Boeing's Plan to Smooth Bumps Of Jet Market Hits Turbulence
In mid-July, officials at Boeing Co. headquarters in Chicago summoned the head of Boeing's vast space and defense division, James Albaugh , for an emergency meeting.
The problem: Internal auditors, trying to close the books on the company's second quarter, discovered that the division had overestimated how much revenue would flow in from commercial satellites and rocket launches.
The gap, at first appearing to be $200 million, "kept getting bigger and bigger" during several days of tense meetings -- including a shouting match between Mr. Albaugh and Boeing's chief financial officer, Michael Sears -- according to people familiar with the situation. When the meetings ended, Boeing announced it would take a $1.1 billion charge to reflect the much-weakened commercial space market. It meant a Boeing loss for the quarter and maybe for all of 2003, officials said.
During a conference call to announce the charge in mid-July, Chief Executive Phil Condit expressed "surprise" at the magnitude of the charge. The financial hit came just six weeks after an investor conference at which Mr. Albaugh had assured investors that problems with the space operations were under control. After announcing the charge, Mr. Condit ordered a member of his Office of the Chairman to oversee daily operations of the space and defense operation.
Days later, the division suffered another blow when the Air Force stripped away about $1 billion in current and potential rocket business. Boeing had been caught holding thousands of pages of a rival's proprietary documents during competition for a big military contract. The rival, Lockheed Martin Corp., is suing Boeing in Federal District Court in Orlando, Fla., and a federal criminal investigation has led to two indictments of former Boeing managers.
On top of all this, delays and cost overruns continue to plague Boeing's satellite business. And a commission studying the February space-shuttle disaster is expected Tuesday to criticize the company, which has a major role in operating the shuttle.
The gaffes expose fault lines in Boeing's ambitious plan to become a defense and space powerhouse. Investors and some inside Boeing have questioned whether the company, in its quest for an antidote to the vicious cycles of commercial aviation, has moved too aggressively to embrace defense and commercial satellites as its main growth engines.
The setbacks also complicate Boeing's succession plan. Mr. Condit has said he plans to retire in 2007 when he turns 65. Mr. Albaugh, 53, considered a contender for Mr. Condit's job, now appears to be struggling to keep his own, according to investors, Wall Street analysts and industry executives.
Capital Research & Management Co., one of Boeing's biggest shareholders, which more than doubled its stake by adding 15.7 million shares during the second quarter, grilled CFO Mr. Sears last month about the problems plaguing Mr. Albaugh's business, people familiar with that conversation said. A spokeswoman for Capital Research declined to comment; a spokesman for Boeing said it doesn't talk about conversations with individual investors.
Mr. Condit was furious with Mr. Albaugh for failing to alert him about the potential for a major charge against earnings, according to people familiar with the situation. In an interview, Mr. Condit acknowledged his unhappiness at having to surprise his board and Boeing's investors, but he said that Mr. Albaugh has his "full" support. "The easiest thing to do here is to replace Jim. I'm not going down the easy road. I'm going down the road that creates the most value for the company," he said. Ultimately, Mr. Condit said, blame for the division's problems must be spread around. "That includes me and that includes Jim," he said.
Mr. Albaugh's "Integrated Defense Systems" division -- formed in 2002 when Boeing lumped together military aircraft, missiles, commercial satellites and rockets -- is a behemoth the size of a Lockheed or a Northrop Grumman Corp. But it lacks those companies' well-established management infrastructure, sometimes resulting in confusion, people both inside and outside the company say. As an example, Mr. Albaugh designated individual managers to be in charge of the division's dealings with each military service and government agency. Previously, the head of each Boeing program had dealt directly with the agency that funded the program. Still, some customers and Boeing managers have continued to deal with each other instead of through the newly appointed agency liaisons.
"Any time you make a change, you have some folks who don't understand the rules of engagement," Mr. Albaugh said in an interview. He acknowledged that his division faced hurdles its first year, including management confusion and financial surprises. "Are we where we need to be? No. But taking two businesses and putting them together" isn't easy, he said. He stressed that the unit is on the right track.
