Veille C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/archive.html Boeing: Speeches: Archive Speeches Archive Current Mar. 22, 2000 Transforming Boeing Rotary Club of Seattle, Phil Condit Mar. 17, 2000 Some Thoughts on Building a House for Diversity Third Annual Cultural Diversity Conference, Jefferson City, Mo., Antoinette M. Bailey Feb. 17, 2000 Transformation to a Global, Mobile World Executives' Club of Chicago, Phil Condit Feb. 3, 2000 Satellite 2000 International Conference and Exhibition Washington, D.C., Jim Albaugh Jan. 27, 2000 AIAA Acquisition and Logistics Reform Conference Washington, D.C., Mike Sears Jan. 19, 2000 Financial Community Performance Review, 4th Quarter, 1999 Seattle, Phil Condit and Debby Hopkins Dec. 7, 1999 Working Together in the 21st Century: A Manufacturer’s Perspective as delivered to the “Aviation in the 21st Century” Beyond Open Skies Ministerial, Chicago, Ill., Phil Condit Nov. 16, 1999 Hard Realities: Transforming Defense Logistics DoD Maintenance Symposium, St. Louis, Mo., James C. Restelli Oct. 8, 1999 Washington State Global-Competitiveness in the New Millenium 1999 Leadership Conference in Spokane, Wash., Debby Hopkins Sept. 30, 1999 Aerospace in the New Millennium William E. Boeing Lecture Series, Purdue University, Mike Sears July 30, 1999 The C-17 Delivers, McChord Air Force Base,Washington, Harry C. Stonecipher July 7, 1999 International Von Karman Wings Award, Museum of Flying, Santa Monica Airport, California, Phil Condit June 22, 1999 Joint Propulsion Conference '99, Los Angeles, California, Jim Albaugh June 13, 1999 Working Together Globally, Paris Air Show, Le Bourget, France, Jim Albaugh, Alan Mulally, Mike Sears June 7, 1999 Working Together: An Opportunity to Change, US-ASEAN Business Council Anderson Business School at UCLA Los Angeles, California, Phil Condit May 26, 1999 Getting It Right: Defense Acquisition for the 21st Century, 1999 Department of Defense Procurement Conference Norfolk, Virginia, Harry C. Stonecipher April 26, 1999 1999 Annual Meeting of Shareholders, remarks by Phil Condit and Debby Hopkins, Los Angeles April 15, 1999 Space ET$ Communications - Expanding the Limits, Leadership Night, Southern California Management Association, Anaheim, California, Jim Albaugh April 8, 1999 Space: Advancing our World, U.S. Space Foundation, Colorado Springs, Colorado, Jim Albaugh March 22-23, 1999 The Boeing Company 10th Annual Minority-Owned and Woman-Owned Small Business Conference, Military Aircraft and Missile Systems, Bill Stowers and Other Boeing Executives March 17, 1999 Charles Schwab CEO Series, Teleconference Transcript, Phil Condit March 16, 1999 Leading in the 21st Century, Long Beach Management Association, Long Beach, California, Phil Condit March 4, 1999 Testimony of Phil M. Condit Before the House Subcommittee on Trade Jan. 28, 1999 Cost: The New Frontier in Aerospace Engineering, Financial Executives Institute of Seattle, Harry Stonecipher Jan. 19, 1999 Change, Challenge and Opportunity, The Round Table, St. Louis, Phil Condit Nov. 13, 1998 Panel Discussion: Partnerships in Space, AFA National Symposium Los Angeles, CA, Jim Albaugh Nov. 3, 1998 The Future of Defense Logistics, James C. Restelli Oct. 28, 1998 The U.S.-Japan Partnership into the Next Millennium: New Opportunities and Challenges, Tokyo, Japan, Phil Condit Oct. 22, 1998 Acquisition Reform: It's Time To Act, U.S. Navy and Marine Corps-CEO Conference, Michael M. Sears Oct. 22, 1998 Practical Idealism: Key To Building Strong Communities, Keynote Address Human Services Council of Snohomish County Partnerships Forum Annual Breakfast Everett, WA, Antoinette M. Bailey Oct. 19, 1998 10th Annual International Integrated Program Management Conference, Michael M. Sears Oct. 15, 1998 Change and Challenge: Engineering the 21st Century, Anderson Chandler Lecture Series University of Kansas, School of Business, Phil Condit Oct. 15, 1998 Israel at 50: An Appreciation, Address to the Plenary Session, Prime Minister's Jubilee Business Conference, Jerusalem, Israel, Harry Stonecipher Oct. 14, 1998 Prospering in Lean Times: Lessons Learned In Restructuring the U.S. Defense Industry, Prime Minister's Jubilee Business Summit, Jerusalem, Israel, Harry Stonecipher Oct. 1, 1998 Part Flows and Dinosaur Toes: A New Approach to Supplier Relations, Address to 1998 Boeing Supplier Conference, Odyssey, The Maritime Discovery Center, Harry Stonecipher C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_070799.html International Von Karman Wings Award by Phil Condit International Von Karman Wings Award Museum of Flying Santa Monica Airport, California by Phil Condit The Boeing Company July 7, 1999 You may have figured out by now that the only thing between you and the end of the evening is me, and so I will be brief as the hour is late. Thank you all for your kind and generous words: Shirley, Fred, Dean Gray, Barry, and Bob. I appreciate greatly what you have said. Receiving this International Von Karman Wings award is great. The people who are here tonight make it greater. I wouldn't be standing here if it weren't for the team I have. I have a great team, and there are a number of people here tonight from Boeing. This award is for you. Thank you, team. I have one important thing to say and that is that I believe in teams and airplanes. I wouldn't be here if I didn't. I grew up loving airplanes. When I was a young boy in California, I covered my bedroom wall with a Pan American World Airways route map. That map is long gone. My mother is here tonight, and even she didn't know what that map meant and its importance to me. And it never occurred to me when I put up that map and liked airplanes so much that someday I would be chairman of the biggest aerospace company in the world or be recognized with honors such as this. This great aerospace industry has been wonderful to me. It has expanded my horizons, and I have loved it because it allows me to meet people in an industry with amazing products and amazing people. Amazing people who know how to dream, to achieve, and to excel. Amazing people with vision and imagination. Amazing people who do unbelievable things and who work together to accomplish amazing things. There are two who stand out: Dr. Theodore Von Karman, for whom this award is named, and Lee Atwood, one of the first members of this Aerospace Historical Society and the person who nominated me for this award. Both of these great men had some really interesting links to The Boeing Company, and we can learn from each of them about "working together." Fred asked me at dinner about working together. I believe it is the philosophy that Barry just described. It's encapsulated on a pin that I received from a friend long ago that says, "None of us is smart as all of us." You might wonder how Theodore Von Karman came to work together with Boeing. It was fun to go back and see what those connections where. In the 1940s, famous Boeing flight test pilot Eddie Allen sought out Professor Von Karman when Boeing wanted to build a wind tunnel to test airplane models. Boeing engineers wanted a 300-mile-per-hour tunnel. But Dr. Von Karman said no to that idea and said to make it 600 or 700 miles per hour. And we listened. We still use that high speed tunnel, with improvements, to test our airplanes models today...models of the Joint Strike Fighter and the Boeing Business Jet. Dr. Von Karman also led the team, including Boeing engineer George Schairer, that went to Germany and looked for aerospace technology after World War II. That technology included the swept wing that played a key role in the creation of the F-86, the B-47, and the B-52, and that, of course, led to a whole Boeing family of jet airplanes. Lee Atwood was also connected to Boeing. I remember him as a gentleman and brilliant engineer. Lee was key in the design of the P-51 Mustang, an airplane that every aerodynamicist loves. He worked on the DC-2 and then helped Dutch Kindelberger start North American Aviation. Today, North American Aviation is a proud part of Boeing. A key word that described Lee Atwood was "integrity." His reputation and his integrity saved the Apollo program. He went before Congress after the fire that killed three astronauts and answered every question openly and honestly with the primary intention of saving the space program and the good name of North American Aviation. And he succeeded and played a key part in getting 12 other astronauts to the moon and back again - giving us our highest adventure. In just 13 days, we will celebrate the 30th anniversary of the first landing on the moon. On that night, we should all look up at the moon and think of these two great men. They were great leaders. I am glad to be part of this great aerospace industry. Thank you for this honor, and good night. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/albaugh041599.html Remarks by Jim Albaugh at National Management Association, Leadership Night in Anaheim, CA "Space ET$ Communications - Expanding the Limits" Leadership Night Southern California Management Association Anaheim, California by Jim Albaugh President, Space and Communications Group The Boeing Company April 15, 1999 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 CEO 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 WWII. 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 DC-3 in the '30s, which was the first reliable passenger airplane. When Raymond designed the DC-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 DC-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 IV as a result of his great leadership. He helped found the RAND 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 CEO 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 BCAG, 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 (VP ET$ General Manager, Reusable Space Systems) and Byron Wood (VP ET$ General Manager, Rocketdyne Propulsion ET$ 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 II 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 III. What is really exciting, though, is what Gale Schluter (VP ET$ General Manager, Expendable Launch Systems) and Mike Kennedy and their team are doing on Delta IV. Delta IV 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 LOX-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 RS-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 ICBM 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 GPS (Global Positioning System) satellite, built in Anaheim and Seal Beach. Not many people outside of Boeing know that. The Airborne Warning and Control System (AWACS) is a franchise that Boeing owns. We've delivered some 66 E-3 AWACS so far to our customer. We've delivered four 767 AWACS to Japan over the past year. We're also pursuing 737 AWACS 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 $2.6 billion in sales coming from our AWACS products over the next couple of years. These programs are fixed price and they have great returns. In the area of satellites, the people who work for Ken Medlin (VP ET$ General Manager, Information ET$ 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 (VP ET$ General Manager, Electronic Systems ET$ Missile Defense), John Peller (VP ET$ 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 PAC-3 intercept. We know how to do it. The Orbital Systems and Exploration area is primarily NASA business. Boeing is the number one NASA 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 NASA, 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 McDonnell 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 ICBMs 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 GPS would develop into a $12-billion-a-year commercial industry? Today, we couldn't fight a war without GPS.. and many of us probably couldn't find our way to the airport without GPS. 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 RONA (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 GE, Allied Signal, Proctor and Gamble, General Motors, Ford and Exxon, we were at the bottom of the list on RONA. 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 RONA. 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 IV. Delta IV 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 McDonnell 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 RONA 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_021700.html Transformation to a Global, Mobile World "Transformation to a Global, Mobile World" Executives' Club of Chicago by Phil Condit, Chairman and CEO The Boeing Company February 17, 2000 Thank you, Leo. First, I want to start by thanking Kaarina who invited me. This is a great business forum, and it's wonderful to be in Chicago. You live in a city that has been influenced by land, sea, and air travel. Chicago has always been a strategic hub of transportation, from truck to rail to port to air. It is an important city for Boeing, and I'm happy to be here. And that leads me to what I want to talk about today...how we are transforming into a global, mobile society at amazing speed. Our civilization has always grown by continuously finding better, more productive methods. As a result, we have raised our standard of living. Chinese Philosopher Lao-Tzu said, "A journey of a thousand miles must begin with a single step." Civilization started with a single step, and it took years and years to go any significant distance. Change was slow in coming. We learned to manage fire, invent the plow, the loom, and pottery while creating the abacus, alphabets, trade, and civil engineering. It literally took thousands and thousands of years. The next step took a little more than 700 years. Beginning at the start of the second millennium, we saw the Magna Carta, the printing press, factory textile production, public banking. We saw the steam engine, geometry, and calculus. But still at a slow rate, and in one person's lifetime not a big change. The next step took 200 years. The Industrial Revolution changed civilization completely. Machines took home trades to large-scale factory production through the flying shuttle, the spinning jenny, and the efficient steam engine. Transportation began to change substantially, too. We had the first railroads, improved steamships, cheap movement of goods via canals, and success of the hot air balloon. The telegraph started the step toward long-distance communication. By now, you've figured out that things are speeding up. The next leap took 50 years. There was the telephone, radio, automobile, airplane, the diesel locomotive, and, right here, the elevated railway, the zipper, the pinball game, and the Hostess Twinkie. The assembly line and mass production began to make us all more mobile, while the battery made us more portable. And, I believe, most critically, we moved from relative independence toward significant interdependence. The next change was even faster - only 25 years. This period saw the birth of computers, first nuclear chain reaction at the University of Chicago, jet engine, transistor, commercial jet transport, satellites, semiconductors, television, and the laser. Things are starting to really move. People traveled into space, cooked in microwaves, paid with a credit card, and ate at the first McDonald's restaurant in Chicago. The next revolutionary change occurred in just 15 years. We saw the first heart transplant, first landing on the moon, first personal computer, first supercomputers, first space shuttles, first e-mail. Now down to the last 10 years. We have cell phones, ATMs, CDs, CNN, Mars Explorer, Hubble Telescope, global positioning satellites, high definition television. I would argue that we are seeing significant change on a daily basis, and things are really beginning to change several times in one generation now. It happens over and over in a lifetime, and this means you can't just go to school once but will have to go over and over to keep up. Today, significant change occurs in a one-year span: the Palm Pilot, day trading, e-commerce, dot.com companies (with market caps that dwarf those of industrial giants), rocket launches from sea, DVDs, and e-everything. Right now a Space Shuttle is mapping the earth with a radar laboratory to collect a trillion pieces of data. We are operating at Internet speed, and it's not going to stop. As a result, and far more important, productivity has been going up. Our standard of living is going up because people produce more with a given amount of labor. And just a quick trip through history showed how improvements brought us great economic gain with even greater speed. The Information Revolution is allowing us to radically change the cost of interaction just as the machine changed the cost of making things. For example, today, at Boeing, we can design an airplane in St. Louis, Seattle, and Farnborough, 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. But in the future, I would contend, this won't be enough - as a lot of us in this room might know. We are constantly on the move and lugging our laptops with us. We want our instant data with us wherever we are - both on and off mobile platforms. We, as mobile computer users, will go from asking each other, "Were you able to get on-line last night?" to assuming that we can plug in anywhere and be connected. That will be true not just in a hotel, or at home, but aboard a Delta flight to Tokyo. No one knows highly mobile platforms better than Boeing, whether on military or commercial airplanes. We know satellites and space-based communication. The combination of broadband and the knowledge of mobile platforms and satellites looks pretty exciting to us as we go into the global, mobile age. Just as an example, last year I spent the equivalent of 75 eight-hour days in an airplane, and that does not include going to and from the airplane. Working much the way you do in the office, I can send and receive e-mail, make and (sadly) receive phone calls, check the market, and work on a speech. This particular speech was one I first prepared while flying over the Pacific Ocean and again from Seattle to Chicago. Being mobile and connected allows me to meet face-to-face with important customers, suppliers, and employees while still being in touch with every aspect of our business. Being mobile and connected allows me to send e-mail directly to 160,000 employees from anywhere all at one time. A few years ago that would have been completely impossible. In commercial air travel today, you have a few choices. You can read a book or a magazine, or possibly watch one of several movies. But soon, when you can watch a live soccer match, or a basketball game, or answer e-mail, or work on a report, the airplane will begin to look like your home or your office. Time goes faster. Productivity is higher. It will change air travel. It will also change in air infrastructure. With the GPS, or global positioning satellite system, it will be possible for every airplane to know exactly where it is and exactly where every other airplane in the vicinity is. We can move to a regional or even global air traffic management system. With accurate terrain data bases, produced by the current Space Shuttle mission, we should be able to eradicate or eliminate where over half of all fatal airline accidents occur, in controlled flight into terrain or CFIT. Just so I don't focus on airplanes, this is not the only place where the interaction costs will change. To cut 15 seconds off a normal 131-second wait, next month a few McDonald's restaurants in California will link with a transportation authority system that bills customers regularly using the same system that automatically collects toll road fees. There are thousands and thousands of similar concepts to moving data. Time zones are blurring. People are working around the clock, less in the traditional "9-to-5" structure, and more in relationship to "where you are" and "where people whom you need to work with are," even on the other side of the planet. This will alter us and change our relationships. It took thousands of years to get here ... to make inventions that changed the world. Sometimes we made mistakes, but today we have truly linked the planet. As we look to the future, I think we can work together to grow the global, mobile world. We can use this knowledge to reduce the chance of war. We can use this knowledge to eliminate diseases. Today, information is being filtered and refined into new knowledge at incredible speed, and it becomes obsolete just as fast. Startling developments, inventions, and innovations in fields that we never contemplated will change how we think, work, and play every bit as much as fire or the wheel or the steam engine did in the past. I believe we have choices. We can choose how we are going to use this tremendous capability, or wish we could stay in the "good old days" - days that really weren't so good, but that's how we like to think of them, anyway. What most of us want is progress, but without change. That won't happen. But we do have choices to move ahead and embrace the future or swim against the tide. We can continue to learn. I believe we can learn from our ancestors, many who had positive attitudes about being open to change for a better life. I believe we can learn from people who relished adventure, who learned new skills, who achieved extraordinary things, who grew the world. People such as Euclid, Gutenberg, Galileo, Newton, Watt, Morse, Bell, Benz, Ford, the Wrights, and my two favorite Bill's - Bill Boeing, and Bill Gates. I believe if we listen closely to the words of Darwin, we can learn too. What Darwin said was, "It is not the strongest of the species that survives, nor the most intelligent; it is the one that is most adaptable to change." Now I look forward to your questions. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/index.html Financial Community Performance Review: 4Q99 Financial Community Performance Review4Q99 1/19/00 Click here to listen to presentation Then click here to start slides Presentation for download (PDF 2.6 M ) What is PDF? News Release for download (PDF 88K) What's a PDF? Slide 1 Boeing 4Q Performance Review Slide 2 Financial Community Performance Review4Q99 Slide 3 1999 in Review Slide 4 1999 Financial Highlights(Dollars in Millions) Slide 5 Commercial Airplanes Highlights Slide 6 Military Aircraft and Missiles Highlights Slide 7 Space and Communications Highlights Slide 8 1999 . . . a year of transition Slide 9 Excellent Outlook Slide 10 Financial Community Performance Review4Q99 Slide 11 4Q99 - Income(Dollars in Millions) Slide 12 1999 - Income(Dollars in Millions) Slide 13 1999 Earnings per Share Slide 14 Balance Sheet Highlights(Dollars in Millions) Slide 15 1999 - Cash Flow(Dollars in Millions) Slide 16 Commercial Airplanes(Dollars in Millions) Slide 17 Military Aircraft and Missiles(Dollars in Millions) Slide 18 Space and Communications(Dollars in Millions) Slide 19 Value Scorecard - 1999 Slide 20 Value Scorecard - 2000 Slide 21 Outlook Slide 22 Forward-Looking Statement Boeing Home | News Copyright © 2000 The Boeing Company - All rights reserved C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld005.htm Commercial Airplanes Highlights Slide 5 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld005.htm Commercial Airplanes Highlights Commercial Airplanes Highlights Outstanding improvements in production efficiency Production processes back on track 737NG/777 - major cycle time reduction Delivered record 620 A/P for year Expanded aviation support business Won DHL 757 Freighter conversion program Won British Airways inventory management contract Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld001.htm PPT Slide PPT Slide 4Q99 Performance Review Seattle Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld002.htm Financial Community Performance Review Financial Community Performance Review4Q99 Phil Condit - CEO Debby Hopkins – CFO January 19, 2000 Seattle Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld003.htm 1999 in Review 1999 in Review Extraordinary achievements Pivotal year for Boeing, strong operational and financial results Solid program performance and contract execution Multiple program wins; key new programs Laid foundation for long term growth Improved outlook Previous slide Next slide Back to first slide View graphic version Boeing Home | News Copyright © 2000 The Boeing Company - All rights reserved C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld003.htm 1999 in Review Slide 3 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld002.htm Financial Community Performance Review Slide 2 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/index.htm Financial Community Performance Review: 4Q99 Financial Community Performance Review4Q99 1/19/00 Click here to listen to presentation Then click here to start slides Presentation for download (PDF 2.6 M ) What is PDF? News Release for download (PDF 88K) What's a PDF? Slide 1 Boeing 4Q Performance Review Slide 2 Financial Community Performance Review4Q99 Slide 3 1999 in Review Slide 4 1999 Financial Highlights(Dollars in Millions) Slide 5 Commercial Airplanes Highlights Slide 6 Military Aircraft and Missiles Highlights Slide 7 Space and Communications Highlights Slide 8 1999 . . . a year of transition Slide 9 Excellent Outlook Slide 10 Financial Community Performance Review4Q99 Slide 11 4Q99 - Income(Dollars in Millions) Slide 12 1999 - Income(Dollars in Millions) Slide 13 1999 Earnings per Share Slide 14 Balance Sheet Highlights(Dollars in Millions) Slide 15 1999 - Cash Flow(Dollars in Millions) Slide 16 Commercial Airplanes(Dollars in Millions) Slide 17 Military Aircraft and Missiles(Dollars in Millions) Slide 18 Space and Communications(Dollars in Millions) Slide 19 Value Scorecard - 1999 Slide 20 Value Scorecard - 2000 Slide 21 Outlook Slide 22 Forward-Looking Statement C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld014.htm Balance Sheet Highlights Slide 14 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld014.htm Balance Sheet Highlights Balance Sheet Highlights(Dollars in Millions) YE99 YE98 Cash $ 3,454 $ 2,462 Debt BCC $ 2,015 $ 1,970 Boeing $ 4,717 $ 5,002 Total $ 6,732 $ 6,972 Equity $11,462 $12,316 Debt ratio Gross Incl BCC 37% 36% Excl BCC 30% 30% Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld015.htm 1999 - Cash Flow 1999 - Cash Flow(Dollars in Millions) 4Q99 1999 Earnings $ 662 $ 2,309 Depreciation/non-cash charges 500 1,854 Working capital 1,464 1,810 Operating cash flow $ 2,626 $ 5,973 Capital expenditures (194) (1,236) Free cash flow $ 2,432 $ 4,737 Customer financing (515) (484) Dividends (130) (537) Share repurchase (1,256) (2,937) Proceeds from dispositions 35 359 Other 115 (146) Net cash flow $ 681 $ 992 Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld015.htm 1999 - Cash Flow Slide 15 of 22 Boeing Home | News Copyright © 2000 The Boeing Company - All rights reserved C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld016.htm Commercial Airplanes Slide 16 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld017.htm Military Aircraft and Missiles Slide 17 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld017.htm Military Aircraft and Missiles Military Aircraft and Missiles(Dollars in Millions) Solid program performance Revenues $3,283 $3,875 (15%) $12,220 $12,990 (6%) Operating earnings $401 $361 $40 $1,193 $1,283 ($90) Operating margins 12.2% 9.3% 2.9 pts. 9.8% 9.9% (0.1) pts. 4Q 1999 1999 1998 Change 1999 1998 Change Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld016.htm Commercial Airplanes Commercial Airplanes(Dollars in Millions) Substantial performance improvement 1999 1998 Change Revenues $9,990 $12,280 (19%) $38,409 $36,880 4% Operating earnings $698 $54 $644 $2,016 $(266) $2,282 Operating margins 7.0% 0.4% 6.6 pts. 5.2% (0.7%) 5.9 pts. 1999 1998 Change 4Q 1999 Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld018.htm Space and Communications Space and Communications(Dollars in Millions) Poised for future growth Revenues $1,896 $1,686 12% $6,831 $6,889 (1%) Operating earnings $123 $91 $32 $415 $248 $167 Operating margins 6.5% 5.4% 1.1 pts. 6.1% 3.6% 2.5 pts. 4Q 1999 1999 1998 Change 1999 1998 Change Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld019.htm Value Scorecard - 1999 Value Scorecard - 1999 Solid performance, met or exceeded goals 1999 1999 Goal Results Gross Inventory Turns 2.9 2.9 ? Facility Consolidation 122Mft2 122Mft2 ? Overhead Reduction $600M $780M ? Supplier Base 31,000 28,800 ? 