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Condit steered Boeing to be No. 2

By Dominic Gates
Seattle Times aerospace reporter

	ROD MAR / THE SEATTLE TIMES Since Phil Condit took charge of Boeing in 1996, he took the company on a diversification and acquisition spree, helping its sales from $23 billion to $54 billion last year. He resigned yesterday.
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In his seven years, Phil Condit transformed Boeing utterly.

His legacy is still uncertain, but as he exited his post yesterday one number seemed to leap from the record: No. 2.

When Condit took charge in 1996, Boeing dominated the airliner business with a 65 percent market share compared to Airbus' 30 percent and McDonnell Douglas' 5 percent. Defense was a sideline.

Today, Boeing has risen to be the No. 2 U.S. defense contractor. And this year, for the first time since the jet age began, Boeing will be the No. 2 maker of commercial airplanes.

Under Condit, Boeing has grown enormously, from $23 billion in sales to $54 billion last year. That transformation and growth was driven by Condit, who in the mid-'90s decided that the airplane-making business was too mature to deliver the sort of growth that would excite investors and pump up the stock.

One extra spur to the diversification: In 1997, Condit almost lost his job when Boeing managed to lose $178 million on sales of 546 aircraft because of mismanagement and production problems in Renton and Everett. (Last year, the commercial side built only 251 planes but made $2.8 billion in operating profit.)

Related stories · Board loses its last NW tie · Condit steered company to be No. 2 · No sizzle for Boeing's shares · 2003 wasn't a good year · New CEO backs 7E7 PROFILES: · Condit liked in community · Stonecipher to rule with 'soft touch' · New chairman a 'straight shooter' STEPHEN DUNPHY: · Stonecipher a bad choice REACTION: · Statement to employees · What people are saying

Condit decided to drive into defense and into space. "We knew that commercial airplanes was going to be a capital goods, cyclic industry," said Condit in an interview yesterday from Chicago. "We needed breadth."

He went on a spending spree.

In 1996, Boeing acquired the aerospace and defense units of Rockwell Collins, including Rocketdyne, which builds space rocket engines.

In 1997, Condit took his biggest step, merging with McDonnell Douglas, acquiring military aircraft and missile assets as well as the Delta space-rocket program.

In 2000, Boeing acquired the satellite division of Hughes electronics.

That same year, it acquired three smaller companies — Jeppesen, Continental Graphics and the Preston Air Group — all of which added high-tech information and aviation data service capabilities.

Boeing borrowed billions to grow its finance and leasing unit, Boeing Capital. It invested heavily in ventures to provide Internet access on airplanes, to transform management of air traffic control data, and to beam digital movies to cinemas around the country via its satellites.

It won, in 1999, a multibillion-dollar contract to build the next-generation U.S. spy-satellite network.

In a 2000 press release, Boeing described its new space and communications unit as "the one with the highest growth potential in the new information-based economy."

But in 2001, the Internet bubble burst. The commercial-space sector collapsed to such an extent that Boeing withdrew from the commercial-launch market this year and projected only military rocket launches for the foreseeable future.

Last month Boeing closed its digital cinema business, for which it had once projected $1 billion a year in revenue. It also announced that it was shelving plans the transform Boeing Capital into a growth unit that would finance nonaviation projects.

Boeing's performance in its new businesses was an issue, too.

In January, the Pentagon described the company's plan for the super-secret spy satellite system as "not executable" and poured in an extra $4 billion to salvage the program, which is now in danger of being downgraded to an interim system.

Meanwhile, the atrocities of Sept. 11, 2001, delivered a massive hit to the already struggling airline industry, and Boeing's traditional business of making airplanes in Seattle nose-dived, too.

With all the focus on increasing shareholder value and driving for high-tech growth, during the market bubble the company stock had soared above $60 from $38 when Condit became CEO. Boeing's stock ended yesterday at $38.02.

But Condit robustly defended his strategy.

In April, at the 2003 annual shareholders meeting in Chicago, he compared the old Boeing commercial-aviation profile to the new.

"What would this meeting be like today if we had that profile and had failed to broaden the company?" Condit asked rhetorically. "Could we survive, let alone prosper?

"Fortunately, we look very different," he went on. "Today your company is a billion-dollar-a-week company with a better-balanced portfolio mix. This better balance has helped us prosper during the most severe commercial-airline downturn."

Yesterday, at a news conference to discuss Condit's departure and the ascension of Harry Stonecipher to the top executive spot, both men expressed an unshakeable faith in the direction that Condit had set.

Lewis Platt, the new Boeing chairman, said that Stonecipher would now be responsible for implementing what Condit had spearheaded, which he described as "the visionary transformation of Boeing into a global aerospace company."

"I'm proud of the strategy to transform Boeing," Condit said.

"We think we have the right strategy," Stonecipher echoed.

Yet critics debate whether that strategy has endangered the original Boeing business. Union leaders in Puget Sound are among those who say the shift has meant less investment that has cost Boeing in its competition with Airbus.

"I've been disappointed in the direction the company has been going in," said Mark Blondin, president of district 751 of the International Association of Machinists. "A lot of people over many years built this company and made it number one. They're a loyal dedicated and skilled group. They've been overlooked and abandoned this last few years."

"I don't know if Boeing has a direction. Do they?" said Bill Schultz, president of United Aerospace Workers Local 148 in Long Beach, Calf. "There are several major programs that they were going to go forward with and decided not to do it."

Analyst Richard Aboulafia of the Teal Group believes that Condit's strategy was heavily weighted on the military side and was successful only because of the increase in defense spending that followed 9-11. "It wasn't diversification," said Aboulafia. "It was redirection."

Others disagree that the commercial side has suffered, and point to the company's seeming resolve to go ahead with the 7E7.

"I don't think the focus on the military has in any way distracted them from the commercial side," said Bob Toomey, an analyst with RBC Dain Rauscher in Seattle.

Condit rose to prominence at Boeing as chief engineer on a cutting-edge new airplane program, the 757. His legacy and the future of Boeing's traditional core may now rest with the next-generation plane — the 7E7. If the company goes ahead with the new plane and if it succeeds in the face of massive competition from Airbus, Condit may yet look like a visionary.

He'll have steered the company toward broader horizons and still delivered another new jet within a core business that should recover well and might even aspire to be No. 1 again.

If the company fails to produce the 7E7, or if Airbus sinks it in the market, that'll effectively be the end of the original Boeing company.

Either way, Condit will be the one responsible.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

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