Even though the defense unit will provide more than half of Boeing's $49 billion in revenue this year for the first time, the company's commercial jet operation is expected to be the one that turns a profit. Nonetheless, company leaders say cash flow from the defense business remains critical to keeping the rest of Boeing running, including funding a new, more fuel-efficient commercial jetliner. "Otherwise," says Mr. Condit, it would be "an impossible situation."
Boeing first began shifting attention to defense and space in the late 1990s, even before its jetliner business was plunged into its current slump by a weak economy, terrorism and competition from Europe's Airbus. By contrast with jetliners, demand for satellites for telecommunications seemed poised to explode. In addition, U.S. defense budgets were recovering from their post-Cold War drop-off. Mr. Condit vowed Boeing would become "the biggest and most-profitable space company in the world."
To execute the vision, he tapped Mr. Albaugh. The executive had come aboard from Rockwell International when Boeing bought that company's aerospace and defense assets in 1996. A trained rocket scientist, Mr. Albaugh moved up the ranks quickly. His newcomer status enabled him to avoid the partisan battles inside Boeing after its 1997 takeover of bitter rival McDonnell Douglas Corp.
Named head of Boeing's space and communications unit in 1998, he started off strong. That year Boeing beat out Lockheed for the majority of federal rocket orders, and defeated its rival again in 1999 for a deal to build next-generation spy satellites. Mr. Albaugh orchestrated Boeing's acquisition of Hughes Electronics Corp.'s commercial-satellite business in 2000. He signed up numerous commercial customers for Boeing's Delta IV rocket.
He also pushed to make Boeing the government's leading "systems integrator" -- the company that develops software that links military weapons systems so they can zap information around today's high-tech battlefield. Boeing became lead integrator for the multibillion-dollar national missile-defense system, and won a leading role in overseeing the development of the Army's next-generation weapons and communications systems.
To emphasize this new focus on systems integration, Mr. Albaugh ordered that all the military aircraft models and pictures be removed from the defense unit's St. Louis headquarters.
But many of Mr. Albaugh's initiatives haven't worked as expected. Since mid-2001, Boeing has failed to win a single competition for its top-of-the-line commercial satellite, obtained through the Hughes acquisition in 2000. The company has now written off $2.4 billion of the $3.75 billion price of the Hughes acquisition. Boeing's classified spy-satellite program has been scaled back because of development problems -- delaying the replacement of the aging system now in place.
Of the $1.1 billion second-quarter charge just taken, nearly $900 million is related to losses associated with Boeing's Delta IV rocket program. Mr. Albaugh's unit had set its prices for each launch based on the assumption that the company could amortize its development costs for the new rocket over a large number of launches. But when the market for commercial satellites collapsed after the telecom meltdown, commercial customers canceled many of their launch orders.
With only a handful of government launches on order, it became apparent to the company's auditors that Boeing couldn't recover its costs unless the market picked up significantly. Under accounting rules, the company was forced to take the charge during the quarter that the situation was discovered.
Mr. Albaugh says the need for a second-quarter charge wasn't a surprise, but "the magnitude of the number" was. Both he and Mr. Condit say the dispatching of a member of the chairman's office, David Swain, to be chief operating officer of Mr. Albaugh's division wasn't a rebuke of Mr. Albaugh, just an acknowledgment he was spread too thin. Mr. Swain now runs the division's day-to-day operations, and Mr. Albaugh focuses on strategy.
For the space business, the charge was the latest in a string of charges and write-offs related to the eroding commercial space business. Since 2000, those charges have totaled more than $3.5 billion, offsetting considerable profits from defense operations.
Throughout 2001, Mr. Albaugh told reporters and investors that manufacturing, quality-control and cost-overrun problems at the commercial-satellite unit were largely licked. He predicted the unit would win a half-dozen commercial-satellite orders by year end. But only one actually materialized.
In mid-2002, Mr. Albaugh acknowledged that workers "had to virtually rework every satellite in the factory." Still, he again stressed that Boeing had "flushed out" most of the problems and said the commercial-satellite unit's financial results would improve. When they didn't, he forced out the unit's head, for the second time in two years.
