Airport News, "Boeing Business Jets: a different way to fly"

["Stephen Irwin" <stepheni@cwnet.com>]

Monday, October 11, 1999

Boeing Business Jets: a different way to fly
by Stanley Holmes
Seattle Times aerospace reporter


Struggling over a holiday gift for the busy corporate chieftain in your
life? A tiny arm of Boeing is offering the $36 million Boeing Business Jet
in the Neiman Marcus Christmas catalog.

The move is a departure for an engineering corporation not known for
innovative marketing. But it is just one example of the entrepreneurial
experiment taking place at Boeing Business Jets, a unit led by colorful
dealmaker Borge Boeskov.

Boeskov's goal is not only to sell sleekly appointed business jets to
wealthy individuals and corporations, but to help all of Boeing become more
nimble, less bureaucratic and more receptive to unconventional thinking.

And today, he was set to demonstrate that his business is doing just that.
At the National Business Aviation Association convention in Atlanta, Boeskov
is unveiling plans to build a second and larger Boeing business jet, the
BBJ2.

Boeskov, 63, an Iceland native and 30-year Boeing veteran, plans to allude
to Boeing's desire to build even bigger business jets in the future and to
announce 10 new orders for the original Boeing Business Jet model.

Boeskov, who exudes confidence, seems to have pulled off another big winner
for the aerospace giant, which had previously known only failure in the
business- and small-commuter-jet markets.

Sales of the business jets, which Boeskov calls the "tool for the new
global-businessperson," have more than doubled what planners had forecast
for this juncture.

In less than three years, Boeing Business Jets has sold 56 modified 737-700
jetliners and delivered 30 of them to customers.

Rival Airbus Industrie, by contrast, has sold just 12 of its corporate jets
in three years. And now Boeing is raising the stakes by offering the BBJ2 -
a 737-800 fuselage that will offer 25 percent more floor space, more than
twice the luggage space but slightly less range than the original BBJ. The
first delivery of the BBJ2 is set for December 2000.

"We're announcing already that we're into a family," Boeskov said.
"Obviously, you can guess we may be thinking about the BBJ3 and (BBJ)4 and
other interesting things that may come around."

These new announcements are the latest in innovative initiatives and
out-of-the-box thinking that has allowed Boeing Business Jets to prosper. It
has been able to leverage the advantages of big Boeing while responding
quickly to changes in this lucrative niche market.

"We are trying to become a small, entrepreneurial, speedy company," Boeskov
said. "Speed is everything. We all talk about velocity in the big Boeing.
Still, big Boeing is very slow at doing things relative to what we have to
do."

Design contest, Gold Card

Advertising in the Neiman Marcus catalog is only one of the new marketing
strategies being pioneered by Boeing Business Jets.

BBJ also initiated a design competition with the University of Washington
and the Italian magazine DOMUS, seeking new ideas for designing the cabin
interior for the buyers of the airplane - mostly businessmen, wealthy
foreigners, corporations and governments. The winner of the competition will
receive $20,000.

Boeskov's group has embraced innovative customer-service strategies that
include owner partnerships, leasing the jet by the hour and offering
customers one-stop maintenance and overhaul service worldwide with the
purchase of a Gold Card.

"Boeing is getting into a new segment of aviation," Boeskov said. "I call it
not Boeing Business Jets, but Boeing business aviation, which covers more
than just selling airplanes. It's the service side, the special
(modification) side. It's a tremendous, interesting thing."

One of BBJ's advantages is that it offers three times the space of its
nearest rival - the Gulfstream Global Express - but sells the modified
737-700 for the same price. The reason: The cost of building Boeing's
next-generation 737 jetliners continues to decline as the factory benefits
from an efficient production line and a record volume of planes moving
through the system.

In contrast to the billions of dollars to develop the new Gulfstream Global
Express, Boeing Business Jets spent pocket change to redesign the 737-700.

"We are just riding on that," Boeskov said, "and on the fact we're producing
one airplane a day," .

Even during Boeing's production crisis that caused serious delivery delays,
the BBJ jets were going through the factory faster than the airliner
versions. The reason is that every BBJ 737-700 is built the same way. There
is no variation and no special changes that airlines often demand.

"The customer does not have a choice of this kind of radio or that kind of
radio or this kind of thing in cockpit like the airlines get," Boeskov said.
"They just get what we offer. And that's fine with them."

Boeing Business Jets also has benefited from a surging economy and a boom in
the business-jet market. The number of individuals and companies operating
business aircraft surged to 8,236 last year, from 6,584 in 1991, according
to the National Business Aviation Association.

"This is really a whole different era regarding corporate aviation," said
Shelly Synder Simi, spokeswoman for the General Aviation Manufacturers
Association. "There's much more of an acceptance of the aircraft as a
business tool. It used to be an image of fat cats and corporate excess.

