Masters of the Air

Boeing captures the cruise missile contract and dominates world aviation

It was the biggest single Air Force contract since the Viet Nam War, and it is almost certain to be remembered as the arms deal that propelled the U.S. into the weapons-bristling decade of the 1980s. The prize was the $4 billion air-launched, cruise missile system that the U.S. is counting on to maintain a strategic edge over the Soviet Union for much of the remainder of the 20th century. The victor, not unexpectedly, was the Boeing Co. of Seattle, one of the nation's most successful corporations.

Boeing: builder of strategic bombers, ballistic missiles and jumbo jets. Boeing: the nation's 29th largest industrial company, but a firm with a plain-talking chairman of the board, Thornton ("T") Wilson, who drives unpretentiously around Seattle in a Honda instead of the company limousine. Boeing: the best planemaker in the world today, eclipsing all competition in the civilian aircraft business.

The fight for the cruise missile contract with archrival General Dynamics was fierce, and the 20 test flights produced malfunctions and failures for the competing designs of both companies (see box). But in the end, there was very little surprise that the contract went to Boeing.

In the 64 years since its founding as the Pacific Aero Products Co., the Seattle planemaker has developed and nurtured a reputation for innovation, reliability and plain downright engineering excellence that is unmatched in the industry. Indeed, in an age when much of American business seems to have slipped into a search for quick profits and is marked by shoddy workmanship, the 104,000 engineers, designers, draftsmen, machinists, executives and salesmen of Boeing stand out as proof that, over the long haul, the only lasting standard of value in any market is quality itself. Said Air Force Secretary Hans Mark of the Pentagon's decision to award the cruise contract to Boeing: "Both contractors turned in good products. The differences between the two designs were small, but they were significant enough to make a good, firm decision. Boeing's system is better."

The contract calls for 3,418 of the 20-ft. 9-in. missiles to be delivered to the Air Force between now and 1989. Boeing will produce 225 of the weapons, at a cost of $141 million, during the current fiscal year, and output will be boosted to 480 during fiscal 1981. At least half of the $4 billion deal will go to about two dozen other defense contractors to provide parts and equipment. The Pentagon could ultimately decide to invite General Dynamics or other competitors to use Boeing's own design and build at least some of the missiles.

The perhaps $2 billion in increased revenues that the company is expected to earn as the project's overseer and prime contractor comes at a time when the firm is already in an updraft of high-flying riches. From $5.5 billion in 1978, Boeing's sales climbed 49% in 1979 to a stunning $8.1 billion. Profits rose proportionately even more, to $505 million, an increase of 57% over the previous year. In the past two weeks alone Boeing has sold $1 billion worth of planes to airlines as diverse as Ansett in Australia, Cathay Pacific in Hong Kong and Western in Los Angeles.

Most of the bonanza has come not from defense work at all but from civilian contracting. Boeing has always been a vitally important supplier of high technology to the Pentagon, having produced, among other things, the Minuteman missile, the AWACS (airborne early warning radar system) and a space tug to carry satellites in NASA's Space Shuttle program. Other aerospace competitors, like McDonnell Douglas and Lockheed, do far more defense-related business. Boeing last year drew only about $1.5 billion, or 17% of total revenues, from Government contracts.

Company executives hope that the cruise will now be a harbinger of more Government business. Even though the House Armed Services Committee last week voted to block funding of the Pentagon's $6 billion to $7 billion C-X transport plane program planned for the mid-1980s, engineers are at work on designs and mockups. The new plane would be used for the rapid transport of forces to hot spot areas like the Middle East. Says

Boeing's Lionel Alford, president of the company's military plane division: "Boeing hasn't really built a military plane since the B-52, but we damn well still know how. We're going after that CX, just watch us. We'll come down the gulch thundering."

One reason that Boeing wants to boost its defense business is that the civilian economy is probably moving into turbulent weather. The Government in such a situation can provide a planemaker with a back stop of orders if and when the airlines start postponing plans to buy new planes. A precipitous, and wholly unexpected, plunge in orders is in fact exactly what happened to Boeing in 1969, just when the firm was preparing to launch its new 747s. Company employees still wince at the resulting bloodbath.