Boeing's biggest satellite, for example, has been plagued by malfunctioning solar panels, which can reduce the satellite's useful life by nearly two-thirds. In one case, the owners of the Thuraya mobile-phone system in the Middle East had to spend hundreds of millions of dollars to launch a replacement satellite and order a spare to compensate for loss of power. In their eagerness to rack up new orders, Boeing officials now say that they didn't adequately test some new technology, such as these panels.
"We've 'brute forced' a lot of those satellites through," says Mr. Albaugh, who promises that newer ones going into production in 2005 or so won't suffer the same problems.
The overall troubles in Boeing's commercial-space initiative are "a painful thing for me, Phil [Condit] and the board," Mr. Albaugh says. He adds: "A lot of people took a swing at commercial space and struck out," including other satellite makers and companies that intended to offer services from those satellites. He stresses that Boeing's space effort includes a military component that "mitigates some of the risks."
Yet the military programs have also suffered some problems. Early last year, Mr. Albaugh repeatedly disputed Wall Street Journal reports that Boeing was suffering setbacks in developing new spy satellites called Future Imagery Architecture. But by the fall, the U.S. government was forced to revamp the program, scaling back some of its technical requirements, to prevent further delays and cost overruns. Boeing says it can't comment on the specifics of the program because it is classified.
While these problems were building, the federal probe concerning Boeing's competition with Lockheed for a 1990s rocket contract also was heating up. Boeing had solicited and obtained proprietary Lockheed documents as it vied with Lockheed to be the government's primary rocket maker, winning the competition in 1998. The Justice Department began a criminal and civil probe of the document matter in mid-2002. Boeing returned dozens of boxes of proprietary documents to Lockheed this past spring.