1999 1999 Projection Results Revenue $58.0B $58.0B ? Operating Margins 4.0%-6.0% 5.5% ? Free Cash Flow ET$#062$2.5B - ET$#062$3.0B $4.7B ? Previous slide Next slide Back to first slide View graphic version Boeing Home | News Copyright © 2000 The Boeing Company - All rights reserved C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld019.htm Value Scorecard - 1999 Slide 19 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld020.htm Value Scorecard - 2000 Slide 20 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld020.htm Value Scorecard - 2000 Value Scorecard - 2000 Continuing progress 1999 2000 Long-Term Results Goal Challenge Gross Inventory Turns 2.9 3.0 4.0 Facility Consolidation 122Mft2 109Mft2 95Mft2 Overhead Reduction $780M $1,600M $2,100M Supplier Base 28,800 25,000 18,000 Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld021.htm Outlook Outlook Driving for superior returns 1999 Results 2000 2001 Revenues $58B $50B $51B Operating Margins 5.5% 7.0% +/- 8.0% +/- Free Cash Flow $4.7B ET$#062$2.5B ET$#062$3.0B Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld021.htm Outlook Slide 21 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld001.htm 4Q99 Performance Review Slide 1 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld022.htm PPT Slide Slide 22 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld022.htm PPT Slide PPT Slide Forward-Looking Information Is Subject to Risk and Uncertainty Certain statements in this release contain "forward-looking" information that involves risk and uncertainty, including projections for deliveries, launches, new business and business opportunities, completion of the acquisition of Hughes’ space and communications business, current and future markets for the company’s products, sales, revenues, operating margins, earnings, cash, disposition of certain company businesses, performance against key metrics of the company’s value scorecard, inventory turns, facilities consolidation, overhead reduction, supplier base reduction, and other trend projections. This forward-looking information is based upon a number of assumptions including assumptions regarding demand; internal performance; customer financing; supplier and subcontractor performance; customer model selections; government policies and actions; price escalation; successful negotiation of contracts with the company’s labor unions and favorable outcomes of certain pending sales campaigns, supplier contract negotiations and asset dispositions. Actual future results and trends may differ materially depending on a variety of factors, including the company’s successful execution of internal performance plans including research and development, production recovery, production rate increases and decreases, production system initiatives, asset management plans, procurement plans, other cost-reduction efforts, and Y2K readiness plans; the cyclical nature of the company’s business, volatility of the market for certain products, continued integration of McDonnell Douglas Corporation; product performance risks associated with regulatory certifications of the company’s commercial aircraft by the U.S. Government and foreign governments; actions by regulatory agencies in regard to the proposed acquisition of Hughes’ space and communications businesses; other regulatory uncertainties; collective bargaining labor disputes; performance issues with key suppliers, subcontractors and customers; customer model selections; governmental export and import policies; factors that result in significant and prolonged disruption to air travel worldwide; global trade policies; worldwide political stability and economic conditions, particularly in Asia; real estate market fluctuations in areas where company facilities are located; price escalation trends; changing priorities or reductions in the U.S. Government or foreign government defense and space budgets; termination of government contracts due to unilateral government action or failure to perform; and legal proceedings. Additional information regarding these factors is contained in the company’s Annual Report on Form 10-K for the year ended 1998 and Form 10-Q for the quarterly period ended September 30, 1999. Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld018.htm Space and Communications Slide 18 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld013.htm 1999 Earnings per Share 1999 Earnings per Share Earnings per Share - as reported $2.49 Non-recurring items: Prior years tax settlement (.19) Boeing Information Services divestiture (.07) Sale of insurance shares (.04) F-15 charge for inventory investment .18 Total (.12) EPS excluding non-recurring $ 2.37 Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld012.htm 1999 - Income 1999 - Income(Dollars in Millions) 1999 1998 % Change Operating revenues $ 57,993 $ 56,154 3% Operating earnings 3,170 1,567 102% Operating margins 5.5% 2.8% 96% Other income/(expense) 154 (170) - Pre-tax earnings $ 3,324 $ 1,397 138% Income taxes 1,015 277 266% Net earnings $ 2,309 $ 1,120 106% Earnings per share $2.49 $1.15 117% Average shares, millions (diluted) 926 977 (5%) Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld012.htm 1999 - Income Slide 12 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld011.htm 4Q99 - Income Slide 11 of 22 Boeing Home | News Copyright © 2000 The Boeing Company - All rights reserved C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld010.htm Financial Community Performance Review Slide 10 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld009.htm Excellent Outlook Slide 9 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld008.htm 1999 . . . a year of transition Slide 8 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld008.htm 1999 . . . a year of transition 1999 . . . a year of transition Changing the game . . . increasing the velocity Changing the culture Optimizing the current portfolio Began transformation of the business . . . from airplanes to total aerospace solutions Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld007.htm Space and Communications Highlights Space and Communications Highlights Investing for future Strong core program performance Leveraging capabilities into new markets Significant progress on Delta IV Cornerstones of growth strategy: Key new program wins NRO AEWET$c.737NG Acquiring Hughes Space ET$ Communications Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld007.htm Space and Communications Highlights Slide 7 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld006.htm Military Aircraft and Missiles Highlights Slide 6 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld006.htm Military Aircraft and Missiles Highlights Military Aircraft and Missiles Highlights Excellent program execution; 95% award fees Four major programs under multi-year contracts Stage set for additional C-17s Aerospace Services providing significant revenues and growth Kelly AFB facility at capacity Optimizing the business Divesting non-core operations Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld009.htm Excellent Outlook Excellent Outlook Top quartile shareholder returns BCAG Substantial room for continued performance improvement Addressing top line issues and opportunities AET$M Premier program portfolio Pursuing margin enhancement and growth SET$C Investments in key capabilities nearing completion Strategic actions laying solid foundation for meaningful growth Total Company A well-balanced portfolio Revenue growing from 2000 base Ability to grow earnings Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld010.htm Financial Community Performance Review Financial Community Performance Review4Q99 Phil Condit - CEO Debby Hopkins – CFO January 19, 1999 Seattle Previous slide Next slide Back to first slide View graphic version Boeing Home | News Copyright © 2000 The Boeing Company - All rights reserved C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld011.htm 4Q99 - Income 4Q99 - Income(Dollars in Millions) Another solid quarter 4Q99 4Q98 % Change Operating revenues $ 15,200 $ 17,099 (11%) Operating earnings 970 602 61% Operating margins 6.4% 3.5% 83% Other income/(expense) (17) (48) 65% Pre-tax earnings $ 953 $ 554 72% Income taxes 291 89 227% Net earnings $ 662 $ 465 42% Earnings per share $0.74 $0.48 54% Average shares, millions (diluted) 896 961 (7%) Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld013.htm 1999 Earnings per Share Slide 13 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/sld004.htm 1999 Financial Highlights Slide 4 of 22 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/1999q4/tsld004.htm 1999 Financial Highlights 1999 Financial Highlights(Dollars in Millions) Total Shareholder Return +29% 1999 1998 Revenues $57,993 $56,154 3% Net Income $2,309 $1,120 106% Earnings per share $2.49 $1.15 117% Operating Margins 5.5% 2.8% 96% Free Cash Flow $4,737 $239 1,882% % Change Previous slide Next slide Back to first slide View graphic version C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/albaugh062299.html Space: Advancing our World "Joint Propulsion Conference '99" Los Angeles, California by Jim Albaugh President, Space and Communications Group The Boeing Company June 22, 1999 Thanks for that kind introduction. I'm very pleased to be here. I see a lot of friends from Rocketdyne, Pratt ET$ Whitney, Aerojet, Lockheed Martin, DaimlerChrysler Aerospace and SEP. As Tom (Tom Massman, Division Director, Advanced Programs and Business Development for Boeing Rocketdyne Propulsion ET$ 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 SSME (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 HSCT (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 HSCT. 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 RS-68 engine, which Boeing is developing for our Delta IV version of the EELV (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 RS-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 IV 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 EELV will be a "transitional" vehicle in the long run. In fact, I think the RS-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 SSTO (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 NASA 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 $40-billion investment. Clearly, those kinds of investments aren't available in today's environment. The solution lies in sorting out the roles of government and industry. There's so much talk about the word commercialization these days that some folks confuse it with the word free. Let me be real clear. The word commercial and the word free are not synonymous! If we are to have a robust space industry and a HSCT, the government needs to step up to investments in long-term, high-risk RET$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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/bailey_000317.html Some Thoughts on Building a House for Diversity "Some Thoughts on Building a House for Diversity" By Antoinette M. Bailey President - Boeing-McDonnell Foundation Vice President - Community and Education Relations The Boeing Company Third Annual Cultural Diversity Conference Missouri Department of Natural Resources (DNR) Lincoln University Jefferson City, Missouri Friday, March 17, 2000 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 DNR? 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 DNA 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit030499.html Testimony of Phil M. Condit Before the House Subcommittee on Trade Testimony of Phil M. Condit Chairman and CEO The Boeing Company Chairman, The Business Roundtable Task Force on Trade and Investment Before the Subcommittee on Trade of the Committee on Ways and Means U.S. House of Representatives March 4, 1999 Mr. Chairman. Members of the Subcommittee. Good morning. My name is Phil Condit. I'm Chairman and Chief Executive Company of The Boeing Company. I also have the privilege to serve as Chairman of the Business Roundtable Task Force on International Trade and Investment. Thank you for the opportunity to share our views on the future direction of U.S. trade policy. Mr. Chairman, I ask that my written testimony be submitted for the record and that I summarize the key points. I would also like to introduce Mr. Barry Baszile, president of Baszile Metals Service, an aerospace supplier who has come from Los Angeles to testify with me today. We hear a lot of talk that trade is only good for big companies. Mr. Baszile is here to tell us how trade is good for small companies too. Mr. Chairman, the United States clearly faces a number of fundamental choices in the direction of its trade policy. Despite the fact that trade has never been more important to this nation's economic growth, some continue to question the wisdom of efforts to expand trade by negotiating new agreements to break down foreign barriers to U.S. exports. I would venture that their views are based upon concerns about whether the benefits of trade are broadly shared and whether U.S. firms and employees are actually benefiting from trade agreements given problems with compliance and enforcement. Clearly these are legitimate concerns. In fact, they must be addressed if we are to "work together" to rebuild a national consensus for trade and continue to fuel our nation's economic growth. Mr. Chairman, I would argue that America's trade agenda must be based upon a set of fundamental principles. Let me briefly summarize the principles that we believe should guide U.S. trade policy into the next century. Principle One. America must recognize the reality of the global economy, and develop trade and investment policies that enable us to navigate through the complexities of the global system. At the international level, there is a need for effective global financial institutions to promote international economic stability. Within the United States, there is a need for periodic review of U.S. laws and regulations - including sanctions and trade statutes - to ensure that they do not unnecessarily impede the ability of U.S. agriculture, industry, and their employees to compete in world markets. Principle Two. We must reaffirm U.S. leadership. For the last 50 years, the United States has led the effort to liberalize trade and we have benefited both economically and strategically. Continued efforts to expand trade will require strong U.S. leadership. Principle Three, and probably the most fundamental principle, is rules matter. The foundation of the global economy must be a rules-based system. Compliance with, and enforcement of rules, is the basis for public trust and support for U.S. involvement in the global economy. The strength of the rules-based system also depends upon all the key players being on the team and playing by the same set of rules. Principle Four. Business must be a force for positive change in the global economy, and we must contribute to implementing a trade policy that is "win-win." This involves "working together" to ensure that the global trading system provides benefits to more Americans and making sure that Americans fundamentally understand the importance of trade to their future and that of future generations. Mr. Chairman, while there are many issues that you and the Subcommittee will be considering in developing your agenda, I would also like to focus today on two critical issues for this year. These go to the heart of what will continue to be the strength of our trade policy; i.e., the rules-based trading system. First, we have a great opportunity to raise American and global living standards by continuing the process of trade liberalization and improving the rules of the game at the upcoming World Trade Organization (WTO) Ministerial in Seattle. This is the first time the Ministerial will be held in the U. S. Trade leaders from more than 125 countries will convene to map out the future of the global trading system. Second, the strength of the multilateral trading system also depends upon ensuring that all key players are part of that system. Over the next five weeks, we have a window of opportunity to accelerate the process of bringing China - one of the world's biggest trade players - into the system. The April state visit of Chinese Premier Zhu Rongji provides a rare chance for significant progress in this long-standing negotiation. We, at the Roundtable, hope that both U.S. and Chinese negotiators can take advantage of this window of opportunity. Let me reinforce that it is critical that any agreement be commercially meaningful ... particularly given the need to secure permanent Normal Trade Relations, which will be required for the United States to benefit from China's accession. I hope the Administration and the Congress will "work together" to reach consensus on moving forward this year on these critical issues. And I commend the Subcommittee for taking an important and leadership step toward building that consensus by holding this hearing. Thank you. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_hopkins042699.html Remarks by Phil Condit and Debby Hopkins at 1999 Annual Meeting of Shareholders The Boeing Company 1999 Annual Meeting of Shareholders Remarks by Phil Condit, Chairman and Chief Executive Officer Debby Hopkins, Chief Financial Officer Los Angeles, California April 26, 1999 Thank you, Jim. Let me add my welcome, too. As you know, Boeing is rotating its annual meetings. St. Louis last year ... Los Angeles this year ... Seattle, next. Key places where we live and work as Boeing employees. So it's great to be here where a lot of our value is created and the products produced are not only world-class but they have the potential to change the world! Now, as Chairman, it is my responsibility to officially call the 1999 Annual Meeting of The Boeing Company to order. Joining me on stage are: Harry Stonecipher, president and chief operating officer; Jim Johnson, corporate secretary; and Debby Hopkins, our new senior vice president and chief financial officer. I'd like to introduce our Board of Directors and ask each to stand as called: John Biggs, chairman and CEO of TIAA-CREF, the national teachers' pension fund. John Bryson, chairman and CEO, Edison International. Ken Duberstein, chairman and CEO, The Duberstein Group. John Fery, retired chairman and CEO, Boise Cascade Corporation. Dr. Paul Gray, president emeritus, professor of Electrical Engineering, MIT. John McDonnell, retired chairman, McDonnell Douglas Corporation. Chuck Pigott, chairman emeritus, PACCAR Inc. Dr. William Perry, professor in the School of Engineering and senior fellow at the Institute for International Studies at Stanford University; and former Secretary of Defense. Roz Ridgway, former Assistant Secretary of State for Europe and Canada. Harry Stonecipher, president and chief operating officer, The Boeing Company. At this time, I want to introduce Lew Platt, chairman and CEO of Hewlett Packard, who is a nominee for election to the Board, and ask him to stand. I want to recognize Don Petersen, former chairman of Ford Motor Co. and ask him to stand. Don is leaving us after more than eight years on the Board. I thank him for his leadership through a time of great transition at Boeing. He shared lessons with us on how Ford was able to transform itself into a competitive, global company. All of us know him as a strong leader ... an insightful contributor ... a dedicated teacher ... and an outstanding board member. Don Peterson, we will miss you. We must also recognize George Weyerhaeuser, former Chairman of the Weyerhaeuser Company, who unfortunately could not be with us here today. George retires from this Board after 37 years of service. He has seen it all! From the launch of the 737 and 747 to the 777. From Minuteman to Space Station. He has seen us through thick and thin. And, he has served as our corporate memory. Because of him, we avoided learning many lessons twice. Thank you, George, for nearly four decades of "distinguished" service to Boeing. It is a privilege to say a few words about "T" Wilson, our former chairman ET$ CEO, who passed away April 10, in Palm Springs. "T" was truly a great business leader, a visionary and human being. He made an enormous contribution to the success of Boeing and the global aerospace industry. A 42-year veteran, he led Boeing from near collapse to its worldwide leadership position. "T" Wilson made our company and our industry "excellent," and we pay tribute to him today. He will always be an aerospace legend! Finally, it is my pleasure to introduce, as a group, members of our new Executive Council, who serve with Harry, with Debby, and with me. I ask them to please stand. This is your senior management team. I cannot imagine a better one. They have a diverse and rich background and are helping to lead this Company well. Our next business is the Chairman's Report. Let me begin by saying, last year was a challenging one and an experience I never intend to repeat. I believe that dwelling on the past does not add value. What we are focused on is the future ... the future of flight, of creating value. Today, we have a new leadership team and a new business structure. We have a new team totally focused on "creating value" for you, our shareholders, for our customers, for our employees. I have recruited the best team in the world ... and that team has experience in dealing with great challenges. ...from the turnarounds at Ford and Unisys, the restoration of stability at Sundstrand and GM, to the merger of Burlington Northern and Santa Fe; from the building of rocket engines and world class fighters to the design of airliners and jet engines that lead the world. This is a team of experience and action. These are leaders who are good at what they do ... who anticipate and act - not reac t... who turn challenge into opportunity ... who achieve and succeed ... who know how to win! As your CEO, I can tell you there is new energy at the top ... and together, we are locked on target. I have changed our business structure. Boeing now has three well-defined business groups. Military Aircraft ET$ Missiles, in St. Louis, lead by Mike Sears; Space and Communications in Southern California, headed by Jim Albaugh; and Commercial Airplanes in Puget Sound, lead by Alan Mulally. They are all great leaders. I have this new team focused on one critical thing: creating value. ...to unlock the potential for growth at Boeing and create opportunities for shareholders ... for customers ... for employees. And I can tell you they are committed to taking the company to a new level. I see it in their daily actions. They are working together as a team and focusing on creating value ... by improving asset utilization; by growing revenues; and by improving margins. We are moving. We are gaining speed. We are gaining momentum. With passion and speed, we are attacking costs. You will be able to measure us with a set of metrics and hold us to our goals. Boeing is a very different company from one year ago: New people ... new experiences ... new organization ... new team. Committed to action! Committed to results! Committed to win! Now I'd like Debby Hopkins to give us the Chief Financial Officer's report. *************** 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 RET$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. ******** As Debby said, we have had some tremendous successes. I'd like to tell you about them. We are working on a lot of great things. We are building a new star, the International Space Station. We have new launch capability with the Sea Launch, Delta III and soon Delta IV. We are building the next generation of global positioning satellites. We won the role as lead system integrator for National Missile Defense. The C-17 continues as a world leader. New fighter aircraft: the F-22 is in flight test and the first Joint Strike Fighter (JSF) demonstrator is becoming real in Palmdale. We have delivered the first production Super Hornet to the U.S. Navy and F-15 production continues to meet international requirements. The Apache Long Bow delivered to the Royal Netherlands Air Force. And, flying test beds for the F-22 and JSF Avionics are operational ... The 737 next generation is delivering to customers at 24 airplanes each month. The new Boeing Business Jet is about to enter service. The 757-300 has delivered to Condor, its first customer. And the 717 will be our featured product at the Paris Air Show. The MD-10 Freighter has flown for the first time at Long Beach. The first 767-400 has just entered assembly. Great successes. Products for air. Products for space. Products for winning in the next century of flight! Now let's take a look at some of these great products. [Video] Boeing makes amazing products. Boeing has amazing people, who make those amazing products. The right products. For the right markets. At the right time. Products like the C-17 Globemaster III for the U.S. Air Force. President Clinton presented the Malcolm Baldrige National Quality Award, in February, to the people of the Boeing Airlift and Tanker Programs. There are members of the C-17 team in the audience. You have brought the coveted Malcolm Baldrige Award home to The Boeing Company. You have made us proud. You show what real teamwork can do. I ask you to stand and be recognized. Congratulations and thank you! For Boeing, air and space have been our frontiers. And while last year brought challenges to The Boeing Company, we must not forget to celebrate some of the greatest journeys of all centuries ... ones that have taken us so very far ... achievements that Boeing people were part of. Thirty years ago, this July, Neil Armstrong, commander of Apollo Eleven, set foot on the Moon, and declared, "That's one small step for man, one giant leap for mankind." Many of you might remember. I do. I even remember where I was at that exact moment ... with my three-month old daughter, watching on television. The moment ... when an Ohio astronaut, and former Navy pilot, put his foot, the first foot, down on lunar soil ... people of America and people of this Company felt success. It was a great feeling. In fact, some of you in our audience may have played a huge part in getting us there. Boeing, North American, McDonnell, Douglas and Rocketdyne made up the majority of the space program and led many of the first efforts on Mercury, Gemini, the Lunar Orbiter, Saturn V, Apollo, Skylab, Shuttle, and Space Station. Between all of us, we've built every manned spacecraft in U.S. history. This should give us great pride at Boeing - as shareholders, as customers, as employees - as we celebrate the 30th anniversary of landing on the moon. Another Ohio astronaut, John Glenn, was first, too - only he got to be first twice! John Glenn was the first American to ride into space, and orbit the Earth. And he was strapped into the Friendship 7 Mercury capsule, built by McDonnell. And last year, he returned to space. He flew on the Space Shuttle Discovery, built by North American Rockwell. John Glenn, also flew a North American F-86 Sabre Jet in combat in Korea. He knows our products firsthand. Pilot. Astronaut. Hero. Senator. American icon. John Glenn is living testimony to the integrity of Boeing products and the roots of a merged company. Although he can't be with us this morning, he has asked me to pass along to you his thanks for taking him to space and bringing him back twice. It is a great honor to dedicate this portion of our meeting to space pioneer, John Glenn, and to the great people of Boeing who did the work. People committed and dedicated to putting us into space in the first place. People ... who never gave up ... who knew how to win ... who made the journeys of the century with the Armstrongs and Glenns. People who have made flight a Boeing tradition. Would everyone here who ever worked on Mercury, Gemini, Apollo, Saturn, Shuttle or Station, stand up and be recognized. Congratulations! Thank you ... people of Boeing and John Glenn. This video is for you! [Video] Streaming video of these speeches C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/albaugh040899.html Space: Advancing our World "Space: Advancing our World" 1999 National Space Symposium U.S. Space Foundation, Colorado Springs, Colorado by Jim Albaugh President, Space and Communications Group The Boeing Company April 8, 1999 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 (USAF, Commander-in-Chief of NORAD and the U.S. Space Command, and Commander, Air Force Space Command), Daniel Goldin (NASA 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 CORONA report out in June. At NASA, 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 NASA 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 NRO, 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 GPS 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 NRO 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, RONA (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 EELV program. As you all know the EELV 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 $5B to $10B over the life of the program. However, EELV 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 EELV 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 RLV 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 RLV look like and when? As much as I'd love to do a commercial RLV right now, it's not about wanting to. Try as you might, if you assume a realistic market capture rate and acceptable IRR's, it's my view that the business case just doesn't close for a commercial RLV 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 RLV, 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 NASA 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 DOD and NASA to take true advantage of the boom in commercial space, just like the Air Force did on EELV, 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 NRO, Air Force, NASA 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 MILSATCOM 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 AWACS 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 RET$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 EELV, 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 $28,000 ride to the moon and back. Yet, for there to be a flourishing space industry, it will be business considerations that drive us, much as technology drove us in the past. The people in this room can make it happen. By working together, we can literally "Create the Future." Thank you. