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:: Comments to Bloomberg on James McNerney's Appointment ::

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Teal's Aboulafia Discusses Boeing's Choice of McNerney as Chief
2005-06-30 17:02 (New York)
By Subrata N. Chakravarty
June 30 (Bloomberg) -- Richard Aboulafia, vice president of
the Teal Group, discuses today's announcement by Boeing Co. that
James McNerney would become chairman and chief executive officer
of the Chicago-based company July 1. McNerney is CEO of 3M Co.
and a member of Boeing's board. Boeing is the world's second-
largest maker of commercial aircraft and the second-largest U.S.
defense contractor. Aboulafia spoke from Fairfax, Virginia where
the defense-consulting company is based.

On the selection of McNerney as Chief Executive Officer:
``He's as close as you can get to the ideal choice. He's got
the GE cachet, and that's tough to beat. GE was the one aerospace-
manufacturing company that really satisfied investors. The only
real surprise is that only a month ago 3M said he wasn't
interested. So from the point of view of leaders whom they could
have chosen he's great, but something of a surprise.''

On why McNerney changed his mind after saying in April that he
wasn't interested:
``His pay was already quite high at 3M and it's unlikely
that cash makes much of a material difference at that point, but
it's certainly possible. He might have just been seeing what's
been going on at Boeing the last couple of months -- getting
market share, bringing out new products, just generally repairing
the situation -- and said: `Hey, this company is not looking as
troubled as I had thought and the challenges are not
insurmountable, so why not take the job?'''

On whether McNerney will bring to Boeing his cost-cutting record
at 3M, where he fired 5,000 people and slashed costs by $1
billion:
``Boeing had been following the General Electric model,
which McNerney also hales from, for the past few years -- a clear
focus on execution, making the numbers, defined metrics --
they're already well along the path. Will he do more? Possibly,
but it's a growing business, both on the commercial side and the
defense side, so the temptation of cutting will be somewhat less
severe.''

On what McNerney will bring to Boeing's commercial business:
``They've certainly been making the right moves in terms of
new product development. They've reversed a decade-long decline.
By many accounts, McNerney, on the board, was the advocate of
forward-looking investment in new products. That certainly was a
legacy of General Electric in the Jack Welch days. So, assuming he
migrated that legacy just like all the other legacies he's
migrated over, that's going to virtually guarantee that Boeing
commercial gets additional resources for new product development.
He's not known as somebody who sits around and harvests a
business. He's got that GE model of growing a business.''

On McNerney's approach to Boeing's complaint to the World Trade
Organization against government subsidies for Airbus:
``That's going to be the interesting thing to watch. On the
one hand, GE is one of the most intensely global corporations and
McNerney was certainly part of that. They had similar concerns
about Rolls Royce, yet they took no such action, and obviously
they were similar conditions. In other words, he probably would
have been less likely to initiate it.
``Does that mean he's likely to stop it? Probably not, for
the simple reason that it's acquired a life of its own. It's also
true that a WTO complaint is no longer what it seems. It's not
looking like a concrete effort to actually win at the WTO. It
might not come down to a specific court ruling that arrived after
a lengthy and laborious process with lawyers and negotiators but,
rather, it might be part of a broader effort to convince the
Europeans to stop providing direct government cash for new
product development, and that might just be worth continuing with
a little while longer.''

On what McNerney and Boeing should do about the scandals on the
military side of the company:
``The strongest argument about that is that Boeing should
ignore it altogether. It should avoid radioactive business areas
like tankers and focus on executing with the backlog that they
have, bringing product to market and making good margins with the
current product line, and of course booking new business when
possible. He has a superb record in all of these things; again,
primarily from the General Electric days.
``It might not be the right thing to fight a direct battle to
prove Boeing's innocence. It might be better to just satisfy
investors, focus on performance, which actually Boeing has done a
very good job with over the past two years and been rewarded by Wall
Street. It's also a good way to disarm critics. Frankly, if you
don't meet them head-on, they're less likely to come after you.''

On whether Boeing will face competition for the scandal-tainted
U.S. Air Force tanker contract from Airbus parent EADS:
``It's going to be at least a couple of years before the
tanker contract materializes. When that happens, the sad truth is
that Boeing might just be between products. The 767 line can only
take another six months or a year, and preserving it would take
corporate cash they might not be willing to spend. And the tanker
version of the 787 might not be really available until 2014. So
there's a very good chance that the tanker contract would be
split and EADS might have a very good chance at the first tranche
there.
``Of course, there's an equally good chance that the
contract is deferred because, well, it's just not a pressing
requirement for the Air Force relative to fighter purchases.''

On whether James Albaugh or Alan Mulally, the two internal
candidates for CEO and the heads, respectively, of the defense
and commercial businesses, might leave because they were passed
over:
``The biggest risk for retention of either Albaugh or
Mulally was if either of them had been appointed. That would have
been a clear slap against the other one. The good thing about
appointing someone of McNerney's stature is that it sends a
strong message: `Hey, we have a top performance-minded manager
but, hey, this is still a bifurcated organization with two strong
operating divisions headed by two strong local CEO's.'
``There is no reason anyone should feel aggrieved here,
particularly since the industrial power wielded by both Albaugh
and Mulally is arguably greater than any other industrial
organization in the United States. So I think there's a very good
chance they will stay and not perceive this as a slight against
them.''

On what the catalyst for future share performance will be:
``From the standpoint of future growth, it's all about
bringing new products to market and continuing the current track
record of excellent new business bookings. You've got a couple of
new products in the pipeline. Execution is absolutely
paramount.''

--With reporting from Andrea Rothman in Toulouse, France; Erin
Burnett in New York and James Gunsalus in Princeton. Editor:
Wright

 

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