Exclusive: Ford's Mulally Got Wings at Boeing

In an exclusive interview, Ford CEO Alan Mulally explains how his Boeing experience helped him lift an ailing automaker during a recession and raise the share price -- without taking a government bailout.
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DETROIT (

TheStreet

) --

Alan Mulally

was among the 2 million people who watched the first flight of the Boeing 787 this month, which is not surprising. Before Mulally became CEO of

Ford

(F) - Get Report

in 2006,

Boeing

(BA) - Get Report

was his life for 38 years, and he had a primary role in the 787's early development.

"A first flight is just a magical thing -- I thought it was fantastic," Mulally said in an interview with

TheStreet

. "It's going to change the world, now that you have an even smaller airplane than the 777, that's going to fly as far as the 777. Think what that means: New markets, point-to-point markets."

Mulally, who was also instrumental in development of the 777, spoke a few weeks before the 2010 Detroit Auto Show, where Ford will unveil a variety of new products.

Alan Mulally, president and chief executive officer of Ford

Those products will include the 2011 Ford Focus, one of the first cars to fully embody his vision for the company: an enhanced-technology, fuel-efficient vehicle developed during an economic crisis on a global platform -- and yes, that also describes the 777 and the 787.

It is clear that Mulally's Boeing experience was sufficiently transferable that he could take over a downtrodden American business icon, manage it through the deepest recession in 70 years, and watch it emerge as a corporate star with higher market share, vast consumer acceptance and a 2009 stock price increase north of 300%. Shares were trading at $10.15, down 5 cents, at 10:20 a.m. EST Tuesday.

After successfully developing both the 777 and the 787, "Alan Mulally, if he continues to do what he is doing at Ford, will be viewed as the most impressive executive of this decade," says Joe Leonard, a longtime Mulally friend who spent 40 years in aviation and aerospace and recently retired as chairman of

AirTran

(AAI)

.

It was not quite so clear when Mulally was hired. At that time, "a lot of you were looking at me like I was crazy," Ford Chairman Bill Ford told reporters last week, at a media preview of new Ford vehicles.

The factors Bill Ford considered, when he hired Mulally in 2006, were these: "Alan had manufacturing (and) had the

Toyota

(TM) - Get Report

production system in Boeing plants. He had a product he produced that was more complex than ours. He had product lead time, he had dealt with quality issues his entire life (and) he had sold his product all around the world."

The Mulally Effect on Ford

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During an interview, Mulally declared "the parallels between Ford and Boeing are tremendous" and referred to a dozen or more of them. Among the most important, he said, is "having a point of view about the future" and sticking to it. A core component is that energy costs will rise.

"It's exactly the same, at Boeing and Ford," Mulally said. "We believe at Ford that we are going to pay more for energy over time, which is one of the reasons that we are absolutely committed to improving the fuel efficiency of all of our vehicles, whether they are small, medium or large."

What may be even more important than the many parallels, however, is that "because of the background and the success over the years (at Boeing), dealing with economic cycles, product development, safety (and) transportation, I had credibility inside Ford.

"If you came in and you didn't know about this business, if you didn't know about design and development and cycles, would you be able to have the confidence to move aggressively on these things, to allow everybody at Ford to pull together?" asked Mulally. "(I could) because I'd been through it. They knew I'd been through it. They knew they were dealing with somebody who knew what to do."

Mulally, 64, was deeply involved in development of six Boeing aircraft: the 737, 747, 757, 767, 777 and the 787. "I was on every airplane," he declared. "I was there for 38 years -- that's a long time."

A key lesson involves business cyclicality: "We developed every new airplane during the worst of times," Mulally said. In particular, he said, as the cycles turn down: "It's about taking decisive action to reduce your production to the real demand, (and) to accelerate the new products -- not stopping a product, but actually accelerating the research and development at the worst of times." Cyclicality means Mulally has laid off tens of thousands of workers at the two companies. "I also hired a lot of people," he reminded.

