Approaching his 10th anniversary on the job, Boeing Chairman and CEO Jim McNerney spoke with AW&ST Editor-in-Chief Joe Anselmo and Senior Editor Guy Norris at the company’s headquarters in Chicago.

AW&ST: How would you grade the state of innovation at Boeing, and how are
you balancing shareholder pressure for cash flow against the need to invest in long-term competitiveness?

McNerney: There has been more innovation in our company over the last 10 years than any 10-year period I can think of. Some of it was painful—maybe too much innovation in a couple of places. But we remain committed to step-function change. The way you do that is to drive productivity in your company, because you really control your own destiny if you invest organically, and that is derived from efficient operations. Growth and productivity are inextricably linked. And we’ve been driving that successfully as a way to fund our innovation. We’re probably investing more in capital now than we have in a long time. 

You are teamed with Lockheed Martin on the U.S. Air Force’s Long-Range Strike bomber (LRS-B). How essential is winning?

It’s very important, but it would not severely impair our defense business if we should lose it. There are other development programs to be had where we’re strong competitors—Uclass [the U.S. Navy’s Unmanned Carrier-Launched Airborne Surveillance and Strike program] and T-X [U.S. Air Force replacement trainer] to name a couple. Do we want to win the bomber? Absolutely. Do we have a good chance of winning? Yes. Does the company go down the tubes if we lose? No.

If Northrop Grumman wins the LRS-B, could Boeing simply buy Northrop? Is that an absurd idea?

We don’t comment on mergers and acquisitions, but that is not a thought that has occurred to us.

Kelly Ortberg, the CEO of Rockwell Collins, says his company is almost a middleman between Silicon Valley and the Pentagon, because the tech sector does not want to do business on the government’s terms. Is there a similar opportunity for Boeing’s defense business?

I never thought of it that way. I’ve always thought of it in terms of increasing the competitiveness of our products by leveraging some capabilities they’ve got [in Silicon Valley]. But Kelly’s twist on it is interesting. I can see his point about their aversion to the complexity of doing business with the U.S. government. But that doesn’t seem to discourage [SpaceX founder] Elon Musk.

Speaking of SpaceX, Chris Chadwick [president and CEO of Boeing Defense, Space and Security] has been pretty blunt about the need for old-line contractors to do business differently.

We can still serve elements of the market the newer entrants can’t. But that should not make us feel comfortable about where they can compete. We are building the rocket ship that’s going to Mars and beyond. But there is still a good business in missions like bringing stuff back and forth to the International Space Station, and we have got to get our costs down. [SpaceX and Blue Origin] do not have our track record—99 straight launches without an anomaly—but we anticipate they will. So the challenge for us is more on cost than capability.

 

United Launch Alliance, the Boeing-Lockheed Martin space launch partnership, is only being funded on a quarter-by-quarter basis. That isn’t particularly a ringing endorsement.

There’s a lot of swirl in the marketplace that has us preoccupied. Are Russian engines available or not?; [NASA’s] Commercial Crew contract; the constructive disruption by SpaceX. It’s not as if we’re not investing. We have a certain amount of research and development [dedicated] to define a [next-generation launch] system. But there are a lot of alligators in the swamp right now. We’re trying to adapt to all that and remain competitive.

Is there a commitment to invest in follow-ons to Atlas V and Delta IV?

This is a very strong franchise of ours. What form that commitment takes has yet to be defined and is not ready to be announced. Anybody can see we have a very strong position here; and Lockheed and Boeing don’t like to give up strong positions. Let’s just put it that way. 

Airbus is studying taking A320 production up to 60 aircraft a month. Could you see Boeing going up to 60 737s per month?

The footprint we’re building for 47-52 737s a month could handle that. If the demand was there and proved itself out, we could be there quickly.

Airbus’s A320neo retains a strong order lead over the 737 MAX.

We still have a lot more of our customers who haven’t ordered yet than Airbus does, because we started producing a year and a half later. I see nothing that fundamentally changes the market.

What about new narrowbody competitors, such as Bombardier’s CSeries or the Comac 919?