"We've come to the point where corporations no longer have to have money to
buy the airplane. Rather, they need the airplane to make money for the
corporation. It's a major increase to the company's bottom line."

Flexibility and winglets

Formed as a joint venture between Boeing and General Electric three years
ago, Boeing Business Jets is showing how freedom and flexibility can enhance
its bottom line.

"I think this could be an experiment in how Boeing can do something quicker
and better with a better profit potential," Boeskov said. "But the jury is
still out on how to break the larger business into smaller pieces."

Indeed, operating a small company under the shadow of big Boeing hasn't
always been easy.

In one instance, Boeskov faced stiff resistance when he wanted to put
winglets on the Boeing Business Jets. The winglets look like wingtips bent
upward. They give the airplane greater lift and efficiency without having to
extend the wing.

To Boeskov, ever the salesman, the winglets looked sexy. He believed the
owners of corporate jets would pay for style - regardless of whether the
winglets would improve the plane's efficiency.

Boeing, however, is renowned for building wings. And within the company,
many wing designers dismiss winglets, arguing that the same efficiencies can
be achieved by building out the wing flat.

Despite internal resistance, Boeskov insisted on the winglets.

He quietly drew up a one-page contract with a local supplier to build some
prototypes. Then he tapped old friends at the German carrier Hapag-Lloyd -
buyers of Boeing's 737-800 - and asked to borrow the plane to test the
winglets.

"I just asked him whether the loads and stresses could affect the life of
the airplane," recalled Wolfgang Kurth, chief executive officer of
Hapag-Lloyd."And, based on his verbal statement that the test-flight
aircraft would not suffer from the test flights, I said `go ahead,' "

"The decision was based on nothing but trust."

Then, Boeskov faced Boeing's senior engineering corps in a May 1998 meeting
that would determine the fate of the winglets. The engineers still opposed
the idea.

For every technical question the engineers raised, Boeskov - a former
aerodynamics engineer - offered practical answers.

Sure, engineers could calculate the math or spend hours observing the
winglets in the wind tunnel, but Boeskov proposed putting them on an
airplane and testing them for a month.

He told them the winglets were already built - eliminating one of the
sticking points. And when the managers said they had no test plane
available, Boeskov said he had one ready to go.

At that point, the managers threw up their hands. Boeskov got to test his
winglets.

The test results showed the winglets were twice as efficient as originally
calculated for the longer flights that the business jet would take, Boeskov
said.

After the meeting, one of the engineers observed that "we really didn't want
to do this. But what can you do? It's Borge."

Boeskov is a hard guy to say no to. Even hard-boiled airline executives say
they have ultimately relented under his charm and persuasiveness.

"I always felt comfortable that what Borge told me would happen, would
happen," said Gary Barron, recently retired chief-operations officer for
Southwest Airlines. "That kind of relationship goes beyond a piece of paper.
He sold us not just an airplane but a long-term relationship."

A former Boeing vice president of international sales, Boeskov believes in
developing personal relationships with airline executives, billionaire
investors and government officials who buy the planes.

"I have never seen him but smiling," said Kurth of Hapag-Lloyd. "The
discussions we had were always very entertaining, and looking backward, I
think we spent more time talking about fishing, flying and Iceland than we
talked about business."

Kurth added that "only a few Boeing salesmen establish a personal or close
relationship with the airline, which in my opinion is a serious deficiency."

That kind of personal attention paid off for Boeing. During his tenure in
Europe, Boeskov never lost a British Airways sales campaign to Airbus.
British Airways is one of the world's leading carriers; its purchases often
influence those of other airlines.

Boeskov still meets with former British Airways Chairman Lord King and
recently attended his birthday party in England.

"He's a very important person to me, and he bought billions of dollars of
Boeing airplanes," Boeskov said. "He was always very fair and he is a
personal friend."

The people running airlines today are more likely to have a financial,
marketing or legal background than an engineering one. And selling airplanes
today is a cumbersome process that can take years to close. And that's why
Boeskov is happy peddling business jets.

"A lot of these people we deal with want to be quick," he said. "They want
to deal with the top guy and they want to do it fast. They don't necessarily
look at the fine print. They want to get to know if they can trust you."

A case in point: One day last year, Boeskov received a call from an Egyptian
investor on Monday who said he would fly from New York to meet him in
Seattle for a 10:30 a.m. meeting on Wednesday.

In less than four hours, Boeskov sold him a business jet. The investor,
flanked by his attorney, left a $2 million deposit. Then the investor flew
back for a dinner engagement in New York.

For Boeing's master dealmaker, it was another sale and another day in
paradise.

*****************************************
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