Heady with the euphoria of the early jet age in the 1960s and expecting one or more big Government contracts like the C-5A transport plane, the TFX fighter aircraft or the SST supersonic, Boeing grew fat and sloppy. Seattle's nickname for the firm was particularly apt: "The Lazy B." The company plunged ahead anyway and kept turning out short-haul 737 and 747 jumbos amid bottlenecks and shortages. Then the market collapsed due to the 1969 recession and earnings slumped, from $83 million in 1968 to $10 million the following year. Boeing in the late 1960s was becoming the Chrysler Corp. of its day.

The company was clearly headed for disaster in 1968, when Engineer "T" Wilson succeeded Lawyer William Allen as president. Allen had been renowned as an aerospace gambler because of his high-stake bets on the development of Boeing's full line of first-generation passenger jets, the 707, 727, 737 and 747.* Wilson decided that only quick and painful surgery would save the company. He slashed the number of Seattle-area employees from 105,000 to a low of 38,000, shuffled 1,800 members of the top-heavy corporate staff of 2,000 out to field offices and dispersed decision-making power to the company's separate divisions.

Discharged Boeing workers soon dotted the landscape, often having to move elsewhere or accept jobs, when they were available, of much lower rank. Engineers became car-wash jockeys and opened dry-cleaning shops.

As traumatic as the upset was for Boeing, however, it was equally painful for the city of Seattle. With the Puget Sound's largest single employer facing ruin and the tarmac at Boeing's Everett assembly plant, the biggest such plane factory in the world, choked with unsold jumbo jets, Seattle's entire economy went into a slump. A grimly cynical highway billboard on a road heading out of town summed up the prevailing gloom: "Will the last person leaving Seattle please turn out the lights?"

But Wilson's stern actions pulled Boeing out of its dive. With improved operating efficiency, a slimmed-down work force, and the seemingly irresistible lure of the company's planes, the firm began to right itself. Productivity, which was slumping in the rest of the economy, rose spectacularly. In 1969 it took 25,000 Boeing workers to turn out seven 747s per month; today it takes 11,000. Sales and income started on a vertical path that has not yet ended. Last year's earnings of $505 million more than doubled 1977's already impressive $180 million.

The most dramatic gains of all have come in the company's bulging commercial order book. Production was stepped up 47% during 1979 in the company's main commercial manufacturing plants at Everett and Renton. But the backlog of unfilled orders has nonetheless swelled from $11 billion at the end of 1978 to some $18 billion now. New Boeings are being wheeled out of production hangars at a rate of 28 a month, a breathless clip that is more than three times the pace of rival McDonnell Douglas. With commercial orders overflowing and the cruise contract now in hand, Boeing expects to add some 5,000 more employees in the next couple of years. To get skilled people, Boeing recruiters have scoured the nation, promising good salaries to anyone with a solid background in high technology who would be interested in relocating to Seattle. Example: tool and die makers earn a minimum of $ 11.34 per hour.

The city of Seattle is one of the biggest draws that Boeing has to offer. Though its seasons seem perpetually drizzly and Puget Sound's reputation for rain, fog and cradle-to-grave mildew is widespread, Seattle actually has less annual precipitation than New York City, Atlanta and even Houston, a fact that civic boosters take endless delight in pointing out to new arrivals. The region also offers the quiet self-confidence of a major metropolis, complete with civic center, a nationally recognized opera, ballet and theater, and the National Basketball Association champion SuperSonics.

Most of all, Seattle is where one goes to be dazzled by some of the most spectacular big-league nature found anywhere. With Puget Sound on one side and Lake Washington on the other, the city is a panorama of pleasure boaters, skyscrapers, the 1962 World's Fair Space Needle and, looming 60 miles to the southeast, the snow-peaked volcanic cone of Mount Rainier.

