Where's Boeing going?

Boeing’s old rivals take its controls

McDonnell Douglas supplied new chief exec
December 4, 2003

BY PETER ROBISON
BLOOMBERG

Boeing Co.’s 1997 purchase of McDonnell Douglas Corp. led some employees at the time to joke that “McDonnell Douglas bought Boeing with Boeing’s money.”

The quip looks prescient after this week’s decision by Boeing to put a former McDonnell Douglas man in charge. The world’s biggest plane maker named Harry Stonecipher CEO after chairman and CEO Philip Condit quit amid probes of ethical breaches in the company’s military businesses.

Stonecipher, Condit’s No. 2 until his retirement in June 2002, backed cost cutting and expansion into defense contracting, the business that made up almost half of 2002 sales of $54 billion. The return of Stonecipher, 67, points to a shift from civilian jets that began when Boeing bought McDonnell Douglas, analysts said.

“I don’t think anybody from McDonnell Douglas looks like a great Boeing commercial supporter,” said Richard Aboulafia, who has followed Boeing for 13 years as an aircraft analyst at Teal Group in Fairfax, Va.

Four of Boeing’s 11 remaining directors are former McDonnell Douglas directors.

“The scandal has really occurred on the defense side,” said Robert Friedman, a Standard & Poor’s analyst. Boeing “wanted to make sure that the Pentagon still had confidence that the company has the ability to get these systems out.”

Meanwhile, the government’s inquiry into a $17-billion deal for Boeing to convert 100 767 jets to refueling tankers for the U.S. Air Force further delays a contract essential to keeping the plane in production.

With few new orders, a shrinking backlog and a production rate that’s at a crawl already, Boeing needs a quick resolution to the inquiry to avoid more layoffs or having to shut down production of the 22-year-old 767 altogether.

“There isn’t a lot of time,” said Scott Hamilton, an independent aviation analyst. “The 767 was dying a slow, natural death anyway.”

The twin-aisle jet that holds as many as 300 passengers could get competition from a commercial jet in Boeing’s future — the proposed midsize 7E7.

Condit, the seventh chairman since Bill Boeing founded the company in 1916, presided for seven years. During his tenure, the stock dropped 5 percent, while the Standard & Poor’s 500 Index gained 64 percent. In the first three quarters of 2003, Boeing had a net loss of $414 million because of $693 million in costs that reflected a slump in satellite orders.

Associated Press contributed to this report.