing jobs for folks in *oklahoma. *with $125 billion dollars in potential aircraft orders at stake, the *u.*s. cannot remain the world's leading producer of commercial jets if it loses the *china market to *europe. § *in recent years, the *china *m*f*n debate on *capitol *hill has focused on issues outside the purview of trade, such as human rights, or political and religious persecution. *this debate is about to gear up again, because within the next few weeks, *president *clinton will advise *congress that he intends to extend normal trade status for *china for another year. -=engagement *advances *american *values=- § *we believe all of the issues that surface during the *m*f*n debate are important. *but *american goals in those areas will be more effectively advanced and accepted if *american companies are actively engaged in *china. *if companies are forced for political reasons to limit their activities in *china, *america will have done nothing to help the *chinese transform their country... while creating a profoundly distressing situation for *american workers and our local communities. § *in *china, international trade is helping the *chinese to create a middle class, expand the rule of law, and provide greater opportunities for *chinese individuals in terms of travel, learning and living their daily lives. § *we believe that transportation, and specifically, air travel contributes to this process. -=making the *case=- § *i've described how important the *china market is to airplane manufacturers. *i've described the negative economic impact that could result from a politically-motivated decision that prevents *american companies from doing business in *china. *i'd like to offer one more dramatic example of the importance of trade with *china. § *boeing *commercial *airplane *group went through a serious downturn beginning in 1993. *the downturn would have been far more severe without *china's airplane orders. *over the next three years, from 1993-1996, one out of every seven airplanes that came off the assembly lines in *puget *sound was delivered to a customer in *china. *that's $5.3 billion dollars worth of jetliners. *while *north *american and *european airlines were going through the worst slump in their history, *china continued to purchase airplanes in steady numbers. *that kept many *americans employed who otherwise would have been out of work. -=closing=- § *the summit between *president *clinton and *president *jiang six months ago was a defining moment in the improvement in *u.*s.-*china relations. *there is no question that improved relations between the *u.*s. and *china were crucial in leading *china to place a record order for 50 airplanes during that summit. § *in turn, that aircraft order was key to building greater understanding of the enormous direct benefits of *u.*s.-*china trade to all *americans. § *we now have yet another opportunity to move the relationship forward and further strengthen commerce and trade ties between our two countries at the upcoming *summit *meeting in *beijing. *a fully normalized trading relationship with *china means a better and more prosperous future not only for *boeing employees and suppliers, but for everyone. § *thank you. § *fb.