Aerospace Co.s to Create Net-based Exchange

FRAMINGHAM (03/29/2000) - The Boeing Co. and three other aerospace and defense manufacturers today said they're teaming up with Walnut Creek, California-based Commerce One Inc. to create an Internet-based trading exchange for the aerospace industry.

The new exchange is expected to open for business by midyear, and the four initial participants - Seattle-based Boeing, plus Bethesda, Maryland-based Lockheed Martin Corp., Lexington, Massachusetts-based Raytheon Co. and Tampa, Florida-based BAE Systems PLC - account for combined procurement spending of $71 billion per year.

During a teleconference, executives from the four companies said their goal is to quickly move as much of that spending as possible to the exchange in order to reduce costs. "In short, this will transform the way we do business," said Phil Condit, chairman and CEO of Boeing.

But there are many unanswered questions about the planned exchange. For starters, the founding companies still haven't signed a final agreement to set it up. That should happen early in the second quarter, Condit said.

The companies also wouldn't give a specific estimate of how much of the spending would move to the exchange in the short term. "It's going to be hard right now to scope how big this thing gets," Condit said.

How quickly aerospace companies move their purchasing functions to an Internet exchange remains to be seen, however.

"There's a contradiction in the personality of the aerospace industry. They've always been associated with technology at the leading edge, but [they're] also extraordinarily conservative," said Craig Schmitman, editor of AeroSpaceNews.com's Leading Edge, an online news service for the industry based in Ojai, California.

As recently as 18 months ago, a significant number of aerospace companies had not yet provided their employees with Internet access, Schmitman said.

Vance Coffman, Lockheed Martin's chairman and CEO, said at least half of its $13 billion in annual purchasing should eventually go through the new exchange.

But the exact figure depends on whether the companies "can get a lot of participation" from their combined total of 37,000 suppliers, he added.

Lockheed Martin is also talking with officials at the Department of Defense to try to sell them on the exchange, Coffman said. The response has been positive, "but they clearly want to know more about what this exchange will do."

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