Facing realities

I had the opportunity recently to spend a couple of days at the Boeing Leadership Center in St. Louis last month, taking part as an instructor in a training program for Boeing executives called BEP - Boeing Executive Program.

The experience gives us a chance to share our knowledge and our professional and life experiences, if you will, with our colleagues. We call it “Leaders Teaching Leaders” or LTL. The beauty of it is that I think the teachers get as much out of the experience as the “students.” I know that I enjoyed the give and take.

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Thousands of current and future leaders from across The Boeing Company travel to the Boeing Leadership Center each year. During each program, employees share ideas that enhance the relationships between business units and help shape the future of Boeing.

During BEP, Boeing senior executives do the teaching, covering topics such as diversity, ethics, values, and what we expect from our leaders. Over a week or so of discussions and activities, attendees engage with members of the Boeing leadership team, conducting business simulations that give them a practical connection to their work environment, developing and balancing the ideas of teamwork, collaboration and competition.

The idea is that the executives leave St. Louis with a global mindset, which is vital in an increasingly competitive marketplace.

My teaching mate for the course was from Boeing’s Integrated Defense Systems: Jim Simpson, Vice President - Business Development for Space and Intelligence Systems.

Jim and I led a discussion around what we termed “facing external realities.” We wanted to share some insights and experiences from our own worlds here at Boeing, and give a view of today’s business strategies, the competition we face, and our outlook and opportunities in the future.

To help set the stage, we had a little fun, and during the class we challenged the “students” with a Jeopardy-style game. Let me share a few of the Jeopardy “clues” with you. See how well you do.

  1. THIS SAW AN UNPRECEDENTED DROP IN VOLUME AND REVENUE IN THE LAST QUARTER OF 2008.

  2. BRAZIL, CHINA, FRANCE, GERMANY, JAPAN, AND RUSSIA.

  3. A $5.00 REDUCTION IN THIS BENEFITS THE WORLD’S AIRLINES BY APPROXIMATELY $12 BILLION.

  4. ONE OF THE BIGGEST CHALLENGES / OPPORTUNITIES FACING THE LONG-TERM SUCCESS OF OUR INDUSTRY.

  5. ADJUSTING CAPACITY, IMPROVING EFFICIENCY, AND RESTRUCTURING.

The correct “questions” are at the end of this post.

How we deal with our struggling world economy is a big part of the reality today, along with volatile fuel prices, strong environmental pressures, and the threat of future competitors in commercial airplane manufacturing.

At Boeing Commercial Airplanes, clearly we’re facing a situation where airplane orders are expected to decline in 2009. It remains a volatile business environment, and while there is continued demand for replacement aircraft, some customers will need to defer or even cancel orders.

Boeing’s challenge is to keep our production and delivery “skyline” filled. On the business side, our efforts to reduce costs and run our company more efficiently become even more critical as we work to keep our balance sheet strong.

To some extent we can anticipate and mitigate the impacts of today’s realities through sound business strategy – and in certain cases these challenges may be future opportunities. What we do with our resources during this downturn is the key to emerging from it.

So you can see that this is a great conversation to have, especially today. It sets the stage - really starts the thought process - for executives to consider the world beyond their everyday activities. We want our leaders to think globally, and consider greater possibilities, and I think this program helps engage Boeing executives with the issues facing our industry and our company as a whole.

Now, here are the correct quiz “questions”:

  1. WHAT IS WORLD AIR CARGO?

  2. WHAT ARE THE COUNTRIES IN WHICH THERE ARE COMMERCIAL AIRPLANE MANUFACTURERS IN COMPETITION WITH BOEING?

  3. WHAT IS THE PRICE OF A BARREL OF OIL?

  4. WHAT IS THE ENVIRONMENT / CLIMATE CHANGE?

  5. HOW ARE AIRLINES ADAPTING TO THE REALITIES OF THE MARKET?

How did you do? Ready to move on to the next round?

Comments (13)

Jess Sato (St. Louis, MO):

Randy - great post! Thank you again for speaking to BEP1. We really appreciated your insights and the fun game!