One way in which Mulally often communicates with reporters is to grab their notebooks and diagram his thoughts. In my case, he drew two circles. One showed worldwide market shares according to product size: 15% for large vehicles, 25% for medium-size vehicles, and 60% for small vehicles. The other showed world markets: one third for Asia, one third for Europe, one third for the U.S. In both cases, Mulally exclaimed: "Exactly the same, Boeing and Ford."

A problem was that unlike Boeing, Ford did not seek to be best in class in every market segment. When Mulally arrived, he said, "Ford was happy enough to be competitive, competing against

General Motors

and

Chrysler

." In other words, the bar was set too low: Mulally raised it.

Among other similarities Mulally cited: "Both are all about safe and efficient transportation." Both require hundreds of suppliers. Both develop advanced technologies, spinning off change that shapes the world. Both must sometimes look beyond initial customers, the airlines and the auto dealers, to the ultimate customers: consumers.

"At Boeing, we always looked past the airlines to the traveling public, which was why we went with smaller airplanes, point-to-point airplanes that would bypass the hubs," Mulally said. And while Boeing practiced "brand focus," Ford had to tear down its "house of brands" in order to focus.

Leonard has known Mulally for decades, although the two apparently did not meet when both worked at Boeing in the late 1960s. In the mid-1980s, however, Leonard was president of Eastern, launch customer for the 757. He was a division president at Allied Signal, a major supplier to Boeing, during 777 development. And in 2003, as AirTran CEO, he placed a major 737 order. Each time, Mulally was a key Boeing contact.

Early on, Leonard saw that Mulally "had the ability to make everybody feel like they're the most important person in the world." Furthermore, he was "an engineer's engineer," deeply absorbed in the critical trade-off of aircraft manufacturing, the sacrifice of weight and balance for added features. During 777 development, Leonard recalls Mulally describing how he was designing a toilet seat that wouldn't bang down, at a customer's insistence.

Moving to the auto industry was hardly a reach. "I don't think you can find a more complex business than aircraft manufacturing, in terms of integrating complex systems," Leonard said. Certainly it was not a reach for Mulally, "a great program manager who stays on top of details, pulls teams together and (has) experience working with suppliers as partners."

Aviation consultant Scott Hamilton said Mulally deserves credit for straightening out Boeing's 1997 production breakdown and for the success of the 777. But should he share the blame for the breakdown in the 787 global supply chain?

"Whether it was that he didn't set out correctly or he followed the board's direction to spread the risk, that production model was put together on Mulally's watch," Hamilton said. But Leonard said the supply model needed to be changed.

"There is no reason to have a bunch of Boeing engineers overseeing Allied Signal (or other suppliers)," he said. "Hold them accountable, but you don't need redundant work. Where they really dropped the ball is on basic program management."

That, Leonard said, is Mulally's strength, but Mulally was gone when many of the failures occurred.

Though he left Boeing, Mulally retains an attachment. About six months after leaving, he demonstrated in a chance encounter with Leonard that he still cared passionately about the airplanes and the customers. Leonard recalled the evening when he stepped off an elevator at the Waldorf-Astoria and ran into Mulally and a group of 20 people, all in tuxedos.

>>Photo Gallery: 787 Dreamliner

Said Leonard: 'Alan comes running up, puts his arm around me, and says to the others, 'You gotta meet this guy -- this is Joe Leonard, chairman of AirTran.' The guy looks at us, totally disinterested, like 'what is AirTran?'

"But Alan says to me 'We're going up for cocktails, you have to come.' I had a suit, they were all wearing tuxes, and I said, 'I don't want to crash the party.' Still, I go up, and Alan's ignoring the other folks. He says, 'Is Boeing treating you right? Do I need to call anybody out there? If you need help, make sure you call me.' It shows that he cares. And he never stops."

-- Written by Ted Reed in Charlotte, N.C.

For more of Mulally's thoughts, click here.