Boeing waited until this past April to hire consultants to examine whether any of the Lockheed data might have seeped into its winning rocket-contract bid. Boeing also didn't report the investigation to the Securities and Exchange Commission until mid-May, after the Journal wrote about the probe. Mr. Albaugh and other Boeing defense officials now say they didn't fully focus on the investigation until then.
Boeing knew the government might penalize it for having possessed the documents by taking away some rocket-launch contracts. But it didn't expect to lose more than three or four, a top Boeing defense executive said in an interview in early July. A week later, the Air Force announced it was taking away seven launches Boeing had already won and barring the company from bidding on three others -- a total of at least $1 billion in business.
Top Boeing officials now say they are reviewing ways to improve communications between headquarters and the business units, to which they granted considerable autonomy a few years ago. The company has formed an early-warning team of auditors that will be dispatched from headquarters to scrutinize programs and try to prevent unpleasant surprises.
波音业务战略转移弄巧成拙
7月中旬，波音公司(Boeing Co.)航天和防务部门负责人詹姆斯?阿尔勃(James Albaugh)突然接到通知，要他前往总部参加紧急会议。
到底出了什么问题？原来波音内部的审计师在审核第二财政季度帐目时，发现航天防务部门过高地估计了商业卫星和火箭发射业务可能带来的收入。
随后几天的会议火药味十足，据知情人士透露，席间波音首席财务长迈克尔?西尔斯(Michael Sears)和阿尔勃针锋相对，争得面红耳赤。根据最初的估测，上述业务的预计收入和实际收入之间的差距可能在2亿美元左右，但就在这短短几天的时间内，这一差距仍在进一步扩大。到会议结束时，波音宣布将记入11亿美元的支出，以反映严重疲软的商业航天市场对公司业务的影响。这意味著波音该季度甚至今年全年都会因此出现亏损
波音首席执行长费尔?康迪特(Phil Condit)在7月中旬的一次电话会议上宣布了这项巨额支出，并表示对支出规模“感到惊讶”。6周前，阿尔勃刚刚在另一次电话会议上向投资者保证，航天业务部门的问题已经得到控制。在向投资者披露了这项支出后，康迪特委派董事长办公室的一名成员监督航天防务业务的日常运营。
祸不单行，几天后，美国空军又撤销了价值约10亿美元的现存及可能的火箭合同。此前的一项调查发现，波音在竞标一份大型国防合同时，非法保留了竞争对手洛克希德马丁(Lockheed Martin Corp.)长达数千页的专有文件。洛克希德马丁当然不会善罢甘休，一纸诉状将波音告上奥兰多的联邦地区法院，而司法部在进行了刑事调查后，向波音前管理人士提起了两项诉讼。
除此之外，合同延期和成本超支仍然持续困扰著波音的卫星业务。预计调查2月份“哥伦比亚”航天飞机坠毁事件的专门委员会周二可能对波音予以公开指责，因为波音在该航天飞机的运行过程中扮演了举足轻重的角色。
波音曾雄心万丈，立志成为国防航天领域的翘楚。但上述种种问题暴露了该计划的严重缺陷。该公司为应对商业航空业务的恶性循环，急于将国防和商业卫星业务作为增长核心。对于这种过于激进的做法，投资者和部分波音内部人士早就提出过质疑。
与此同时，波音掌门人的继任计划也被彻底打乱。现任首席执行长康迪特曾放言，计划在2007年度过65岁生日后解甲归田。据投资者、华尔街分析师和业内人士称，现年53岁的阿尔勃原本是竞争CEO的热门人选之一，如今似乎都自身难保。
据知情人士透露，由于阿尔勃未能及时提醒公司高层这一潜在的巨额支出，康迪特怒不可遏。他在一次采访中表示，由于不得不向董事会和投资者公布这一令人震惊的坏消息，他本人感到非常不快。但康迪特称，他仍然“全力”支持阿尔勃。他说，“最容易的办法就是撤吉姆(詹姆斯?阿尔勃的昵称)的职。但我不会选择最容易的方式，我会选择能给公司创造最大价值的方式。”他说，归根结底，航天防务部门的问题并非阿尔勃一个人的责任，他本人也难辞其咎。
