Boeing's recently appointed chairman, who has just completed his first key acquisition at the US firm, ruled out deeper diversification on Wednesday but said Boeing could add more to its civil and defense activities.
Jim McNerney was speaking in France at his first major news conference since he took the helm at Boeing 10 months ago, and two days after Boeing unveiled the USD$1.7 billion purchase of aerospace parts supplier Aviall.
McNerney, who took over when his predecessor was ousted over an office affair, said some people had urged him to diversify and move Boeing away from its roots as the top US commercial jet maker and No. 2 defense contractor -- but he would not.
"My first priority is internal growth," McNerney said. "Some say: 'The civil aircraft (market) is mature and defense is slowing down. Don't you have to diversify into some other arena?' -- I don't think so," he said.
"Having said that, we are fortunate in that we are generating a fair amount of cash... Look for us to accelerate in adjacent spaces with medium- and small-sized acquisitions."
The Aviall deal highlights Boeing's efforts to expand its services operations in the wake of a boom in new plane orders.
Chicago-based Boeing took a record 1,002 commercial plane orders in 2005, and European rival Airbus took 1,055, fueled by a resurgence in travel worldwide.
But orders are expected to fall back this year, suggesting that parts and maintenance will become a more important part of planemakers' operations in coming years.
Still, Boeing is exuding confidence as it extends orders for its hot-selling 787 Dreamliner, reaching 350 last week.
The plane is outselling the Airbus A350, developed by Boeing's European rivals to compete in a market which Boeing spotted for fuel-efficient mid-sized jets ferrying around 250 passengers over long-haul distances with two engines.
Airbus is on its second design of the A350 and says it is looking at further modifications to close the gap with Boeing.
McNerney declined, however, to say whether Boeing would recapture its dominance of the skies this year by grabbing a larger share than Airbus of the market for 100-plus seat jets.
"We will continue to build our backlog this year but we don't forecast orders. But orders are coming in significantly higher than our production, which is also ramping up."
Although some major US airlines remain in bankruptcy in the wake of a slump in air travel following the September 2001 attacks in the United States, new low-cost airlines and established carriers in the Middle East and Asia have driven up demand.
And McNerney said he expected the traditional, or "legacy", airlines in the United States to make a move soon on the new mid-sized market. The volatile industry could win some extra time in the healthy part of the business cycle as a result.
"This cycle has a chance to be significantly extended compared with other cycles. The major American carriers have not yet begun to order the new technology," McNerney said. "There are discussions beginning to happen with legacy carriers on both sides of the Atlantic."
Airline analysts say the cycle for jet orders traditionally lasts about 11 years between peaks.
If McNerney's prediction comes true, Boeing may need to take a look at adding a costly second assembly line for the 787.
"The 787 is the fastest selling airplane Boeing has ever had. In the same phase, we have sold twice as many aircraft to twice as many customers as the 737 Next Generation," he said, referring to a smaller model of Boeing aircraft.
"We are continuing to look at how to take up the production rate and eventually, if it keeps going like this, we will have to add capacity. But there are no immediate plans right now."
Both the Boeing 787 and A350 make some use of composite materials to lessen weight and help airlines battle fuel costs.
There has been some pressure on the supplies of such new materials as carbon fiber and titanium but McNerney said Boeing had adequate supply agreements.
Industry analysts are on the look-out for any evidence of delays in the first deliveries of the 787 aircraft, scheduled for 2008, due to its modern design and complexity.
"I think the composite fuselage is a breakthrough," McNerney said. "Planes have been made for 100 years and rarely have we had this step (forward) in weight."
He also predicted that the stretch version of Boeing's 747 jumbo jet, the 747-8, would outsell the Airbus A380, which has two passenger decks along its whole fuselage and is designed to carry 555 people in standard configuration.
Boeing believes Airbus has over-estimated the market for the world's largest passenger plane, and it is patching up the 747 to carry more people without matching the A380 for scale.
(Reuters)