Boeing Bosses Prepare Company for Change
Seeing competition from Europe's Airbus, and more coming from Asia and Russia, the aerospace giant struggles to transform itself
SEATTLE — DESPITE the rough skies the Boeing Company is currently facing, analysts say there is a strong team in the corporate cockpit.
Chairman and Chief Executive Officer Frank Shrontz has ``been instrumental in ... demanding change'' at the company, despite its dominant 60 percent market share in civilian aircraft, says Bill Whitlow, an analyst with Pacific Crest Securities in Seattle.
Mr. Whitlow and other observers say Mr. Shrontz, who is due to retire in 1996, is successfully grooming capable younger managers in key positions to lead the company.
Unlike many large corporations these days, who have turned to outsiders to lead transformations during hard times, Boeing is sticking to its history of promoting from within.
Last year, Shrontz appointed Phil Condit - who led the development of Boeing's next-generation 777 jetliner - to the new position of president, putting him in line to become CEO in 1996. Recently, Ron Woodard became president of the commercial airplane division, succeeding Dean Thornton, who retired.
``Both Phil and Ron are seasoned executives'' with almost 60 years experience at Boeing between them, notes Robert Toomey, an analyst with the Piper Jaffray investment house in Seattle. Both men also combine technical backgrounds with strong ``people'' skills, he adds.
The new leaders have high goals for cost-control and company performance, considering that Boeing is already the most efficient aircraft producer worldwide:
* To cut operating costs 25 percent by 1998.
* To cut cycle times - the time from order to delivery of aircraft - in half by the end of 1996. ``This will make us more efficient, more nimble, and more responsive to our customers,'' Mr. Woodard says. Meeting this goal will require big changes for Boeing suppliers, too.
* To continue building a culture of teamwork and customer involvement, which proved to be successful in designing the 777, the 300- to 400-seater that is beginning production at Boeing's assembly plant in Everett, Wash.
The plane's design was seen as a test of new methods for Boeing, with heavy reliance on computers and on what the company calls ``design build'' teams.
These teams grouped Boeing engineers alongside the manufacturing people, who would build the plane, and end-users from companies such as United Airlines, who gave vital input along the way.
Why is a company that seems so successful going to such lengths to transform itself?
There are a number of reasons, including the subsidized competition of Europe's Airbus Industrie consortium and potential future competition from Russia or Asia. The rise of Airbus in the last two decades has already severely weakened McDonnell Douglas Corporation, formerly Boeing's main rival.
Quarterly financial numbers released yesterday showed a better-than-expected 15 percent drop in profits to $304 million and for the whole year a 20 percent decline to $1.2 billion.
Airplane prices are under pressure and Boeing has had to expand its financing program to help many customers make their purchases. The cost-cutting effort will be crucial to retaining market share and profit margins.
American carriers are now recovering, with many posting earnings after heavy losses during the recession. But European carriers continue to struggle, and Japan Airlines last week announced it was deferring delivery of six 747 jets, Boeing's most costly planes, and laying off 23 percent of its work force by 1998.
The good news is that air travel is expected to double worldwide by 2005.
``Boeing will emerge in an even stronger position when the market improves,'' Woodard says. But even when orders do begin to pick up, there will not be a boom as in the late 1980s, he predicts.
So Boeing continues to cut production to just 18.5 planes a month, less than one-half the 1992 peak but almost twice the level of the mid-80s. Last week, however, in a sign that the outlook is brightening a bit, the company revised its layoff plans for this year to 7,000 - about 4,000 fewer than expected. The company is adding 1,000 workers at its Wichita, Kan., plant. Boeing employs 116,000 people, mostly in the greater Seattle area. Last year, the company laid off about 17,000 workers.
The recovery of airlines in the United States could get a boost if the Clinton administration wins approval for proposals unveiled recently by Transportation Secretary Federico Pena.
The steps would include revising bankruptcy laws that hurt healthy carriers by protecting weak ones; reviewing regulations to weed out unneeded ones; allowing foreign carriers to own up to 49 percent of US airlines (up from 25 percent); and, to reduce bureaucracy, putting air-traffic control under a new government corporation rather than the Federal Aviation Administration.