Boeing employees enjoy the good life in the city that regularly tops the list of the nation's most livable communities. Said one Boeing driver: "The wife and I always go directly from work to the marina after I get off." At the Boeing ski lodge, located on nearby Crystal Mountain, an employee's family of six can rent rooms for $30 per week. The company also provides an elegant jogging track and an indoor sports complex.

Ultimately, however, Boeing's appeal has less to do with the ambience of the Pacific Northwest than it does the quality of the planes that the company builds. They are the best, safest, most efficient aircraft anywhere. Boeing has earned the reputation of doing everything first class. The company's engineers are the most innovative and imaginative, its sales force the most dedicated, its service staff the most professional. What is more, everyone who has anything to do with buying, selling or flying commercial jets knows it. Says an executive of West Germany's national airline, Lufthansa, which has been flying largely Boeing aircraft since the start of the jet age: "There is no secret at all about Boeing's success. The company just keeps coming up with the right plane, at the right time, at the right price."

The firm remains first and last a planemaker nonpareil. From the day in 1958 when the first 707 rolled out of the Renton hangar, near Seattle, for sale to its first commercial buyer, Pan Am, Boeing and passenger-jet travel have been inseparably linked. Boeing is on its way to becoming as synonymous with passenger jets as is Kleenex with facial tissue. Not even IBM, with its dominance of the computer business, seems more universally linked in the popular imagination to the products it sells. Indeed, of 6,050 or so passenger jets constructed by major Western manufacturers, some 3,600, or 60%, were built by Boeing. The workhorse of the entire fleet, and by far the most successful passenger jet in aviation history, is the 727 tri-jet. For years this plane has been regarded as the most economical medium-haul passenger jet an airline could fly. Boeing has delivered 1,594 of them since the aircraft was first introduced in 1964. Boeing's Jumbo Jet 747, with its enviable safety record, as compared with the troubled DC-10, also reigns in the market for wide-bodied jets. There are now more than 400 Jumbos in the air.

So enormous has Boeing's worldwide presence grown that the company's overseas sales of planes and spare parts last year totaled $4 billion, or 4% of all U.S. manufactured exports. Without these sales from Boeing, the nation's trade deficit, which in February increased to the largest monthly shortfall in U.S. history, $5.6 billion, would be even worse than it is already. The odd couple of agricultural products and jet aircraft are this nation's two most important exports.

Boeing plans to keep its hammer lock on world commercial aviation with an offering of two new fuel-efficient and quieter aircraft for the 1980s. The two new planes:

757: Airlines so far have ordered 42 of these twin-engine planes, which will seat 178, fly up to 2,200 nautical miles. The plane is designed to replace the 727 on short routes.

767: This twin-jet widebody, which will be a sort of mini-Jumbo for the medium-range market, is a runaway bestseller. The company already has 148 firm orders and an additional 128 options on the jet, which will carry 211 people up to 2,900 nautical miles. It will begin regular commercial service in 1982.

Earlier Boeing had planned to add another plane, the 777, to that group. The aircraft would have been a three-engine, long-range, wide-bodied jet. Though the plane was designed to carry about 260 passengers, the initial market reaction was weak, and the 777 was placed in what could well turn out to be a permanent holding pattern.

Wall Street analysts estimate the potential size of the new jet market for the mid-to late 1980s to be a staggering $130 billion. Though both McDonnell Douglas and Lockheed are hoping to skim off a slice of the business with modified versions of their DC-10 and TriStar wide-bodies, only Boeing has two completely new aircraft to offer. Moreover, with so much of the worldwide passenger-jet market already in its grasp, the company is expected by analysts to have little trouble cycling its new planes into airline fleets. In effect, the momentum of success is almost unstoppable.

For all that, Boeing still faces a tough fight to put over its new generation of planes. The sharpest competition, though, is likely to come not from McDonnell Douglas and Lockheed but from the German-French-British-Spanish consortium that has developed and is intensively promoting the two-engine A310 Airbus. In size and capabilities this is the direct challenger to the 767.

