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Booming Boeing


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BOOMING BOEING

Can it keep streaking ahead while revolutionizing the way it designs and builds planes?

Nobody would mistake Boeing's new CEO, Philip M. Condit, for a clotheshorse. But on a recent "casual Friday" at the company's Seattle headquarters, he changed outfits four times--from racquetball togs to slacks and a V-neck sweater for morning meetings, then into a coat and tie for a luncheon speech to a veterans' group, back into casual duds for a visit to the factory floor, and then into a suit for an evening event. Call him a chameleon: This chief executive doesn't want appearances to get in the way of a good relationship.

Only the seventh man to lead Boeing Co. in its 80-year history, Condit, by background and demeanor, seems particularly attuned to this era. Unlike his more formal predecessors, the gregarious Condit is as comfortable in engineering meetings or on the factory floor as in the executive office. He has done stints in aircraft design, marketing, sales, and project management, and he led the early development of the computer-designed 777 widebody. But perhaps his most contemporary and un-Boeing-like quality is his strong interest in the people side of the business. If Condit's avowed desire to bestow on Boeing "a focus on people, on the role they have in the organization" is more than just talk, it could make him the right man at the right time. With all that Boeing has on its plate right now, motivating its 118,000 employees to perform at their peak is crucial.

Named CEO five months ago, the 55-year old Condit takes control as Boeing hits the upward curve of a monster business cycle. After three years of declining revenues and six years of falling employment, orders for new aircraft are rolling in faster than the company can build them. New employees are coming on at the rate of more than 1,000 a month. The company continues to develop ambitious new products, including its largest-ever 747s and derivatives of the best-selling 737 and 777. On top of all this, Boeing finally joined the aerospace industry's consolidation trend with its Aug. 1 purchase of Rockwell International's defense and space division for $3.2 billion. With business booming, it's not surprising that Boeing's stock is trading near its historic high, closing Sept. 17 at 91.

SAVAGE PRESSURE. Condit's challenge is to manage all this change and growth simultaneously. Boeing's revenues this year are expected to hit $22.7 billion, up 16% from 1995, and could climb an eye-popping 32%, to $30 billion, in 1997. That's where they stood in 1992. The surge is being fueled by the rebound in fortunes of domestic carriers and the airline boom in Asia. At the same time, savage price pressure from the airlines--and competition from longstanding rival McDonnell Douglas and Europe's Airbus consortium--are conspiring to keep airplane margins low. Analysts estimate that Boeing's earnings will reach $1.17 billion this year and climb to $1.77 billion in 1997. The company's return on equity, meanwhile, remains an anemic 10%--half that of the strongest player in aerospace, Lockheed Martin, and major Boeing partners such as GE and Pratt & Whitney.

The trickiest feat for Condit will be to build planes as fast as possible while radically transforming the way Boeing designs and manufactures them. By early 1998, the company aims to double monthly production of 747s from 2 to 4, of 777s from 3 1/2 to 7, and of its workhorse 737s from 7 to 17. The worry, says Wolfgang H. Demisch, an aviation analyst with BT Securities Corp. in New York, is that "Boeing has traditionally blown it in times of prosperity." During the last boom cycle in the late 1980s, for example, the company fell far behind in production of the 747-400 and angered customers. To avoid such problems, Boeing is undergoing a sweeping reengineering effort begun by Chairman and former CEO Frank Shrontz.

The double whammy of increasing output and streamlining production is straining Boeing's logistics and taxing its already brittle workforce. Just last fall, Boeing workers staged a successful 69-day strike for wage increases and job security. Now, the company is "trying to implement changes so fast that they're not doing the detail work needed," says William W. Johnson, District 751 president of the International Association of Machinists & Aerospace Workers, Boeing's largest union. This summer, problems ramping up production of 777 wings led the company to institute six weeks of mandatory overtime and cancel the annual two-week August shutdown. Condit says the glitches aren't serious. "Any time you set out to double production, it won't be smooth," he observes. But shop-floor workers say production continues to lag.

"PEOPLE PERSON." A company man who has spent his entire career at Boeing, Condit was named president in 1992 and CEO last April. He is expected to become chairman when Shrontz retires, perhaps as early as December. The contrast between the two men is profound. Shrontz, though widely admired, is stiff and cerebral--"the Al Gore of Boeing," quips analyst Paul H. Nisbet of independent researcher JSA Research in Newport, R.I. Condit, says the Machinists' Johnson, is "a people person." The new CEO, who drives an unpretentious Ford Explorer, sometimes lunches in the company cafeteria and is known for spontaneous visits to assembly lines to talk to workers. Even Shrontz says Condit is more outgoing and more concerned with employee issues. "There is a generational difference in leadership styles," he says.

