As he prepared to travel to the Paris air show, Boeing Chairman, President and CEO Jim McNerney sat down in the company's Chicago headquarters with AW&ST Editor-in-Chief Joseph C. Anselmo and Senior Editor Guy Norris. He expressed confidence in the 787's return to flight—and had a blunt warning for suppliers

AW&ST: What did Boeing learn from the lithium-ion battery experience? Will this experience lead the company to be any less committed to incorporating innovative technology in future products?

McNerney: We have to manage both the introduction of new technology and the redundancy around it to protect planes and passengers. And I think in the case of the battery that was so. It certainly was a serious problem that had to be fixed, but the redundancy we had built in protected the airplane. This was the most rigorously certified airplane in history. But even then you learn from in-service experience. We know more about lithium-ion technology today than we—and the world—did 10-15 years ago. And all of those lessons, at a very specific level, have been worked into the new solution. So it is with great confidence that I think this technology will be safely deployed on this airplane. We can't be afraid of new technology.

Is there an alternate battery design as a long-term backup?

We're not planning a change in the battery technology.

Even as a backup?

We are always sifting through technologies for all systems. And there may be technologies that are coming after lithium-ion that we're looking at. We're obviously working with other longer-life battery technologies on our other airplanes. But we have no plans, backup or otherwise, to change [the 787 battery].

In retrospect, was the amount of weight you saved with lithium-ion batteries a case of too much risk for too little reward?

It's not as simple as a weight-reduction-gone-awry conclusion because we get added capability from this battery, such as its capacity to quickly charge. In an all-electric airplane, it is a more capable battery.

You have talked about putting underperforming suppliers on a 'no-fly list.' What does that mean?

We are trying to come up with the strongest set of partnerships we can with the people that supply our major systems and structures. In defense, we are trying to respond to the pressures of governments buying fewer things at lower prices, with less favorable contract terms. And that pressure cannot just stop at Boeing. We have to find willing partners [to share the burden]. And on the commercial side, low-cost carriers and a very flattish global economy leads you to the same conclusion. So the 'no-fly list' is people who don't want to play ball, who only want to hide behind the contractual language of their current programs. We're going to give those who do want to work with us more business—or we'll move some things in-house. This is not a rape, pillage and plunder exercise. This is the reality we all face. The majority of [suppliers] are beginning to have productive discussions with us. We have some holdouts, people who take the position that the pressure should only be absorbed by Boeing, notwithstanding the fact that 65 percent of most of our airplanes are built by [suppliers].

And the revised equation would entail them assuming more risk?

It is even simpler than that. We both have to demand lots of productivity [improvements] to offset price pressure. Those that work with us in that way will find more volume. We are the biggest player. My message is, 'Don't bet against us.'

Tell us about 'One Boeing.'

'One Boeing' is about leveraging strengths in one part of the company to benefit another. For example, a lot of the lithium-ion experts in this company are on the defense and space side—the technology is on satellites and the International Space Station. They worked with the [787 team] in Seattle. The benefit washes the other way in composite structures. And Boeing International is an example of where we've leveraged our commercial footprint, using company-to-company relationships, to benefit the defense, space and security side.

Boeing's board recently gave you authority to offer the next-generation 777X, but some people felt it took longer than it should have to move forward with the program.

We wanted to be very sure-footed about this, that we understood the transposition of [composite] technologies to the wing and that [General Electric] understood some of the [engine] improvements they wanted to make. We also wanted to have in-depth discussions with our customers. Everybody had a slightly different version of exactly what they wanted us to do. So it was more about thoroughness than any delay in management process. I think you're going to see this airplane launch this year.

Do you see Boeing locating more operations outside of Washington?

Geographic diversity is strategically important. You can't be gated by one capability in one part of the world. In the case of Charleston [S.C.], we wanted a site that had enough overall capability, both in manufacturing and engineering, that we would have a choice to put things there if it made sense, just like we have a choice to put things in the Puget Sound area, which has a proven capability. The whole idea is to create choice as you face decisions like the 777 wing.

Where is the composite 777X wing going to be built?

We haven't decided yet. Now that we have a physical definition of what we want—what it's going to cost and the time it's going to take—we'll make a final decision on where within 4-6 months after we launch.