Though the 250-seat, medium-range Airbus is selling well in Europe, where its range and fuel efficiencies are ideally suited to the relatively short-haul routes between Continental capitals, the plane has not yet caught on in the U.S.; Boeing is fighting furiously to keep customers from being lured away. So far, only Eastern has bought the Airbus, largely as a result of almost giveaway financing terms. Last December the Europeans lost out on what they had been hoping would be a major penetration of the U.S. market. After heavy wooing by Airbus salesmen, TWA finally bought ten Boeing 767s for $500 million.

Engineering remains the secret of Boeing's success in the commercial aviation market but a cause of some difficulty in the defense business. Though all passenger jets must meet rigid safety and design standards before virtually any nation will allow them to fly, the engineering and design teams at Boeing seem to take a special delight in going the extra mile to produce planes of unquestioned technological superiority. Example: instead of the normal two or more fail-safe hydraulic systems that most jets come equipped with, Boeing's 707s and 747s are laced with four separate ones. This technology has been nicknamed Boeing's "suspenders and belt" engineering: always have a good backup on everything, even the method of holding up a pair of trousers. That can be a disadvantage in bidding on Government contracts, where low cost often wins out over high quality. This has hurt Boeing in competing for such military-jet contracts as the TFX fighter and the C-5A cargo plane. But in civilian aviation, Boeing's approach and the resulting safety are just what the market orders.

Boeing's planes have a reputation among pilots both for ease of handling and safety. When the 747 Jumbo Jet was launched in 1970, insurance actuaries forecast three crashes in the first 18 months of flight. In ten years there have been only five Jumbo Jet accidents, and three of those may have been due to pilot misjudgment.

Last April a Boeing 727 carrying 87 persons on a flight over Michigan proved that the company builds its planes to stay in the air. In a still not fully explained incident, the plane flipped over and then went into a nosedive that took it from 39,000 ft. to 4,928 ft. at a speed approaching that of sound--but then was landed safely. Said Langhorne Bond, the astonished head of the Federal Aviation Administration: "The miracle is that the plane held together under such extraordinary speed and circumstances."

When it comes to some of Boeing's more exotic designs, it seems equally miraculous that the planes could even fly at all. Boeing has designed a flying wing craft, the 907, for the year 2000 that would be by far the largest heavier-than-air plane. The 1,000-passenger and cargo behemoth would be 2 1/2 times the size of a 747. The eight-engine jet, which so far consists largely of table-top models and computer printouts, would be able to take off and land at conventional airports. But passenger terminals and loading areas would have to be redesigned and enlarged to accommodate them.

More than just state-of-the-art and solid engineering sets Boeing apart in the eyes of its customers. Says Derek Davison, managing director of Britannia Airways, a small Luton, England-based charter operator that owns 22 Boeing 737s and plans to add three more later this year: "In the end, a large measure of the thinking in our decision to go ahead with the 737 rested on the confidence we had in the people at Boeing. The most important thing about them is that you can trust them. They take the long view: never try to pull off a deal on information that could lead to misunderstanding. They are better salesmen because they are better professionals."

Adds Michael Carter, manager of corporate strategy for British Caledonian Airways, the largest private airline in Europe: "In our personal relations with Boeing salesmen, we find them less hard-sell-oriented as individuals. Their style is not so frantic, not so aggressive as others'. They do not oversell their product--maybe because they do not have to."

In their somber suits, wingtip shoes and ties with muted stripes, the Boys from Boeing all look as superficially indistinguishable from one another as would a planeload of astronauts. But to their customers and clients, the company's world-wandering force of sales and service reps is a repository of invaluable information and background data on an airline's particular needs, problems and aspirations. Explains Donald Lloyd-Jones, American Airlines' senior operational vice president: "Technically, Boeing is very competent, but so are Lockheed and McDonnell Douglas. The major distinction is the excellent sales force. They have salesmen assigned to customers who represent the customers' needs to Boeing as much as sell Boeing's planes to the customers. The result is that people develop a great deal of faith that Boeing will do what it says and is leveling with them."

By far the most successful commercial airplane salesman in the world is E.H. ("Tex") Boullioun, 61, president of the Boeing subsidiary responsible for commercial sales and programs. Since he joined the company during World War II, he has signed up so many billions of dollars in deals with airlines that he no longer bothers to keep track. His latest coup: a $550 million contract three weeks ago for 727s, 737s and five 767s for Australia's Ansett Airlines.