Some of these contrasts were highlighted during Condit's first 100 days in office. Boeing announced an unprecedented $1 billion stock-grant program for all employees and opened its first-ever day-care center near its sprawling Everett (Wash.) plant. Condit also announced plans to boost spending on training and assured workers that productivity improvements would result in job shifts, not cuts.

Condit has surrounded himself with an executive team that buttresses his skills: Ronald B. Woodard, 53, president of Boeing's Commercial Airplane Group; C. Gerald King, 61, president of Boeing Defense & Space Group; and John D. Warner, 56, president of Boeing Information & Support Services, the company's operational arm. The four, along with Chief Financial Officer Boyd E. Givan, 60, comprise the "Crystal Ball" group, which has met monthly for three years in informal brainstorming sessions. In the days before Condit was CEO, "we used to talk about where we wanted the company to go. Now we talk more about implementation," says King.

A tall, stocky man with an expressive face and a distinctive, mellifluous voice, Condit exudes confidence and enthusiasm. He laughs easily and often and has an obvious sense of irony. Although he's known as an aggressive manager, associates say he's also deliberative and solicitous of team input, sometimes debating decisions far longer than other CEOs.

Born and raised near San Francisco, Condit, whose father worked in the research department of Standard Oil of California, was an only child. "Flying," he says, "was something I always wanted to do." As a boy, he papered his bedroom wall with a map of PanAm's route system. Family dinners with his grandparents often ended with visits to San Francisco International Airport to watch the planes. At the age of 18, inspired by his grandfather's decision to take up flying in his sixties, Condit got his pilot's license.

SHOWMAN. In 1963, Condit graduated from the University of California at Berkeley with a degree in mechanical engineering and two years later earned his master's in aeronautical engineering from Princeton University. In 1965, he joined Boeing as an aerodynamics engineer on the supersonic transport project, which Boeing developed for years but canceled in 1971. From there, he worked his way through the ranks, playing major roles in both the 757 and 777 programs. "He was an up-and-coming star in the company in the early '80s," recalls Shrontz.

Condit is low-key and private about his life outside work. He lives with his second wife, Jan, in North Bend, Wash., a rural town outside Seattle on the Snoqualmie River. He has two grown daughters from his previous marriage. Although he's a voracious consumer of information ranging from Japanese management techniques to Seattle Mariners baseball stats, he calls himself "an oral learner" and a "lousy" reader: "I get five pages into something, and I want to have a discussion with the author." He's known for taking walks in the woods near his house to noodle over problems. And he's a bit of a showman. During development of the 777, he used to amuse colleagues by singing excerpts from The Phantom of the Opera.

Outside Boeing, Condit pursues a wide range of activities. He is a director of Seattle retailer Nordstrom Inc. and of Fluke Corp., an electronic-instrument maker. His spacious home features a model train that runs from the living room, along the stairs leading to the wine cellar, under the bathroom sink, and into the library. He's an opera lover, torn between La Boheme and Madama Butterfly as his favorite. As a director of Seattle's A Contemporary Theater, he spearheaded a $35 million fund-raising drive to build a new playhouse. At a donor dinner held when the campaign was still $3.5 million short, he revealed his flair for the dramatic by stepping to the podium and intoning: "Lock the doors. Nobody's leaving tonight until we've got this thing down." Only then did he disclose that Microsoft Corp. billionaire Paul G. Allen had just come through with $2 million.

Reflecting his personality, Condit's vision for Boeing builds on customer and employee relationships. He wants to profit from what he sees as Boeing's core competencies: expertise in large-scale system integration, efficient design and manufacturing, and, especially, detailed knowledge of its customers. "I want us to know our customers better than they know themselves," he says. Using this understanding of the air-transport business, Boeing can increasingly provide airlines "value-added" services such as training and logistical support.

