Boeing CEO Dennis Muilenburg interview

February 1, 2018

Dennis Muilenburg, chairman, president and CEO of Boeing, was interviewed by Aerospace America staff reporter Tom Risen by phone on Jan. 12, 2018.

Tom Risen: Good morning. Risen.

William Holmes [Boeing corporate communicatons]: Hey, Risen. It’s Holmes at Boeing. How are you doing today?

Risen: Morning. Hello from SciTech in Florida.

Holmes: Oh, you’re in Florida. You’re based in D.C. or are you based in Florida?

Risen: We have our AIAA SciTech Conference this week.

Holmes: Oh, nice. Well, hey, it’s a lot warmer there, I’m sure. I’m in the process of waiting for Dennis to pop in here, so I just wanted to get you on the line and if you don’t mind, we’ll go on mute for a moment.

Risen: Perfect. Thank you.

Holmes: All right. Thanks for standing by. [silence] Hey, Tom?

Risen: Hello.

Holmes: Hey, so I have Dennis with us.

Risen: Good morning.

Muilenburg: Hey, good morning, Tom. How you doing, Tom?

Risen: Great. We’re down here in Florida at the AIAA SciTech Conference. We’ve just finished up, so yeah, I’m here in warm weather. I hope you’re warm, also.

Muilenburg: Well, let’s see. I’m in Chicago and sorry to say, it’s not warm.

Risen: Yeah, see, I went to Northwestern. I’m aware.

Muilenburg: Oh, great. Very good. Tom, thanks for taking the time and thanks for your flexibility. I know we tried to squeeze this in at the end of last year and weren’t quite able to do it, so we appreciate you coming back around.

Risen: Oh, you’re a very busy man. You have four CEOs working underneath you. That’s pretty busy. Muilenburg: Yeah, we got a lot of things going on. We’re in a strong position today, so I appreciate the chance to talk.

Risen: Yeah. I was excited to see the new prototype you unveiled this week, the quadcopter electric VTOL. I’m interested. Can you tell me, how big of a role do you think urban air mobility will be as part of your growth strategy?

Muilenburg: We think it will be an important future element of our growth strategy. If I could just take a step back, take a look at where we’re at today, as we start the second century of Boeing, I’d say we’re stronger, more innovative than we’ve ever been in our history. We’re bringing more innovation to the market now than we ever have. We’re operating in what I think is a very strong marketplace.

You look at aerospace writ large, it’s about a $7.5 trillion dollar marketplace over the next 10 years spanning our commercial defense and services businesses. The marketplace in the commercial sector is outpacing global GDP. We see traffic growth trends around the world continuing to increase at about 6 to 7 percent a year. That’s driving additional networking of cities.

New city pairs are emerging as part of this global traffic network, so the nature of air travel is changing. We see a need as a result for about 41,000 new commercial airplanes for the world over the next 20 years. That foundational travel market is a very strong one when it’s growing and we’re feeding into that with new products like the 787, 787-10, the 737 MAX, the new 777X.

We’re also thinking about next generation products, to get to your point. As that market continues to evolve, the opportunity for other urban mobility solutions, both passenger and cargo solutions, is increasing. We see an opportunity there for autonomous cargo delivery as an example of a future growing market. The drone that we rolled out this week is part of the prototyping we’re doing to begin innovating in that marketplace.

Risen: You also acquired Aurora. They’ve been building their own eVTOL prototype that I’ve written about. I’m wondering, though, should Boeing mass produce eVTOLs by itself or should [it] own the technology and contract out that mass production?

Muilenburg: I think it could be a combination. Again, as we take a look at the future, there are key capabilities inside of our company, vertical integration capabilities, core competencies that we want to continue to build on. You see that in our production, design and production systems today that span commercial and defense.

We want to continue to retain it and grow those core capabilities. We look at vertical integration for the future, again, key capabilities around autonomy, software, avionics, places where we want to be able to control the brains of our airplanes, if you will, we see that as an opportunity to add value for customers and also grow our downstream services business.

At the same time, we want to have a strong and vibrant supply chain and having the right balance for that for the future. As we contemplate future product lines as we do with today’s product lines, it will be a combination of internal Boeing design and production capabilities all with an eye to providing lifecycle solutions for our customers combined with the world’s best supply chain.

Risen: Yeah. It’s an exciting time for autonomy. I wonder about autonomous jets. The F-35 is becoming operational and it could be years until the next generation military jet is built. Do you think the F-35 could be the last generation U.S. military jet that isn’t autonomously piloted?

Muilenburg: I think you’re going to see a combination of piloted and nonpiloted vehicles in the future. You see the emergence of unmanned aircraft with our defense customers today and I think you’re going to continue to see that as a growing market sector. We anticipate a future where you’ll have a combination of piloted and unpiloted vehicles for the variety of missions that our defense customers need to conduct.