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/index.html Speeches - Current Current Speeches - April 2000 to present Archive Nov. 15, 2000 "Aerospace in the 21st Century: A New Passion for Excellence" Aviation Week's Aerospace Expo 2000 Long Beach, Calif., Mike Sears August 23, 2000 "Forging Strategic Alliances: Rethinking the Model" The Australian Information Technology (IT) Strategic Alliances Summit Phil Condit July 26, 2000 "Farnborough Press Conference" Phil Condit July 6, 2000 "The Future of Aerospace and Beyond" International Media Tour Seattle, Washington, Phil Condit June 21, 2000 "What If" AIAA Fluid 2000 Conference Denver, Colorado, David Swain May 22, 2000 "The Unknown Soldiers in Our Midst" Air Force Association Breakfast San Antonio, Texas, Harry Stonecipher May 9, 2000 "Flower Power and Fire Power: New Directions in Defense Technology" National Aerospace Systems ET$ Technology Conference Dayton Convention Center, Dayton, Ohio, Harry Stonecipher May 2, 2000 Technology in a Networked World Busch Memorial Center, St. Louis, Harry Stonecipher May 1, 2000 Address to Shareholders Huntsville, Alabama, Phil Condit April 19, 2000 Financial Community Performance Review, 1st Quarter, 2000 Seattle, Phil Condit and Debby Hopkins April 4, 2000 Architects of the Future Westminster College, Fulton, Mo., Debby Hopkins C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/stonecipher_000509.html Flower Power and Fire Power; New Directions in Defense Technology "Flower Power and Fire Power: New Directions in Defense Technology" Harry C. Stonecipher President and Chief Operating Officer The Boeing Company National Aerospace Systems ET$ Technology Conference Dayton Convention Center Dayton, Ohio May 9, 2000 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 FASTER, BETTER, CHEAPER. 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 UCAVs, that will do actual warfighting in the suppression of enemy radars and other missions. Will the introduction of UCAVs 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 UCAVs 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 RET$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 RET$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 MIL-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 UCAV 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 II 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 YF-22. That's pretty amazing when you consider the YF-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 MarketSite 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 $30 gift from Home Depot that shows the connection between flower power and firepower in using technology to transform the given world. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/sears_001115.html AIAA Acquisition and Logistics Reform Conference "Aerospace in the 21st Century: A New Passion for Excellence" Aviation Week's Aerospace Expo 2000 "Surviving the Aerospace/Defense Pressure Cooker" Michael M. Sears Senior Vice President ET$ Chief Financial Officer The Boeing Company Long Beach, Calif. Nov. 15, 2000 Norm Augustine, former chairman and CEO of Lockheed Martin, used to joke that he was an engineer before he descended into management. As a fellow engineer-turned-manager, let me begin with a cautionary tale from the annals of engineering. Most of you, I'm sure, have seen pictures or old newsreels of the collapse of the Tacoma Narrows Bridge. The bridge opened in 1940, and quickly became known as Galloping Gertie. People came from all over the state of Washington to experience the thrill of a roller-coaster ride in driving across the bridge. Fortunately, the bridge gave fair warning of its collapse, and there were film crews on hand to record the wild gyrations of the roadway as it twisted to destruction. In striving for the ultimate in grace and beauty, the designers of the bridge did not stop to examine the possibility that their long, slender deck would, in fact, act like an airfoil when subjected to a stiff crosswind. That was a brand new issue in the construction of steel and concrete bridges. Here's the moral to the story. Engineers are great problem-solvers. When we identify the problem, we can almost always solve it. But sometimes we may fail to see the problem. Ladies and gentlemen, like Galloping Gertie, our industry has been subjected to some tremendously stiff crosswinds in recent years, driven primarily by changing realities in the aerospace marketplace. These winds will continue to blow as the global economy and global relationships are constantly reshaped in this fast-changing age of information. Success in the future will be determined by our ability to understand and accept this new environment and to make the fundamental changes needed to survive within it. At the heart of these changes is the need for all of us associated with this industry to recognize the power and importance of running our businesses well and helping our customers do the same. This recognition will drive a multitude of positive behaviors and bring an intense focus on improving all aspects of our business, including our cost performance. Throughout most of our history, cost has taken a back seat to product performance. Our passion, and our focus, has typically been on product performance . . . and not without good reason: it was what our customer valued most at the time. In military and space, the Cold War requirements were to be invisible, go forever, and be lethal. Once a team of experts arrived at a technical solution, there would be a discussion with the customer about how much it was going to cost. And, generally, they were prepared to pay it, with comparatively little emphasis on cost reduction in the front-end design. Technologically, we were also being driven by a national imperative to stay ahead of the Soviets - again, almost irrespective of cost. This was the right attitude for the time, and it led to some incredible achievements. It enabled us to break the sound barrier . . . and go to the moon. And, in the final analysis, this technological and military leadership helped bring about the end of the Cold War. There was a similar indifference toward cost in the commercial aviation world, where a regulated business environment passed costs on to consumers. While U.S. airlines were deregulated in 1978, it has only been in the past decade or so that deregulation, privatization and all-out competition have really spread around the globe. That process continues today. Things have definitely changed. Our customers' values have changed. And, whether we like it or not, we no longer live in a shoot-for-the-moon, cost-is-no-object world. Consequently, some people say the thrill has gone out of our business. I disagree. And I disagree most vehemently. I think this is a great business . . . the most exciting business in the world. We are high-tech . . . we are helping the cause of freedom . . . and we have an ever-increasing role to play in the globalization of developing and advanced countries. The challenges to our industry are as great as ever. But they are different, and, as such, they require a change in focus on our part. In today's world, we must be as intensely focused on business performance as we are on product performance. Great businesses have a passion for excellence in all areas. They seek always to understand the customer and to exceed expectations. At the same time, they make money, and they compete successfully for scarce capital. They attract great talent, and they create an unending stream of opportunities for their people. They are aligned with great suppliers. And they always look forward. For me, it is the balancing and integration of all these aspects that makes this business so exciting. So, what is it that the aerospace customer wants in today's environment, and what challenge does it leave us? While the specifics vary, today's aerospace customers want a partner who can understand their problems and help solve them affordably. We all know that U.S. and world defense budgets have been declining, or flat, for more than a decade. However, it is a largely overlooked fact that our warfighters are carrying a heavier and heavier workload. Take the U.S. Air Force. While it's 40 percent smaller today than it was during the Cold War, the actual workload, measured in days deployed for our airmen and women, has risen by a factor of four. This reflects deployments for everything from earthquake and hurricane relief, to drug enforcement assistance, to flying tens of thousands of sorties in Kosovo. No one anticipated the multiple roles that the U.S. would begin to play as an all-purpose security force in the dangerous and unstable world that has emerged since the collapse of the Soviet empire. But that is the new reality. Recognizing this reality, we must bring the same can-do spirit to achieving major cost improvements in our products and services as we typically have done in making major gains in product performance. This is a tall order to fill . . . but we're making tremendous progress. And you see that right now with the Joint Strike Fighter (JSF) program. With major cost improvements as a prime objective from the "get-go," we created a new generation of lean tools and processes, and we used them to design and build our two concept demonstrators. The results are eye-watering. The Boeing X-32 concept demonstration aircraft cost 66 percent less to assemble than the YF-22 and YF-23. We're seeing 83 percent fewer defects in the first X-32 than in the equivalent build of the YF-22. And we are also seeing our tooling costs on JSF coming in at approximately 65 percent less than on the YF-22/23 program. And, as you're well aware, we're also meeting some of the most stringent range, weight, and survivability requirements we've ever seen. It's truly amazing . . . and a testament to what the great minds of our industry can do with the toughest of challenges. Source selection aside, the true winner of the JSF competition will be our Pentagon customer and the warfighters who will operate this extraordinarily versatile and cost-effective aircraft. JSF is proof that making dramatic cost improvements in your product is not something you do just to satisfy the crew with green eyeshades. It's an intellectually challenging - and critical - part of helping your customer achieve his objectives. And as a CFO and former operating group leader, I see it simply as part of doing the job right, of thinking and acting like a businessperson. Our customers in the commercial world have also felt the crosswinds of change in their business environment. Never has the competition been more brisk than it is today in commercial aviation. The airlines have reduced commissions to travel agents, gone to a web-based system of selling tickets, and made a real science of yield management. They have placed an ever-increasing emphasis on running their business as a business. And it's paying off. It's more than just a coincidence that one of the longest and richest periods of profitability for the airlines has coincided with a much more aggressive approach to cost management. That's good news for the airlines and for travelers . . . and for us, too. It means our airline customers have more money to invest in growing their business and thereby strengthen one of our principal markets. Any time you have a customer who is serious about finding new ways to improve the cost picture, it creates a partnership opportunity. This is something that we preach to our own suppliers every day. It is also at the front-and-center of our own strategy as a supplier to our commercial and military customers. Our costs have been improving dramatically in commercial airplane production, and we are more tightly focused than ever on helping our customers achieve greater and greater business success. Our 777 has been a runaway success among big airplanes - because it is the best there is in providing super-efficient, long-distance, point-to-point service. That's what our customers want, because it's what their customers - the world's air travelers - are demanding. By running our business better, we help our customers perform better, which in turn generates more business opportunities for us. If there's one lesson I've taken from being in this industry during good times and bad, it's that our customers truly want us to succeed. They know we need to be healthy and vibrant to serve them best . . . to be able to advance their fortunes with the highest value products possible . . . to be here for them tomorrow. This is critically important given the reduced size of the defense industrial base. Across Boeing, however, the fastest growing part of our business is not hardware. It is the provision of a growing array of services to our customers. In fact, the Aerospace Support side of our military aircraft business already accounts for 25 percent of that unit's revenues. And we see dramatic long-term growth opportunities in Commercial Airplanes and Space ET$ Communications. Our push into services is a powerful way of helping our customers become more efficient and cost-effective. The critical nature of maintaining fleets of airplanes that are always ready to go means our military and airline customers maintain some of the most massive inventories in the world. They spend huge amounts of money on maintenance and operations. The opportunity for improvement in these areas is staggering. There are all kinds of things we can do to take cost out of the system and make it easier for our customers to better serve their customers. By combining our product knowledge with the intelligent use of information technology, we are providing our customers with a range of cost-effective, real-time solutions for engineering, aviation information, mods and repairs, fleet management, training and spares. In March, Boeing teamed up with Lockheed, Raytheon, and BAE SYSTEMS in announcing the development of an Internet trading exchange. This exchange is providing a secure, electronic global marketplace for potentially billions of dollars in commercial and military aerospace products. It will allow customers to move from just-in-case to just-in-time in stocking many parts. Up and down the line, we all win when we reduce duplication, eliminate waste and build value through greater integration and cooperation. Our suppliers contribute more than 50 percent of the value of just about everything we build at Boeing. To my mind, there is no better or surer way of reducing cost than partnering with your suppliers. But this does require a change of attitude for some people . . . because the human factor is critical. Partnering requires openness and trust. To cite a practical example, we have given certain suppliers to our Wichita facility online visibility of inventory levels, and we've asked them to keep us constantly supplied at the most cost-effective level. And we're doing this without purchase orders. This is similar to Wal-Mart's electronic partnership with Proctor ET$ Gamble - where PET$G is responsible for keeping the shelves of Wal-Mart's stores stocked with the right amount of merchandise on an almost up-to-the-moment basis. As we've seen in other industries - most notably, computing and telecommunications - reducing cost is a real key to powering growth. In a recent issue of Aviation Week, I read an interesting feature about how "space tourism" would suddenly be within reach - at least for the wealthy - if we could get launch costs down to $500 a pound. The price of a ticket to space would then cost just over $85,000 for those of you sporting a 175-pound frame. To be perfectly honest, that doesn't make me want to run out and invest a lot of money on the future of space tourism. We'd still have to sell almost 12,000 seats at $85,000 a ticket to get to a billion dollars in revenues. But let me mention a couple of areas where we are investing, and where we see great potential benefits for our customers and the traveling public. My boss, Phil Condit, calculates that he spent the equivalent of 71 eight-hour days in the air last year. Now, Phil is every bit as busy in the air as he is on the ground. And he accomplishes this by traveling in a company jet with a fully-equipped office. But what about millions of people aboard commercial airline flights every day of the year? What is it costing them to be unconnected and unproductive? Wherever we are - on the ground or in the air - most of us hate to waste time. Viewed from a business perspective, however, this problem presents a sizeable market opportunity. That's why we've dedicated a new business unit to providing high-speed Internet and entertainment services to mobile platforms. Beginning with commercial airplanes, Connexion by Boeing will be a valuable, liberating experience for millions of travelers . . . and, we believe, a profitable new business for us. We have also dedicated a new business unit to focus on new solutions for improving air traffic control and airport operations. Space is the ultimate high ground, and we have plenty of satellites up there for viewing everything that moves down below. Taking advantage of that, our industry can devise a better air traffic system that would minimize the travel delays that are so frustrating to passengers, and so expensive to our airline customers. By removing the congestion, we see the opportunity to increase the system's capacity, which will open the door to more sales of commercial airliners. We're working on it. We see it as an excellent business proposition. In closing, I believe we are at the dawn of a new age of progress and excitement in aerospace. This age will be characterized by an unremitting focus on business, coupled with the pursuit of new ways of creating tangible value for our customers. I also believe that the crosswinds of change from the last decade are becoming the prevailing winds of the new century. Our choice in these circumstances is clear: Will we fail to recognize this new reality and twist into destruction like Galloping Gertie, or will we turn our nose into the wind and soar into the future with a true passion for excellence? Thank you. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/stonecipher_000522.html The Unknown Soldiers in Our Midst "The Unknown Soldiers in Our Midst" Harry C. Stonecipher President and Chief Operating Officer The Boeing Company Air Force Association Breakfast Armed Forces Week San Antonio May 22, 2000 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, USA," 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 II. 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. GNP 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 UCAVs, 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 GI 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/swain_062100.html AIAA Fluid 2000 Conference "What If?" AIAA Fluid 2000 Conference by David Swain The Boeing Company Denver, Colorado June 21, 2000 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 II, 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 II 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 NASA. 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 (IPT) 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 RET$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 LeMay - 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. # # # C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/stonecipher_000502.html "Technology in a Networked World", Busch Memorial Center, St. Louis, MO "Technology in a Networked World" Harry C. Stonecipher President and Chief Operating Officer The Boeing Company Inaugural Lecture Engineering and Aviation Distinguished Lecture Series Parks College of Engineering and Aviation Saint Louis University Busch Memorial Center St. Louis, Missouri May 2, 2000 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, CDs, 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 DVDs 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 MarketSite 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 $400 billion, so the potential savings are huge. At the same time, we expect the exchange to stimulate new thinking and innovation. Let's say your company wants to investigate everything there is to know about a new laser application. Now you can solicit a response from anyone and everyone . . . across both academia and the commercial and military worlds. Think of the flood of ideas that will suddenly be displayed for you. Technology is an enabler. It is the means to an end - not the end itself. The great inventors have seldom been the solitary geniuses of popular myth. They have always been great borrowers and adapters. Where breakthroughs have occurred, it has often been because of their ability to combine a profound grasp of what is already known . . . with a willingness to think and act differently. "What we call innovative ideas are never completely novel," Thomas Ward and Ronald Finke at the Creative Cognition Group at Texas AET$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 YF-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 GPS-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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_000726.html Farnborough Press Conference Farnborough Press Conference Phil Condit, Chairman and CEO The Boeing Company July 26, 2000 Good morning! I'm Phil Condit, Chairman and CEO of The Boeing Company. Rather than having me stand up here alone and give you a description of everything we do, I want you to hear from the people who do the work. They have a powerful story to tell as we transform our company from products to solutions. With me today are: Mike Sears, Chief Financial Officer; Jim Albaugh, President, Space and Communications; Jerry Daniels, President, Military Aircraft and Missile Systems; Alan Mulally, President, Commercial Airplanes; George Muellner, General Manager, Phantom Works. After our remarks, we will take questions. Boeing is committed to three goals: running healthy core businesses, leveraging our core strengths into new products and services, and opening new frontiers. We will talk about each, but remember: This is an ongoing process, and we will migrate new activities into our core business and open different frontiers as we forge ahead. Our first goal: running healthy core businesses. We have a very balanced portfolio: Commercial Airplanes, Military Aircraft ET$ Missile Systems, and Space and Communications and have identified our markets. We will continually adapt to market needs and expand product lines to tap technological advances. Phantom Works is working across Boeing to apply technology advances to production, to integrate lean manufacturing, and to oversee research and development in all units. Now I want Mike Sears to talk a little about financials and where we are going. 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. Thanks for that update, Mike. Now let's look closer at core businesses. Business performance in Commercial continues to strengthen. After our strike, our team pulled together to get things back on track for our customers. I'm delighted with the quick rebound. In the second quarter, we had excellent performance, with improved production and margins, three big campaign wins, and a healthy market outlook because of strong global economies that are driving strong growth in air travel. We continue to develop total customer solutions from financing and leasing to life cycle maintenance services. Alan Mulally is going to share what his team is doing for our customers. 