Intimate understanding of the needs of airlines helps Boeing sell and service planes, of course. But increasingly, it also shapes the way planes are conceived and designed. The 777 project, formally launched in 1990, was "the first time an airplane was designed with substantial input from the customers," says Rod Eddington, managing director of Cathay Pacific Airways Ltd. in Hong Kong, which participated. For example, airlines wanted to be able to rapidly reconfigure the 777's interior. So Boeing engineers devised a design that lets the seats, bathrooms, and galleys be rearranged in less than 72 hours, compared with two to three weeks for older planes.

It was Condit who shepherded the project in its early stages, and his work there says a lot about where he's likely to take Boeing. The defining moment came in late 1990, during negotiations with United Air Lines over its purchase of the first 777s. Representatives of Boeing, Airbus, and McDonnell Douglas Corp. were holed up in United's suburban Chicago headquarters vying for a multibillion-dollar order. At 2:15 a.m., in the midst of a marathon session on legal issues, James M. Guyette, then United's executive vice-president, handwrote a one-page memo urging that Boeing and United "work together to design, produce, and introduce" an exceptional plane. Condit quickly signed it. Guyette presented the paper to United's then-CEO, Stephen M. Wolf, and Boeing got the $22 billion order. The framed "Guyette memo" now hangs in the 777 program offices. "Condit let us share the process," says Gordon McKinzie, United's 777 program manager, who moved to Seattle and spent years working with Boeing engineers on the plane. "Without him, it wouldn't have happened."

BRIGHT SPOT. This "Working Together" model outlived the launch of the 777. These days, McKinzie is taking part in design meetings for Boeing's latest project, two super-high-capacity models of the 747 jumbo jet, set for possible delivery in 2000. Although the planes haven't been formally introduced--Boeing's board doesn't green-light projects till firm orders are in hand--they were conceived in response to demand from international carriers, particularly those flying into congested Asian airports. The 747-500 would hold 460 passengers, 40 more than today's top-end 747-400, and fly 20% further without refueling; the 747-600 would hold 550 people and fly about 6% further.

Why undertake such a massive project when demand for existing planes is already straining capacity? Blame Boeing's rivalry with Airbus Industrie, the European airplane consortium. Boeing was stung when it sold fewer planes in 1994 than Airbus. The one bright spot was the market for 400-plus seaters, where Boeing's 747 stands alone; an estimated 32% of 1996 profits is expected to come from 747s. Now, Airbus is shopping around the A3XX, a proposed double-decker behemoth that would hold up to 800 passengers. To blunt this threat, Boeing took the unusual step of "pre-announcing" the extended 747s at the international air show held in September in Farnborough, Britain. Since the market for planes seating more than 500 may be as few as 500 units, many analysts now doubt the A3XX will be built.

On the manufacturing side, Boeing is increasingly using computer simulations to build planes more efficiently. A series of separate initiatives is under way to streamline production. Boeing currently uses a bewildering 800-plus computer systems to plan its fantastically complex production schedules. In five years, it aims to have a single platform containing all parts and schedules. One initiative seeks to eliminate wasteful steps. Another is aimed at simplifying Boeing's byzantine procurement system and establishing strategic relationships with key suppliers. Boeing wants to increase the ratio of parts built by outsiders from 48% now to 52% in five years.

The goal of all this reengineering isn't just cost reduction. Boeing wants to dramatically cut the time that elapses between order and delivery. By 1998, it plans to turn out two-aisled widebodies in 8 months instead of 12; single-aisle planes will take 6 months instead of 10. The main benefit for Boeing is lower carrying cost, but shorter lead times also let customers specify orders closer to the time they need a plane--a big plus in the fast-changing airline business.

Of course, none of this can happen without good relations with the workforce. And Condit has introduced a surprisingly touchy-feely approach to this issue. To break down barriers among senior managers, he has enlisted the help of David J. Whyte, a Seattle-based poet and philosopher who has also worked with AT&T, Honeywell, and Eastman Kodak. During a series of weeklong meetings in 1994 and 1995, senior managers capped their sessions with a trip to Condit's house for dinner, then gathered outside around a giant fire pit to tell stories about Boeing. Whyte says he and Condit asked them to write down negative stories and toss them into the flames to banish the "dark" side of Boeing's past. "Phil believes that the stories you tell are the legacy you will leave behind," says Whyte. Condit also asked managers to keep inspiring stories.

