Alan Mulally talks about future plan of BCA. And also talks about SC.
Growing the Global Enterprise -- The Art of Diverse Business Relationships
by Bill Seil
With more than 30 years' experience at Boeing, Alan Mulally has made significant contributions to nearly every commercial jetliner program the company has begun, including leading development of the highly successful 777. Now, as president and chief executive officer of Boeing Commercial Airplanes, Mulally focuses on building and maintaining the diverse business relationships that have become an integral part of today's global economy.
Momentum: What is your long-term vision for Commercial Airplanes, and what role will it play in The Boeing Company's transformation into a broad-based global company?
Mulally: I think that Commercial Airplanes' vision really starts with The Boeing Company's vision. That vision is to be a broad-based aerospace company that can deliver better value for our customers year after year -- forever. We want to be a good, solid growth company in aerospace. Commercial Airplanes has a tremendous opportunity to support that vision, because we're the leading manufacturer of commercial jetliners around the world. We are global. Seventy percent of all our sales of new airplanes and services go to customers outside the United States. That provides a tremendous, solid base for Boeing to increase other areas of the business as we globalize and provide Boeing aerospace services around the world.
The most important thing about our vision is probably our continued commitment to help maintain and improve a safe and efficient global transportation system. That's what we're really about. Our airplanes get people together around the world, and our goal is to keep improving the quality and the efficiency of that transportation system.
Momentum: Since September 11, a number of people have been afraid to fly. How can the commercial aviation industry regain public confidence and when do you think it might recover?
Mulally: This reaction is understandable. All of us were absolutely shocked and saddened that terrorists would attack our country through our fundamental transportation systems. I think in the near term we all need to work under our president's leadership to make terrorism unacceptable. After that, the most important thing is to get the global economic engine moving again. As the economy comes back, then business and leisure travel will come back too, and we'll be on our way to recovery. It's probably going to be near the end of this year before the economy starts getting better. The airlines and travel will recover after that, and we'll see orders and a need for new airplanes. 2003 will probably be the bottom of this cycle, and we're planning for deliveries to come back in 2004.
Momentum: Why does it take so long for that kind of cycle to occur?
Mulally: It's really based on the economic cycle, and economic cycles traditionally have taken 2 to 3 years to recover. I think it's been a lot harder this time because of the terrorist attack and the way that affected our fundamental economic cycle.
Momentum: How is Boeing contributing to the post-September 11 drive to enhance safety and security?
Mulally: We're building on all of the things that we'd already done. A big part of our business plan is to enhance the safety of the global transportation system. That includes ground operations, in-flight operations, air traffic management, and all the features we build into airplanes to allow them to navigate the world safely.
Since September 11, we've been working with the airlines even more to add extra safety features in the cabin and the cockpit. We're also helping get timely data to the people on the ground so everybody knows the health and the status of the airplane. Of course, we're also supporting all Government and airline officials around the world working on the basic security strategy, which is to keep people who shouldn't be on the airplanes off the airplanes.
Momentum: How long do you think it will take before we reach the point where we're reasonably sure that we have a sound security system at airports and on airplanes?
Mulally: I think it's going to improve each year. We've accelerated a lot of the actions because of September 11 obviously, but the whole industry has been working on safety and security for a long time. That is going to continue. A lot of the security measures in place today will be replaced as we figure out how to use technology more effectively. Systems will get faster, and it will be less of a hassle to travel.
Momentum: It seems like we're in a good position with the present state of technology to meet these challenges.
Mulally: There's a lot of technology we can bring to bear that is being used outside the aerospace industry. It can help us look at the people traveling and determine what their intentions are. With all the new X-ray devices available, for example, I think security will become faster and better.
Momentum: These are challenging times for Commercial Airplanes. Will we be able to achieve our efficiency and cost reduction goals while maintaining the strength of the company? And looking farther down the road, is it possible to level out the effects of the cyclical commercial airplane market?