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 767-400ERX, 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 777X, the airplane consistently preferred by travelers. There's tremendous customer interest in the 747X, 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. Thanks, Alan, and congratulations on the quick rebound. Business performance in our Military Aircraft and Missile Systems is solid and consistent, and we expect full-year margins to be in the low double-digits. In the second quarter, we signed a five-year contract, valued at $8.9 billion, with the U.S. Navy for 222 F/A-18E/F aircraft and a $3.1 billion development contract with the U.S. Army for the RAH-66 Comanche. This is a key part of the U.S. Army's Aviation Modernization plan for up to 1,200 aircraft valued at nearly $34 billion. In a drive to improve asset utilization and enhance competitiveness, we announced our intent to sell the parts fabrication operations in St. Louis. Jerry Daniels, can you tell us more about how you are providing solutions to customers. 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-18E/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 (JSF). Our Boeing JSF 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. Those are great examples, Jerry, and I know you have more. We continue to invest to grow Space and Communications. In the second quarter, we launched Connexion by Boeing and you will hear more later. We announced two niche acquisitions - Autometric for space imagery and geospatial information expertise and SVS for laser and optics capabilities. Space and Communications had wins, too. NASA's Launch Services selected Delta II for three firm missions and five options, and we landed a NASA contract for Delta II, III, and IV that is potentially valued at $5 billion over 10 years. We will consolidate launch vehicle production facilities to Colorado and Alabama. Jim Albaugh, can you share more about what your team is doing. Today we serve five markets: launch services; human space flight and exploration; missile defense and space control; national intelligence, surveillance and reconnaissance (ISR); and information and communications. Launch Services: We offer a range of launch service solutions including the Delta family and Sea Launch. Delta II has had 279 successful launches, more than any other expendable launch vehicle. Delta III 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 IV 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 NASA'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 ISR: 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. I am too, Jim! It is vital that Boeing run healthy core businesses because it provides the power to sustain the company and allows us to look at, and examine, new opportunities. Our second goal: leveraging core strengths into new products and services. As the global market economy takes hold, our customers are adapting to a rapidly changing world. This gives us opportunity to provide more solutions to customers with our critical mass of product and customer knowledge and key technologies. Historically, Boeing has been in the after-market for customer support, but today that is all changing, as Jerry just said. Aerospace support products and service solutions are good examples of leveraging core strengths. Large-scale systems integration is another way. And Jim has a great story "on how" his group is doing that for our advantage. Jim. We're leveraging our expertise from programs like AWACS, AEWET$C, and GPS to provide integrated air and ground systems for battle management. 737 AEWET$C expands the AWACS family to include a high-performance, lower-cost system with very low life-cycle and operating costs. As Jim said earlier, we are in the information and communications services markets. Our pending acquisition of Hughes Space ET$ Communications provides for long-term strategic growth in this area, and we see enormous potential in an addressable market that tops $100 billion a year. Our new services unit, Space and Communications Services, will provide ongoing customer support for current space and communication activities and help us capture new government and commercial service-related business. We are leveraging strengths into new products and services at Commercial, too, as airline customers concentrate on their core businesses more. Alan, how about telling us what you are doing to leverage this growth opportunity. As you know, Phil, we always provide great flight and maintenance crew training for Boeing customers. Today, with our joint venture partner, FlightSafety, we are the world's largest and most comprehensive provider of airline training. FlightSafetyBoeing 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. Thanks, Alan. Innovative market solutions, digital design and lean manufacturing are other ways we are leveraging our core strengths. I want George Muellner to tell you his story about how we leveraged technology and processes to design the Joint Strike Fighter (JSF). As Jerry said earlier, we have made tremendous progress on JSF. 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 JSF 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 JSF 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. Thanks, George. Our third goal: opening new frontiers. We have great opportunity to open new frontiers at home and afar. Two strong assets: a great global brand and enormous intellectual capital with our 185,000 employees, who hold almost 100,000 college degrees, with 64,000 in science-related disciplines. We are geographically well placed, too, with customers in 145 countries and employees in 60 countries. And we continue to build on that by placing key leaders closer to customers and supplier-partners. For example, we have appointed a lead in Commercial Airplanes business in Europe and in sub-Saharan Africa. Such initiatives are key to our international strategy to improve customer understanding and forge closer relationships where we do business; improve market access for our technologies, products, and services; and broaden our supply base. As we grow in the global market economy, we all benefit, too, from customers and supplier-partners to local economies where our people work and live. We are also developing technologies and services to stimulate growth. For example, our recently announced Connexion by Boeing will provide broadband, mobile communications services anytime, anywhere, and there is growth opportunity in Air Traffic Management, too. Jim is going to tell you that part of our story. 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 CNS/ATM 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 ATM 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. Jim, there's some great opportunity there. E-commerce allows us opportunity, too, as transaction costs are cut. Ordering online, transferring data, and reconciling receipts with orders will dramatically reduce non-value-added activity. Rough estimates are that in the United States alone, 50 percent of all economic activity is transactional. Those estimates also conclude that with 1996 technology, we can reduce transaction costs by 50 percent. This is an opportunity to improve productivity, and one we are not going to miss. Several years ago, Boeing established an online spares operation. Last year, it had $400 million worth of spares sales and led the industry in transaction costs. Building on that, we partnered with Raytheon, BAE Systems, and Lockheed Martin for a Business-to-Business global aerospace industry exchange that offers internal and external transaction gains in efficiency for both buyers and sellers. This is a new frontier for us. We are opening frontiers in Commercial, too. Alan and his team are opening some exciting frontiers to solve those customer challenges, and he's going to tell you how. Phil, we're in the total customer solutions business, and our arrangement with DHL is a great illustration of how that works for the customer. Last year DHL 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 DHL under a multi-year lease. We're also going to maintain these airplanes for DHL. 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. ATA has a great future, but they needed a smaller, more capable fleet to meet its goals. We leveraged the resources of Boeing, ILFC, and GECAS to make a 47-airplane acquisition possible. We had a major contribution from Boeing Capital Corporation in structuring a deal that would support ATA's future growth. It was a win-win for ATA 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 ATC environments, and our users include the FAA, NASA, 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. Great, Alan. We will open more frontiers as innovation and incubation grow across Boeing through our great resources in New Ventures and Phantom Works, where we are doing wonderful things in research and development. Now I want George to share some of that before we get to your questions. 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. Thanks, George, for some incredible work. Now let me wrap this up. We have solid business performance. We know our markets. We know how to leverage core strengths, intellectual capital, and large-system integration expertise to provide total solutions for customers. We know how to open new frontiers with innovative products, services, and solutions to create a much stronger company around the world. As the aerospace leader, as a company, and as a team of dedicated people, we are doing very dramatic things to benefit customers, shareholders, suppliers and communities where we work. Boeing is going to lead in the new global market economy in the 21st century, and I hope you will be with us forever to tell the stories of our capability and opportunity. Now I want you to see our 60-second ad spot that reinforces our commitment to pursue "Forever New Frontiers" and helps answer the question, "What will tomorrow bring?" C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_000706.html The Future of Aerospace and Beyond International Media Tour "The Future of Aerospace and Beyond" Seattle, Washington Phil Condit, Chairman and CEO The Boeing Company July 6, 2000 Good morning. I hope you enjoyed the video. Every single time I see it, it amazes me about our great company and its capabilities. A company that is, and will be, a truly global company, operating in a world that is rapidly changing. In fact, this conference is a change for us. It's the first time that we have had a real international media tour. So let me begin by thanking you for coming so far - from Asia, from Europe, from Australia, and from the Middle East - to join us for a few days. I think you will find that our team has put together an amazing trip - and a chance for you to learn a lot more about our company. Over the next several days, you will meet a lot of Boeing people. You will see our products and hear about our services. You will witness our skills, and I hope you will learn about our dreams. You will hear about new aircraft research. You will hear about airplane safety. You will hear about the 747X, our fighter aircraft, and about rocket propulsion. You will see Sea Launch and the C-17. You will hear about Commercial Airplanes' Rapid Response Center and our Delta family of vehicles, and, in fact, you will hear from someone who has been in space - a former astronaut. You also will see how we are providing total solutions for customers, how we are improving the efficiency of our operations, and how we are leveraging technologies and processes to create a much stronger company. You will travel aboard one of our newest products, a Boeing 717, as you go from Seattle to California to St. Louis to the Kennedy Space Center in Florida. And finally, before you return home, I will have a chance to talk with you one more time. So at this time, I want you to "put your tray tables and seat backs in their full upright position, fasten your seat belts, and prepare for takeoff." We are going to look at where Boeing has been, how we are transforming to aerospace solutions, and where we are heading in the future. Let me give you just a brief background on Boeing. We are 84 years old this month. We are the largest aerospace company in the world. We are the largest maker of commercial jetliners and military aircraft. This is a company that has gone from wood and fabric to metal and jet engines, and we have won the prestigious Collier Trophy often. In 1999, our total company revenues were $58 billion (U.S.). As a company, we are committed to three goals: running healthy core businesses, leveraging our core strengths into new products and services, and opening new frontiers. I am going to spend a little time on each of these. First, running healthy core businesses. This is absolutely crucial to us. We are a company that produces great commercial airplanes, from the DC-3 to the 707 and DC-8, to the 747, 777, and now the Boeing Business Jet. We are a company that produces great fighter aircraft, from the P-51 Mustang to the F-4 Phantom to the F-86 Sabre; from the F-15 Eagle to the AV-8B Harrier. We are a company that produces great military bombers, from the B-17 and the B-24 to the B-52 and the B-1; and tankers from the KC-97 to the KC-135 and KC-10; and transports from the C-47 "Gooney Bird" to the C-17 Globemaster III. We are a company that has developed helicopters, from the "Flying Banana" to the CH-47 Chinook to the Apache, Comanche, and V-22 Osprey. We are also a company that has built every manned spacecraft in U.S. history: Mercury, Gemini, Apollo, Skylab, Shuttle, and now the International Space Station. We are a company that revolutionized precision navigation by building the first 40 Global Positioning System satellites, and we are now working to build the next-generation GPS. We are a company that has built defensive missile systems from Minuteman to the National Missile Defense. We have three core businesses: Commercial Airplanes, Military Aircraft and Missiles, and Space and Communications. Every one of those businesses has solid, steady fundamental growth. We have continually expanded our product lines and will continue to take advantage of technological advances and adapt to market needs. We will seek ways to reduce costs and improve production methods. On your trip, you will see various examples of lean manufacturing and technology being applied to production. Just an example: Next Monday in Huntington Beach, you will see our new friction stir welding machine that is revolutionary and operating in a lean manufacturing environment. We also continue to pay attention to our future by investing in research and development in our business units. You will hear more about that in each business unit and at our Phantom Works when you are at St. Louis. It will always be vital that we run healthy core businesses because they provide the power to sustain the company, and that is what allows us to examine new opportunities. And that brings me to the second goal, leverage core strengths into new products and services. We have great opportunity. Our customers are adapting to a rapidly changing world and global market economy. For example, commercial airline customers are concentrating more on their core businesses and, as a result, are less interested in the maintenance and modification of their airplanes. Currently, our support services in that marketplace represent a little less than 5 percent of Commercial Airplanes revenues. That's an opportunity that can grow significantly because the addressable services offer a market about the same size as new aircraft. The same thing applies to the defense side. The U.S. government once maintained and modified their aircraft in major depots. Boeing is now doing a lot of that work and that service work has grown to 25 percent of our Military Aircraft and Missiles revenue today. We have similar opportunities in Space and Communications. And that strategy has played a critical role in our decision to acquire Hughes Space and Communications business. Leveraging the core strengths in each of the business units can provide significant growth in our businesses, and it can create significant value for Boeing. The intellectual capital and the global brand of Boeing create still further opportunities. And that leads me to our final goal: open new frontiers. First, we have great intellectual capital...it is our people, more than 185,000 Boeing employees. They work in 62 countries and they hold almost 100,000 college degrees, with 64,000 of those being in science-related disciplines. We are mechanical, electrical, aeronautics, and nuclear engineers. We are mathematicians, geophysicists, biochemists, accountants, administrators, lawyers, and communicators, among many others. Second, we have a great global brand. It is recognized almost everywhere in the world. Today we have customers in 145 countries. As you just saw in the video, one of the things we are looking at is the scale of what we touch in a 24-hour period, and, in fact, I have a few more examples to share. Today there will be some 3 million people boarding 42,300 flights on Boeing jetliners, 6,000 Boeing military aircraft around the world, and 335 satellites that we launched passing overhead. Third, we have phenomenal large-scale integration expertise. It's true whether it is the 777, the Joint Strike Fighter, the Space Shuttle, or the International Space Station. We have wonderful opportunities to leverage this intellectual capital, our global brand, and our large-scale integration expertise into dramatic results. The list of opportunities is long, so I'm going to talk about only one. But I will talk about Connexion by Boeing, which you will see later today. Connexion by Boeing is a global, mobile service that uses a phased-array antenna and global satellite technology. It will allow people, like everyone in this room, people "on the go," people traveling at 40,000 feet on a commercial airliner or business jet, or on a cruise ship, or on a train, the opportunity to access broadband communication services anytime, anywhere. It will give customers the opportunity to be connected to the Internet, to a company intranet, to an e-commerce site, or to a cable news network. We think it will change the travel experience forever. For example, on your flight here, many of you may have worked on your laptop until the batteries ran down, or read a book, or maybe watched a movie. But soon, when you will be able to watch the Olympics "live," or e-mail your family, or shop online, or file a story, the airplane will feel like your home or office. As you look at this brief overview of Boeing, I hope what you will see is capability and opportunity. Boeing is doing dramatic things as a company, as a team of people, as a world leader to deliver more value to our customers, to our shareholders, to our suppliers, and to our communities where we work. Today Boeing is transforming itself from products to solutions. We have a very well-balanced company, three healthy core businesses, and a great team. You will have a chance to meet virtually every leader in this company. They can leverage our core capabilities into new products and services and open new frontiers, and we are going to be a leader in the new global market economy. In the next few days, I hope you will get a chance to see the breadth and depth of our business. And that you will come away with a better understanding of our company, of what we can do, and what we will do. I hope you have a great trip! C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_000501.html Address to Shareholders Address to Shareholders Philip M. Condit Chairman and CEO The Boeing Company Huntsville, Alabama May 1, 2000 Thank you, Jim. Let me add my welcome this morning. This is my second visit to Alabama in a month, and it's great to be back. Alabama is home to about 3,000 Boeing employees. Our people have been key players in building our nation's space and defense programs. From the Saturn V Rocket, and the Apollo Program, to the International Space Station, and the Space Shuttle, to the National Missile Defense Program, and the Avenger, and our new Delta launch vehicle. So it's great to be here! Now, as your Chairman, I officially call the annual meeting of The Boeing Company to order. First, I want to introduce our Board of Directors and ask each to stand as called. They are John Biggs, Chairman ET$ CEO of TIAA-CREF, the national teachers' pension fund; John Bryson, Chairman ET$ CEO, Edison International; Ken Duberstein, Chairman ET$ CEO, The Duberstein Group; John Fery, Retired Chairman ET$ CEO, Boise Cascade Corporation; Dr. Paul Gray, President Emeritus and Professor of Electrical Engineering, MIT; John McDonnell, Retired Chairman, McDonnell Douglas Corp.; Chuck Pigott, Chairman Emeritus, PACCAR Inc.; Lew Platt, retired Chairman, President ET$ CEO of Hewlett-Packard Company; Roz Ridgway, former Assistant Secretary of State for Europe and Canada; Harry Stonecipher, President ET$ Chief Operating Officer, The Boeing Company. At this time, I also would like to introduce John Shalikashvili, former Chairman of the Joint Chiefs of Staff, who is a nominee for election to this Board. This is our Board of Directors. Now I'd like Boeing director, Bill Perry, former Secretary of Defense, to stand. Bill is retiring from our Board. We have been extremely fortunate to have had his brilliant guidance, perception, and experience. As a valued and respected member of this Board, he has helped immensely as we transformed ourselves into a competitive, global company. His vast experience in business, technology, security, and global matters has provided great depth and perspective. He always approaches every issue with studied insight, clarity of thought, and expression. Bill Perry is an outstanding leader and a wise counselor. We all look forward to the opportunity to continue to work together. Thank you, Bill. Finally, it is my pleasure to introduce, as a group, the members of the Executive Council as we have shown them in our annual report, and I ask them all to stand together...Jim Albaugh, Ted Collins, Jim Dagnon, Chris Hansen, Jim Johnson, Judith Muhlberg, Alan Mulally, Jim Palmer, Mike Sears, Dave Swain, John Warner, who can't be with us. This is our Executive Council, thank you. Our next business is the Chairman's Report. The year 1999 was about transition; a year focused on performance, on progress, and on change. It was about setting and achieving goals, restoring Commercial production efficiency, winning critical new business, changing our culture, installing and managing for value, tying incentives to economic profit. Nineteen ninety-nine was a year of considerable financial improvement...$58 billion in revenue, up $1.8 billion dollars over 1998; $2.3 billion in earnings, up 117 percent from the prior year; free cash flow of $4.8 billion; better operating margins of 5.5 percent, compared with 2.8 percent for 1998. And most important, a 29 percent total return to you, our shareholders. That is a return that compares with 21 percent for the SET$P 500 average. We also repurchased 69 million shares of stock for 2.9 billion dollars. We have repurchased a total of 104 million shares. The Board authorized more than two-thirds of the 15 percent in August 1998. Last year, our three core businesses performed extremely well. Commercial Airplanes restored its production and drove for better margins. Military Aircraft ET$ Missiles had strong execution and a premiere program portfolio. Space ET$ Communications achieved critical wins, and invested for long-term growth. The first four months of 2000 have been eventful, too. After successfully completing 51 labor negotiations, we had a strike by members of the SPEEA union. We resolved our differences. Part of the solution was to "work together" for the future of this company. We held our first joint meeting two weeks ago. Today our workforce is "back together" as a team. We are executing a recovery plan. Our priority is getting our customers what they need. Our Commercial deliveries should be essentially back on track by the end of the second quarter. We also signed an agreement to purchase Hughes Space and Communications to become the world leader in satellite communications. That deal should close later this year. We launched two new derivatives of the 777. We landed 128 Commercial airplane orders, reflecting economic recovery in Asia and increased interest by customers worldwide. We announced a global aerospace and defense Business-to-Business exchange. And a few days ago, we announced Connexion by Boeing, which I'll talk more about later. Last week, our CFO, Debby Hopkins, left to join Lucent Technologies. Debby joined us at the time we were building a stronger, more effective leadership team to steer the company forward. And, we have done just that! In the interim, we have named Walt Skowronski our acting CFO. In summary, you have seen us, over the last year, recover, resolve differences, grow and invest in RET$D, introduce new products and services, deliver airplanes, win orders, expand, transform, add value, and make great strides as a team. Before I share my thinking about the future, I want you to see "how" Boeing products, people, and customers keep our planet "alive" every day, 24 hours a day. I would especially ask you to listen to what each of our customers is saying. Those compelling voices, and vivid images, and product sounds tell a great story of a great company. One in which you have chosen to invest. Now I want to talk about the future. Every January, I bring our top 300 leaders together to discuss goals for the year. This last year, I talked about attitude and asked our leaders..."How good can we be; "How can we take 'what' we are good at doing and leverage it in new ways? "How can we create greater value for you our shareholders?" I asked the team to commit to three goals and they are to run healthy core businesses, to leverage our core strengths into new products and services, and to open new frontiers. I want to talk about each one of those a bit more. First, run healthy core businesses. It is absolutely vital that we never stop doing that because it gives us the energy, and the power, and the resources to look at the new things we can do. Our core businesses, Commercial Airplanes, Military Aircraft and Missiles, and Space and Communication, have solid, steady fundamental growth. However, we can significantly improve margins. There is room to improve; i.e., there is clear evidence that we can design our products in a way that cuts costs, identify more in lean manufacturing, and develop better processes every day. I think I've got it: However, this is not enough for the long-term. So that brings me to my second point. We must leverage our core strengths into new products and services. This area provides tremendous opportunity for The Boeing Company. Our customers are adapting to a rapidly changing world and a global market economy. For example, commercial airlines are concentrating more on their core businesses and they are less interested in the maintenance and modification of airplanes. Right now, our support services in this market represent a little less than 5 percent of our Commercial Airplanes revenue, but it can grow significantly. The same applies to the Defense side. The U.S. Government once maintained and modified all aircraft in depots and now Boeing is doing some of that work. Today it has grown to 25 percent of our Military Aircraft and Missiles revenue. We have similar opportunities in Space and Communications and one way is through our acquisition of Hughes. Leveraging our core strengths can provide significant growth in our businesses. This gives us an opportunity to create significant value for our company and gives us substantial intellectual capital to pursue new business opportunities. And that leads me to the third