"A burgeoning order book is both a huge opportunity and a huge risk"

A little less than two years ago, when Boeing tapped Walter James 'Jim' McNerney Jr. to be its CEO, it was in desperate need of a course correction. Late in 2003, Boeing's CEO of seven years, Philip M. Condit, had to resign over a defence scandal, and his replacement, Harry C. Stonecipher, was also forced to quit within 15 months after his affair with an employee came to light. With its reputation in tatters, the Chicago-based aircraft (and defence equipment) manufacturer turned to McNerney. The result was salutary. On the day (June 30) McNerney's appointment was announced, the Boeing stock rose 7 per cent and has been climbing since. It is up more than 50 per cent over the last two years on the back of a strong turnaround. Boeing's revenues are clipping at 15 per cent per annum, aircraft deliveries are up almost a third at 398 planes in 2006, and costs have been reined in. In India, Boeing has been bagging some big orders against stiff competition from European rival Airbus. In 2005, Air India, Jet Airways and SpiceJet ordered almost 100 airplanes from Boeing, and in 2006, Jet ordered another 10 airplanes (all of them 787 Dreamliners, Boeing's first commercial jet this decade), and so did SpiceJet and Air Sahara. But all eyes are on Boeing's bid for 126 multi-role aircraft that Indian Air Force wants to buy. It has fielded its fighter jet, the F-18 Super Hornet, as a candidate. In India recently, McNerney, 57, took time off to give his only media interview to BT's R. Sridharan and Kushan Mitra. Excerpts:

How would you rate your first two years at Boeing against your own expectations?

I am fairly pleased with the progress of the last two years. We had just left a period of instability, so part of my job was to restabilise the management and the company, and focus on some pretty successful programmes that were already ongoing, and we had to take some risk out of the company and we did that. But, by and large, I focussed on values, on management and leadership and finding ways for all of us to believe in ourselves. I spent a lot of time with people in the company. (As an independent director on the Boeing board since 2001) I had working knowledge of the company, so the issues and opportunities were not mysteries to me. So I was able to hit the ground running in that sense.

Your last two jobs were at 3M, a company known for its culture of innovation, and at GE, famous for its management systems. How much learning from these two places are you trying to implement at Boeing?

Well, I am the sum of my experiences, so I am not sure if I consciously bring any elements of my experiences to this job. But there is no doubt that the GE management and leadership style has a certain edge to it, focussing on productivity as well as growth. 3m is more innovative and topline oriented. Boeing is more aspirational and mission oriented, excited about things that are bigger than themselves. It is a company that does big things and wants to do big things.

The last two years have also been very successful for Boeing. How much has a burgeoning order book helped the company?

The 'burgeoning order book' that you mention, and we have a backlog of over a quarter of a trillion (dollars) right now, is both a huge opportunity and a huge burden. Because we have a lot of execution in front of us and much of it remains to be developed. But it is also an opportunity (because) as we implement the backlog over the next five-seven years, we will get into a very favourable position in the aerospace industry.

"We are not taking advantage of India's engineering abilities"

With the Dreamliner, Boeing is revolutionising aircraft manufacturing, bringing in components from all over the world. What benefits do you see accruing to the company as a result of the learnings from the 787?

Well, first of all, this is all very exciting but also very challenging. We are leveraging the capabilities of globally competitive companies as opposed to depending on ourselves to get everything done. It is a form of risk mitigation, in the sense that the bottleneck is not just the thinking and capabilities at Seattle. We are leveraging equally strong capabilities in Japan, Italy, Germany, France and the UK. Now, there is certainly a challenging aspect to this, because we have to work together on a real-time basis, every minute of every day, using the same design tools on a global basis. All this is enabled because of a fantastic global information technology (IT) environment. We are designing parts, accomplishing engineering tasks all with real-time visibility, so time and distance really mean less.

But something must have happened in the back end as well. Last year you delivered a third more planes than in 2005, and this year you plan to deliver over 440 aircraft. So what were the major changes that you have put in place in assembly?

When you are putting together four million parts and if one part doesn't show up, you can't fly the airplane. So it is a tremendous logistical task and as we rely more and more on our supplier partners to aggregate parts into sub-assemblies and major components. We can do this whole process more efficiently because it is not one supply-chain leveraging relationships, it is multiple supply-chains that are all linked together in an it world. But it is also about having more procurement managers supervising things and having more quality inspectors making sure that things go right.