Mulally: Our basic plan is to support the overall Boeing plan, which is long-term profitable growth. We in Commercial Airplanes are definitely subject to economic cycles, but by expanding our portfolio of products and services we can minimize the effects of those cycles. For example, we're moving into the service area to support the airlines with a broad array of services, training, maintenance, and modifications, along with information services to manage their data.
Over time, as our portfolio of services grows, we'll be a little less susceptible to economic cycles. In addition, I think the airlines are becoming a lot more disciplined in ordering airplanes. This time it's been especially tough because of the terrorist attack, but in the future it will be to everybody's advantage to be very thoughtful when ordering new airplanes for growth and replacement and to do it in a way that makes business steadier for all of us.
Momentum: As you mentioned, Commercial Aviation Services has increased its offerings in recent years. This is especially true in the area of information technology. What types of services will offer the greatest opportunities in the future?
Mulally: I think services that help make the total global transportation system more efficient are going to be really important to everybody. For example, there are diagnostic services available today that help us know the status of an airplane and when parts of that airplane need to be replaced. We can forecast those things better now because we have data, real-time data from the airplane. Airlines can stock fewer spare parts but still have spare parts when and where they need them. It improves the efficiency of the whole operation. Everything associated with servicing the airplane, making the airplane more reliable, and replacing parts is becoming more and more reliable.
Momentum: Vision 2016 states that we are "People working together as a global enterprise for aerospace leadership." With current employee concerns over job security, how can we maintain a spirit of unity and achievement?
Mulally: Maybe the most important thing we all can do is to appreciate the fact that we are a global enterprise. One of the reasons we've been successful is that we have partners and suppliers around the world. They align their resources and activities with our customers and the markets we serve. Because 70 percent of our airplanes go to customers outside the United States, Boeing is always focused on reaching and supporting those customers. Being a global enterprise is our real strength, so maintaining these diverse relationships is very important.
Momentum: You mentioned earlier that the current downturn may reach a low point in 2003 and come back up again in 2004. Would you see the employment picture in Commercial Airplanes following a similar curve?
Mulally: Yes. I think it's important that we size our capability to the demand of the marketplace. Right now the markets and customer demand are down, so we're going to size ourselves to produce fewer airplanes. The real key is increasing our productivity and improving quality and cycle time so we can improve the price of our airplanes. That's our chance to grow. At the most fundamental level, it's a matter of having the right products and the right services and being able to deliver them with ever-increasing productivity.
Momentum: Looking at The Boeing Company as a whole, how much synergy and cooperation is needed between the various Boeing operations -- Commercial Airplanes, Military Aircraft and Missiles, Space and Communications, and the others -- to achieve overall corporate success?
Mulally: I think synergy across Boeing is critical to the success of the business units and the company as a whole. Our portfolio allows us to achieve that synergy both for growth and efficiency. For example, we're working on a 767 tanker, which supports Aircraft and Missiles and their customers, the air forces around the world. There's also Project Wedgetail (an airborne early warning and control system based on a 737-700) and other informational platforms that we're doing with Space and Communications. In Air Traffic Management, we're contributing to a system where airplanes with increased range capability can go from point to point, nonstop, taking people where they want to go, when they want to go. Then think of the synergy Shared Services, Boeing Capital Corporation, and Phantom Works bring to the company in terms of working issues across the business units.
Momentum: How is the Sonic Cruiser program going, in terms of customer interest and meeting the technical challenges?
Mulally: The Sonic Cruiser is looking really good. We've completed our first set of wind tunnel tests. We know that we can make an airplane that meets our objective of a 20 percent faster speed, while keeping the fuel burn consistent with today's airplanes like the 767. What we're doing now is working with the airlines to understand the value of that speed and how the Sonic Cruiser would change the routes they fly. Would they fly the airplane differently? What would they do about bypassing the hubs around the world? How would they handle all their connections? The real work now is with the airlines in evaluating the value of speed. We're also focused on how we can bring all the latest technology to design and manufacturing and how we can bring it to bear on taking the airplane to the market with a price that's supportive of this value proposition with the airlines.
Momentum: When do we see it going on the market at this point?
Mulally: I think we need to learn a lot more from our customers, and things should be clearer toward the end of this year. Then we'll make some decisions about what kind of timing we'll want to have.