point. There are enormous possibilities to open new frontiers for our company. We have great intellectual capital and that is our people. We have a great global brand, recognized in virtually every country of the world. And we have phenomenal large-scale integration expertise. There are opportunities to leverage this into truly dramatic results. The list of opportunities is long, so I will give just three examples: air infrastructure, mobile communications, and e-commerce. First is air infrastructure. Our current system of air traffic management has grown over time, literally from bonfires on hills to beacons to omnidirectional ranges and distance measuring equipment. It's our one-way lane in the skies. Airlines now carry 1.5 billion passengers every year...greater than the population of China. By 2016, the year Boeing will turn 100, airlines will carry about 3 billion people each year. That is a huge increase both on air traffic and the system that supports it. Boeing can use its knowledge and skill to solve the impact of a growing air infrastructure system. Just think about it: who knows satellite-based systems, who knows communications to and from airplanes, who knows surveillance of airplanes and management of airplanes better than Boeing? The second example is mobile communications. Connexion by Boeing is a global, mobile service that will provide communications to mobile platforms whether they are in the air, on land, or sea. It uses a phased-array antenna and global satellite technology to provide broadband, mobile communication services to a variety of customers; i.e., airline passengers at 40,000 feet, airline operators, business jets, and all moving platforms such as cruise ships or trains. Connexion by Boeing will allow people "on the go" to connect on-line in real-time to the Internet, to a company intranet, to an e-commerce site, to a cable news network. This will change travel and the travel experience forever. Just as an example in commercial air travel today, you have a few choices. You can read or watch a movie. But soon, when you will be able to view a live baseball game or soccer match, or e-mail a family member, or shop on-line, or keep an eye on your stocks, the airplane will begin to look like your home or your office and the experience of travel will change. Mobile communications will have a dramatic impact on business productivity as well. Third on that short list is e-commerce. Several years ago, we established an on-line spares operation, which had $400 million worth of spares sales last year. It's been a phenomenal success. Building on that, we have partnered with Raytheon, BAE Systems, and Lockheed Martin to create a global international aerospace exchange for aerospace solutions. This exchange offers both internal and external gains in efficiency for buyers and sellers. To develop both these and other opportunities, we formed a New Ventures' activity to look at these new frontiers and find how Boeing can better proceed. So if you take all of that, and all that I've talked about today, what you see is opportunity, ability, and capability. We can do dramatic things as a company to deliver more shareholder value. It depends on three things. First, we will run healthy core businesses. We cannot take our eye off of that goal! Second, we will leverage our core strengths to expand the marketplace. We will not limit ourselves to the production of new equipment, but broaden ourselves to support our products over their lifetimes. And then, we will go to new frontiers, and ask what else we can do to produce exciting results. We have had tremendous successes. Last year was a significant success. In the last year we had strong unit performance, better margins, aerospace services growth, record Commercial deliveries, new long-range 777 derivatives, and the Collier Trophy for the 27th time - this time for the F/A-18 E/F. We have divested non-core businesses; we have expanded services; we have expanded financing and support capabilities. And we are in the process of transforming from aerospace products to aerospace solutions. As you saw in the video, let me give you some more numbers about Boeing. In the next 24 hours, some 3 million people will board 42,300 flights on Boeing jetliners, destined for almost every country on Earth. In the next 24 hours, 6,000 Boeing military aircraft will "keep the peace" with 27 air forces and every branch of the U.S. Military. In the next 24 hours, 335 satellites, launched into orbit by Boeing vehicles, will pass overhead. In the next 24 hours, Boeing will export $72 million of goods and services around the world. And in the next 24 hours, Boeing and its people will contribute $260,000 to support communities and make the world a better place to live. Today the real impact is the excellent outlook for the future of this company. Today, we also 'debut' our new global ad campaign on CNN, to tell the whole world about this great Boeing Company. Some of you may have seen it this morning when you turned on the TV. So if you didn't see it this morning, I would like you to be among the "first" in the world to see our ad premiere. (After election results announced). I would like you to leave with one major impression. We do have a well-balanced company. We have a great team, a working together team that gets stronger every day. We do have great people, great energy, and great attitude. And, I believe, overall a great company. That does not mean it's without problems or issues. I look forward to the years ahead. Thank you. This meeting is adjourned. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_000823.html Forging Strategic Alliances: Rethinking the Model The Australian Information Technology (IT) Strategic Alliances Summit "Forging Strategic Alliances: Rethinking the Model " Phil Condit, Chairman and CEO The Boeing Company August 23, 2000 Thank you, Professor Donaldson. It's a delight to join you in Sydney as you count down to the Olympics. I'm here in Boeing's Board Room in Seattle, and the sun will soon set behind our mountains, the Olympics. So while we are far apart in person, we are connected electronically and by a word that conjures up great images of our two cities. Today I want to talk a little about the global trading exchange we are creating in the aerospace and defense industry. First, let me paint a picture of our industry so you can get a real sense of the sheer scale and scope of our exchange effort. We are an industry that makes a remarkable number of highly technical, sophisticated products...from military jet fighters to commercial jetliners to launch vehicles and satellites. We have customers and suppliers in 220 countries, and have annual revenues estimated in excess of $400 billion (U.S.) We are about...270,000 general aviation aircraft; 85,000 military aircraft; 37,000 suppliers; 13,000 commercial jetliners; 5,000 space launches; and 2,500 satellites. Our products take huge amounts of data to design, build, and support. So we have big databases, lots of computing power, lots of purchase orders, and lots of transactions. Our aerospace industry is far-reaching, complex, and fragmented because of size and scope of work. So imagine doing business in an industry where your products have millions of parts; where your suppliers use different procurement systems and operate worldwide; where your company, as ours does, has about 12 million procurement transactions annually. You would come to the same conclusion that many of us did: There is enormous opportunity to improve productivity. E-commerce offers us that opportunity, and our neutral Internet trading exchange is one way to do that. Last March, Boeing, BAE Systems, Lockheed Martin, and Raytheon joined forces to create an open, neutral digital marketplace that serves and benefits all buyers and sellers to improve the way we do business. The companies involved in the launch do business in both aerospace and defense, represent a broad spectrum of products and services, and have a history of success with web-based systems. Many of us adopted electronic commerce early on, and most of us aggressively embrace it today because of the nature of our highly technical work. At Boeing, for example, we launched our e-commerce site - the PART Page - four years ago to sell aircraft parts to commercial airlines. It has been very successful. Last year that business produced more than $400 million (U.S.) in annual revenues. It will migrate to the exchange. In forming our exchange, we wanted partners who could create a balance between commercial and defense and buy- and sell-side functionality, and who would ensure broad participation across multiple segments and reflect the global nature of our industry. Our four founding industry partners do that. Together they buy more than $70 billion (U.S.) annually, which guarantees critical mass and a global presence. Our partners also have an equal initial ownership stake, with equity incentives based on the amount of procurement and sales that run through the exchange. We have reserved additional equity stakes for other strategic partners, but it is not necessary to own an equity stake to participate in the exchange. Early on, we determined that owning a smaller but equal equity piece of an industry exchange is far more valuable than owning 100 percent of a Boeing-only exchange. The exchange is owned and operated as Exostar, a separate company with an independent board of directors. Exostar begins operation soon, and you can learn more about it on the Web at exostar.com What is fundamentally unique about the alliance is that the founding aerospace and defense companies, while active competitors, have also been partners and suppliers to each other. I believe this history of cooperation has created an environment conducive to the formation of a trading alliance. And so, from the start, we brought together our competitors and partners. What advantages do we expect from this new global trading exchange? First advantage: It will offer value for buyers and sellers by simplifying transactions for participants. Because the Web-based exchange will serve the entire aerospace industry, we all have the opportunity to create and capture value. We expect to significantly reduce interaction costs by using one e-commerce portal to obtain and provide production and non-production materials, parts, technical documents, etc. It will offer a complete set of services, from request for proposal to procurement to delivery. Second advantage: It will increase productivity by reducing transaction costs. Why should a company participate in a global trading exchange rather than just setting up its own Web site and selling directly to customers? In simple terms, it provides one way to complete purchase orders, purchase revisions, and payments. E-commerce today gives us the golden chance to adapt, and adapt fast. In fact, recently the U.S. Labor Department reported a 5.3 percent increase in productivity. Some economists cited computers and the Internet for the increase, which was the largest annual jump since the third quarter of 1983, when we were coming out of a recession. The exchange also will help improve productivity by making "paperless" procurement possible...from invoices to shipping documents to billing and payment. This will save non-value-added transaction costs and eliminate investments in redundant systems. Suppliers will be able to serve customers better because they will have improved visibility of inventory requirements, and the exchange will enable "frictionless" commerce within the industry's supply chain. Third advantage: It will standardize the procurement process. An open computing architecture and standards-based integration capabilities will make the exchange simple and easy to use. This allows participants to join quickly, to leverage common ways to do business, and to connect with a global e-marketplace of suppliers and customers in a secure environment. The exchange will use a common software language to standardize transactions and improve the process. In addition, the exchange can improve the buying of indirect goods. As much as 45 percent of indirect corporate spending is rogue buying; that is, buying without following corporate purchase contracts. An automated, standardized approval process will slow rogue buying and cut transaction costs even more. Major subcontractors and subassemblers are not the only ones to benefit. Small-assembly suppliers, component and commodity suppliers will have easier access globally. The only thing the small supplier will need to interact with Exostar will be a browser. Auctions and easy access will move inventories quicker. This is expected to result in operating cost and working capital savings of one percent to two percent of current inventory valuations. In the future, the exchange will provide connections to other electronic marketplaces. So participants will also have one-stop buying opportunities. Now let me wrap this up. Darwin once said, "It is not the strongest of the species that survives, nor the most intelligent; it is the one that is most adaptable to change." Our alliance is just that. By adapting, we are tapping advances in e-commerce and computing technology to benefit both buyers and sellers in the aerospace and defense industry. By adapting, we are improving a complex, fragmented procurement process that is both cumbersome and costly. By adapting, we are simplifying tasks, increasing productivity, and standardizing an "old economy" procurement process. And that is why we have joined together to make this happen. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/hopkins_000404.html "Architects of the Future", Westminster College, Fulton, MO The IBM Lectureship in Business and Finance "Architects of the Future" Westminster College, Fulton, Mo. Deborah Hopkins, Chief Financial Officer The Boeing Company April 4, 2000 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 II 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 BC, 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 CEO 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 IPO 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 ET$ 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 CEO 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 IBM 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. AOL 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. AMR is the parent of American Airlines and they have recently spun off SABRE, which is a computer reservation system. Some of you may actually have used it. AMR 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. SABRE 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 AMR. 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. SABRE'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 CEOs or past CEOs, 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. McClure 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/presidents/index.html Presidents Presentation - Paris Air Show Working Together Globally: Paris Air Show LeBourget, France Remarks as prepared for delivery by Alan Mulally, president, Commercial Airplanes Mike Sears, president, Military Aircraft and Missiles Systems Jim Albaugh, president, Space and Communications The Boeing Company June 13, 1999 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/presidents/sld002.html Commercial Airplanes 1 Alan Mulally, president Commercial Airplanes: 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/presidents/sld003.html Commercial Airplanes 2 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/presidents/sld040.html SET$c.12 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 - TMD and NMD. - We are making tough decisions to take advantage of the exponential growth in the IET$c.markets. - We also are divesting non-core and low-margin businesses. - We’re bullish on the long-term outlook for Space and Communications. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_060799.html Working Together: An Opportunity to Change by Phil Condit Working Together: An Opportunity to Change US-ASEAN Business Council Anderson Business School at UCLA Los Angeles, California by Phil Condit, Chairman and Chief Executive Officer The Boeing Company June 7, 1999 As the largest exporter in the United States and the biggest business employer in the state of California, I'm delighted to be here at the first stop of the 1999 U.S. Ambassadors Tour of the US-ASEAN (Association of Southeast Asian Nations) Business Council. Talking about world trade in the state of California, the leading exporter in our country, makes a good deal of sense. Today I want to talk about change and opportunity. I believe when we embrace change and push into the unknown, we discover wonderful things. And often that leads to amazing opportunity. To illustrate, let's look back some 500 years. 1492. Christopher Columbus is about to set sail from Spain and is headed toward the countries that the ambassadors here today represent. This was not a random journey. It was about trade. Now, Columbus, along with many others, believed that the earth was round. He calculated the diameter of the earth and was accurate to within 20 percent. Not bad! Columbus also calculated the distance from Spain to China, based on Marco Polo's log, at about 3,900 nautical miles. So he provisioned enough water and food to go 5,000 nautical miles. But Columbus miscalculated. And he was far short of the actual 13,000-nautical-mile distance. Had the Americas not been there, he would have had a serious problem. But we all know he pushed into the unknown, went just about the right distance, and results in trade and commerce are known by all of us today. Now let's go ahead 400 years. It's an ugly, cold day in Kitty Hawk, North Carolina. We have two bicycle mechanics "with lots of imagination." You've probably figured out who they are already. They are Orville and Wilbur Wright, two brothers about to demonstrate powered flight. Orville takes the controls since Wilbur blew his chance when he bent the airplane three days earlier. The 12-horsepower hand built engine sputters to life. At full power, Wilbur releases the restraining wire, the craft slides 40 feet, and lifts into the unknown. That 12-second flight covered about two one-hundredths (.02) of a nautical mile or 120 feet for those of you who don't want to calculate. Later that same day, Wilbur, not to be outdone by Orville, flew the airplane for almost a minute and went seven times as far. That night the brothers sent a telegram home to their father, Bishop Milton Wright at 7 Hawthorne Street, in Ohio. It actually read: "Success four flights thursday morning all against twenty one mile wind started from Level with engine power alone average speed through the air thirty-one miles longest 57 (59) seconds inform Press. home Christmas." They knew that they had something big going on here...inform press, inform press. In one short day, the Wrights not only flew but boosted range more than 700 percent and time aloft by 500 percent. They, too, pushed into the unknown and created an industry that is absolutely crucial today. To put these two stories in perspective, to come here today our U.S. ambassadors to Southeast Asia covered a distance almost the same as Columbus did in 70 days. And coming here, I flew 42,000 times as far as Orville did on his original flight. We have come a very long way. Our world has changed, and is changing, dramatically. Five hundred years ago, there was no United States. One hundred years ago, there were no airplanes, space shuttles, global positioning satellites, World Trade Organization. Even 50 years ago...getting back to things some of us in this room know...no PCs, no ATMs, no CNN, no Internet, no cell phones. Technology is changing the way we interact. We are in instant communication and this transcends borders and cultures. In fact, we don't even know those borders exist. We connect - to our offices, to our embassies - from airports, on the highways, even when we are flying. For example, I communicate with 150,000 Boeing employees once a week by e-mail from anywhere in the world. Three years ago, I couldn't do that. We are rapidly becoming global, and it's one reason we need to lead. I believe the United States has to take up that role and tap the opportunity to move toward an open-rules-based trading system. The growth of the economy over the next 20 years will place new demands on a growing, global economy, and this will provide everyone in this room an opportunity "to work together." We have fundamental choices in the direction of our trade policy. Despite the fact that trade has never been more important to our nation's economic growth, there are those who are questioning the efforts to expand trade, to break down trade barriers. Sometimes it seems easier to erect walls to limit trade and "protect" jobs than to understand the opportunity that an open market system brings. The data is overwhelming as to the value of open trade, and just as an example, the steel quotas are that kind of wall. We do need to use the power and the discipline of the WTO on a rules-based system. We can't build trade barriers and still have the capability to grow. Building trade barriers will only result in retaliatory actions that further inhibit trade. I would argue that America's trade agenda must be based upon a set of three fundamental principles. Principle One: The United States must embrace the global economy and lead in the development of trade and investment policies. At the international level, we must have effective global financial institutions to promote international economic stability. Within the United States, there is a need for periodic review of U.S. laws and regulations, including sanctions and trade statutes. We need to ensure that they are on the books and do not unnecessarily impede the ability of U.S. agriculture, industry, and their employees to compete in world markets. We must also reaffirm U.S. leadership. For the last 50 years, the United States has helped move the economy and has led the effort to liberalize trade, and we have benefited economically and strategically. Continued efforts to expand trade will require strong U.S. leadership. Principle Two: This is probably the most fundamental principle. Rules matter. The foundation of the global economy must be a rules-based system. This is not a free-for-all but how we have a disciplined trading system. Compliance with, and enforcement of, rules is the basis for public trust and support for U.S. involvement in the global economy. We have to believe that rules are there, and that they will be followed. The strength of the rules-based system also depends upon everybody playing by the same set of rules. China's accession to the WTO is not about a concession to China. It is about concessions by China and their inclusion in a rules-based system. Principle Three: Business must be a force for positive change in a global economy. I think, as business leaders, we must be a part of developing an international trade policy that is "win-win." It will mean that we must work together to grow the economy of the world. I truly believe these principles can guide U.S. trade policy into the next century and help us navigate through the complexities of the global system. It will mean "working together" to ensure that the global trading system provides benefits to more Americans and making sure that Americans understand the importance of trade to their future and that of future generations. We have a great opportunity to raise the standards of living in the United States, and in the world, by continuing the process of trade liberalization. And we are going to get a chance to work on the rules at the World Trade Organization Ministerial in Seattle later this year. Trade leaders from almost 170 countries, including ministers from the ASEAN countries, will convene for the first time ever in the United States. They will convene with a goal of mapping out the future of our trading system. That system needs to be inclusive. The strength of the multilateral trading system depends upon ensuring that all key players are part of that system, and I think we have a major responsibility. This is about improving the standard of living, and not about loss. ASEAN countries have a real stake in this, and the United States needs access to their markets. They have more than 500 million people, had a nominal gross domestic product of approximately $675 billion (U.S.) in 1997, and are the third largest market for U.S. exports. In fact, U.S. exports to ASEAN countries grew 155 percent from 1990 to 1997. And even with the 19 percent decline in 1998, the first drop in 13 years, U.S. exports to ASEAN countries still supported close to one million U.S. jobs. I believe we have enormous opportunity today. I believe we can work together. I believe that then, and only then, like Christopher Columbus and the Wright Brothers, who embraced change and saw opportunity in what they did, we will see real opportunity by stepping into the unknown. Now, I'd be happy to take your questions. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/stonecipher_073099.html The C-17 Delivers by Harry Stonecipher "The C-17 Delivers" by Harry C. Stonecipher President and Chief Operating Officer The Boeing Company McChord Air Force Base Washington July 30, 1999 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 McDonnell 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 McChord. 