Indeed, for a company so hidebound that it has been referred to as "the Kremlin," Boeing seems awash in interpersonal exploration. Senior managers have taken the Meyers-Briggs personality test to better understand their motivations. Woodard can cite the results off the top of his head: "Phil and I are totally, 100% opposite," he says. "I'm an ESTJ [a rational, administrative type] and he's an INFP [an intuitive, perceptual type]. He likes to explore and think outside of accepted practices; I tend to want to make decisions quickly and move on."

Relations with Boeing's large labor unions aren't quite so congenial. Condit is well liked by union leaders and the rank and file, but there's still dissatisfaction. Yes, Boeing is hiring 13,000 people this year, but it has cut more than 60,000 jobs since 1989. The company says it's being cautious about rehiring to meet surging demand, a stance applauded by the Machinists' Johnson, who notes: "These cycles leave people feeling real bitter." While there is no shortage of aviation workers in Seattle, Boeing is having trouble finding enough with certain skills, especially machinists. It has been raiding some of its area suppliers, but that slows them down and further threatens Boeing's schedule.

The planned stock bonus plan will obviously help employee relations. BT Securities' Demisch calls the plan "forward-looking" and says hiring and firing procedures have been modernized. But he thinks the company badly mishandled last year's strike. "They used a labor bargaining posture right out of the Dark Ages," he says of the hard line Boeing took before giving in to most of the union's wishes. Says Demisch: "They've inculcated their newest workers with the union ethos."

Condit has moved to soothe the hard feelings, beginning with his reassurance that productivity gains won't cost jobs. And employees give him points for personal style. Staffers tell of the time he interrupted a vacation to go to an employee recognition dinner, his hands flecked with paint from a fix-up project, and shook the hand of every award winner.

But workers have concerns that Condit's magnetism can't dispel. Chief among them is the movement of work out of Boeing, whether to other U.S. companies or to offshore suppliers. Boeing is caught in a bind in this regard, because potential foreign buyers increasingly demand some "local content" in big-ticket capital purchases and because Boeing needs its major suppliers to share the enormous cost of developing planes. The company argues that offloading some work ultimately keeps more U.S. workers employed.

A more serious question is whether a disgruntled workforce will make it even harder for Boeing to meet its ambitious delivery schedule. "Morale is down," says David L. Clay, a jig and fixture builder and IAM union steward. "We haven't even started the crunch yet, and there's already talk about more forced overtime." Employees and managers alike blame much of the problem on parts shortages. But worker burnout is a risk. "Eight months ago, they told us that the new programs were going to allow us to do twice as much work with less people," says Jon F. Clayton, IAM shop steward and lead 777 wing mechanic. "What I see is that they're just making one person do three jobs."

NEW MARKETS. One way Condit hopes to improve employee relations is by moderating Boeing's punishing business cycles, which are especially hard on workers. That's one reason Boeing bought Rockwell's aerospace assets. Even without Rockwell, defense and space work makes up about 25% of Boeing's business. Analysts estimate that adding Rockwell will propel defense and space sales to more than $8 billion in 1997, from $5.6 billion this year. The deal is expected to close around yearend, but won't significantly boost the bottom line for two to three years.

One thing that drew Boeing to Rockwell was its strong space assets, which are likely to prosper even if defense doesn't. Already the lead contractor for the International Space Station, Boeing will gain responsibility for managing the existing Space Shuttles through the Rockwell purchase. Rockwell also brings expertise in reusable rockets, which will help Boeing with Sea Launch, a program to orbit commercial satellites from converted oil rigs in the ocean.

Another potential avenue for diversification is high-margin information services contracts. Analysts speculate the company could use its systems expertise and knowledge of air travel to penetrate markets such as air-traffic control and reservations systems. Condit won't comment on specific plans, but Boeing has moved the unit that provides outside computing services under the banner of Defense & Space, where it's better positioned to call on government clients.

Can Condit manage all he has to accomplish? He acknowledges his luck in taking charge on the leading edge of a business boom. The revenue surge will help fund the ambitious, continuing makeover of Boeing, but it will also stress the entire organization. Fortunately, observes Kent Kresa, CEO of Boeing's rival and sometimes partner Northrop Grumman, the increased use of computers and communications means aerospace companies are better positioned to handle growth today than in the last upswing. "The seeds of doing it much better are there," says Kresa. Now it's up to Condit, who planted many of those seeds at Boeing, to nurture their growth.By Andy Reinhardt and Seanna Browder in Seattle, with Pete Engardio in Hong Kong and bureau reportsReturn to top


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