Just another example of that is right now we’re competing for the MQ-25 Stingray, which is the Navy’s latest competition to put an unmanned drone aircraft on board the aircraft carriers that could provide tanking capability. It will always make sense to have a combination of piloted and unpiloted airplanes to fulfill the full range of missions.

Risen: Now how fast should autonomy grow as part of Boeing’s military strategy because there is this balance you talk about?

Muilenburg: It’s a fast-growing sector of our defense business. We have a dedicated division for providing autonomous solutions to our customers and because you’re well aware, one of our subsidiaries Insitu is a leading provider of autonomous solutions today with products like the ScanEagle. We’re investing more broadly in that area. You noted our recent acquisition of Aurora. There are a number of other autonomous vehicle investments that we’re making and they span from space to sea. For example, our X-37 spaceplane today is setting records, long-endurance records for autonomous space operations.

We have a number of autonomous air vehicles that are either in production or in design. We last year also acquired a company called Liquid Robotics that produces a sea surface unmanned vehicle that’s used for sensing and reconnaissance. We’re also working on an unmanned underwater autonomous vehicle that we released or which actually just went into sea trials about three months ago. A lot of energy on that autonomous vehicle front and we see applications again that go from space to air to surface to undersea.

Risen: Yeah. With all the contracting going on, I remember you talked with President Trump about the Air Force One contract price change. Now would you be comfortable — would Boeing as part of its growth strategy be comfortable — with broader use of fixed-cost pricing than cost-plus pricing on that and other contracts?

Muilenburg: We think it’s important that the contractual type and structure matches the risk profile of the program. There are some development programs where a fixed-price structure makes sense where you might be using existing technology and the development requirements are very clear and well-defined and firm.

There are other development programs where the risks are greater, where the technology is still somewhat unknown or the requirements might be fluid. In those kind of cases, a different cost structure makes sense. We’re in favor of a tailorable contract structure depending on the risk profile of the program. I think that’s something that makes the most sense for our customers as well.

Risen: Yeah. Are there any examples?

Muilenburg: I think when you take a look at the ongoing tanker program, the new KC-46 tanker, that’s a fixed-price development program. While that’s been challenging, that’s one that has made good sense in terms of the contract structure for developing and fielding that capability. Other programs where the requirements might still be more fluid, next generation space programs, programs that still require a fair amount of R&D, those are things that might make more sense to have a cost-plus kind of structure.

Risen: Yeah. I know you have a lot of deals going on. I understand you can’t say much about the Embraer talks, so instead, can you please tell me about the demand for medium-range regional jets compared with demand for single-aisle jets?

Muilenburg: Well, as I mentioned earlier, we see the commercial airplane market broadly as a very strong long-term, growing market. When you take a look at passenger characteristics, as we said passenger traffic globally growing 6 to 7 percent a year, every year in Asia alone, for example, we have 100 million people who fly for the first time. Imagine what that means to future air traffic growth.

By most analyses, less than 20 percent of the world’s population has ever taken even a single flight. More than 80 percent of the world still has to fly for the first time. All of that tells us that global air traffic is going to be a long-term growing business. The technology is now allowing us to network connect cities around the world in new ways that are economically efficient.

That’s both long-range connections and regional connections. When you take a look at those fundamentals, we anticipate you’re going to see a long-term sustained growth market rather than a cyclical market and as a result, strong demand for new aircraft, as I mentioned earlier, around 41,000 new airplanes for the next 20 years.

That includes regional airplanes, as you asked, along with single-aisle airplanes. We do see the single-aisle segment, our 737-class airplane, as the strongest segment within the overall air traffic projections. We see regional airplanes as a strong growth sector. We also see wide-body airplanes as a strong area of growth and our 787 and 777X are well-positioned for that future market.

Risen: Yeah. How about electronic flight and quiet supersonic flight? What should Boeing’s relationship be with NASA on X-planes and other new research like that?

Muilenburg: We have a very good relationship with NASA across the whole front of X-planes. We’re working with them on a full range of technologies. It includes the high-speed supersonic, hypersonic type of vehicles. We’re also working with them on superefficient subsonic aircraft, environmentally friendly aircraft.

There are a whole range of X-plane activities. You’ve probably seen our Blended Wing Body experimental aircraft. That’s another example of collaboration with NASA, so we’re a very close partner with them there to advance aeronautics technology and to then turn some of those technologies into new products for the future.

Risen: Yeah. You mentioned hypersonic flight. People got very excited this week at SciTech when you showed your new model for the new hypersonic plane contender. What can you tell us about that?