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 McDonnell 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 McChord 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_120799.html Working Together in the 21st Century Working Together in the 21st Century: A Manufacturer’s Perspective As delivered to the “Aviation in the 21st Century” Beyond Open Skies Ministerial Chicago, Illinois by Phil Condit The Boeing Company December 7, 1999 I am delighted to be able to address you this morning as one who has a strong commitment to aviation. And as Secretary of Transportation (Rodney) Slater has said, you also have a considerable stake. First, I want to thank Secretary Slater for taking the initiative to hold this Ministerial to look forward to aviation in the 21st century. I strongly support developing a common vision for the future of aviation and working together to create the path that will get us there. I believe this is critical to our future. I believe we are now at a very important time in history. We are moving from a regulated, developing, and somewhat patchwork system to a deregulated, mature, open integrated system. If we work together successfully, we can build an air transportation system that will serve international commerce and contribute substantially to global prosperity and growth. What are the issues that must be addressed if we are to achieve an integrated, productive global aviation system? I believe that there are four: First, is a basic global aviation policy, which allows us to move from a regulated, bilateral system to an open multilateral system as you discussed yesterday and will continue to discuss today. Second is an airport and air traffic management, or ATM, system that can accommodate future growth of air transportation. Third are safety improvements that are required to build public confidence in the system. Fourth, and final, are environmental issues, which must be addressed if the system is to expand and reach its full potential. I would like to take just a few minutes and touch on each of these briefly. First, a basic global aviation policy. As all of you know well, air transport was built around a set of bilateral agreements. I believe it’s time to move to a rules-based open system. This is, in my opinion, a huge task. Experience with the deregulation of many industries indicates that this will be very disruptive. The move to a market-based system means that the efficient carriers will prosper while the inefficient carriers will not. Clearly this means that there must be a period of transition since airlines around the world are in different places. No carrier will want to give up the advantages that it has in the current system, and every carrier will want to shed its disadvantages. Since the goal is a rules-based system with level playing field competition, development of the rules must occur in an international arena, and that is why your conference is so important. And that is why it is important that we have a rules-based system. It will not always be easy. There will be debates over the rules and their application. Jobs will be created in one sector and lost in another because of the change. But we have even more to lose if aviation is either artificially limited or not based on sound rules. Second, airports and air traffic management (ATM). Let’s look at just a few quick numbers you know well. It took 45 years to reach a world fleet of 13,000 jets. That number should double in the next 16 years. In the 12 years from 1970 to 1982, the number of passengers carried by airlines around the world doubled to 750 million. Sixteen years later, in 1998, that number doubled again to over 1.5 billion passengers…more than the population of China. And by 2016, when The Boeing Company will be 100 years old, traffic will double again to 3 billion. Both airports and the air traffic management system must contend with significant fleet and passenger growth in the years ahead. That challenge brings enormous opportunity as well. Today’s ATM system was built on an air route system that began with beacons on hilltops, moved to radio aids, and on to VOR/DME (very high frequency omni-directional range distance measuring equipment). Today, our technology can provide a global satellite navigation system such as GPS (global positioning system) and provide a worldwide ATM system. To do this, several things are required. First an absolutely dependable civil GPS signal is required. Individual nations will need to come together and give up national ATM and navigation in favor of an integrated global system. But the rewards, I believe, are huge. Every airplane in the system can know exactly where it is located and know the location of every other airplane. Every airport will have every runway effectively equipped with precision approach since there will be a universal satellite system rather than individual runway guidance systems. Every airport system could increase capacity without additional runways. Now, having said that, I still believe it is important to build new runways and new airports as well. Air transportation is rapidly becoming key to commerce. Cities with great air access will prosper; those without will fall behind. Third, safety. Safety must be addressed if the system is to grow. A doubling of operations without a significant decrease in accident rate is completely unacceptable. Fortunately, I believe that some technology that will benefit system capacity can also dramatically impact safety. A satellite-based system can address the most critical safety issue – controlled flight into terrain (CFIT). The majority of fatal accidents worldwide result from CFIT. A system with accurate GPS positioning and a digital terrain database can have a huge impact. I believe this can eliminate fundamental causes of accidents. In addition, many accidents occur on approach to runways, which are not instrument landing system (ILS) equipped. Again, a satellite-based system allows every runway to be a precision-guided runway. Improvements in human factors, sensor technology, and communication technology all, I believe, could make an order-of-magnitude improvement in safety by the time that air traffic doubles. Fourth, and final, environmental issues. Clearly it is not enough to note that the emissions from aircraft are small compared with emissions from automobiles. It is not enough to point to the reductions that we have made in the noise footprint. We must actively continue to address environmental issues or they will limit growth. I believe that any standard we adopt for noise or emissions must be an international standard. It must be done globally rather than piecemeal, country by country. With common standards, the industry can address common solutions, which will give the most economic results. Now let me conclude by saying that I am deeply optimistic about the future of global air transportation. I do not see limits that cannot be addressed if we work together. I do not pretend that this will be easy. Moving to a rules-based, global aviation system will cause dislocations but the resulting system will be significantly more efficient, with better service for the public. A global ATM system not only offers more capacity, but also dramatically increases safety. Global standards are the most effective way to address all aircraft issues regardless of whether they are related to safety, noise or emissions. It is worth the effort to work through these issues to have a better, safer, cleaner, quieter global air transportation system for the 21st century. This Ministerial is the right place to start turning the dream of “Beyond Open Skies” into a reality. Thank you for inviting me today. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/sears012700.htm AIAA Acquisition and Logistics Reform Conference AIAA Acquisition and Logistics Reform Conference Jan. 27, 2000 Washington, D.C. by Mike Sears "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 McClellan. 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 KC-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-18E/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 GKN 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 GPS 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit_000322.html Transforming Boeing "Transforming Boeing" Rotary Club of Seattle by Phil Condit, Chairman and CEO The Boeing Company March 22, 2000 Thank you, Shan, for that introduction. Thank you, Bill, for the invitation. And thank you, Jim Johnson, for the real invitation. It took a while for me to get here. Jim invited me a year ago; I just finally found the way. It is always delightful to talk to Rotary. The serious, "reverent" approach that this group has (laughter) always makes me feel at home and welcome. So I will try to be equally serious and reverent. There are a lot of things that I could talk about today...that I could talk about with a great deal of passion. I could talk about the strike that we've just had and its causes and how it got resolved. I could talk about transportation in the Seattle area and tell Inner what I think needs to be done. There's a lot we need to do, and it's something that is vitally important to this area. As Shan said, I could talk about China PNTR and how important that is and how important world trading system is. I could talk about arts and Seattle, and why all of you ought to make sure that your subscriptions to ACT are updated because I'm the president of ACT. I could talk about education with tremendous passion, and I could talk about Boy Scouts with equal passion. But we don't have that long so I'm going to talk about the future of Boeing, a subject that I can really get passionate about...about transforming Boeing as we enter a different age. About the time many people thought that aerospace was becoming a mature industry, and in fact, that change had begun to slow down, suddenly the Information Revolution came along and the dot-com world arrived. And now we are into change at an unbelievable pace. So some really interesting questions are, "What does the aerospace industry look like in a dot-com world? What does Boeing look like in a dot-com world? Two words: dramatically different. Now Boeing is a very different company than it was just a few years ago, and I will tell you right now it will be a very different company a few years from now. The thing I'm saying to every single group that I talk to is we are going to do three things. 1. We are going to run a healthy core business. 2. We are going to leverage our core strengths into new products and new services. 3. We are going to open new frontiers. Let's see if I can characterize that... First, we are going to run a healthy core business. If you look at our various products...the things that you see every day. The facts are they won't look very much different, but the way we design them and build them will be radically different. The Information Revolution is changing the way we do those tasks. And the changes are every bit as profound as the impact of the Industrial Revolution. Let me give you just one example; i.e., our current Joint Strike Fighter concept demonstrator. We designed two demonstrator airplanes...one that's a conventional strike fighter airplane and one that is a short take-off, vertical landing airplane. We designed in multiple sites around the world; i.e., in Seattle, St. Louis, in England and a number of other places. The pieces were assembled in Palmdale, California, into two different airplanes by a workforce of just 58 people. That's dramatically different. That's the kind of thing that's going to happen to allow us to run a healthy core business. Second, we're going to leverage our strengths into new products and services. There is unbelievable potential for us...potential to supply support services and aerospace solutions to our commercial and military customers around the world. Part of this is happening because the world is changing. Airlines are focusing on their core businesses; i.e., their service business of marketing their products, getting reservations, taking people from one point to another. They are much less interested in maintaining or modifying airplanes and that provides us with great opportunity. Those are products that we know. That exact same thing is happening in the military area. The U.S. government once employed thousands and thousands of people in depots to maintain and modify aircraft. But they figured their job was to provide the defense, and they are now turning to private industry to do that modification and maintenance work. It's happening fast. Today, 25% of the revenue of our Military Airplanes and Missile Group comes from services. Finally, there are enormous possibilities to open new frontiers. Let me give you just three examples, and the list can get really long. One, air infrastructure. Two, mobile communications. Three, e-commerce. Each one of those offers tremendous opportunities for The Boeing Company and its employees to do some pretty exciting things. I'm going to talk just briefly about each one of them. First, air infrastructure. There is a great need today for what is (like all industries we come up with great names for things) Communication Navigation Surveillance and Air Traffic Management System (CNS/ATM). So from now on, it's CNS/ATM. Let me give you the statistics. It took 45 years to reach a world fleet of 13,000 jet airplanes. That number will double within the next 16 years. In the 12 years from 1970 to 1982, the number of passengers on airplanes around the world doubled to about 750 million. Sixteen years later it had doubled again to 1.5 billion....greater than the population of China. By the time Boeing turns 100, in the year 2016, it will double again to more than 3 billion passengers a year. Now what that means is that airports, and the CNS/ATM system, must contend with significant fleet and passenger growth in the years ahead. And that brings opportunity. Today's CNS/ATM system was literally first built up from bonfires on hills to lighted beacons on hilltops to radio beacons to omni-directional ranges and distance measuring equipment. It is all about a point-to-point, connected kind of system. The technology today would allow us to do satellite-based systems, provide communication to airplanes, surveillance of airplanes, management of airplanes on a global basis, and dramatically improve the system. I can't think of a better company than Boeing to attack that problem. That brings another potential reward. Given the kind of data base the last Space Shuttle mission gathered...terrain data for the entire world...and the global positioning satellite system, it will be possible for every airplane to know exactly where it is. We have the potential to remove the cause of over half of all aircraft fatalities worldwide, a controlled flight of an airplane into terrain. You know where you are, you know where the terrain is, and you don't ever have to hit it. It's a tremendous opportunity for us and for the system. Second, mobile communications on a global scale. There is a great opportunity to keep people connected anywhere and everywhere in the world...in the air or on the ground. While the average person is not yet connected all the time, we are headed in that direction and in one heck of a hurry. We are global, and we are becoming more mobile everyday. We're on the move. And there's a lot of room in here to use the knowledge that The Boeing Company has. Most of us are lugging our laptops along with us. Why? ...because we want to be connected; we want data; we want it now. And we'd really like it no matter where we are. I believe, over the next couple of years, we will go from the classic complaint of every traveling laptop user, which is, ""Were you able to get connected last night?" to the automatic assumption that we can and will be connected wherever we are. Let me give you just a personal example. Last year, I spent the equivalent of 75 eight-hour days in the air. And that is not my time to and from airplanes or standing around waiting...that's 75 eight-hour days in the air. Now the fact that much of that time was in an airplane, which has the ability to be connected, has changed my life entirely. All of that time was productive. I was sending and receiving e-mail, which I get a lot. I was making, and I have to tell you a bit sadly receiving telephone calls. I was checking the stock market. I was working on speeches. In fact, making this speech is a little bit difficult for me because I normally put the final touches on a speech in the air and print as we are landing. Well, I didn't get on to an airplane today so I've been scribbling up here madly. It has become an integral part of my tool kit. It allows me to be mobile and connected and that allows me to be out meeting face-to-face with critical customers, suppliers, with employees. It is the way we are headed. We need to be in touch with our business, we need to be out talking with people. Being mobile and connected allows me on a regular basis to send e-mail directly to 160,000 of our employees from anywhere in the world with a single keystroke. A few years ago, you couldn't even think about that. Now a lot of you are travelers...think about this one a little bit. Today in a commercial airplane you have a few choices. You can read a book, use your laptop until the battery runs down. You can watch a limited choice of movies. Not very far in the future, you will be able to operate just like you do in your living room. You will be able to watch the Mariners game live, watch a Final Four basketball game, be able to send and receive e-mail, you'll be able to shop on-line or work on a report. The airplane will begin to look like your home or your office and has dramatic impacts on productivity. It will change air travel. Once again, nobody knows highly mobile platforms, whether commercial or military, or satellites or space-based communication better than Boeing does. This is an area that is extremely exciting for us. The third one of those examples is e-commerce. Boeing like every other corporation has tremendous opportunities. We've established, for example, an online spares operation and it has been an unbelievable success. In the next 24 hours, we will sell more than $1 million over the Internet at Boeing.com, putting us in the top five of all commercial Web sites. And just a few weeks ago, we launched a New Ventures' activity to leverage our position in the aerospace industry and our capabilities in the e-commerce space. I encourage you, in the classic terms, "Watch this space," because we are going to be doing some really interesting things! So what does all this change mean to Boeing? I think it means we must make really critical, important choices. We can choose how we are going to leverage our tremendous core strengths and capabilities or we can choose to try and stay in the "good old days." Now as most of us know if we think about it critically, they weren't really so good. What most of us want are the benefits of progress without change. That isn't going to happen. We do have choices. We can move ahead and embrace the future or be swept away by the tide of change. I believe that we can choose to adapt, to learn new things, to give back to our industry, to our company, to our communities by staying positive, by being open to change, by doing things that create a better life. I believe we can learn from some really interesting people...people like Gutenberg or Galileo or Morse or Bell or Ford or the Wright Brothers or my favorite three Bill's - Bill Boeing, Bill Allen, and Bill Gates, who put all the pieces together. Now let me wrap this up. We are going to run a healthy core business. We are going to leverage our strengths into new products and services. And we going to open new frontiers. We have great opportunity. In the 1800's Darwin said, "It is not the strongest of the species that survives, nor the most intelligent; it is the one that is most adaptable to change." So, in 2000, I say, "Boeing is the most adaptable to change. We will survive and we will flourish! # # # C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/albaugh020300.html Satellite 2000 International Conference and Exhibition - Keynote Address Satellite 2000 Feb 3, 2000 Washington, D.C. by Jim Albaugh "Satellite 2000 International Conference and Exhibition - Keynote Address" 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. RF [radio frequency] communications followed and suddenly we could communicate with things that moved. But RF 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 GEO 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 GEOs. 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 GPS 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 CSEL - 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 CSEL 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: SpaceWay, Astrolink, Skybridge, Teledesic and CyberStar. 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,VSATS, Earth observation and climate-monitoring satellites, GPS 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit031699.html Leading in the 21st Century "Leading in the 21st Century" Long Beach Management Association Long Beach, California by Phil Condit, The Boeing Company March 16, 1999 Thank you, John. I'm absolutely excited to be here. Harry and I drew straws and he lost. Harry got to go overseas, and I got to go to Long Beach. But I do have to tell you that given the chance, Harry would be here too. I noticed that Sheila had on her place card a title, and I looked to my right and John had on his place card a title; I went over and looked at David Spong and it said "executive coach" on his. And I looked at mine and I didn't have any title. (Laughter) That's the way it ought to be. And it's great to be here. And it's great to celebrate 50 years of this organization. A group like this does not exist without great leadership, and I guess that's a good reason why it's still here after 50 years and four name changes, even if you can't pronounce the acronym. I tried really hard to pronounce BLBMA, and it doesn't work, so you might have to go back and make a fifth name change. I think one of the really interesting things is to try to look forward. To try to look into the 21st century and say, "What's business leadership going to look like in the next century?" I think it's important; I think it's important to the people who are sitting in this room because I think it will be different. A lot will be the same; a lot of the pieces are familiar. But a lot of them are different. There are a whole bunch of things that will be important to make you great leaders. But there are two of them that really stand out in my mind that I thought it might be worthwhile talking about tonight. The first item is that we need to understand what management is and what leadership is. Then understand what the difference is. And we need to understand where we are and understand what reality is. Then understand where we want to go and how we go about getting there. So I'd like to look at both of those in more detail. Managing and leading are two very different things. A manager must make sure that things get done. A manager has got to control the work statement to make sure that we "do things right," and to make sure that the company's business plan gets supported. The manager implements policies, procedures, practices; administers and tracks budgets and schedules. Those are absolutely crucial. Large systems don't get integrated because people gather around....There are real schedules, and there are real plans that must be met. It is critical to the success of the company. A leader has a different job. A leader needs to coach. A leader needs to create the best environment that allows others to operate at the peak of their potential. A leader needs to set the vision to identify goals, to facilitate, to guide. A leader is key to the process of working together and the one who allows us to "do the right things." The manager is necessary so that we "do things right," and the leader so that we "do the right things." A leader can take a strong, talented, and diverse group and create real magic by knowing when to inspire, when to praise, and when to challenge, when to encourage the team to make the goals. Ancient Chinese philosopher Lao Tsu wrote the following, and I think it's really good: "A leader is best when people barely know he exists. Not so good when people obey and acclaim and worse when despised. But of a good leader, who talks little when the work is done - the aim fulfilled - they will say, 'We did it ourselves.'" Leaders also understand the difference between what they prefer and what they require to get a job done. I think one of the best examples of that, and some of you may have heard this before, is the example of Phil Jackson, who was the coach of the Chicago Bulls. He had all sorts of fire power-Michael Jordan, Scottie Pippen-but he required a good rebounder. Now I'm sure that Phil Jackson preferred someone who could get along well with people, talk to the press, and basically project a certain image. He probably preferred not having someone on his team who dyed his hair red, yellow, and green, and who wore dresses off the court. But if he had a requirement for the best rebounder in the NBA, and if that best rebounder was Dennis Rodman, then that's where he went. By focusing, by coaching, by looking at requirements, Phil Jackson built (and I think most people would agree) what was one of the greatest teams-if not the greatest team-in the history of basketball. A coach is frequently less visible than the star players, but, in the end, it would be impossible to succeed without a great coach, a great leader. We need great coaches, great leaders if we are going to make The Boeing Company the greatest company in the world. The second item is that we must anticipate change before anyone else does, face reality with courage, and change quickly if, to use Jack Welch's words, we are to "control our own destiny." How do you do that? I think the key words are that we must face reality with courage. Reality is not how you hope things will be, hope things are. It is how they really are. Real change can only occur when a person accepts the reality of the situation. It is every bit as true in business as it is with a recovering alcoholic. One of my favorite stories is an old Indian teaching story. It was told by the elders to the young members of the tribe because it was important. And the real question was, "What do you do if you were lost?" And without telling you the whole story, let me tell you the start. It starts, "What do you do if you were lost? Stand still. The trees before you and the bushes beside you are not lost. Where you are is called here." It may sound like a pretty simple thing, but it isn't all that easy to do. We sometimes don't like where we are. We don't like "here" very well and are sometimes not willing to face the fact that the trees ahead or the bushes beside us are not lost. Reality is also not wishing that things were as they used to be, wishing for the good old days. I don't know how many e-mails I get from people who say, "If we just went back to where we were, then things would be all right." Well, folks, the world is a different place. If we went back to where we were, nobody would pay very much attention to where we are. Reality is where we are today. Success will go to those who recognize reality and respond to it quickly. I made some remarks and got quoted rather heavily in the newspapers when we all met with the senior members of our management team in the desert in January. I said that given our stock price someone could make a decision to come in and acquire the company and "change" it, but that I thought it was a heck of lot better idea that we did it rather than someone else. Well it got reported a lot of different ways, but the message is still the same....I think it's a lot better if we do it rather than if somebody else does. Our culture (and this is true of our industry and I believe of this company) is captured in some very simple words: "We can do it!" We have done absolutely amazing things. Twelve years between the time the Russians launched Sputnik and when we put a man on the moon. Twelve years. An amazing feat. We are a company that when you recite our history, you can't help but get excited. I started down the list and you can go a long time...DC-1s, -2s, -3s, -4s, -5s, -6s, -7s, -8s, -9s, -10s, MD-11s, 707s, 27s, -37s, -47s, -57s, -67s, -77s, 717s. That list gets long. Every single manned space vehicle...everything from Mercury to the Shuttle and the Space Station. This is a company made up of people who say, "I can do it." Together, I believe, we can do anything. I believe that we can control our own destiny, and I believe that we will. And it isn't as though we haven't had hard times, all of us; whether our roots are in Boeing, in Douglas, or McDonnell, or North American, we all have experienced tough times. And we've all made it. In 1969, when Boeing was in the process of going from 150,000 to 50,000 people and bankruptcy was within days, Boeing Chairman Bill Allen gave to Mal Stamper a quote from President Theodore Roosevelt. Mal gave it to me, and it sits on my desk. And it says the following: "It is not the critic who counts, not the man who points out how the strong man stumbled or where the doer of deeds could have done them better. The credit belongs to the one who is actually in the arena; whose face is marred by dust and sweat and blood; who strives valiantly, who errs and comes up short again and again; who knows the great enthusiasms, the great devotions, and spends time in a worthy cause; who at the best knows in the end the triumphs of high achievement; and who at the worst, if one fails, at least fails while daring greatly; so that one's place shall never be with those cold and timid souls who know neither defeat nor victory." Now, I am convinced that Boeing people are neither cold nor timid. We have gone where no one else has gone, and with leaders we can go where no one else can go. We can do it! And that means that someone else will be standing here 50 years from now talking about the great accomplishments of a great company. I'm counting on all of you to make that come true. Thank you. