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Aviation History
2001
2001 - 2073.PDF
to the company's business. With sales of $31 billion last year, BCA remains Boeing's biggest business unit. Revenues are expected to reach $35 billion this year, and grow at 5-7% a year thereafter. "The market looks good for commercial aircraft," says president and chief executive Alan Mulally. "We will deliver 530 aircraft this year, and around 530 next year. We are making a reasonable return on our air craft." Operating margins will reach 10% this year, having fallen to 5.4% in 1999. As the commercial aircraft market is slowing, growth will come from the "next squares" in BCA's market, including train ing and support, engineering and modifi cations, and information services ranging from flight planning to airspace modelling. Opportunities exist for fleet management deals such as those struck with package carriers DHL and UPS, which include sourcing, financing, converting and supporting freighter aircraft. Boeing's commercial aircraft product line is shaped by its philosophy of "fragmentation", which Condit describes simply as more airlines providing non-stop services and bypassing hubs. "We've seen it happen on the North Atlantic, where the average aircraft size has gone down," says Mulally. "Now the 777 is fragmenting the Pacific like the 767 did to the Atlantic." The company sees its failure to interest airlines in a stretched, rewinged, reengined 747X as proof of the fragmentation theory. So rather than compete head-on with Airbus' ultra-large A380, Boeing has switched attention to what it sees as the ultimate fragmenter - an aircraft with the speed and range to connect any two city pairs in the world non-stop and quicker. "There is a market for very large aircraft, but we think it is small," Condit says, "Our resources are better invested in a smaller, faster aircraft." Boeing's Mach 0.95-0.98 sonic cruiser also represents another Boeing philosophy - segmentation. This is the trend for air lines to introduce different levels of service tailored to different sectors of the market. Condit cites United Airlines' decision to enter the business-jef*fractional ownership market to win back premium passengers. "The opportunity is in front of us for a market shift in the category of segmenta tion - for a premier product focused on premier clientele," Condit says. Mulally stresses that Boeing's product strategy is driven by its customers, and not Airbus. Condit is equally adamant: "The transformation of Boeing is not a competi tive responseSo Airbus inroads. First, we wanted a business less attuned to eco nomic cycles. Commercial aircraft will always be economic-cycle dependent, and military and space are on different cycles. US INDUSTRY RAYTHEON Targeting defence With US defence spending expected to rise under the Bush Administration, Raytheon is poised to exploit a defence electronics portfolio that is "second to none", says chairman and chief executive Dan Burnham. He highlights the company's strength in missile defence and intelligence, sur veillance and reconnaissance (ISR) - areas expected to see highest growth. The portfolio was not created with out pain, but the financial turmoil which followed the spate of mergers that created today's Raytheon appears to be abating. "The disruption is behind us," says Burnham, adding that improved programme manage ment lies behind the company's RAYTHEON - N01 IN DEFENCE ELECTRONICS Sales (2000) • Electronic Systems • C3I • Aircraft • Technical Services • Aircraft Integration • Commercial • Growth target • Cashflow (2000) • Debtcapital 'earnings per share $17 billion $7.4bn $3.3bn $3.2bn $1.3bn $1.2bn $0.5bn 10%+/year(EPS*) $527m 48% improved balance sheet. Defence electronics accounted for 78% of Raytheon's $17 billion sales last year, and is expected to drive both revenue and earnings growth over the next five. With over 7,000 active pro grammes, "we have a breadth and stability that is unsurpassed in what is now a growth industry", Burnham says. The company has $15 billion in missile-defence business in its five- year plan, but sees the possibility of another $15 billion as the USA moves towards layered defence against inter continental, theatre and tactical mis siles. "Missile defence is more than just missiles, and we are the undis puted leader," says Burnham. "The US is moving to a more complex mis sile-defence strategy, and more complex means better for Raytheon." In the ISR arena, Raytheon "is one of three top players in sensor-to- shooter technologies", says Burnham, adding: "We want to be the one-stop shop in ISR." Key programmes include the UK Ministry of Defence's Airborne Stand-Off Radar battlefield- surveillance system and the US Navy's Combat Engagement Capability sensor network - each expected to be worth more than $3 billion over 10 years. Raytheon intends to focus on the fundamentals of programme execu tion and financial performance "for ever", Burnham says, and to concen trate resources on defence electronics and "selected investments in emerg ing high-growth commercial areas- preferably with other people's money". Acknowledging industry efforts to commercialise defence technology has had little success, Burnham says Raytheon is engaged in a disciplined process to evaluate and prioritise opportunities to work with partners bringing external investment and market expertise. 'We will invest selectively in exporting technologies outside defence," he says. Summing up, Burnham says: "If you believe in a growing defence budget; if you believe electronics will account for a disproportionate share of the growth; if you believe in Raytheon's breadth; and if you believe in our financial improvement; then we are a good investment." "Second, we have technologies that can move back and forth broadly in aerospace. Our business is to do with large-scale systems integration and commercial air craft are nmt that different to military air craft and spacecraft. Moving technology back and forth either way has advantages," Condit says. "Third, if we want to grow long term, we need multiple paths." Condit, as architect of the transforma tion, recognises Boeing must operate globally if it is to grow. "We are more global today than two years ago, but we're not there yet," says Condit. The company has a significant presence in Australia, a design centre in Moscow and is opening a European research and development centre in Spain. "We want to operate globally, but be perceived as local in each country." Here the leadership centre overlooking the Missouri Fdver comes into its own. Three times a year, in addition to regular courses which deliberately mix managers from the different Boeing businesses, executives visit a country to examine and pursue specific business opportunities. "The result is a broader set of executives with wider experience and attitudes," says Condit. Slowly, but surely, the transformation of Boeing is being felt across the company. • www.f lightinternational.com FLIGHT INTERNATIONAL 12-18 JUNE 2001 57
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