For a two-horse industry, commercial aircraft is a tough business. Manufacturers find it hard to make money, and so do the airlines that buy these aircraft. Why?

I won't get too defensive about our financial performance, but it is improving. The commercial airline space is highly competitive and does go through periods of difficulty. But I believe that we can be competitive and that our financial performance can improve significantly.

What would you make of the problems at your main competitor EADS (owners of Airbus), especially in the light of what Boeing went through a decade ago?

Well, this is a tough business and they are going through a difficult development challenge with the A380. I understand how difficult it is and we all face these problems sometimes in our career and, to be honest, actually I feel somewhat sympathetic. But they will straighten these problems out and they will be a formidable competitor as they have been for the last thirty years.

The 787 promises to be a lot more efficient than the planes before it. Do you think that will help airlines make more money?

Make no mistake. This is a revolutionary new airplane. In an industry where 3-4 per cent is considered a breakthrough, we are giving 20 per cent improvements over aircraft such as the 767 and A330 on a variety of factors. Fuel-burn, environmental impact and others, and with more point-to-point travel, we believe that the average size of airplanes over the next few years will actually go down, not go up! This has been a difficult project, we are ahead on some things, behind on others. But we believe that entry into service will happen when we say it will, in early 2008.

"We are not against technology transfer as a form of partnership"

That said, you did just announce a new and much bigger version of the 747, the 747-8.

I'm not saying that there won't be a market for large airplanes, but I believe far more small and medium sized aircraft will be sold, bring the average down. More point-to-point travel, more frequencies, consumers don't want to go through hubs.

You have done a great deal of the avionics software development for the 787 out of India. In the future do you see more work happening out of India-maybe engineering work like EADS is doing and perhaps manufacturing in the future?

I think we will be doing a lot more here over the next five years. It is hard for me to know the exact timeframe though. We are moving management to India, and we are connecting that management with our decision-makers back in the US who are designing and building these airplanes. We will see a lot more from India. We are not taking advantage of India, either in its aerospace ability or in its fundamental engineering and software abilities. So we see a huge opportunity out of India.

Do you ever see India as a manufacturer in aerospace?

Yes, I do. I see some significant component work done both in the commercial aircraft segment and in defence, particularly as the latter is now open to us. Assuming some success there which we are anticipating, we believe significant amount of component work will get done out of India.

So you expect success in the large 126-aircraft order for multi-role aircraft the Indian Air Force is placing?

We always expect success and sometimes we actually have it! But the spaces I think we are really competitive are the border patrol multi-maritime aircraft and the multi-role fighter, where the Super Hornet does a great job of meeting expectations. There are some weapons systems and depending on market opportunities we will see what happens.

In the multi-role aircraft order there is expected to be some terms for technology transfer and manufacture of the last hundred-odd aircraft in India. You have no problems with that?

Well, I don't know the details of the proposal as yet, but I will say that within the limits of the government of the country I am in (the us has some limits on technology transfer), we have nothing against technology transfer as a form of partnership. It strengthens our global capabilities. We always have to be mindful of constraints, but we are anxious to partner here, we really are, because I think India has so much to offer.

The Chinese government recently announced that they plan to make a large aircraft, and they recently started work on a small jet plane called the ARJ-21. Do you think the Chinese can pull off these plans?

I think they will be in this business some time. I'm not sure when, it could be 20 years from now, but they have the engineering and manufacturing skills and they have a big internal market and they also have a government that is making this a big, important priority, which helps. The big hurdle they will have to overcome is convincing customers of their long-term support and reliability, and that is tough. That is what the 'Boeing' brand gives customers. So they will have to be in the business for a while before they will get there, it will take some time. But they have all the ingredients to eventually succeed.

Boeing has predicted that India has a market worth $72 billion over the next two decades, but the health of some of the low-cost carriers is suspect, to say the least. How do you see that impacting Boeing?

I am still very optimistic about the Indian aviation sector. There has been a great entrepreneurial spirit here, but even in growth markets such as this there might be a need for some common-sense consolidation. I can't exactly predict what the industry structure in India will be like, but we will be here to support it, no matter what the structure.