Harilton Rodrigues (Sao Paulo, Brazil):

Have you forgot Canada as a country that has a commercial airplane manufacture in competition with Boeing?

Maybe the C-Series that will be made by your brothers from the North can beat some of yours vendors in the next years.

Don´t forget they have access for cheap money too in despite of the South American manufacture.

Regards and congratulations again for your amazing blog.

-------------

Harilton,

You are right! We should have included Canada in that list.

-- Randy Tinseth

Norman (Long Beach, California, United States):

1) I have seen almost seen every cargo airline in America fail except for Fed Ex Express and UPS, unfortunately Fed Ex cancelled it's 777 cargo order.

2) Airbus is the prime competitor with Boeing but the Bombardier C-Series is coming up close in competition as Boeing and Airbus prepare to find a replacement for the A320 and the 737. China and Russia's airliners are largely for the regional market though ARJ-21 and the Superjet 100 have secured outside orders.

3) The price of oil is far off it's peak but not for long, as more oil is consumed by China and India the price will go north.

4) Climate change is a concern but new engines like the GEnx and the new Trent 1000 engine will burn cleaner, The shape of airframes like the 787 and even the A350 will make a major difference.

5) Airlines like nature need to adapt or fail, virtually all airlines have reduced passengers capacity, employees, destinations and aircraft.

The airline industry remains volatile as well at the aircraft manufacturing industry but recessions have limited duration, already the stock market is up. Though I think a few legacy airlines will always be in financial trouble I think most carriers will prosper and so will Boeing.

P.Sumantri (France):

Only the final assembly or the headquarter is located in the countries in your list. In reality, the content of each aircraft is very international. For instance, many parts and equipments of your 787 are not manufactured in the United States. They come from other countries like Japan, Canada, Sweden, Korea, United Kingdom, Germany or Italy. (Click here to see the 787 International Team)

Today, we have to consider that manufacturing aircraft is a worldwide teamwork. With the globalization, the notion of nationality for an aircraft is rather blur.

Globalization is also a reality.

http:// verovenia.wordpress.com

Mark Cusick (Scott AFB):

With the increased fuel savings of having Winglets installed on commercial aircraft has Boeing considered this type of installation on ALL of our products?

Richard Mahoney (Seattle):

Mr. Tinseth - you said:

" . . . How we deal with our struggling world economy is a big part of the reality today, along with volatile fuel prices, strong environmental pressures, and the threat of future competitors in commercial airplane manufacturing. . . "

1)Boeing appears to have enabled many of its competitors by outsourcing core competancies to suppliers. After reviewing the patents issued to Boeing suppliers such as Honeywell since CY2000 - many of the technical innovations on the 787 (for example) are patented by our suppliers. Thus, they are owned by our suppliers and freely offerable to anyone wanting to build an airframe. Further, both Goodrich and Honeywell have made comments in the business press that their future lies in the ability to be a virtual airplane manufacturer - similar to the Lutz virtual automobile manufacturing model.

". . .At Boeing Commercial Airplanes, clearly we’re facing a situation where airplane orders are expected to decline in 2009. It remains a volatile business environment, and while there is continued demand for replacement aircraft, some customers will need to defer or even cancel orders. . . "

2) Boeing needs to relentlessly focus on reducing the airlines fixed costs related to aircraft ownership - IE fuel burn, and extending maintenance intervals and MTBF of avionics. The 787 is the first step - but will Boeing pursue this relentlessly - like the Japanease did with the automobile. Only then will Boeing products be able to sell themselves into a replacement market awash with good used aircraft from failing airlines ?

" . . Boeing’s challenge is to keep our production and delivery “skyline” filled. On the business side, our efforts to reduce costs and run our company more efficiently become even more critical as we work to keep our balance sheet strong. . ."

