Boeing's Big Move - Company Operations

Industry Standard, The, April 2, 2001 by Dominic Gates

Leaving Seattle is just the beginning: The aviation giant is going from bending metal to building networks.

PHIL CONDIT, CEO OF BOEING, KEEPS trying to change the subject. In a lecture hail at the company's retreat center near St. Louis, Condit is meeting with his top managers, who are consumed with one topic: the new jumbo jet from their rival, Airbus. But Condit doesn't care about his competition right now. He's thinking about Boeing's investors, who want to see earnings per share continue to gain 17 percent a year. The problem is that making airplanes has become a slow-growth business. That's why, Condit reminds his team, Boeing has but one choice: It must change with the times.

To sustain Boeing's rapid growth, Condit proclaims, the company must "dramatically reshape the way we do business." Condit is now pushing Boeing into the lucrative services arena: maintenance, modifications, financing and pilot training. He's also looking beyond aircraft and related services and is steering his company into a variety of information and communications businesses, including airborne Internet services and digital movie distribution [see chart, page 43].

"If you want to deliver double-digit kind of growth, you push into things like services, you start new businesses," says Condit. "And you start mining your technology for new ideas and allocate resources to the areas with the highest potential:"

Emblematic of this new vision is Boeing's work in "network centric warfare" the high-tech future of armed conflict. Think of it as the Internet meets the battlefield: With every missile, plane, ship, tank and grunt a node in a global information grid, the U.S. military will be able to orchestrate distant battles from back home. It means, says one ex-military Boeing executive, "having all the dogs in the fight connected all the time."

Condit's changes won't come easy. A corporate citizen of the Seattle area since 1916, Boeing sent shockwaves throughout the Northwest last week when it announced that it would move its headquarters. 'Where is still a question, but Condit named Chicago, Dallas and Denver as possibilities. But leaving Seattle - a move that could cost as much as $100 million - is only one part of a serious restructuring.

BOEING IS A FORMIDABLE COMPANY. The maker of the iconic 747, it is the biggest aerospace company in the world. In 1997, it merged with McDonnell Douglas, geograpltically dividing the operation between two airplane manufacturing centers: Seattle for commercial airliners and St. Louis for military jets and missiles. The two divisions remain Boeing's cash cows, bringing in 85 percent of the company's $51 billion in revenue last year.

But that business is changing. Increasing competition from companies like Airbus Industrie, the European consortium that produces commercial planes, and Lockheed Martin, the military manufacturer, has cut into Boeing's market share.

Still, after weathering its first loss in 50 years in 1997, Boeing has managed to keep its stock healthy enough to defy the current market dive: Its shares rose from $38 in mid-March 2000 to $52 a year later, thanks to acquisitions, productivity improvements and cost cutting. One of Condit's strategies has been to outsource more airplane-parts manufacturing -- Boeing makes fewer than half of the parts that go into its digitally designed 777, for instance.

Meanwhile, a third division, Space and Communications (S&C), handles technology projects like NASA's space station, the space shuttle, National Missile Defense and space-based lasers. The division, formed by the acquisitions of Rockwell's aerospace and defense businesses in 1996 and the Hughes Electronics satellite division last year, is adding to its futuristic arsenal a slew of efforts -- like network centric warfare -- that bring the communications revolution to the battlefield. In 2000, S&C accounted for 15 percent of sales. That proportion is expected to grow quickly.

SOUTHERN CALIFORNIA IS THE STRONG-hold of military contractors like Lockheed Martin, Northrop Grumman, Raytheon and TRW -- all hoping to be revived by a windfall from the defense-oriented Bush administration. Hoping with them is S&C's Government Information and Communications Systems group, headquartered in Anaheim, a high-tech command center where the company is developing and testing an integrated network communications platform for warfare.

Overseeing the operation is VP Carl O'Berry who retired as a three-star general and deputy chief of staff with the C4 (Command, Control, Communications and Computer) agency of the Air Force before becoming a Boeing exec last year. The former military man has brought a brusque get-things-done approach to Boeing. Right after joining the company O'Berry ordered that the Anaheim center be built to his specifications. "I can turn this facility into any kind of command center you want to imagine," he boasts.

The United States has put "information superiority" squarely at the heart of its military strategy since the end of the Cold War. The goal, from the Gulf War to Kosovo, is to put as few American soldiers as possible in harm's way, and the key to achieving that is the "standoff attack" -- using "smart bombs" to keep clashes at a safe distance.