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit011999.html Change, Challenge and Opportunity "Change, Challenge and Opportunity" The Round Table St. Louis, Missouri January 19, 1999 By Phil Condit Chairman and Chief Executive Officer The Boeing Company Thank you, Sandy. It’s truly a delight to be at The Round Table. You have a distinguished history that dates to 1882, and I’m honored to speak where so many legends have talked. Thank you for asking me. I look forward to your questions. But, first, I want to talk about a subject that is important to me: change and the implications of that change. I believe the aerospace industry, and many other industries, are going through profound change today. In the past, the aerospace industry, for good reason, has been based on performance. We are an industry that pushed the envelope of performance from the DC-3 to the 707 and DC-8; from the P-51 to the Phantom and the F-15; from the B-17 to the B-52 and the B-1. We are an industry that went from Sputnik, Mercury, and Gemini to man on the moon in just 12 years. Factors that led to that push for performance have changed. In commercial airplanes, regulation of the airline industry has come to an end, and the technology of jet transports is maturing. When we were in a regulated world, we could pass costs on to the airline and they could pass them on to you. In a deregulated world, airline passengers - the market - sets the acceptable levels. If we look at the defense side, we have come to the end of the Cold War. During the Cold War, we had an easy yardstick. If the USSR built a rocket, we built a better one. If they built a new fighter, we built a better one. The shift from performance to value is relatively new to aerospace, but not for others. It happened to appliances, autos, and steel, and I could make that a much larger list. Each has felt the impact of value-based, market-driven change. Real costs are going down. I think the implications are pretty simple: we must change and change dramatically. Change our company so we can provide value to our industry for the customer. The impact will be profound. This all is occurring while technology is changing rapidly, and that is changing what we do and how we do it. Only a few generations ago, people learned the business, or trade skill, that was practiced by their grandfathers or fathers. Then as the rate of change increased, each generation went to school and learned enough to last a lifetime. That is not good enough today. Technology is changing so rapidly that many people will need to learn several new technologies in a career. In the face of this rapidly changing technology, we also need more breadth. We need engineers who understand economics. We need business graduates who understand technology. We need employees who are willing to ask questions: What does it really cost? How can we collaborate for a better product? How can we communicate ideas effectively? How can I learn continuously? These are four critical C's: Cost. Collaboration. Communication. Continuous learning. First critical "C," cost. At Boeing, we need aerospace engineers who have a basic understanding about cost and who actively use cost data when designing their part of the product. We need engineers who know how to design for manufacturing and for the reuse of system components. We need business people who understand how technology can be used to reduce cost. We need finance people who understand how to get good cost data rapidly to those who can affect cost. Second critical "C," collaboration. At Boeing, we need our people to work effectively together in inter-disciplinary teams. This is a significant change. In the past, reward has mainly been based on individual capability. In school, for example, you get grades based on what you do. You are chosen for your first job based on your individual capability, but from that point on you usually need to collaborate. I had the opportunity to teach a class of university students. Instead of giving individual grades, we decided to award a single grade to each team. One student raised his hand and complained that it wasn’t fair and said: "What happens if I get a person on my team that doesn’t pull all of his weight?" Well, that is how business really works. You are graded on how the team does. It is difficult to collaborate. We use different languages. The accountant speaks one language; the engineer another; the shop mechanic yet another. Each has unique expertise but if the best product is to be designed and built, collaboration and the sharing of ideas are needed. Listening becomes a critical skill. Diversity becomes an asset in collaboration too. Different backgrounds and experiences add to the richness of the team. Successful integration demands collaboration. Next critical "C," communication. It’s wonderful that individuals have great ideas and concepts but if they can’t communicate to other people, they will remain just that - concepts and ideas. Employees must be able to communicate ideas and concepts and that requires good oral and writing skills. Communication is two-way. You can’t listen effectively when your mouth is always open. We must foster good communication everywhere in the company to align people to the goals to encourage new ideas Final critical "C," continuous learning. As I said earlier, it was possible 75 years ago for someone to learn everything they needed to know to last through an entire career. Today it can't be done. Technology is changing so rapidly and tools are changing so quickly that to think we know today what we need to know five years from now is preposterous. I believe we need to learn how to learn effectively and efficiently, and then continuously learn because there is a lot to learn. We are in a world that is rapidly changing. If we are to be successful as company leaders, as government leaders, as community leaders, I believe we need to: Recognize the importance of cost in a global market economy; Use the power of teams to collaborate to produce better products to meet market needs; Understand the power of effective communication; Learn continuously. Cost. Collaboration. Communication. Continuous learning. They define, for me, what business needs for the next century. With that, I'd like to take your questions. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/minority.htm Working Together for Global Aerospace Leadership The Boeing Company 10th Annual Minority-Owned and Woman-Owned Small Business Conference March 22-23, St. Louis Presentations Vision 2016 - Bill StowersVice President/General Manager for Supplier Management and Procurement Boeing Military Aircraft and Missile Systems Other Boeing Executives C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056a/sld001.htm Working Together for Global Aerospace Leadership Please scroll down to see speaking notes to this presentation Slide 1 of 51 Notes: 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! C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056a/sld002.htm Working Together for Global Aerospace Leadership Slide 2 of 51 Notes: 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056a/index.htm Working Together for Global Aerospace Leadership Working Together for Global Aerospace Leadership Click Here to Start Table of Contents Working Together for Global Aerospace leadership Working Together for Global Aerospace leadership Working Together for Global Aerospace leadership 1999 Product Costs 2016 Product Costs Annual Fair Provides Access to Business Opportunities Who’s Invited ... Boeing Extended Enterprise Best Value Boeing Preferred Customer Dedicated Resources Promote Supplier Diversity Dedicated Resources Promote Supplier Diversity Earlier Involvement Through Strategic Sourcing Mentor-Protege Program Provides Growth Opportunities Mentor-Protege Program Provides Growth Opportunities Small Business Innovation Research Fosters Technology Development Collaborative Programs Strengthen Students and Curricula 1998 Boeing Supplier of the Year Boeing - Focused on Delivering Value Boeing - Focused on Delivering Value Boeing - Focused on Delivering Value The Boeing Company Organized for Success Supplier Management Process Council Supplier Management Process Action Teams to Leverage Best Practices Develop World-Class Supply Base Supplier Performance Measurement Certify Key Suppliers Embed Lean Practices GTC Gets Lean Aircraft and Missile Systems Three Primary Strategies to Create Value AET$M Organization Model AET$M Business Model AET$M Business Model How Do We Grow Revenue? How Can We Improve Margins? How Do We Improve Asset Utilization? AET$M Supplier Management Leadership Team Aerospace Support Aerospace Support Joint Strike Fighter Program USAF Fighter and Bomber Programs USAF Fighter and Bomber Programs USN/USMC Programs USN/USMC Programs USAF Airlift and Tanker Programs U.S. Army Programs U.S. Army Programs Weapons Programs Weapons Programs Working Together for Global Aerospace Leadership C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056a/sld051.htm Working Together for Global Aerospace Leadership Slide 51 of 51 10th Annual Minority-Owned and Woman-Owned Small Business Conference Notes: 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/sld002.htm Working Together for Global Aerospace Leadership Select From One of the Above Boeing Executives Presentations Vision 2016 - Bill Stowers Presentation C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056e/sld001.htm Lean Production Systems Concepts - Leland Williams Slide 1 of 25 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056c/sld001.htm Commercial Air Planes - Ric Hord Slide 1 of 21 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056f/sld001.htm Supplier Performance Measurement System - Bob Juergens Slide 1 of 19 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056d/sld001.htm Phantom Works - Allen Atkins Slide 1 of 26 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/minority/c90056b/sld001.htm Space and Communications - Mark McLeod Slide 1 of 16 C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/condit031799.html Charles Schwab CEO Speaker Series with Philip Condit "Charles Schwab CEO Series" Teleconference Transcript PHILIP CONDIT Chairman and Chief Executive Officer The Boeing Company March 17, 1999 Disclaimer: The opinions expressed in this transcript are those of the Forum guest and are not advice or recommendations of Charles Schwab ET$ Company, Inc. We expressly disclaim all liability for any action taken in reliance of the statements or information in the transcript. Mr. Thompson, our SchwabHost, is a senior vice president with the Charles Schwab Corporation. He is also a member of the Stanford University Internet Computer Project and serves on the board of the US Securities and Exchange Commission Consumer Advisory Council and World Economic Forum. SchwabHost: Thank you for joining us today. I am part Irish so I have to wish everyone a happy St. Patrick’s Day. We have great luck because we have with us Phil Condit in Seattle at the Boeing Company, the largest aerospace company in the world. We so appreciate you being with us on the program today. We have a strong line up in 1999. We have the CEO of NCR, Cisco, General Motors, Sun Micro Systems, Coca-Cola, Oracle and many others. Mr. Condit joined Boeing in 1965 as an aerodynamics engineer on a project that really has captured the imagination of the American public. It was the SST - I still have dozens of old models in my attic - Super Sonic Transport Program. Mr. Condit’s career spans three decades in Boeing and almost 20 different assignments. These include vice-president of the division that built the famous 707, 727, 737, and 757 airplanes. He was EVP at Boeing Commercial Airplane Company and executive vice-president and general manager of the new airplane division, which subsequently came to be 777 division. Mr. Condit was elected president and a member of the board of the Boeing Company in 1992. And in 1996 he was appointed CEO. Today Mr. Condit will tell us about Boeing and the prospects for the aerospace industry. Then we move to the second portion of this call, which will be the most important to those of you who would like to ask Mr. Condit a question. We will also be getting to many of those e-mails. Before we start, I would like to hear from Paul Gifford who is Director for IR for Boeing. Paul Gifford: Good afternoon and thank you Mark. I need to let our audience know that we will be dealing with projections and goals today, most of which involve considerable risks and uncertainties. The assumptions behind our projections and goals are detailed in our news releases as well as in our various filings with the SEC, and I urge you all to read them thoroughly. SchwabHost: Thank you very much. We are very excited about today’s program. Phil, thank you so much for being with us. Philip Condit: I am delighted to be here, thank you. SchwabHost: What is it like presiding over so much change in this industry? With more than 30 years, you have seen it all. Philip Condit: I have seen a lot of it, yet probably the most exciting time is right now. The rate of change is absolutely spectacular. That’s both a challenge and an opportunity. Of course, our job is to take care of the opportunity and make sure it really happens. SchwabHost: Absolutely. Tell us a little bit about the current strategies that you are employing in the organization, and maybe you can pull in some of the things around the Rockwell combination as well. Philip Condit: First thing, it’s really important to understand that, like a lot of other industries, aerospace has been an industry that was built around product performance: Could you make an airplane that flew higher or faster or farther? Could you put a man on the moon? Really dramatic things that had to do with the product. As those technologies mature, the emphasis changes. It changes to one of value. How do I produce these spectacular products at affordable prices, and that produces the kind of return that investors are after? That means engineers, just as an example, who have been focused on getting the last ounce of weight out of a rocket booster, now have to worry about how much it costs. That’s a dramatic transition, but that is the context of industry right now. You mentioned the merger. One of the things we did at Boeing was look forward 20 years. We did that in 1996. We recognized that in 2016 Boeing will be 100 years old, so it took on added meaning. Then we asked what do we really want to be in 20 years? What do we need to do? We realized that we were moving toward being more and more commercial aircraft, headed toward 80 percent commercial aircraft - a business that moves with the economic cycles of the world. And if we really wanted balance, if we wanted the kind of sustained earning power that this industry could generate, we needed to have better balance. Interestingly, McDonnell Douglas had exactly the opposite problem. They had a very strong defense business, but a relatively weak commercial business. In fact, it looked as if they were headed out of the commercial business. The questions at Rockwell were, "How do I focus on my business?" They were in too many different things. However, they did have great space systems. When you put all three of those together, you get much better balance. Our ability to use technologies across the whole in different markets means better stability, about half of the volatility in our cash flow then if we’d been apart. It’s those things that really drove the merger. SchwabHost: I see. It certainly makes sense with what we were talking about earlier before the program,which was the changing nature of the global economy and environment. How does that affect your industry right now? Philip Condit: It’s really exciting. We are moving towards a global economy. There are times I find people with their heels dug in trying not to go there, but it’s going to happen. It’s going to happen in every industry. And it’s more than just selling globally. It is how are we, in fact, a global company - a company that understands the needs of both local companies, local customers, and manufacturers in many different places. Most of us grew up in companies that were relatively local. Boeing was heavily Seattle based. So when we set up our 20-year goals, we wanted geographic diversity. It happened a lot faster than we thought. Now we are in 27 different states in the United States, and we will be moving to a much more global base. SchwabHost: So it works from a talent standpoint on management and the manufacturing environment in terms of being worldwide and domestic. Philip Condit: Right. Each company, of course, is different. Now if you were building automobiles, for example, transportation costs are a significant factor. So having a manufacturing plant in another country saves you transportation costs. In our case, we have a self-delivering product, you put gas in it, and it goes there. It changes that dynamic. Let me use another example. We think that we will probably have an expandable role in the maintenance and support of the aircraft that we build commercially. Very likely, we will complete that locally. That will mean we have a much stronger global presence in a number of countries where we play that maintenance overhaul role. SchwabHost: That’s one of the e-mails that I was going to address later, but I will bring it up now. Denise Miller from Alameda asked about yesterday’s release for providing service and modification to existing aircraft. What is that all about? Philip Condit: One of the things we recognized is that about 90 percent of all the aircraft that are out there, slightly less than 90, are Boeing aircraft. A lot are McDonnell Douglas aircraft. They are now part of that broader stable. SchwabHost: How many planes? Philip Condit: Oh golly, it’s 10,000 plus. A whole bunch. SchwabHost: Big number. Philip Condit: We know those airplanes. We know the engineering on those airplanes. They have to be maintained at given standards. That means we can add value. We have that knowledge. So we are looking at how do we take the knowledge that we have of the airplanes, the knowledge that we have of our customers, and provide a service which is more economical for our customers, because we can collect and bring that together, and it provides a real value creating opportunity on our part. It is one of those things we always look for-something that is better for our customer and something that adds value to the corporation. SchwabHost: Can you see these planes changing for the customers? Philip Condit: They do. The simplest example, and one that we’re deeply involved in right now, is converting a number of planes from passenger service to freighter service later in their careers. That’s a fairly extensive modification. We do 747 passenger to freighter modification in Wichita, Kansas right now. We think that’s going to happen not only with 747s, but almost all of our airplanes. Again, we know the engineering, so we know how to do that. That’s the kind of thing we think we can do more economically than others. SchwabHost: What will taking this direction mean for your business and financial goals? Philip Condit: It really fits directly into where we have tried to go, which is to look at the company in terms of value creation. We look at our current programs very critically and say "Either, we’re going to make these programs truly value-creating or we’re going to stop doing them." We look at the programs now that are creating value and say, "How do we make more value with them?" And then we ask, "What do we do that adds value to that portforlio?" What new things can we do? This aircraft service initiative is one of those. It is an additional thing that we think clearly adds value. SchwabHost: Before we introduce the callers, I would like to continue with one of the e-mails from a customer in Kansas City. She asks about Boeing’s role in the Microsoft Teledesic Project and the partnership. What does that mean? Philip Condit: One of the areas that we find very exciting is the whole space based communication market. We participate in that area as the producer of the global positioning satellite - the GPS system. We think there will be a lot more communication based systems, Teledesic being one of them. We have been integrally involved in trying to define what that system would be. We are not sure at this point, exactly what our role will be, but we have been part of defining what the system needs to be. For instance, in defining how many satellites are required to do the job. And then, we are exploring ideas of our own, in terms of ways we might bring data and entertainment to mobile users. How do you get data on and off airplanes so you can use your laptop on the airplane and do your e-mail while in flight? That’s the kind of thing we’re looking at now. SchwabHost: Is there a role in that environment for the Delta IV Development? Philip Condit: Absolutely. We’ve got a neat family of launch vehicles, and it is truly a family. It’s one of the things we learned on Commercial Aircraft, that you don’t just have one. If someone has a heavy satellite, you want to be able to launch it, if they have a smaller satellite, you want to be able to do that too. And you want to be able to do that modularly. Our system allows us to have multiple sizes of launch vehicles using the same components. This dramatically dropped the cost of launches and gives us a real entrée into that market. So we have a great position there. SchwabHost: If I could just, before we open for questions, ask you a more philosophical question. Obviously, you plan two decades ahead which is remarkable. Can you imagine what they will say about your company in the history books a hundred years from now? What would you like them to remember your legacy and the companies? Philip Condit: Two things really. One of them is that we are leading a very fundamental change in the company from a performance-based orientation to a value based orientation - that involves the other one, which is education. You do not educate by standing in front of a stampede and point in a direction. You to do it by educating a lot of people. We need people on the shop floor and in the design office that understand what it takes to make an airplane, what it costs to make an airplane, what drives the stock price, why does it drive the stock price, and what is free cash flow. That means education. We just opened a brand new leadership center in St. Louis and we will be taking all of our executives through a two-week program. We also have a middle management program and an entry-level management program. We use the leadership center to help bring this company together, as one company. We can take people from all over the country, mix them together, have them meet, and discover each other’s skills. That will be key. So our legacy will be two-fold -education of the entire work force and value creation. SchwabHost: Education and value creation. Their alignment is an important element in getting the talent and management to carry that vision. How do you motivate a work force to align with the vision? Philip Condit: Well, there are some relatively easy parts and some really difficult parts. One of the easy parts is , this is an exciting business. Watching a shuttle launch or the first flight of an airplane is just exhilarating. This is neat stuff. So we want to take that excitement and say, now we are going to lead the world in how it’s done. We have gotten some great examples already. Our C17 program was once very troubled. It just won the Malcolm Baldrige Award and is a dynamite program now. Customers love the product. It produces good margins, and we keep getting better at it. We capture the excitement of the product and then we say, "We’re going to do this thing better than anybody’s ever done it before." SchwabHost: Very exciting. Our first question is from Mr. Robert Goburn of San Francisco, CA. Audience: Thank you. I’d like to thank Schwab Signature Service for this opportunity and Mr. Condit for his time as well. I understand a large percentage of your long-term commercial airplane forecast is for the Asian market. What’s your view of the economic situation in Asia, and in particular, China? Philip Condit: Well, that’s a very important question. Our long-term forecast for the Asian Pacific region in general is that it is about 28 percent of our long-range forecast. Very big, very important, but clearly not the whole thing. We’ve really broken that down on a country by country basis because the economies are so different right now. Korea has taken a tremendous hit, but we actually see some very positive signs in Korea. We are seeing Japan as being pretty flat right now. China is more about long-term potential than about the near term. It is a huge country with a huge population and a built-in demand for transportation and structure. Air transportation is probably the most economical way to solve that demand for transportation. We see a pretty dramatically growing market. But today, just by comparison, the Chinese travels about one one-hundredth as much as the typical person in the US. So after the economy develops, so will air travel. The propensity to travel is almost directly locked into the GDP per capita. So long term, China is a very important market. SchwabHost: Thank you, we appreciate your question. The question also relates to a group of e-mails that I received about individual Asian countries. What kinds of planes will you be selling into those markets? Philip Condit: Almost every one. The real advantage we have is our range of products. There will be domestic requirements for relatively small routes where airplanes like a 717 and 737 fit best. There will be regional demands where airplanes like the 57 and 67 fit, and there will be international routes where the 77 and 47 fit. So we will typically see the full range in almost every one of those countries. SchwabHost: We have a question from Robert Ascher on e-mail. When does Boeing plan to respond to the Airbus A340 with the 777 either in the 200x or 300x? Philip Condit: Our timing depends on the needs of our customers. It is not so much trying to respond to the competitor, unless the competitor happens to be responding to a real important customer need. We believe there will be a long-range midsize market. Our product in the 77 addresses about 90 percent of that market. Today, we are talking to a number of customers about their projected needs, and when we reach an agreement with those customers, then we’ll respond. SchwabHost: As for your defense products, David Kirk asks by e-mail, what’s the latest news that you can tell us about the possibility of getting a contract on a joint strike fighter? Philip Condit: It is a very exciting, very important program. I just spent lunch talking that