Boeing's Duel With Complacency


SPECIAL REPORTFROM THE PARIS AIR SHOW

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Puddle-Jumpers' Bigger Pond

Boeing's Duel with Complacency

Air-to-Air Combat over Paris

Airbus' A350 Gets a Lift

Another Turbulent Paris Air Show

Boeing Chairman Lewis Platt has been a steady and calm force during some turbulent times at the world's largest aerospace company. Since the abrupt resignation of CEO Harry Stonecipher in March for having an affair with a female executive, Platt has been one of the most visible nonexecutive chairmen in Corporate America. He has been Boeing's (BA) point man in the case against Airbus receiving subsidized government loans for aircraft development, known as launch aid, and he's heading the CEO search. He even makes sales calls -- he'll be doing that in Asia next month.

As the Paris Air Show heated up, and Airbus started to rack up some airplane orders as well as raise the ante in the dispute over subsidies, Platt took some time out to sit down for a one-on-one interview with BusinessWeek Correspondent Stanley Holmes. Platt, former chairman and CEO of Hewlett-Packard (HPQ) , spoke about the subsidy dispute, the CEO search, and rebuilding trust. Edited excerpts of their conversation follow:

Q: For the first time, Airbus has said it would only give up launch aid if Boeing gave up local tax breaks, NASA, and Defense Dept. research benefits, and Japanese government subsidies, among other demands. Are those fair trade-offs?

A: The simple answer is that there is no quid pro quo for launch aid. We don't have anything like it that we can give up. What we do have is a tax break from the state of the Washington, which is available to everybody in the industry, including Airbus. We have the Japanese companies that we're partnered with, and they do get support from their government. By the way, that's available to any company and that's nothing special to Boeing. And the third thing is this allegation that there's this big trickle-down from NASA and Defense into the commercial space.

When we do work for NASA, our intellectual property is in the public domain, so [Airbus] can go use it just as we can. They certainly get tax breaks here in Europe, where they do business, and they can get tax breaks in America, when they do business in [states] that offer them. They're free to come up with supplier agreements like we have with the Japanese. And if there's a trickle down, they get the same [benefit] from defense spending as we do.

We believe all of the things we get are absolutely allowed by the [World Trade Organization] rules. Launch aid is not. At least that's our position.

Q: You've said that you're willing to put everything on the table. What would you be willing to give up?

A: Once launch aid is set aside, we're willing to sit down and put all of the rest of these things on the table and look at them.

Q: What about the $3.2 billion tax break Boeing gets from the state of Washington? Is it up for negotiation? And if Boeing were to lose it, would you move production of the 787 aircraft to another state that offered better economic incentives?

A: It was what made Washington State competitive with some of the other states. No. 1, I wouldn't expect to lose it. And No. 2, it probably wouldn't affect our decision. We're pretty well committed. About 100 companies today are taking advantage of that tax break in the state of Washington.

Q: Ironically, while you and Airbus are battling over subsidies, the European and U.S. defense industries are forming supplier and business partnerships. Here at the show, Lockheed Martin (LMT) CEO Robert Stevens spoke in favor of U.S. defense market being open to Europeans and vice versa. Should the Europeans be allowed to sell refueling tankers to the U.S. Air Force?

A: I really do believe Airbus should compete for the tanker. All we've ever asked for is a level playing field.

Q: How's the CEO search going?

A: We've gone from drafting a list of specifications to a long list to a medium-size list, and we've worked it down to a short list. Some people take their names off because they're not interested. Other people don't look quite as good after interviews as they did on paper. We're down to a short list. And we're in the process of interviewing those candidates right now.

Q: Do you feel pressure to get it done?

A: We would like to get it done. I don't feel a lot of pressure -- but probably sooner the better.

Q: Is acting CEO [current CFO] James Bell being considered?

A: James isn't a candidate at this time. He has done a superb job managing the company through this transition period. But that said, he's certainly not one of the top candidates for the job.

Q: What are the qualities you're looking for in a CEO?

A: We have a few musts and a long list of wants. The musts are obviously related to ethics. This isn't a company that can afford to bring on somebody with ethics clouds in their background.

The second would be the demonstrated ability to run a large, complex business. Either a CEO or [someone] who runs a very large business reporting to the CEO. This person also would need experience with manufacturing. Those are about the musts.

We have a high want for aerospace experience, but that's not a must. We have a very high want for experience in dealing with Washington, D.C. Constituents in Washington represent our largest single customer base. It would be helpful if the individual is comfortable in Washington and is known there.

Q: How far has Boeing put the ethical scandals behind it?

A: Inside the company, I'd say we're doing well. We've done a lot of training, and the sensitivity to ethics issues is very high. We've really got a strong ethical culture inside the company.

When you step outside the company, there's still work to be done. We had a Senate group here at the air show on Sunday -- 54 people. We took them on a tour, showed them some airplanes, and we had a luncheon for them. I made a few remarks, and I closed on the ethics issues. I sat down with one of the senators afterward, and he said, "You're making progress. You've done a good job coming to Washington and explaining what you're doing. It seems credible."

But then he said, "Do I absolutely trust you yet? No. It's just like a personal relationship when trust is broken. You rebuild that trust slowly over time." So what is it going to take to get it totally behind us? It's going to take the passage of time with no more screw-ups.

Q: The Paris Air Show represents the halfway point in the year. So far this year, you've won more confirmed orders than Airbus, and you continue to rack up new orders here. Did you expect Boeing would be performing as well as it has so far?

A: We came into the air show with a lot of momentum, frankly expecting there would be a reversal of some of that [because of] a lot of big, sweeping Airbus announcements.

So far, at least, we're in better shape than we would have expected at this point. That said, I continue to remind everyone these leads slip away very quickly. So you need to get up every morning and imagine they're coming after you. You can't sit back and relax and get all hung up on your good press. Complacency is a killer.


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