阿尔勃主管的“综合防务系统”部门(Integrated Defense Systems)是2002年波音将军用航空、导弹、商业卫星和火箭等业务整合而成的一个业务部门。其规模极其庞大，相当于整个洛克希德公司或Northrop Grumman Corp.。但在管理方面，却缺乏后两者完善有效的结构模式。据公司内外人士称，职责重叠的情况时有发生，结果造成管理混乱的局面。
虽然该部门今年的收入可望在波音490亿美元总收入中占到一半以上－－这将是有史以来的头一次，但预计最终实现盈利的将是波音的商业喷气机业务。无论如何，波音的管理层表示，防务业务所产生的现金流仍然是保证波音其他业务部门正常运转的关键因素，包括为设计生产更节能的新型喷气客机提供资金。
波音最初开始将重心转向国防航天领域是在20世纪90年代末，当时商业客机业务还未因经济衰退、恐怖袭击及欧洲空中客车(Airbus)的竞争而呈现颓势。然而，同喷气客机相比，对通信卫星的巨大市场需求似乎一触即发。另外，美国国防部预算也从冷战后的低水平回升。康迪特当时立志要使波音成为“全世界最大、最赚钱的航天公司”。
为了实现这一理想，康迪特选中了阿尔勃。阿尔勃来自Rockwell International，波音1996年收购了该公司的航空和防务资产。火箭科学家出身的阿尔勃可谓官运亨通。在波音于1997年收购了对手麦道公司(McDonnell Douglas Corp.)后，阿尔勃初来者的身份使他得以远离波音内部的派系斗争。
1998年被任命为波音航空通信子公司的负责人后，阿尔勃初试锋芒即展示出超凡能力。当年波音打败洛克希德，赢得了联邦政府火箭项目的大部分订单。第二年，在新一代间谍卫星项目的竞标中，洛克希德又成为其手下败将。2000年，在阿尔勃的策划下，波音收购了休斯电子(Hughes Electronics Corp.)的商业卫星业务。他为波音的Delta IV火箭签下了众多的商业客户。
除此之外，阿尔勃还积极推动波音成为美国政府首要的“系统集成者”－－即连接各种军用武器系统以便在当今的高科技战场上快速集中信息的软件的开发者。波音成为价值数十亿美元的全国导弹防御系统的主要集成者，并在监督美国陆军新一代武器及通信系统开发项目中赢得了主导地位。
为强调系统集成这一新重心，阿尔勃甚至下令将所有的军用飞机模型和图片从国防子公司位于圣路易斯的总部中搬走。
然而，阿尔勃的许多设想并未如愿以偿。自2001年年中以来，波音2000年从休斯电子收购的最高端的商业卫星业务未能赢得一项竞标。迄今为止，波音为这项价值37.5亿美元的收购已经冲销了24亿美元。而波音机密的间谍卫星项目也由于开发问题而被迫缩减规模－－对现有的旧的系统的更换工作将因此推迟。
在第二财政季度刚刚记入的11亿美元支出中，近9亿美元同波音Delta IV火箭项目的亏损有关。阿尔勃领导的子公司在火箭发射的定价上遵循这样的假设：公司可以通过大量的发射项目，摊销新火箭的开发成本。然而，当电信业疲软导致商业卫星市场迅速萎缩后，波音的商业客户取消了许多发射订单。
这样一来，剩下的只有少量政府发射订单。波音的审计师认为，除非市场显著反弹，否则波音将无法收回成本。依照企业财务惯例，波音将被迫在发现这一情况的季度记入相关支出。
阿尔勃称，第二财政季度记入一项支出并不让人惊讶，但支出的规模之大的确出人意料。他和康迪特均表示，委派董事会办公室的成员戴维?斯旺(David Swain)担任阿尔勃所在部门的首席营运长并不是对阿尔勃的非难，只是帮助阿尔勃分担繁重的管理任务。斯旺目前负责该部门的日常运营，阿尔勃则集中制定部门发展策略。
波音的商业航天业务每况愈下，已经记入了一系列支出和冲销，第二季度的这笔支出不过是旧疤上的新伤。自2000年以来，这些支出累计已超过35亿美元，从很大程度上抵消了国防业务所创造的利润。
与此同时，波音的军用项目也进展得不太顺利。去年早些时候，阿尔勃曾多次对《华尔街日报》(Wall Street Journal)有关波音在开发新一代间谍卫星“未来成像设计”(Future Imagery Architecture)时遭遇障碍的报导予以反驳。但到了秋季，美国政府宣布被迫修改该计划，降低了一些技术要求，以防止更多的延误和超支。波音表示，由于该项目属于机密项目，公司不能就细节问题置评。
就在波音被上述问题搞得晕头转向的时候，联邦司法部门对波音在90年代一份火箭合同竞标中同洛克希德的竞争的调查也在不断深入。波音在同洛克希德角逐美国政府主要火箭生产商的过程中，曾索要并获得了洛克希德的部分专有文件，并最终在1998年赢得了这次竞标。司法部2002年年中就此展开了一项刑事调查和一项民事调查。波音在今年春季将十几个装有上述文件的箱子归还给了洛克希德。
波音直到今年4月份才聘请顾问，评估这些洛克希德的资料在波音赢得火箭合同的竞标中是否发挥了作用。但直到5月中旬，在《华尔街日报》披露了该消息以后，波音才向证券交易委员会(SEC)报告了有关调查事宜。阿尔勃等波音国防业务部门管理人士目前解释称，他们在那之前没有对调查给予充分关注。
波音很清楚，政府方面可能因此撤销波音的部分火箭合同，以示惩罚。国防业务一名管理人士在7月初接受采访时曾表示，预计政府撤销的合同数目不会超过三四个。然而，一周之后，美国空军宣布，将撤销波音已经赢得的7份发射合同，并禁止该公司参与另外3份合同的竞标－－这些合同的总价值至少在10亿美元。
现在，波音管理人士表示，他们正考虑加强公司总部和业务子公司之间的沟通。几年前，波音赋予子公司很大的自主权。波音还成立了一个预警审计小组，由总部派出，监督各项目的运营情况，尽量避免出现令人不快的“意外之祸”。
