All change

Boeing’s non-executive chairman, Lewis Platt took time out during his recent Middle East tour to talk to Aviation Business.

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By  Neil Denslow Published  March 6, 2005

|~|lewis platt_m.jpg|~|Lewis Platt, non-executive chairman, Boeing|~|Boeing’s senior management have been regular visitors to the Middle East of late. Harry Stonecipher, the president & CEO of Boeing Commercial Airplanes (BCA), for instance, made two visits here last autumn, while Boeing’s non-executive chairman, Lewis Platt, was in the region for the second time in a year, last month.

“There are really only two outstanding commercial aviation markets around the world at the moment: one of them is here in the Middle East and the other one is Asia,” says Platt.
“So, why are we spending more time here?... Because this is where the business is. It is as simple as that.”

The lack of business elsewhere though, reflects what has been a difficult time for the commercial aviation sector globally. Boeing has been particularly hard hit, as aside from the general slowdown in the market, it has lost market share and its lead in the commercial aviation sector to rivals, Airbus. The company has also been caught up in an ethics scandal over the sale of 100 tankers to the US Air Force, which lead to the resignation of top executives, and prison terms for some involved in the deal.

However, despite all this, Platt is quick to argue that the last year was good one for the Boeing Company, which achieved net income of US $1.9 billion on revenues of $52.5 billion. “A lot of people, including some of the press, only focus on how many aeroplanes Airbus and Boeing deliveries. They [Airbus] delivered more aeroplanes, okay, I cannot deny that, but we had a good year,” he says. “Financially, it was a very good year for the company, and it was a good year for our stockholders, as our share price went up a lot as well.”

“We met our financial targets every quarter and each quarter we reset the expectations upwards for the next quarter and made them still,” he adds. “I also think the way the company is operating, and this includes the military side, the space side, Connexion by Boeing, our financing arm, our commercial arm, everything put together, is working well…. A lot of the focus in 2004 was on just plain getting things working better inside the company. I think you saw the results of that in a very good year financially and I think 2005 will be better,” he continues.

Boeing’s confidence for the year ahead is shown in its commercial aircraft delivery forecast. Last year, the company delivered 285 planes. but it is targeting 320 deliveries this year, followed by 375 in 2006. “That is pretty nice growth, and, frankly, that is more important to us than exactly what is happening with market share,” says Platt. “2005’s [target] is totally sold, and 2006 is 78% sold at this point in time, so those are targets that we will be able to make,” he adds.

One example of the changes made inside Boeing over the last year has been the disposal of assets, particularly production units. For instance, the company recently agreed to sell BCA facilities in Kansas and Oklahoma to Onex Corporation for US $900 million in cash. Approximately 9000 employees work at the plants, which supply Boeing with fuselages and other structural components for the 737, 747, 767 and 777s. The facilities are also part of the 787 programme; however, Boeing sees the disposal of these assets and others within the company, as a way of maintaining its focus, cutting costs and increasing efficiencies. “We are strong believers in outsourcing,” says Platt.

“If it is clearly important that we do something ourselves in order to keep that technology and know-how, then we will do it. Similarly, if we are clearly the best in the world at doing something, we will do it. However, if there is someone better than us, who has more experience with the technology than us, and it is not critical for us to keep it inside, we will outsource,” he explains.

“We have done a lot of that with the 787, and we have similarly unloaded some facilities, where, frankly, we did not have any particular competitive edge. That is the way you run a good company and we are very dedicated to that.”||**|||~||~||~|Despite this faith in outsourcing, Boeing expects to continue performing final assembly work for the time being. However, Platt does not completely dismiss the idea of outsourcing even this. “For the foreseeable future, we will continue to do final assembly, but I could imagine that at some point in time there would be scenarios where we would allow final assembly elsewhere,” he says.

New technologies make this possibility more likely, as it is now easier to subcontract out work, whether it be the manufacturing of a part or final assembly, itself. “25-30 years ago, it would not have been feasible to have the number of contractors working on an aeroplane that are working on the 787,” comments Platt. “However, today, with all-digital design, parts come together from all over the world and they go together... This makes manufacturing more straightforward, which then opens up new possibilities for assembling in other places or having a partner assemble.”

Aside from the innovations in its manufacturing, Platt also highlights two key selling points for the 787, namely its operating costs and the changes made in the cabin environment. “We will deliver an aeroplane that is, in terms of fuel costs, 20% better than current generation aircraft,” says Platt. “That is a significant saving unless you think the bottom is going to drop out of oil prices, and I do not think it will.”

“However, the thing that gets overlooked a bit is what we think will be some huge changes that people will really notice,” he adds. “Passengers are going to know the plane has bigger windows and they are going to feel better when they get off because of the pressurised cabin.”

“We are talking to everybody down here [in the Middle East] about it, and we think it is a good aeroplane for this market,” he continues.

The company is also seeing strong interest locally in its new versions of the 777. Emirates has bought 30 -300ERs, with the first two set to arrive next month, while Etihad has ordered five as well. Boeing also recently unveiled the first 777-200LR, the Worldliner, and it has plans for a -200LR freighter, further developing the line. “The 777 range is where there is a lot going on and it does not get as much attention as it should because it is not a totally new aeroplane,” says Platt. “However, given the long-haul routes out of [the Middle East] and some of the routes people would like to serve, the 777 is going to be a very popular aeroplane here.”

Yet, while the new 777s and the 787 are successfully taking off, a number of other Boeing commercial aircraft are being retired. The 717, 757 and the 767 lines are all in the process of being shut down, and the fate of the 747 programme is now under close scrutiny, particularly the passenger version.

Boeing has not sold a passenger 747 since China Airlines bought four back in December 2002, and the now ageing ‘queen of the skies’ has clearly lost much of her lustre, especially since the launch of the A380. What Boeing will do to respond, however, is not yet clear. The company may have to shut the line, but it is also now testing the market for a stretched version of the plane, the 747 Advanced, which would use derivatives of the engines on the A380.

“We are not selling many passenger 747 aeroplanes at this point in time,” admits Platt. “We are still selling freighters, still building them, and plan to continue building them, but as a passenger plane, [the current version] is obviously pretty near the end of its life.”||**||

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