Is it possible it could go to Japan? Mitsubishi is a big part of the 787's composite wing.

I don't want to jump ahead of the queue, OK? As great of an opportunity as you're giving me, I don't want to paint myself into a corner.

Speaking of Japan, are you worried about Airbus breaking your monopoly in Japan with the A350?

Airbus is pushing hard. These are great customers, and we're trying to live up to their expectations every day. So there will be a competitive environment for the next set of airplanes. And we intend to win.

There is a bit of imbalance between the Airbus A320NEO narrowbody and Boeing's 737 MAX. Airbus has poached a couple of your customers.

We're a year-and-a-half behind them. We're ahead of the trajectory they were on at a similar timeframe. We are putting a lot of pressure on them on the widebody side, and they are coming back hard in the narrowbody market. But I am highly confident of the relative capability of the MAX versus the NEO. When all is said and done, you will not see a major shift in market share.

The F-35 has faced a lot of cost and schedule challenges. Does that open the door for Boeing's F-18 and F-15?

I'm not going to pile on the F-35. Believe me, I know how difficult new programs are. But as the schedule moves to the right, it opens up opportunities for proven [fighters] where prices are coming down, delivery dates are certain and capabilities are continuing to improve. I think there's a serious evaluation by the U.S. Navy about how to deploy more F-18s within the current F-35 schedule.

Boeing must execute on the U.S. Air Force tanker contract. Does this give you any sleepless nights?

No. We signed up for a program we thought we could do. The contract structure presents some risk if we [don't perform]. But we're hitting all the benchmarks and things are on track.

How does sequestration [automatic U.S. budget cuts that took effect March 1] affect the tanker program? Is there any danger you'll have to renegotiate the contract?

That is a low probability. The customer has made it very clear they don't want to. I think Congress has made it clear that they don't want to see that now. Time will tell, but it would be very difficult for us to step back and negotiate some other type of contract.

Your defense business has posted some pretty good margins. Can those hold up as sequestration starts to bite into programs?

We are sizing our business, cost-wise, to maintain our margins. That has necessitated some regrettable and very difficult actions on people, structures and sites, but we're going to keep making them. Based on what we see today, we think we can hold on to our margins.

How do you see Boeing's split between commercial and defense sales changing?

I think the commercial side will grow disproportionately over the next five years and become a larger percentage, which does not trouble me. The key is to hold on to a strategic critical mass on either side. I'm sure someone is going to write an article saying that Boeing is getting out of the defense business. Nothing could be further from the truth.

SpaceX is on the verge of competing for national security launches. Are you concerned about its challenge to your United Launch Alliance [ULA]?

In many respects my hat is off to SpaceX. They have an opportunity to have a significant share of the low end of the launch business. That puts pressure on some elements of ULA, but it doesn't change the business equation. You'll see most of our new resources going into the high end—it is SLS (NASA's heavy-lift Space Launch System) or the capsule that can go on some of the lower-orbit missions. So we're trying to stay at the forefront of technology as a way to insulate ourselves, in part, from the commodity end of the launch business.

The U.S. is charging that Chinese hackers have compromised a lot of national security technology. Are there similar concerns about Boeing's commercial technology being compromised?

I would leave the overall cyber-espionage discussion to the governments. But as a corporation, sure I'm concerned. The source is not just one country—it is lots of countries and lots of people. We've had some incursions. Nothing that has changed the competitive balance, but we are concerned about it every day.

July 1 marks the eight-year anniversary of your appointment as Boeing's CEO. How much longer do you plan to stay on the job?

We have a robust succession process that we've been managing since the day I got here. At some point it will make sense to have a transition. There are no plans that I know of for that to happen. I'm enjoying the job. I'm a young 63—64 in August—and I'm going to stay young.

Should we expect a launch announcement for the 787-10X at Le Bourget?

I think we're going to have a good show.

W. James McNerney, Jr.

Age: 63

Education: B.A. from Yale University and M.B.A. from Harvard University

Career: Began in 1975 at Procter & Gamble and has held a variety of senior posts at General Electric and 3M.

Did You Know: Boeing's sales increased 19% in 2012, to $81.7 billion, and its operating profit was up 13%, to $6.4 billion.