project. First off, we believe that we have a great product that will in fact meet joint needs, which is really critical. An airplane that meets the needs of the US Air Force, the US Navy, the US Marines, and the Royal Navy which have very different requirements for an airplane. And, as a low cost international fighter. So it is a competition of significance. Remember that the program has its first real production currently scheduled for 2008. So it isn’t something that will happen in the near term. However in a decade, it will have a real top line impact to the company and bottom line. We have a first rate team working the program. I just had a full review of the program and our status. I like where we are. We will put a lot of resources into delivering a top-notch competitor, and we think we have a winning strategy. SchwabHost: Thanks so much. Our next question is from Ms. Terry Guffin of Millvall, CA. Audience: Hello. My question is what kind of plan is Boeing working on to handle the Year 2000 problem? Philip Condit: We have been working on Y2K for about six years now. From a product standpoint, we have had solutions in hand for a couple years. Our airplanes do not have a problem. We actually flew a full test several weeks ago in which we set all of the dates in the airplane up to December 31, 1999, 11:30 p.m. We took the airplanes into the air, then watched them on radar to make sure we did not get a funny signal. The radar room of the air traffic control went through "midnight" with complete success. So we are very comfortable from a product standpoint. We’ve been through all of our internal systems, too. We are very comfortable with all of our production systems. We then went into all of our infrastructure systems. We’ve got one left to go, our internal telephone system. That should be compliant by July of this year. That will complete everything from elevators to machine tools. We are actively working with all of our suppliers to make sure they are all ready. Working with the FAA to make sure that air traffic control system is ready. I’m pretty comfortable with everything I’ve seen. It’s a subject we review internally every month. We review at the Board of Directors meeting every two months. SchwabHost: Thank you very much for the question. We will be sure we don’t host this telephone call at midnight on the eve of the new century. That’s for sure. Philip Condit: You probably want to be on an airplane. That’s a safe place to be. SchwabHost: Thank you. Our next question is from Mr. Ryan of Deer Field, IL. Audience: Thank you for taking my call. First I would like to reiterate my appreciation of Schwab for giving customers the chance to interact with Mr. Condit. My question for Mr. Condit concerns Boeing’s well publicized past production problems. What steps do you and your management team plan on taking to restore investor confidence in Boeing as a premiere growth company? Philip Condit: Very good question and one actually that, as you would expect, I have spent a lot of time on. We have made major changes to our senior management team. Two years ago, the executive council of the company had experience in two different companies, Boeing and one other. Today my executive council has executive level experience in twelve different companies. They range all the way from the automobile industry to railroads to aerospace. That diversity is really important as you try to plot your future and make the kind of changes you need to make. Second and very important, we moved and changed the management of our Commercial Airplane group. First we focused on getting the production healthy. We have achieved that. We now need to get it to where it is significantly profitable, not marginally profitable. And we are making progress there. The last one that I think is crucially important is investor confidence. I think that comes when you state the goals in the beginning and then deliver on them. We now have two quarters behind us in which we met or beat street estimates. Two does not make a history, but it’s a heck of a lot better than none. We intend to continue that process - telling the street and all of our investors what our expectations are and then delivering on those promises. And it’s only by delivering that we will in fact restore the kind of confidence that we deserve. SchwabHost: Thank you very much for the question. Our next question comes from Mr. Kent Granch of California. Audience: Can you tell me a little bit about the difficulties with integrating the cultures, and the work forces of these acquired companies? Specifically, where are you in overcoming these hurdles and creating cohesiveness within this large work force? Philip Condit: No merger is easy. In fact, as we went in, my biggest question concerned the merging of cultures. Interestingly, the places we’ve made the most progress are where the mixing is highest. In our space and communications unit, which is sort of equally divided in terms of where its roots were, Rockwell, McDonnell Douglas, Boeing, have come the furthest. They are working together on a daily basis, and the lines really blur fast when you are working together every day. It is one of the reasons that our leadership center in St. Louis is so important. Bringing people together, taking them out of their old context, establishing a new culture and where you’re going, is really important. We had our first class through there last week. Harry Stonecipher opened the class. It’s a two-week class, which I closed. The class had a dramatic impact. We’re going to have to continue to work at it. I believe, that we’ve in fact come further down that path then our expectations were. The problems that we’ve had in the last year and a half are essentially unrelated to the merger. The merger part has really gone well. The part that disappoints me is that we let the investor community down on something we should have really known how to do, and that was the production of commercial airplanes. I think the merger part has gone very well. Hindsight’s really neat by the way, looking back is a lot clearer than looking forward, but I think we’ve made some real progress. SchwabHost: Thank you very much. Our next question comes from Mr. Jeffrey Meadows of Kennet Square, PA. Audience: Thank you. Hello, Mr. Condit. My question concerns supersonic airplanes for mass transit. I understood from your introduction that you were involved in that area earlier in your career. And we all know that the Concorde has been flying for years. Not for the general public because of the cost, of course, but it has proven to be a very reliable plane as far as I know. My cousin was one of the first pilots of the Concorde, and he said it was a wonderful plane to fly, but unfortunately it is not an economical plane. What is the future for the development of a supersonic plane for mass transit? Philip Condit: As a technologist, and one who started my career working in that area, I would love to tell you that it’s just around the corner. The reality, I believe, is that it’s not - exactly for the reasons that you said. It’s economics. Our strong belief is that if it is to be economical, it cannot just be a first class airplane. You can officially handle the first class traffic with something in the order of a couple dozen, but it cannot even be just first class and business class. It has to be to a broad market. And if that is going to be true, then you have to have fare structures that are pretty close to current airplanes. And that means you have to build an airplane out of pretty exotic materials with pretty exotic engines that can compete economically with the best airplanes we’ve got out there today. The other thing that I think is going to be very interesting is that two other things are happening in the market place. One of them is we see a very strong trend toward more point to point service, less hub to hub. The place where supersonic transport is strongest is hub to hub and as we get smaller airplanes flying nonstop between cities that tends to take demand down for a supersonic. The other is the ability to get high quality data on and off an airplane. And right now, the reason I want to get off the airplane and get to my hotel is so that I can plug in my laptop and get my e-mail. So if I can get that en-route, I begin to ask why do I want to pay a premium to get there a little faster? All of that said, today we can not make the economic equation close, and until we can do that, we will not be investing a lot of money in it. SchwabHost: Thanks so much for the question. While you were talking, you also mentioned size of aircraft. An e-mail from Gary Stein touched on that issue. In the next decade or so, what’s the prospect for going from 150, 200, 300, to 800 passenger airplanes? Philip Condit: Every analysis that we do says that the market for a very large airplane is extremely limited. You really need to back up to what is it that passengers want. What I really want to do is fly from where I am to where I want to go. And I don’t place a very high value on going to places I don’t want to go. You go through the hub because you needed to go through there to get to somewhere else. We are building more economical small, long range airplanes. They are faster and give more point to point service. We have already seen it happen on the North Atlantic. The average size of airplanes on the North Atlantic has actually declined over the last decade. This reflects the fact that you can fly direct between many US and European cities rather than going through either New York and/or London. We think that trend will continue. So while the technical challenge of building a very large airplane is interesting, we don’t think that’s where the market’s going. SchwabHost: Thank you very much. Our next question comes from Mr. Thadius McGomery of New Port Beach, CA. Audience: Mr. Condit, I’m just grateful to be on this program. I would like to indicate that five to ten years ago, as an investor, I would not have thought Schwab would have taken over Merrill Lynch and that’s exactly what has taken place recently. A recent article in Investors Business Daily discussed the possibilities of the competition with Airbus. Maybe with thebig investment in large aircraft research they’re on your heels and making headway. I would just like to ask, as a potential investor in Boeing, why would I choose to invest in Boeing today versus Airbus? Philip Condit: Well, one of the things I hope is that you’ll have an opportunity to be an investor in Airbus and then later on I’ll convince you don’t want that opportunity. Today, it is a consortium that is made up of British Aerospace, DASA, which is a part of the Daimler Chrysler, Aerospeciale, a French company which is currently 100 percent government owned, and CASA of Spain. They have talked a great deal about a single corporate identity. They have not achieved that yet. In fact, there had been a pretty firm timetable and that has slipped out a ways. The real key to the future, the key to the decision you are talking about, is the ability to focus on value. On getting our costs down so that we get the kind of margins that make investing in Boeing attractive. And I think we have the things in place to do that. It’s a big task. I won’t minimize the scale of it. But I think we’re out in front of that task and as an answer to the caller earlier, the proof is going to be us. We’ve got to deliver on that. But the direction we’re headed in is to make sure we’re not focused on building neat products. We’re not focused on market share; we’re focused on delivering value to our investors. SchwabHost: Thank you. Our next question comes from Mr. Charles Corey of La Jolla, CA. Audience: Yes, Mr. Condit, I do appreciate you taking this time, and my question is essentially the same as the previous caller. I have been noticing, and it seems to me, in terms of newspaper interpretation, that you have lost a number of contracts to Airbus. Some papers attribute part of it to modernity. Since the corporate lines of Boeing were laid down in the 1940s and those of Airbus were laid in the 1970s, Airbus has a more modern production system. What is your comment on that? Philip Condit: There is some truth in that. And evidence of that is the fact that we are investing and have almost done a complete revamping of the system that defines our products. The problem with being around for a while is you get some old systems and you must go back in and reinvest. We have done that. I would say that today from a production systems standpoint, we are quite close. I don’t intend for that to be the case as we go forward. We are going to move hard and aggressively in our production technology because I believe that is the future of this industry and that is where our focus is going to be. We’ve defined for our company three core competencies that we use all the way across the corporation. The first one is detailed customer knowledge. We will know our customers. I believe very strongly that if you don’t know your customers, you will not succeed. The second one is large scale system integration. It is what we do and do very well, whether you are talking about an international space station, space shuttle, an F15 fighter, or a commercial aircraft. The last one is really the one you are talking about. One of the key things about a core competency is that it is either something at which you are very good or must be very good. This one falls under the "must be very good" category and that is lean efficient design in manufacturing - putting a real focus on lean manufacturing. We’ve got some places that are doing it very well. We are not doing it nearly as broadly as I want to, but that is where we are going. That will be the key to giving you a positive answer to your question. That is what we are focused on doing. SchwabHost: Thank you very much for the question and your answer touched on a key competency for lean efficiency. We’ve got an e-mail here from Mr. Krusher asks about how you calculate the profitability? Do you track by the product group? Is it by the segments? Philip Condit: We are in the process of changing. This is an industry that grew up as a cost plus industry. Our government customer was cost plus, and the airline industry was regulated so that the price of the product was based on the cost of the product. Airline industry is now deregulated and the defense industry post cold war is very much more focused on what they get for their dollar. So that means we need to make sure we are looking both at a product by program profitablity and by business unit. That is the way we are now tracking all of our data. We look at every commercial airplane program. We look at every single military program. We look at every space program on a program by program basis. We look ahead to its cash flow potential. And we look at value creation by program. SchwabHost: Thank you, our next question is from Mr. Stevenson Cantori from Melville, NY. Audience: Thank you very much. Thank you Mr. Condit for the opportunity to hear your view. I would like to address two areas. One is capturing lost market share in the commercial airplane area and second is the optimal mix that Boeing is shooting for between commercial and military products in order to be the profitable company that it should be. So investors feel better about owning the stock? Philip Condit: I understand your question because I am one of those investors. My future depends on it too. We’ve tried to be really careful in the last year in talking about market share. I believe, looking back, that we got way too focused on market share. Although market share is important, it is not the sole measure of success. Now, let me use the numbers that are out right now on the street as a comparison: Airbus expects to deliver 295 airplanes in the year 1999. Boeing expects to deliver 620 airplanes in the calendar year 1999. That number is very close to the kind of market share that we’ve had over the last decade. I am not going to focus on winning market share because I think it sends the wrong message. But, I think it is also a mistake to say that there has been a dramatic erosion. We have tried to be very careful in not responding to that, but I think it’s also important to know that we are doing pretty well as well. Second part of your question. I don’t think that there is any optimal mix. I think balance is important. And 60/40, 40/60 all fits inside that balance. I’m not going to try to do something if it's 51/49 and say I’ve got to make a change to make it right together. And the real issue is that they move to different pressures. Our commercial airplane business moves to global economic cycles, military business to geopolitical forces; the space business really looks much more like a classic growth business. So you need to look at all three of those together, and at any one point the balance may shift. We will be very heavy in commercial airplanes this year; and less so next year. Still, I am comfortable with our relative balance within the 60/40 area. SchwabHost: Thank you so much for the question. Our next question is from Ms. Roberta Ithan from Palo Alto, CA. Audience: Yes, thank you for the opportunity to have a place to call. The question is on your production line in the past each plane was a custom made order. How has that changed now that the planes are mass-produced? Philip Condit: The reality is that it's a really great question and I wish I could answer it in the past tense. That is part of the transition we are in now. We are sensitive to our customers and we see them changing, so we are changing as well. In the past, every airline had an engineering department. Every airline very carefully specified the airplane they wanted with their unique features and changes in it. Those features range from galley and lavatory location to specific electronics on the airplane and the potable water system. We are moving towards a much more standardized product. I think the best example today is the 777. It was designed from scratch to have the flexibility to respond to customer needs with a lot less customization. Galleys can be moved because of the way they are mounted in the airplane. Lavatories can be moved. That allows the airline to change its mind about how many are in first class, how many are in business class and how many tourist customers they want. So we’ve changed the design so the interior can be customized for the airline without an impact on the production line. We still have a ways to go. We are moving toward a catalogue out of which we can work with an airline to specify an airplane as opposed to our old change order kind of system. But those are changes that are currently in progress. SchwabHost: Thanks for the question. An e-mail here asks about stock - the repurchase program that you may have in place and authorization from the board. Philip Condit: Right. We had an authorization to purchase up to 15 percent of the outstanding stock. We are into that process. And we will probably be continuing that program. Again, in a mode of value creation, where we find the kind of opportunities to expand our business, like the aircraft service business, we will. Those are things we are going to make the investment in because we think we can produce more value that way. To the degree that we can produce excess cash, we want to return it to the shareholder in the most efficient fashion and share repurchase is one of those ways. SchwabHost: There was also a question about labor and the status there in terms of agreements with machinists and aerospace workers. Philip Condit: Yes, clearly the big labor agreement on the horizon is the one with the IAM that comes due this fall. As a preface to that, I would note that over a little more than the last year we have actually reached 30 successful labor agreements with a number of unions, including with the IAM in some areas. We have been working very hard with the union to try to get issues out and on the table and worked on an everyday basis, not just in negotiation time. I think we made some real progress. We are working together better than we ever have so I am relatively optimistic. I think both of us have the same goal and that is that we will not profit by a strike, that we are far better off reaching an agreement than not reaching an agreement. SchwabHost: Thank you. Our next question comes from Mr. Bill Silverstein of Atlanta, GA. Audience: Hello, good afternoon. Very quick question. What events can I look forward to in the next year or so that will give me confidence that you are indeed on the path to strong recovery and sustained recovery? I am an MD11 customer that rides very regularly. It has constant maintenance problems, and I am wondering what you are doing to make that a more reliable aircraft for long distance flights? Philip Condit: On a recovery basis, there are really two pieces. The first one is that we put out our predictions for where we will be financially over this year. And pretty clearly you watch us against those measures. We have also said by the end of the second quarter we will come out with even some more specific milestones by which you can gauge us. The reason we haven’t done that so far is we’ve been really focused on getting commercial production back on track. We’ve gotten that now, and we can turn to the task of producing a reasonable profit. We will be making those milestones very public, and we will also be tracking ourselves against them. One of the things we are going to look at is inventory turnovers. We are typical of a lot of manufacturers. We can do a lot better and, as a result, free up a lot of cash. So it will be measures like that that we will put forward for you. On the MD11, there are really two factors that are important for the reliability of the product and we are working on both of them. One of them is the inherent reliability of the product. We are focusing our customer support unit on those issues specifically - what can we do for our product to provide more reliability? The other is the airline. We are looking at how we work with each customer to make sure that they are achieving the reliability that they can. To be very honest, that varies from airline to airline. And we are trying to put together a program that allows us to work with every one of the airlines so that you as a traveler will see the most reliable product you can see. SchwabHost: Thank you very much for the question. Our next question is from Mr. John Pritchers from Bridgeton, MO. Audience: First of all, I would like to thank you for taking my call. My question involves investor confidence and the performance of the stock price over the last year and a half. You answered some of those questions. Can you address your plans to put out milestones that you feel the company will execute over the second quarter? Philip Condit: Yes, at the end of the second quarter, we will put out some very specific milestones. We have done part of that already. We’ve said, "Here’s what we expect to earn in 1999 and in 2000." We continue to give guidance on what those numbers are. We haven’t changed the numbers that we put out, but we have said we now expect to be in the upper end of the ranges that we had given. So that indicates that we are making real progress. We will give more guidance at the end of the second quarter in terms of more specific measures that you can track. One of the ways that I look at it internally is the volatility of the stock. This is a big company. The volatility should be significantly less than what it has been. And since about mid December, the volatility is down dramatically. We are seeing a slow rise in the stock. Actually, at rates that are pretty positive. It isn’t going to be a run away, roar-back, but we want to demonstrate a steady growth that allows you the kind of confidence that you feel you can go with the stock and stay with it. And that we have plans that will allow you to do that on long term basis. SchwabHost: Thank you very much. We are delighted that you permitted us an hour of your time. I know you are getting on a plane right at the close of this hour, so I appreciate you committing this hour to us today. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/stonecipher_052699.html Getting it Right: Defense Acquisition for the 21st Century - Harry Stonecipher "Getting It Right: Defense Acquisition for the 21st Century" Harry C. Stonecipher President and Chief Operating Officer The Boeing Company Address to The 1999 Department of Defense Procurement Conference Norfolk, Virginia May 26, 1999 "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 II. 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 II 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 GI 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 JSF 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 JSF team; just as others have joined Lockheed Martin on their JSF 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 DoD'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 DoD spending on RET$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 MIL-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 PC 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 OEM supplier, who will replace its Power PC 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. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/stonecipher012899.html Cost: The New Frontier in Aerospace Engineering "Cost: The New Frontier in Aerospace Engineering " Address to Financial Executives Institute of Seattle Jan. 28, 1999 By Harry C. Stonecipher President and Chief Operating Officer The Boeing Company 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 - DOD 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 McDonnell 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 CFO ... 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 (EELV) program. The Air Force set a goal of reducing the cost of putting medium and heavy payloads into orbit by 25%. Our Delta IV 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 RS-68 engine that will power our Delta IV 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 JSF, 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 EELV, 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 CFO. With that in mind, some of you may even want to go to night school to learn engineering. C:/SFleury/Recherche/Veille/www.boeing.com/news/speeches/current/restelli_991203.htm Hard Realities: Transforming Defense Logistics - James C. Restelli "Hard Realities: Transforming Defense Logistics" by James C. Restelli President, Military Aerospace Support The Boeing Company DoD Maintenance Symposium St. Louis, Mo. November 16, 1999 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 DoD 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 DoD budget authority that has occurred over the last 10 years, sustainment of older military aircraft is planned well into the next century. The KC-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 DoD 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 DoD jobs. The DoD 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 DoD 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 McClellan 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 LCCS, 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 LCCS 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 LCCS 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 LCCS 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 LCCS 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.