Order rates on those new airplanes are pretty small. The initial neo and MAX ordering cycle will probably be largely accomplished in the next few years, and that could be before any new entrant gains serious traction. It may be more of an issue for the next ordering cycle.

Are you concerned Boeing has to reduce the 777 production rate before the buildup of the 777X?

There will be normal dovetailing. We’re working on [a production plan] now. But based on what I see today, we will not have to dip it significantly for lack of demand. We may dip it as you normally do, transitioning from one airplane to a new airplane on the same line.

When is Boeing going to stop adding to the deferred production cost tab for the 787?

The program becomes cash-positive this year, and the deferred production rate of increase will slow down. As soon as we get to 12 a month, then the deferred balance itself will start coming down, around the end of 2016.

Are you pleased with your 787 plant in North Charleston, South Carolina?

It has met or exceeded every expectation. We are building a lot of vertical capability there—propulsion and engineering centers and paint hangars. Charleston will have the ability to independently produce airplanes, which is important as we seek to grow. But we have not decided whether it will be a fully independent development base. Puget Sound remains the core of our commercial airplanes business.

When are we likely to see the next Boeing commercial airplane?

It’s impossible to predict exactly what the next airplane would be. Many here think it will be in that space between the 737 and the 787—the so-called 757 [replacement] market. We have most of that market covered now, and so does Airbus. The question would be, ‘Is there a need for something a little bigger than the old 757 but still [smaller than] the 787-8?’ That’s what we’re studying hard. But that is so far out that I really don’t know when it could move into a development program.

It seems what airlines want is still a bit beyond the realm of physics.

We live in a more-for-less world, and our customers challenge us. Some innovation will be required, because that market will want something that can fly a long distance and be able to load and unload passengers in 15 min. 

So there are a variety of configurations we’re looking at. The customers will begin to hone in on a requirement, and we’ll hear from 20-to-30 of them. Our guys doing advanced development work together will either be able to prove to our satisfaction that they meet those requirements or not. 

It must be encouraging to see the commercial derivative success with the 737-800-based P-8 maritime patrol aircraft and the 767-based KC-46A tanker.

The tanker keeps the 767 line open for many decades. I’m hopeful the P-8’s success will show customers the kind of platform the 737 can be, and I’m hopeful it can be the base for additional programs. The [prospects] for a very successful commercial derivative business, particularly with the 737, are big.

Boeing had to take a $425 million charge last year on the KC-46A. Have we seen the last of the charges on that program?

As far as we know. If there were any cost overruns [anticipated] we would tell you. Could things go wrong? A test [anomaly] that would cause a delay or an extra charge? It’s a possibility. But it’s not what we see today. We have a high degree of confidence. 

Do you see the F/A-18 E/F and F-15 lines in St. Louis going to the end of the decade?

There’s a path to keep both of them open until then or beyond. For the F-18, it has to be a combination of U.S. Navy and international orders, at least at the end of the decade. With the F-15 we already have a big base with Saudi Arabian orders, and there are a couple of other campaigns we’re working.

Is Boeing interested in Sikorsky, which is being spun off by United Technologies Corp.?

I can’t comment on that.

How would you grade the performance of your suppliers in Boeing’s Partnering for Success program?

The grades are all over the place, depending on the supplier, but more are getting A’s and B’s than at this time last year. We’re not asking any more from our suppliers than we’re asking of ourselves in terms of working better, smarter and more efficiently. 

Any thoughts on retirement?

I turn 66 this year, and it is my responsibility to have people ready for whenever the board decides it’s the right time. The new generation has to grab hold at some point and my job is to have them ready. I think they’re getting to that point.

What do you think your legacy as CEO will be?

That’s for someone else to decide. We’ve worked on integrating this company from its various legacy environments and programs. We have more innovation in the marketplace and we’re financially stronger. We have people ready to take over whenever the time is right, and our technology is very competitive. Our company had gone through a rough time when I came here 10 years ago, and so I feel good that we’ve got our swagger back. There’s a little more steam in our stride. c