Boeing bounces back against odds=0AUpdated 1/11/2007 8:52 AM ETE-mail | Sav= e | Print | Reprints & Permissions | Subscribe to stories like this =0A=0A= =0A EnlargeBy Ted S. Warren, AP=0A=0AA Boeing 737 under construction in Ren= ton, Wash. The popularity of the 737 workhorse helped Boeing's jet sales su= rge in 2006.=0A=0A=0A=0A=0ABy Marilyn Adams, USA TODAY=0ACHICAGO =97 After = years of ethics scandals and competitive setbacks, aerospace giant Boeing i= s on a winning streak. Neither its rivals nor its past sins seem to be slow= ing it down. =0ALast week, Boeing (BA) announced it booked a record number = of commercial airplane orders in 2006, almost certainly surpassing the annu= al airplane sales of France-based Airbus. In a blow to the USA's national p= ride, Boeing in 2001 lost its lead in annual sales of commercial aircraft t= o its European rival.=0AFor five years, as Boeing grappled with the post-9/= 11 industry downturn and its own disgraces, it looked doubtful it would ret= ake the lead. But last year, the fortunes of the companies reversed. =0ABeh= ind Boeing's 2006 sales surge: its innovative 787 Dreamliner, the continuin= g popularity of its workhorse 737, and production and management blunders b= y Airbus. The good news for Boeing, whose stock price soared 26% in 2006, d= oesn't stop with its commercial airplane division. This month, years after = being caught cheating to win an Air Force contract, Boeing will get another= shot at that $20-billion-plus program for aerial refueling tanker jets. = =0ADespite its past misconduct, Boeing seems poised to get the job because = it is a U.S. company and has taken steps to reform. Its competitor for the = contract, a group led by Northrop Grumman, is proposing an aerial fueling f= leet based on an Airbus plane. =0A"We have had a good year," said Boeing CE= O Jim McNerney, who took over 18 months ago, in a recent interview at Boein= g headquarters here. McNerney joined Boeing from 3M to quell a leadership u= pheaval that makes the recent successes even more remarkable. =0AHis predec= essor, Harry Stonecipher, was forced out amid revelations of an extramarita= l affair with a senior Boeing executive. His lapse might have been overlook= ed but for his charge to restore corporate integrity after his predecessor,= Phil Condit, quit in 2003 amid a Justice Department investigation into Boe= ing's unethical tactics to win the Air Force contract.=0AOthers are more ex= uberant than McNerney about Boeing's prospects. "Boeing is back on the top = of the mountain," says author John Newhouse, whose new book, Boeing VersusA= irbus, goes on sale next week. =0AWith an estimated $60 billion in revenue = last year, Boeing is the world's biggest aerospace company and the USA's la= rgest exporter. It seems on track to eclipse Airbus in sales when the Europ= ean company reports its 2006 orders next week. =0ADespite its winning strea= k, Boeing could be just one mistake =97 another ethical lapse on a governme= nt contract or a major production glitch =97 away from a setback. =0A"Boein= g couldn't do anything wrong last year," says aerospace analyst Scott Hamil= ton of the Leeham Co. in Washington state, near where the bulk of Boeing's = workforce is located. "But this year will be critical for them."=0ADesign, = construction changes =0AAmong other challenges, Boeing is undergoing fundam= ental changes in how it designs and builds airplanes. Boeing at one time di= d almost all its design and manufacturing with its own workforce in the USA= . Now, it's outsourcing more to cut costs, speed production and build relat= ionships abroad that can translate into airplane orders. =0AResulting cutba= cks affecting its U.S. workforce are sowing tensions with Boeing's unions. = And the new processes heighten the pressure to meet the delivery schedule f= or the Dreamliner.=0AMeanwhile, U.S. defense spending on new military aircr= aft, hardware and services, the source of at least half of Boeing's annual = revenue, is expected to fall as the costly Iraq war drags on. The more the = Pentagon spends on troops in Iraq, the less it may have to spend on new wea= pons, aircraft and other products Boeing provides.=0AAnd nobody believes Ai= rbus, a sophisticated and creative company that still builds more airplanes= every year than Boeing, will be down for long.=0AAll eyes now are on Boein= g's new 787 Dreamliner. The Dreamliner is billed as lighter, faster and mor= e fuel-efficient than its predecessors in large part because its fuselage w= ill be built entirely of man-made composite material, not the traditional a= luminum. =0AThe wide-body jet, designed for about 250 passengers and set fo= r commercial introduction in 2008, has garnered 471 orders to date, more th= an any other brand-new jet ever developed. Airbus is years away from having= a competitive plane. =0AThe first 787 is scheduled to roll out in July at = Boeing's Everett, Wash., plant, where final assembly will be done. Boeing i= s outsourcing a record 70% of work on the Dreamliner, much of it to firms a= broad. That means all of those highly complex parts must come together corr= ectly and on time in Boeing's Everett plant for the company to deliver on t= ime. =0AIts dozens of partners on the project include Alenia Aeronautica of= Italy; Fuji, Kawasaki and Mitsubishi of Japan; Dassault Systemes of France= ; Saab Aerostructures of Sweden; and Rolls-Royce of Britain. New software b= y Dassault allows the far-flung work sites to be "virtually" linked so ever= yone works out of the same database in real time with one set of drawings. = =0AWith a new airplane being built in so many places, not everything is goi= ng smoothly. Boeing has had to budget about $300 million more than planned = on 787 research and development. It has dispatched a large number of additi= onal Boeing engineers to Italy, where Alenia has struggled with the center = fuselage.