On the Record with
HARRY STONECIPHER, VICE CHAIRMAN, BOEING COMPANY

Sales of new airliners will account for less than 50% of revenues at Boeing Co. in five years as the company expands into new businesses, vice-chairman Harry Stonecipher told Show News.

The commercial aircraft business will still grow at 4% to 6% per year from an already huge $35 billion in annual sales -- but that's not enough for Boeing to meet its corporate target of 15% annual growth.

Military aircraft and missiles, the second of Boeing's three core businesses, will remain flat in today's era of relative peace. "So two years ago (chairman) Phil Condit and I identified space and communications (Boeing's third core business) as the growth engine for the company," Stonecipher explains.

To be more specific, Boeing has targeted space-based businesses as the driver, rather than selling more launchers and satellites. Examples so far are the Connexion by Boeing, inflight e-mail, live TV service, and space-based Air Traffic Management.

The second leg of the strategy is to develop services around sales of commercial and military aircraft. There, Boeing is expanding rapidly in many activities, such as engineering, modification, maintenance, and logistics management with the goal of becoming the largest aftermarket provider for its own aircraft.

"The commercial and military services businesses each have revenues of about $3 billion a year," Stonecipher says. "They think they want to grow to about $6 billion each in five years, but I think they want to get to $10 billion apiece. That is something we are negotiating now."

Another business driving growth is Boeing Capital Corp, which Stonecipher has charged with growing at 30% a year. "We don't know a lot more about financing than anyone else, but we know a set of customers who happen to want and need

financing-whether debt financing, operating leases, or finance leases," he says. Boeing, with good cash flow and a strong balance sheet, can pump in $1 billion of fresh equity a year, and the Boeing Capital can leverage it into $6 billion a year in new business.

With this backing and performance, Boeing Capital is able to borrow at very attractive rates in the commercial market to further fuel its growth. Its strength is now being brought to bear throughout the company-in satellites and launchers, where Boeing is one of the very few suppliers that can provide finance as well as hardware and services; in new aircraft deals that often involve trade-ins and sometimes passenger-to-cargo conversions as well; and in military deals, such as leasing four C-17s to the RAF.

"That's our strategy," says Stonecipher. "We have stood up three new businesses, and I expect we will stand up another half a dozen in the next five years. All will be spawned out of the technology base or customer base we have. We look at it both ways: we know a set of customers and finding a way to provide them more content is a way to grow a business; we know a set of technologies and expanding those to another customer base might be appropriate too."

There will be no repeat of disasters of the past, he insists. Among them: windmills (Boeing knew all about those but nothing about the utilities business), and high-speed hydrofoil ferry boats. Stonecipher points to McDonnell Douglas's pre-takeover forays into health care and computers as two more warnings of what not to do.

"All our new businesses will be relevant to our own customers and our own technologies," he insists. "That's why we continue to reinforce with management not to get too far afield-don't forget to run the core business, as that's what generates all this cash that permits us to go look at other things."

Acquisitions will be another area of growth for Boeing.

Stonecipher, a GE alumni since 1987, likes to quote the record of his earlier boss Jack Welch.

"When I tell people GE really doesn't have any growth businesses in its portfolio, they look at me and say 'what are you talking about? They grow very nicely.' But Jack in his own words has said he has acquired 1,600 businesses in 20 years. So the strategy, and it is a good strategy by the way, says run your core business well. That's what we do. Then you can go on and do your internal development to keep the core business fresh, like Sonic Cruisers, and then go on to the acquisition activity."

Stonecipher says he's quite aware that business schools say 70% of all acquisitions and mergers fail. But they won't at Boeing, he adds, because in his opinion they fail for two reasons-one is that people forget to execute them in relation to their core business, and the other is that they acquire businesses they know nothing about.

He is determined, it seems, that neither will happen on his watch.

By John Morris