Phil Condit, Chairman and CEO of Boeing

This is a partial transcript from Your World with Neil Cavuto, October 27, 2003, that was edited for clarity.

Watch Your World w/Cavuto weekdays at 4 p.m. and 1 a.m. ET.

NEIL CAVUTO, HOST: Boeing (BA) sees its profits sink 31 percent as it paid to shut down production of its 757 jetliner. But take away those costs and things were actually looking up. Operating profits coming in at 32 cents a share -- that beat estimates by 7 cents.

Boeing's booming defense business is making up for any weakness on the airline side. The stock jumps nearly 6 percent.

Earlier, I asked Boeing CEO Phil Condit if he is taking his focus off the commercial side and running with that military might.

(BEGIN VIDEOTAPE)

PHIL CONDIT, CHAIRMAN & CEO, BOEING: No. You know, the thing we went after when we made this Boeing company was balance. We knew commercial would be cyclic, and it is. This is probably the toughest cycle there’s ever been.

We’ve got a great product line: “77” is going to make it significantly better. So I think commercial has a great future. You just don’t do it right now. That’s where we’re going.

CAVUTO: The 77 you’re talking about is your new line of aircraft. You think that’s going to be a big thing for you in the future?

CONDIT: I think it’s going to be a very big thing. I think it’s aimed right at the heart of the market. It’s got great efficiency. We’re going to do really striking technological things in terms of making it a more efficient airplane. So, you know, I think it has a great future. You’ve just got to wait for the cycle to work its way through.

CAVUTO: Now you got a little bit of controversy because of some of your commercial planes essentially for refueling purposes for the Air Force.

It got you in the middle of a battle between the Pentagon and those on Capitol Hill. John McCain was among those who said that this looked like a really cushy deal that the government was paying for Boeing.

What’s your thought on all this mess?

CONDIT: Well, number one, the Air Force does need tankers. These are getting old. There are more than 500, average age 43 years old. If the replacement cycle doesn’t start, it’s going to be a real problem in the future.

CAVUTO: Well, wasn’t Senator McCain saying, sir, all right, I can grudgingly see the need, but don’t lease the planes at an exorbitant cost to the government, just buy them?

CONDIT: Now, OK, let’s take that piece by piece.

The advantage of the lease is that you begin taking the oldest airplanes out, save maintenance cost. Lease is clearly more expensive than buying. It always will be, just like your house. Better to buy a house with cash, but most of us mortgage.

But when you balance those two, by getting the airplanes earlier, saving the maintenance costs on the old ones, it’s net an advantage to the U.S. taxpayer, and I think that’s the right answer.

CAVUTO: The fact, though, that many say that this occurred on the heels about maybe getting proprietary information from a rival Lockheed Martin (LMT) on satellite deals, do you think that you have had just a bad P.R. front over the last few months?

CONDIT: You know, the deal on the launch vehicle, EEOV, was a real deal, and it happened. Now it happened five years ago, not now, but, of course, it came out now. We are aggressively addressing it.

We’re going to be a lot better, a lot better at our ethics position, a lot better at our training. So, you know, you take the lumps when they come, but, if you don’t have that long-term focus and you’re not aggressively doing it, you’re not doing your job.

I think we’re doing our job.

CAVUTO: You took more than your lumps, though, to be fair, Mr. Condit. A billion dollars worth of launch contracts were reverted back to Lockheed Martin. Did you think that was too severe on the part of the Air Force, on the part of the military in general?

CONDIT: You know, people always try to talk about what’s fair and what’s not fair, and you compare to other instances. Obviously, would I have liked that to be less? Yes.

But, you know, the Air Force is our customer. We’re going to do what we need to do to make sure that customer is well-served. We’ve got a long market here, we have a great launch vehicle, and so, again, you plan for this long-term, and I think it’s going to be long-term a good market.

CAVUTO: Let’s talk about the market in general. You’ve been trying to keep a handle on cost. You’ve laid off a lot of people, a little bit more than 35,000, about a quarter from its heights. I’m wondering now where things go from here. Do you think the worst of the downsizing is as far as it goes?

CONDIT: The total number, the answer is probably yes. Our defense business is growing. We’ll be up 10 percent next year in revenue. Our commercial business is about flat, but we’ve got a new airplane that’s coming in to design, the 77.

CAVUTO: Right.

CONDIT: So, overall, there will actually be a slight growth in employment for the company.

CAVUTO: All right. Phil Condit of Boeing.

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