Muilenburg: That’s just another example of the advancements we’re making there. I think you’re familiar with our earlier work on the X-51 hypersonic vehicle where we’re beginning to prove out the ramjet propulsion technology where we set some new records in terms of performance capability. We’re leveraging that investment in propulsion technology for next generation configurations, including the hypersonic airplane that you saw at the show this week.

It just shows you we’re continuing to invest in that realm of high-speed flight. Frankly, if we look at the future of flight, we do see an opportunity at some point of having an economically viable supersonic or hypersonic capability with the idea that you could travel anywhere in the world in one to two hours.

If you step beyond that, we even see an evolving marketplace for low Earth orbit space travel as a natural next step. Right now we’re working on our CST-100 Starliner with NASA that will provide transportation to the space station. We anticipate beyond that, we’ll see additional low Earth orbit destinations evolve and at some point, an economically viable low Earth orbit space travel network.

Risen: Yeah. I had asked your team a couple months ago if you’d ever flown on the Concorde because I’m curious. Supersonic flights could be niche among business class for the near future, but when would it reach a point where Boeing would build a commercial supersonic plane?

Muilenburg: The key there will be the economic viability for broad participation in that marketplace. As you know, with the efficiency gains that we continue to make in subsonic airplanes, that is a very effective economic solution for airlines and for passengers today. With airplanes like the 787 Dreamliner, our ability to basically connect any city pair in the world efficiently really provides a lot of great economic options for our customers.

Similarly as the 777X comes into the marketplace, it will again provide another 10 to 15 percent operating cost advantage. We see a strong future for those kind of airplanes. We’re going to need to see a next step in propulsion system efficiency and economic viability to make a supersonic jet more broadly attractive to customers, although in the nearer term, we could see some business traveler interest in such a solution. The broad adoption will require more work on the economic business case.

Risen: How about upper airspace? There’s interesting work going on with, I don’t know, Airbus or Facebook’s contracting with Airbus on its Aquila upper airspace drone to bring internet to remote areas. What’s Boeing’s competitive counterpoint for upper airspace?

Muilenburg: We’re doing a number of things on high-altitude long-endurance vehicles. I think you’re familiar with the previous flight-testing we’ve done on the Phantom Eye, which was a high altitude 60,000 to 70,000 foot altitude hydrogen-powered aircraft. As part of Aurora’s portfolio, they also have the Orion high altitude long endurance aircraft, which is now part of our Boeing portfolio.

There are a number of missions that those high-altitude aircraft can serve. Reconnaissance and surveillance missions for our defense customers as well as connectivity networking capability for commercial customers, as you noted. We actually see a future that probably includes a combination of satellite-based and high-altitude long-endurance aircraft-based communication nodes to provide networked connectivity around the world.

As the satellite market continues to expand and technology solutions for small satellites, nanosatellites, we can also gain a lot of efficiency on those type of networked satellite communication solutions. We’ve invested in things like our 702SP small satellite bus all-electric satellites.

In fact, we’re the only company in the world that has all-electric satellites on orbit now performing. Those also provide communication connectivity. As we see worldwide demand for communications bandwidth continuing to grow, we anticipate a combination of satellite-based and air-based solutions.

Risen: Yeah. You make some great investments. Your team told me that Boeing invests in Zunum fully electric flight. I’m wondering, how fast should electric flight become part of Boeing’s commercial flight? We talk about this a lot at our AIAA shows and people are skeptical. They say it will be a hybrid. For the near future, it will be a hybrid of jet fuel and batteries, but it will be awhile until fully electric flight is feasible.

Muilenburg: It’s hard to predict the exact timelines, but we do know the electrical and battery technologies are moving very quickly. As you noted, we’ve made an investment in Zunum technology and are working with them today on a hybrid electric-powered and then all-electric-powered regional jet.

We anticipate that’s the entry point for the electrically or hybrid electric-powered airplanes is to start with those smaller-scale airplanes and then as the technology evolves, the ability or the opportunity to scale it up in size. The exact timeline around that is difficult to predict, but I would suggest that it’s going to move faster than any of us might anticipate given the amount of capital that’s flowing into the electrical power system technologies.

Risen: Consumer acceptance is a big thing with all these new technologies like urban air mobility and electric flight. People said FAA certification will help, but I think the public needs, sometimes needs, grand gestures to make them feel safe. What could Boeing do as a company [inaudible] for some of these technologies to show, “OK, this is safe. The government says it’s safe, but we say it’s safe and here’s a really big gesture to make you feel safe.” What would Boeing do?

Muilenburg: Again, as you introduce new technologies into the world, it’s very important that we do it safely, as you pointed out. Today’s air travel business is successful and growing because it’s the safest way in the world to travel. As you saw, the past year was the safest year on record for global air travel. We’re proud to contribute to that. As we continue to introduce new technologies, that’s why we used advanced prototyping to demonstrate those technologies to ensure the safety.

