PHIL CONDIT, CHAIRMAN AND CEO, THE BOEING COMPANY

On the Record with
PHIL CONDIT, CHAIRMAN AND CEO, THE BOEING COMPANY

Growth in commercial airliners and defense will not be enough for Boeing in years to come-so the world's largest aerospace company is carving out new opportunities under the banner "Forever New Frontiers."

Could a merger happen between Boeing and BAE Systems, as has been suggested as a logical extension of their close business ties?
"Could is an easy answer-yes, it could happen," Boeing chairman and CEO Phil Condit told Show News.

"But whether it makes economic or business sense, or is acceptable on a political scale -- there are lots of issues, as there are in any potential possible merger."

Boeing and BAE Systems work closely together on many programs, including the AV-8B Harrier, T-45 Hawk derivative, Meteor missile, Nimrod 2000, and Joint Strike Fighter. The two are also bidding together to buy an equity stake in Korea Aerospace.

Boeing has said it could consider a joint bid with BAE Systems to run the UK's air traffic control system, and BAE has joined Boeing's proposed global business to business Internet exchange.

"Closer cooperation does not necessarily need an equity stake," said Condit.

He said he sees "no fundamental reason" that similar partnerships cannot be built with EADS, despite its 80% ownership of Airbus. Production of Airbus does not prevent cooperation on other programs, he said.

Among them: space-based communications and a major entry into aircraft maintenance, according to chairman and CEO Phil Condit.
Boeing is faced with growth of only 5% a year in its three core businesses-commercial airliners, defense and space, he told Show News. While 5% of Boeing's $58 billion in revenues is a huge number in dollars, it is still only five percent. So the solutions must be dramatic -- and large, he said. Boeing aims to achieve growth of 15% a year, which will double its size to $116.6 billion in five years.

"We are driving the fundamental core businesses, but how do you take the company from there?" he asked.

Condit has a two-pronged answer. Leverage the huge installed base-90% of the airline seats flying today are Boeing-by spinning in new services, and develop futuristic new products. Boeing is used to new frontiers: it once sunk all its net worth into a jet transport prototype (the Boeing 707), and bet the company again on the 747.

Condit isn't going that far, but he points to the new space-based "Connexion by Boeing" communications concept as a comparably radical product that could have a similar impact on the company's future.

Connexion is a high-speed, broad bandwidth communication system that uses a proprietary antenna and satellite technology to enable a tremendous throughput of data. With it, airline passengers can watch live TV or surf the Internet live from their seats-combined facilities no other company has been able to offer. The technology can also be used for space-based air traffic control systems, and, in the military, massive system-wide sharing of information in real time. This would, for example, allow an AWACS airplane to transmit all its data to the ground in real time instead of carrying teams of on-board analysts.

Condit says he flies so much he has been Boeing's guinea pig for Connexion, and he is so enthused by it that he himself-ever a salesman-is demonstrating it here at Farnborough.

"Our immediate task is to make this available to the airlines and the three million airline passengers who board some 42,300 flights on Boeing-built planes daily." Condit said. "Then we broaden its applications. There really is a vast potential."

Crucial to future product development in this area is Boeing's pending $3.75 billion acquisition from General Motors of the space and communications business of Hughes Electronics Corp.

"A lot of the things we see ahead of us involve space-based communication, and the intellectual capital in Hughes around space based communication is substantial-they are really good," said Condit. "It is that capability we want."

The acquisition of Hughes "is not a play on the building of satellites," he said. "It is really much more about the intellectual capital in space-based communications."

Yet with all this going on, Condit is adamant that one can't take his eye off running the healthy core businesses.
"There's often real trouble when you do that," he said.

By John Morris