3) Boeing needs to brainstorm other uses for aircraft - years ago I sat with an oil company executive in 1st class who was the PM on a pipeline extracting oil out of the Andes. When he heard I worked for Boeing he wanted to know about the capabilites of the 747's because he interested in the possibility of using 747 as oil tankers to make a short hop over the mountains because of the difficulty and cost, logistics and enviromental impacts of building the pipeline. I realize at the then prevailing $$ / barrell this was not a feasabile idea - but who knows - maybe it was ?

4) I also met a telecom executive while flying that wanted to lease space on every airliners to mount cellular antenna on aircrafts - for the purpose of creating a Teledesic - really low earth orbit data-network. He was inspired by the amounts of aircrafts in the air continually - 24 hours a day - everywhere. I recall thinking - where was Boeing marketing ?

Finally, Boeing should consider merging with another manufacturing giant such as Ford or GM - who are unique in the mastery of outsourcing and negotiating with suppliers.

chris isaacson:

Does Boeing really take climate change seriously? Changing light bulbs and switching to 30% recycled pare is a step in the right direction, but next time you are in the Everett factory take a look at what we throw away. Boeing may be building the next fuel efficient airplanes but the materials we use to ship parts to the factory are just tossed out without any thought if we could reuse the packing material. We still have a long way to go before we can say we do build “Green Airplanes.” What is the true carbon foot print to build a 747 or the 787?

Victor Chow (Seattle, WA):

I am surprised too that Bombardier is not considered as a competitor to Boeing.

Jim Hansen (Seattle):

During 2008 most airlines saw fuel costs approach 50% of expenses. Why isn't the risk of your customer (the airlines) to constrained fuel supply the number one issues facing Boeing?

How many airlines can be expected to survive in a world where the supply of petroleum can no longer meet the escalating demand. The IEA in November stated that the world needs to develop the equivalent of 4 Saudi Arabia just to balance depletion from existing fields in the decade ahead. Since that seems unlikely to be accomplished what is Boeing's plan to respond to the inevitable supply squeeze in the short-term? Again isn't this the number one risk the industry and Boeing face?

Paulo M (Johannesburg, RSA):

Great blog post! I like the way you guys think - part of being a global leader is thinking global as you say - and taking in your local situations where ever you may be doing business.

A couple of years back, when Boeing was overhauling their manufacturing processes, they went to a couple of expert lean manufacturers - like Toyota - to see how they could learn how to better and more efficiently put together Boeing airliners. Perhaps, the auto giants have become a little rusty with the processes, and could do with a bit of the same education, refresh.

Esat Guzey (Everett, WA):

Ever since the Leadership Center opened, we have steadily gone to the toilet. Management piles up on top of management with Engineering producing more and more reports of dubious value instead of engineering our products. The results? Two years (and counting) late on 787 and company-killer over weight.

777F only contractually on time due to the strike and right up against guarantee weight. 747-8, also late and also over guarantee weight with no path to contractually specified performance.

Instead of creating a company for managers to waste time and money in Saint Louis, how about doing what we used to do before the Leadership Center: deliver what we promise when we promised?

I only have 29 years in the industry and 20 with Boeing so maybe this whippersnappper should be ignored.

Douglas Alwaysright (Center of my universe):

The Jeopardy Question on freight makes me think of another - what has been the consistently high forecast (relative to actual results) in Boeing's CMO for most of the last 7 years?

Jeopardy Answer is........freight. Isn't it time to revisit this pre-Paris Air Show? Or at least before dinner next week. :-)

Paulo M (Johannesburg, RSA):

Actually, Esat Guzey - that's also quite the valid point. How often do you fail to do something not because you can't do it - you're actually quite capable - but rather, because you're just too busy procrastinating on other things less important?

I'd like to think that there are focussed minds on the 747-8 - otherwise, Douglas maybe be right about the freight business.

Maybe those forecasts have overshot their destinations because nobody thought that the contribution to world growth from China in relation to that from the United States in the last few years was a bubble situation - especially when China's contribution exceeded that of the USA - for no other reasons simply that, the US is still a far larger economy, and the kind of trade and economic activity is unsustainable at the respective growth levels, or main points fuelling growth in China - exports - have a time limit linked to wage growth/inflation.

Maybe I'm wrong.

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