Momentum: Do you see the Sonic Cruiser having an impact on sales of other current models?
Mulally: The Sonic Cruiser is really part of our overall airplane family. Its first application may be as an airplane around the 757 or 767 size, but when an airline wants to go faster and farther in that size range, they'll want to go with the Sonic Cruiser because of its greater capabilities. I think it will be more of a complement to their existing fleets than a replacement.
Momentum: Efficient production facilities and a healthy business environment are essential to our success in today's market. Are current production locations adequate to meet our needs in the future?
Mulally: I think we'll continue to make our entire global enterprise "lean," which means doing things as efficiently as we possibly can. We have a global enterprise of Boeing suppliers and partners. We're trying to streamline that entire system so detail parts flow into subassemblies, subassemblies flow into major assemblies, and everything flows in together in the least amount of time with the most efficiency. We're going to continue to consolidate our facilities to align this production flow and shorten the time and cost involved in designing and assembling an airplane.
Momentum: Do you think a lot of modernization will be needed?
Mulally: We have good facilities and capabilities. We'll continue to invest both in the product and the production system. The most important thing we can do on the airplane, of course, is use our technology to have airplanes made from fewer and simpler parts so subassemblies have fewer parts to deal with. On the production side, we're going to build on strides we've made to define airplanes more accurately, so they actually fit together more easily and with less work. We want all our facilities, capabilities, and talents to be aimed at simplifying the airplane and production system so each airplane is done right the first time. We need to keep change, error, and rework to a minimum.
Momentum: This is a contract year for union negotiations with both IAM and SPEEA. How will Commercial Airplanes approach these negotiations?
Mulally: We're approaching this as a cooperative effort where we work together to understand the issues involved. This means evaluating each other's positions and understanding the business realities. Because this is such a critical time, we all need to come together, be flexible, and do what it takes to keep Boeing successful and moving forward in this competitive global marketplace. I think work rules, wages, and benefits are all really important topics that deserve serious discussion and negotiation. But these are great jobs, and we pay well for the talent we have at Boeing. The company needs to communicate what the business realities are, and what we agree to must enhance Boeing competitiveness. Being competitive is the only thing that will ensure our future success -- and ensure that these jobs will exist in the future. We want to negotiate in a very collaborative way.
Momentum: Do you think the negotiations will be able to maintain a good tone?
Mulally: I think it's going to be very business oriented. We'll be sharing a lot of information based on today's business realities and the efficiency we'll need to compete for airline customers. It's a conversation that will need to meet the interests of employees, Government leaders, our investors, and our customers. Customers want a reliable supplier who doesn't disrupt their production flow. There are many stakeholders involved; our strength will be demonstrated by coming up with an agreement that everyone feels good about.
Momentum: Finally, looking at everything that our country and the commercial aviation industry has been through lately, what encouraging words can you offer employees of BCA and The Boeing Company?
Mulally: I'm really excited when I look at new Boeing capabilities. I think, first and foremost, we need to be dedicated to helping our customers succeed and to further developing a safe and efficient global transportation system. We need to move confidently and enthusiastically to bring our products and services to the marketplace more efficiently, with higher quality and greater reliability. This is an exciting time for Boeing. I think we are positioned better than any other company I know to operate in this global marketplace. That bodes very well for all of us, because it will create many new opportunities.
Momentum: Is there anything that you'd like to add that we haven't covered?
Mulally: The only other thing I'd like to add is that this has been a time of tremendous change, especially for us at The Boeing Company. Our customers are changing. The markets are changing. The world is changing dramatically and moving very quickly toward global interdependencies and market-driven economies. People around the world are going to decide with their purchasing decisions which businesses survive. I think it's important to think about the attitude and spirit we bring to our jobs each day. We value talented people who want to work together and make a difference, people who want to make maximum use of our capabilities and move forward in this new world. Boeing is in a great position to do that, and I think this attitude of people working together and wanting to be part of the team, contributing their unique talents, is going to serve us all well as individuals and as a company.