On the road an average of 200 days a year, Boullioun has become as much an expert in the techniques of air travel as in the qualities of the planes he sells. His best advice: Drink a lot of water and don't eat food. To give himself more leg room and use his time more profitably to get work done, he sits whenever possible in an aisle seat and never volunteers to exchange business cards. He is wary of the judgment-distorting dangers of jet-lag fatigue and rarely signs a contract on the same day that he travels through multiple time zones, whether east or west. On the other hand, he does not hesitate to strike a deal upon deplaning from a north-south trip where there are no time-zone changes.

Boullioun is, in an almost literal sense, a one-man sales force, not merely drumming up deals on his own initiative but also parachuting in to stroke a wavering or reluctant customer if an assistant should call for help. Example: last December he learned that TWA was leaning toward the European Airbus over the 767. Boullioun arranged for his management team to produce in-house analyses of the operational performance data TWA was working from and concluded that the airline's research was "inaccurate." After a quick and thorough updating of Boeing's presentation, he added a pledge that if the 767 did not get 35% better fuel economy than the Airbus, Boeing would pay penalty costs. TWA swung around and signed for Boullioun's plane.

Boeing has also won an enviable service record to back up its sales. Its maintenance teams and spare-parts pallets from Seattle turn up anywhere around the world quickly whenever the company's planes develop problems. Says British Caledonian's engineering director, William Richardson: "We can signal that we need a part on Monday afternoon, and it will be in London on Tuesday morning."

Richardson relates an experience familiar to just about every airline executive who has suddenly found himself in need of service and spare parts to get a grounded Boeing back on line. Part of the fuselage wiring in a 707 cargo plane that British Caledonian was operating under lease from another company shorted out and caught fire during loading at Britain's Gatwick Airport outside London and had to be replaced before the plane could fly. Boeing sent in a "recovery crew" from Seattle, which took on the job like a team of open-heart surgeons. Not only did each man know exactly what he had to do, but the team's tools, right down to the smallest wrench, were arranged with such precision that no time was lost in looking for or using them.

For all that, not everything that Boeing touches takes off. The firm, in fact, seems to lose its fine engineering magic when it strays from aerospace technology. It ran into difficulties when it tried to diversify into land transportation in the early 1970s. Its $120 million computer-controlled mass-transit system in Morgantown, W. Va., has been plagued with engineering and operational problems from its inception, though company officials contend that the problems have at last been ironed out. Boeing transit equipment in Boston and San Francisco has also proved faulty; in 1979 the company got out of the subway and streetcar business altogether. Likewise, Boeing's attempt to adapt its jet-engine experience to marine transportation is losing money. The company has yet to find a buoyant market for its hydrofoils, which skim over the tops of waves on aquatic skis.

Nor has Boeing been entirely free of the corporate scandals that have plagued much of Big Business in recent years. In 1978 Securities and Exchange Commission investigators charged that the company paid excessively large and overgenerous sales commissions of more than $50 million to airlines in return for plane orders.

In addition, company executives working on plans for the Air Force's MX missile program were lax in observing security procedures for secret documents. Last year Boeing's Washington representative, James O'Rourke, foolishly sent some classified papers via telecopier over an open telephone line. Though there is no evidence that the data fell into Soviet hands, several Boeing officials last year lost their security clearances because of the serious snafu. This was a distinctly out-of-character slip for an otherwise ultraprofessional company.

In the age of jet travel, when distances between cities and continents are more appropriately measured in hours of flight time than in miles, the Boys from Boeing keep pushing back the frontiers of the future by relying on the time-tested values of an earlier age. Dedication to craft and a commitment to excellence have made the Puget Sound planemaker the world's undisputed aerospace leader. The fundamental secret of its space-age success is really quite simple: back to the basics of engineering, sales and service.

*The missing "717" is actually Boeing's military version of the 707, or KC-135 tanker.

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