We work with the FAA and others on certification standards and approvals, which is very important. It’s also important that we invest in not only, I’ll say designing paper airplanes, but designing and building real prototypes to demonstrate the technology and safety and the capability. That’s why you see us as a company investing more in innovation than we ever have to not only design concepts, but to build real value-added prototypes that can demonstrate the capability and safety of those new innovations.

Risen: Someone else commented to me, who’s familiar with urban air mobility, said that people feel safer when there’s more military autonomous flight. Would Boeing be interested in a next generation jet after F-35 that could be more partially autonomous?

Muilenburg: Yeah. That’s one of the core technology areas that we’re investing in today with our military customers. You’re right. That’s one area where autonomous vehicle advances with our defense customers have allowed us to reduce risk and begin to build some of the fabric required for eventual commercial application. I think that’s one big advantage that a company like Boeing brings to the table, what I like to call our One Boeing strategy where we work across commercial and defense sectors.

We’re able to leverage technology and talent and some of the prototyping work we’re doing that can serve the needs of both our defense and commercial customers, and certainly future military autonomous vehicles is one of our core investment areas. That spans a whole range of aircraft from fighter aircraft to unmanned helicopters to spacecraft and pretty much every segment of our portfolio.

Risen: Your portfolio is really —

Holmes: Tom?

Risen: Yeah?

Holmes: We probably have time for one or two more questions, then we have to wrap up.

Risen: Yeah. Is there any really notable experience from — I know you spent your entire career at Boeing — is there any big unique experience that you would like to highlight that? I interviewed someone who is an airspace regulator and she started her career as a torpedo mechanic. Is there anything that really stands out like, “Wow, that’s unique in my career”?

Muilenburg: I’ve had the privilege now of working at Boeing for 31 years. I started as a summer intern in aerospace engineering in Seattle as an airplane designer on a team. I’ve had an opportunity to work on pretty much every segment of the Boeing business from commercial to defense to space. It’s hard for me to pick out a particular favorite from that history, but just the opportunity to work across the incredible portfolio of solutions that we provide as a company and the sense of importance of what we do.

I often like to tell our team that we work on things that really matter. We know that lives depend on what we work on, so it demands a sense of excellence in how we do it. That’s part of the Boeing DNA, part of who we are as a company. I see that reflected in the wide variety of products that we design and build.

One of the big things we’re working on right now that certainly has my attention is the first rocket to Mars and the new Space Launch System. I think that’s something that’s capturing the attention of the future generation of talent. I think it’s something that will create a great economic and technology ripple benefit and I believe the first person that steps foot on Mars will get there on a Boeing rocket.

Risen: OK. One more question. About Zunum — it’s related to Embraer and Zunum because midrange is a definition people are still working on. No one really — what’s Boeing’s aims for a medium-range regional jet product line?

Muilenburg: That’s something that will continue to evolve with the marketplace. It’s not something that I want to pin down with the particulars today. Again, we look for a full range of solutions that span our customers’ needs for the future. We see that the global traffic network’s continuing to evolve.

The technology is now allowing us to do things for passengers and customers that simply couldn’t be done in the past. I think you’re going to, again, see a future where a combination of our current portfolio today, regional solutions, urban mobility solutions, more of an integrated transportation system is what the future holds.

Risen: To make for regional travel, like pinning down what the definition of regional travel is? Because the market’s kind of iffy on what that exactly means.

Muilenburg: I think that’s still a fluid part of the equation. Again, that’ll depend on our customer needs and preferences. The key for us is to have technology solutions that provide flexibility for the future. We’re going to see that continue to evolve.

Risen: Well, great. Thank you. I know you’re very busy and I appreciate you making time for us today. We really enjoyed all the exhibits that Boeing had here at AIAA SciTech.

Muilenburg: You bet. Glad to be there, Tom, and great talking with you. I look forward to seeing your article. I always love getting my Aerospace America magazine, so I look forward to seeing it.

Risen: Yeah. Please, if you have any good photos of yourself like on a factory floor, because if you see the Q&A sections, we try to get action shots of people. Not headshots, something you think shows you in action at Boeing. Yeah. If you think of anything that really stands out from your experience at Boeing, a really interesting project or an interesting assignment you had, please send it over.

Muilenburg: OK. Will do. I’ll ask Doug to follow up on that. I know exactly what you’re looking for on the photos and we’ve got some good ones for you to look at. We’ll follow up with maybe a couple of sentences on an interesting assignment as well.

Risen: Perfect. Have a wonderful weekend. I know you’re busy, but I hope you get some downtime.

Muilenburg: You bet. All right. Thanks, Tom. Enjoy the warmth while you have it.

Risen: I will.

Muilenburg: OK. Take care. See you, Tom.

Risen: Thank you. Bye.

Muilenburg: Bye.