Harry's Game

Harry Stonecipher is back in the hot seat at Boeing. In a bid to rescue the company’s flagging fortunes, he is targeting the Gulf region for new sales, as he tells David Robinson.

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By  David Robinson Published  November 21, 2004

Business Feature|~||~||~|You have to feel a little sorry for Harry Stonecipher. The 67-year-old American had been enjoying a US$75million fortune — boosted by his Boeing pension — by playing golf four times a week off the Florida coast. His former employer, meanwhile, was enduring a corruption scandal, stalled Pentagon contracts and a significant slump in sales to rival French aeroplane manufacturer Airbus. Then, last December came the call. CEO Phil Condit had resigned, and Stonecipher, Boeing’s former vice president, was asked to take the hot seat. “I miss playing golf,” he admits. Chances are he won’t have much time to improve his 20-handicap in the coming months, as Stonecipher tries to turnaround the massive aeroplane manufacturer. In September, the man who is also Boeing’s largest private shareholder, made his first visit to the United Arab Emirates, as the company looks to expand its business in the Gulf region. The golf may be on hold, but more trips to the Gulf are likely. “This is probably the fastest-growing air travel region in the world,” says Stonecipher, who estimates that air travel in the Gulf region is growing at about 35% per year. Airlines endured a painful downtime in the period following the 11 September terror attacks, racking up US$30 billion in losses by the end of last year, but Stonecipher is adamant the industry is experiencing an upswing. “Right now, in terms of civil air travel, we’re operating at world record levels,” he says. “In spite of the issues, the world economy is recovering nicely.” The most contentious of these “issues” is, of course, the war in Iraq. When pressed as to whether Boeing’s business could suffer, due to its status as an American military supplier, Stonecipher is defensive. “I don’t think we enjoy the situation that we’re in,” he says. “It’s terrible. We’ve been trying to be responsive to the needs of the region. No one’s asked us to leave. We’re not in the war business; we’re in the defence business, that’s all,” Stonecipher says, adding: “I would take a decline in the military business in a heartbeat just to have peace break out everywhere.” About 52% of the company’s revenue comes from defence contracts and military deals, amounting to US$51 billion last year. This year’s figure stands at about US$30 billion so far, and there is a danger that Boeing could see a Gulf backlash on new contracts. Nonetheless, Boeing is predicting 10% growth in its defence businesses over the next five years. Another potential bump in the road that could stem Stonecipher’s optimism about the world economy is the rising price of oil, which recently sailed past US$50 a barrel. Yet Stonecipher does not expect prices to stay high for long. He argues that the spiralling increases have been caused by ongoing disruptions in countries such as Nigeria and Russia, rather than by insatiable global demand as has been claimed in the press. “There is great speculation in the price of oil. The heavy movers and shakers have been predicting high oil prices for some time. The last thing that happened was [political turmoil in] Nigeria, before that it was [scandals and terrorism in] Russia. And now we have the situation in Iraq.” As these geopolitical situations start to settle, then so will oil prices, he predicts. The American’s re-emergence at the company’s helm coincided with the announcement that Boeing was going to build new, super-efficient 250-seat, long-distance commercial plane that will launch in 2008: the 7E7 Dreamliner. The announcement cemented Boeing’s long-held position that the future lies in spokes — direct flights to and from second-tier cities — rather than hubs as proposed by Airbus with its 600-passenger double-deck A380. The European consortium’s super-jumbo is set to ferry huge numbers of people in between select major world cities, leaving many passengers to catch secondary flights to their final destinations. “We have a different opinion [than Airbus] about the market,” Stonecipher says. “If they’re right, then I’ll have to build a big aeroplane.” Boeing estimates there is a market for the A380, but only for about 400 aeroplanes over the next 20 years, considerably less than Airbus’ estimate of 1,500. The European manufacturer claims Boeing has a “fundamental misunderstanding” about the dynamics of the market, but Stonecipher’s position is unshakable. He is sure the future of air travel lies in point-to-point traffic. “We had a market study done by an outside company at Narita airport in Tokyo. Seventy percent of the people at Narita didn’t want to be there in the first place — they were on their way somewhere else. The same if you look at Heathrow, Atlanta and Chicago airports. Most of the people don’t want to be there. They’re there because they don’t have any choice. [People want to travel] in very efficient long-range aeroplanes that can take you to where you want to go.” To back this claim, he points out that Airbus has actually forecasted its biggest growth area in the next few years will be in the A320 (150-seat) size. “We think the biggest market is actually in that size. The second-biggest market is in the 200-passenger area, the A330, the 767 and now the 7E7.” Boeing expects to “soon” receive its first orders for the 7E7 from the Middle East, Stonecipher says. The competition between the two makers is ferocious. Boeing had 80% of the market in 1995, but last year, for the first time, Airbus delivered more planes than Boeing, taking a 52% market share. However, Boeing has claimed that its rival has an unfair advantage because Airbus receives as much as US$40 billion in subsidies from the United Kingdom, French, German and Spanish governments. “Airbus doesn’t need the subsidies, and neither do we,” Stonecipher argues. “When we build a new aeroplane, we go to our bank account, get the money and build an aeroplane. Airbus can do the same. They are a public company now. They’re very successful. They say they’re making more money than we are and delivering more aeroplanes than we are — so why do they need the subsidy?” Airbus has hit back, reportedly claiming that Boeing has received US$26 billion in various forms of assistance from the United States and Japan. The US government has taken the spat to the World Trade Organisation and should it proceed it could be the biggest dispute in the organisation’s history. “It’s not about being mean,” Stonecipher says of Boeing’s position. “It’s about levelling the playing field.” How long he will be busy levelling that field is another matter. He is widely expected to step down in spring 2006 when he turns 70. A succession plan is in the works but for the time being he’s staying put. “I’m healthy; my wife is healthy. I’m willing to stay longer as long as my health is good.” The pressure involved in leading a multi-billion-dollar global corporation that employs 155,000 people is still something he relishes. “I’ve never considered it pressure,” he says. “I really enjoy what I do.” These days he tries to mix and match the business of selling planes with his golf whenever possible, though there has been very little of the latter lately. He sometimes plays a round with bigwigs from the major airlines. It fits with his driven, unwavering character to imagine him lining up a huge sale of passenger jets while he navigates the fairways; trying to avoid drifting into the rough or landing in a bunker. As Stonecipher says: “Once you’ve decided on your strategy and where you want to go — then the execution of that strategy I find exciting.”||**||

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