=0AMcNerney says he does not lose sleep over whether the Dreamline= r will be the innovative jetliner Boeing has promised. He worries about mak= ing the deadlines. "It's going to be a fantastic airplane," he says. "We ar= e meeting all our benchmarks. I worry about schedule and timing, getting it= done when we promised to do it."=0AMissed deadlines can mean big losses an= d ruined careers. Airbus, for example, is running 22 months behind on produ= ction of its new A380 superjumbo jet, the company's flagship product. The d= elays have wrought senior management shake-ups at Airbus, canceled orders a= nd untold millions of dollars in delay compensation to customers.=0AWith so= much at stake with the 787 and other high-profile projects, Boeing can ill= afford any work disruptions such as the painful, month-long strike in summ= er 2005 by the International Association of Machinists. Nearly 19,000 worke= rs at Boeing Commercial Airplanes struck over pensions, health insurance an= d job security, idling factories and costing an estimated $70 million a day= in lost revenue. =0AThe IAM is Boeing's largest labor union, representing = tens of thousands of workers who do assembly and other jobs on passenger je= ts and defense and space projects. The IAM contract covering the workers wh= o struck will expire in summer 2008, not long after Boeing is to deliver th= e first 787.=0ALast month, McNerney met for the first time since becoming C= EO with leaders of the IAM, including the union's international president, = Thomas Buffenbarger. Boeing spokesman Thomas Downey said the meeting was a = routine annual get-together between the Boeing CEO and union chiefs, a prac= tice begun by McNerney's predecessor.=0ABuffenbarger sees it differently. "= I think they are looking down the road and don't want another strike," he s= ays. =0AManagement's relationship with its other large union, the Society o= f Professional Engineering Employees in Aerospace, is also strained. SPEEA = has labor contracts expiring in 2008. McNerney met with that union's leader= s for the first time in October. Although leaders of both unions were encou= raged by the meetings, members are nervous. =0A"Our success is based on a b= usiness plan that depends on more outsourcing than we've ever seen before,"= says SPEEA chief Charles Bofferding, who represents about 22,000 Boeing en= gineers. "Airplane orders are up. Our standing in the world is up. But what= 's coming in the future?"=0ASome of Boeing's biggest successes last year ca= me in federal defense and security contracts. In September, Boeing beat out= a who's who of the U.S. defense industry =97 including Lockheed Martin, No= rthrop Grumman and Raytheon =97 to land a border-protection contract. =0ATo= cut illegal immigration, the Department of Homeland Security is building "= virtual," or electronic, fences along the borders with Mexico and Canada. = =0ABoeing will use sensor-equipped towers along 28 miles of heavily travele= d Arizona-Mexico border near Tucson. The contract is valued at a modest $67= million. But McNerney calls it a "big win" because it shows Boeing is a co= ntender for future Homeland Security work, an area he considers a prime opp= ortunity for his company. =0ANASA disappointment =0APerhaps the biggest dis= appointment for Boeing last year was the loss of a NASA contract to Lockhee= d Martin in August. Lockheed, the world's biggest defense contractor, lande= d the contract to build the nation's next manned spaceship, which will repl= ace the space shuttle. For Boeing, which built the shuttle, it was a stingi= ng defeat.=0ANow, Boeing is poised to bid on an Air Force request for propo= sals for 179 aerial fueling tankers. It's the same contract that Boeing kno= cked off track a few years ago. =0ABoeing's former CFO, Michael Sears, in 2= 002 recruited an Air Force procurement officer, Darleen Druyun, for a high-= paying Boeing job while she was overseeing Pentagon contracts on which Boei= ng was bidding. Druyun pleaded guilty to conspiracy and Sears pleaded guilt= y to aiding and abetting illegal employment negotiations. Both served priso= n sentences. The Air Force suspended competition for the tanker and is abou= t to restart the process.=0AMcNerney, an affable and soft-spoken businessma= n who took the top job 18 months ago, had no role in the scandal and has po= sitioned the company to compete again.=0AIn August, McNerney appeared befor= e the Senate Armed Services Committee to apologize for the procurement scan= dal and for an earlier lapse by Boeing: In the late 1990s, two Boeing emplo= yees obtained secret documents from defense rival Lockheed Martin, using so= me of them to help win another Pentagon contract. The Air Force later strip= ped Boeing of $1 billion worth of rocket-launch business. =0AMcNerney told = the Senate committee Boeing would not take a $200 million tax deduction for= money it spent to settle the criminal ethics probes. Boeing paid a record = $615 million penalty and instituted a companywide ethics program required b= y the settlement. =0A'Boeing's contract to lose' =0ANot everyone in Boeing'= s senior management saw merit in giving up a tax deduction to which the com= pany was legally entitled, McNerney says. Some on his management team and o= n the board thought the company had a duty to shareholders to save $200 mil= lion. =0A"I thought it was the right thing to do," he says. He says that to= day, Boeing's reputation as a defense contractor "by and large is good, a g= ood recovery from difficult days."=0AHamilton agrees. "When you write a che= ck for $600 million and don't take the tax deduction, people take notice," = Hamilton says. "This is Boeing's contract to lose."=0ABoeing's biggest chal= lenges now, he says, are keeping the Dreamliner on track =97 and avoiding o= verconfidence. "Boeing," he says, "has been there before."=0AContributing: = Thomas Ankner