Ray Conner, the CEO of Boeing Commercial Airplanes
Originally posted on WSJ by Jon Ostrower
The 99-year-old aerospace giant long has focused on developing new technologies that it reserved for big projects every 15 years or so to craft the fastest—and farthest-flying jetliners—such as its 787 Dreamliner.
Today, Boeing is centering innovation on incremental improvements that it can deliver more quickly to airlines with greater reliability and at a lower price, said Ray Conner, chief executive of Boeing’s commercial airplane unit, in an interview.
Mr. Conner is overseeing the development of seven models to upgrade Boeing’s portfolio of jets with capacities from 125 seats to just over 400 seats, plus a new military refueling tanker. The updated products are adapting some of the technologically advanced features of the Dreamliner to models that have long been in production.
“It’s not to say you don’t innovate,” said Mr. Conner. He wants engineers “innovating more on how to [design jets] more simplistically, as opposed to driving more complexity,” he said. “How do you innovate to make it more producible? How do you innovate to make it more reliable?”
The shift reflects how sharply the industry has changed. Boeing Chief Executive Jim McNerney last year declared its era of technological boundary-pushing “moon shots” over. Airlines, he concluded, don’t want to pay more for advanced technology.
Saving up a host of advanced technologies for a single new project has proved too expensive and disruptive.
Mr. Conner likened the current landscape for selling jetliners to Apple Inc.’s iPhone. The smartphone’s starting retail price of $199 with a cellular contract has remained relatively consistent since its second model in 2008, even as each iteration is more capable.
Boeing’s formula is aimed in part at reversing market-share losses to rival Airbus Group NV. Both companies have experienced a boom, as fast-growing airlines in Asia, the Middle East and South America and carriers with aging fleets in the U.S. and Europe have driven orders for some 5,800 jets worth $440 billion at contract prices. However, Airbus, which has generally had a more incremental approach to new planes, has eroded Boeing’s share of the high-volume market for single-aisle jets.
Few are more familiar with Boeing’s approach to jet making than Mr. Conner, 59 years old. He started as a unionized machinist in 1977 not far from his current corner office here and held a range of jobs before taking over the commercial airplanes operation in 2012.
With the Dreamliner, Boeing revamped not only the design of a modern jetliner, but how it’s built. The plane boasted a mostly carbon-fiber structure and advanced electrical system that replaced many pneumatic and mechanical functions.
Design problems and an unprepared supply chain caused huge cost overruns and a 3½-year delay before delivery of the Dreamliner in September 2011. Boeing’s investment in the 787 program is now approaching $50 billion, estimates Barclays Capital analyst Carter Copeland, including research-and-development costs, new facilities as well as acquisitions of struggling suppliers. Boeing isn’t expected to start making money on a per-unit basis until next year, though the aerospace company reports the program as profitable based on its accounting method, which spreads the high early costs over many years.
“Don’t judge our future by what’s happened on the 787,” said Mr. Conner.
Boeing’s new approach extends to every corner of its operations. It is aggressively trying to renegotiate contracts with suppliers, which account for about 65% of its jets’ costs. Its push toward faster, better and cheaper production led Boeing in 2013 to tap Walter Odisho, a former head of Toyota Motor Corp.’s U.S. auto production to run manufacturing. The company has long looked to the Japanese auto maker for improving its processes, which are becoming increasingly automated. Both efforts helped the company save $1 billion last year, Boeing said.
Research-and-development spending by Boeing’s commercial unit ticked up slightly last year to $1.88 billion, or about 3.1% of the unit’s revenue—below the nearly 16% in 2009 when R&D spending increased as it struggled with the Dreamliner and a revamp of its 747-8 jumbo jet.
Boeing’s more pragmatic approach also comes as it ramps up jetliner production to unprecedented levels. It expects to deliver 750 to 755 jets in 2015, topping last year’s record, and that number could climb to more than 900 late in the decade if demand holds. A decade ago, by comparison, it delivered 290 planes a year.
Mr. Conner said Boeing’s priority now is completing its current slate of projects on time and on budget. The seven projects include a new version of its 777 with composite wings, and upgrades of its single-aisle 737s with new engines.
That doesn’t mean the company has given up on the idea of creating an all-new model.
Mr. Conner said Boeing is polling customers to help conceive a new jet that seats more people than its single-aisle 737s, but doesn’t have the long range—and resulting extra weight to carry fuel—of the Dreamliner.
Mr. Conner said the company isn’t likely to repeat the business model that created the Dreamliner, but is open to a large strategic partner to share the development costs.
“These are things I think about all the time,” he said.
One goal, he said, would be to design any new jetliner so its technology and production system could be scaled to eventually create a second family of planes, like its 737, which has been in continuous production for nearly a half century.
“I think our job is make sure we totally understand what the customers are looking for and working on our ability to go execute” on a viable business case, said Mr. Conner. “And we will do that. We will flip the switch when it needs to happen.”
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