RENTON, Wash. – Six and a half months into his tenure as Boeing Commercial Airplanes’ president and CEO, Kevin McAllister is mindful of the challenges that lie ahead for one of America’s top manufacturers – and draws upon a cautionary tale from his childhood in America’s industrial heartland.
McAllister grew up in Bethlehem, Pa., and remembers well what happened to Bethlehem Steel. The company was once America’s second-largest steel producer, but it went bankrupt in 2001 and faded away, along with much of the nation’s steel industry.
Today, the site of Bethlehem’s shut-down plant is a city park. But in his office, McAllister keeps a painting of the mill as it looked in its heyday.
“It’s kind of corny,” the 53-year-old admitted last week at Boeing’s offices in Longacres Industrial Park, during his first extended “meet the press” session as a Boeing executive. “It’s just a reminder that as a company we’ve got to reinvent ourselves every day.”
McAllister says Boeing Commercial Airplanes is doing that, thanks in part to the legacy of his predecessor, Ray Conner, who handed over the reins last November. “I’m blessed to follow in his footsteps … but I think we’ve got to continue to find ways to grow our competitiveness,” McAllister said.
Competitiveness. That’s the key challenge for McAllister and other Boeing executives, going all the way up to Dennis Muilenburg, the company’s overall chairman, president and CEO.
When Muilenburg announced that McAllister was coming over to Boeing after spending 27 years at GE Aviation, he said “we still see commercial airplanes as a growth business … but as I think you’re aware, today we enjoy a 50 percent market share in that business.”
Today Boeing is neck-and-neck with Airbus, its European archrival in the commercial airplane market. To keep the price of its planes competitive with Airbus, Boeing is in the midst of a grueling campaign to cut costs – which means reducing headcount.
Even before McAllister joined the company, Boeing Commercial Airplanes’ 80,000-strong workforce was in the throes of what worked out to a reduction of more than 8 percent for 2016. And the workforce is continuing to shrink, by 3 percent so far this year.
McAllister addressed the job reductions and the outlook for airplane sales, among many other topics, during his hourlong encounter with reporters last Friday. Boeing organized the meeting as part of a two-day press tour in advance of this month’s Paris Air Show, on the condition that the information would be held for release today.
Here are 10 sound bites from our meet-up with McAllister:
What’s the market outlook: McAllister says he’s encouraged by the balance between air traffic growth and growth in airline capacity for the first quarter of 2017. “To see traffic growth at 7 percent and capacity growth at 5.5 percent is a good indicator of the supply-demand balance in the industry,” he said. North America is showing relatively slow but balanced growth, the Middle East is a hotter market, and “the pacesetters so far this year” are Europe and the Asia-Pacific region.
How’s the long-term sales outlook? A “pretty big replacement cycle” should start in about 2021, when Airbus’ A330 jets and Boeing’s 777-200ER’s and 777-300ER’s reach retirement age. That’s just about when Boeing’s 777X deliveries should be hitting their stride. “This is a very healthy industry for us in the long run to look at,” McAllister said.
What’s the next plane on the horizon? There’s been lots of talk about creating a new breed of twin-aisle jets with roughly 220 to 270 passenger seats to replace aging 757s and 767s. It’s variously known as the middle-of-the-market airplane, or MOM; the new midsize airplane, a.k.a. NMA; or just the 797. Whatever you call it, McAllister sounds bullish about building it. “Now the work is around how do we do it, and how do you do it in a way that fits the business plan. We’re putting a lot of work as a team in a weekly rhythm to go figure out how we get there.” Eventually, the plan will have to be presented to Muilenburg and Boeing’s board for their approval. If they give the go-ahead, the plane would enter service in the mid-2020s.
How is Boeing improving efficiency? McAllister touted “champion time,” a program in which teams of workers compete to see who can get a designated job done more quickly. “Why do we do it faster 25 percent of the time? … I think analytics and digital is a big piece of my background in the services business at GE. I think it’s a big opportunity here to learn faster about what gives us more speed, what gives us higher quality, what drives productivity in the organization.”
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What are digital sprints? McAllister said Boeing recently held a hackathon to come up with better solutions to engineering problems, and is encouraging its data analysts to take on digital sprints. “The idea of a digital sprint is to take a data scientist and get them plugged right into a real problem – not a big problem, but a simple problem on the floor in our engineering community – and launch a digital app, an application that solves that issue or puts the right data in the hands of the operators in 30 days or less. … It’s driven a lot of energy into the business.”
What about those job reductions? “I certainly don’t enjoy reducing headcount. It’s not something I wake up in the morning feeling good about. But the reality is, when we took the 777 production rate down, we had to make a reduction in headcount. I think we’ve done it in the right way … the vast majority we’ve done voluntarily, with a very small amount of reduction of force involuntarily.” McAllister suggested that the cutbacks may not be finished: He said has a cost-reduction target to shoot for, but “I don’t have a headcount number at the top of my head.”
Will suppliers feel the pinch, too? “We have to have the same accountability in the supply chain as we have in our business for productivity, for cost competitiveness. We have some suppliers that are doing a terrific job, that are very focused on building capability for the future, and others that are less so. … Look, there’s choice in the market.”
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Will Boeing stay in the Puget Sound region? “I’ll tell you, having the chance to walk the floor of Renton, of Everett, of Auburn, I see some tremendous people that want to win. I think we’ve made big investments here. We’ve got great capability here, and we’re just going to continue to make it better. I found an energized workforce that wants us to make things simpler, that wants to make things faster, and that is pretty committed to winning in the marketplace.”
Has McAllister run into negative feedback from employees? “I’ve been bathed in it. I’ve been bathed in very positive feedback, and not-so-positive feedback, but all constructive. Look, I’ve given feedback back, too. … I may not like their view, but I owe them honest feedback back, and I owe it to them to find a nugget of truth and get someone to follow up on it. … I’ve found accountability is a great energizer.”
What’s McAllister’s focus going forward? “Continuing to improve the competitiveness for the company as a means to fund our future. It’s not lost on me. I tell you, it is not lost on the 100-year legacy of this company, and the responsibilities that all of us have to drive the next 100. I think the way we do that is … we connect the dots, we connect our people, we simplify our business, we drive faster decisions, and we ride on that great technology path that we have in the company.”