Aerospace Firms Team for B-to-B

FRAMINGHAM (04/03/2000) - Following the tailpipes of their counterparts in the automotive industry, four aerospace and defense giants last week unveiled an Internet-based trading exchange for the aerospace industry.

The partners planning to launch the electronic marketplace by midyear are The Boeing Co., Lockheed Martin Corp., Raytheon Co. and U.K.-based BAE Systems PLC.

Together, the four companies annually procure $71 billion in goods and services from 37,000 suppliers.

Like the automotive exchange, the aerospace marketplace is being built on software from Commerce One Inc. in Walnut Creek, California. Oracle Corp. is also involved in the auto exchange.

Executives at the companies said their goal is to move as much spending as possible to the exchange to reduce costs. "In short, this will transform the way we do business," said Phil Condit, chairman and CEO of Seattle-based Boeing.

But unresolved issues remain. For starters, the final agreement remains unsigned by the four founders, and some observers question how fast these companies can move.

"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 industry news service in Ojai, California.

Only 18 months ago, a significant number of aerospace companies hadn't yet provided their employees with Internet access, Schmitman said.

Aerospace companies "haven't really been on the cutting edge," agreed Richard Aboulafia, an aerospace analyst at Teal Group Corp. in Fairfax, Virginia. "But efforts like this prove they're headed in the right direction."

A spokesman for Cincinnati-based GE Aircraft Engines, a $10.6 billion manufacturer that supplies about half of all aircraft engines worldwide, said the company has yet to decide how it will participate in an Internet-based industry exchange. Also undecided is whether General Electric Co.'s aircraft unit will participate in more than one exchange, he said.

In February, United Technologies Corp. (UTC) and Honeywell International Inc. announced a joint venture called MyAircraft.com. This week, Lexington, Massachusetts-based Raytheon will launch EverythingAircraft.com. (see story at top right).

"You're going to see a series of announcements [regarding aircraft and defense exchanges]. Everyone is looking for a value proposition," said Honeywell CIO Bill Sanders. But Sanders also suggested that there could be some consolidation and partnering among the various sites.

For now, GE Aircraft Engines is "talking to Boeing, Lockheed, Honeywell and UTC, but we haven't made the plunge yet," said company spokesman Rick Kennedy.

He added that GE is looking to be more of a supplier than a buyer on any Internet exchange.

"We're already pretty self-sufficient on the buy side," Kennedy said, noting that GE aggregates purchasing across its various units, then procures goods at online auctions it orchestrates itself. In March alone, GE bought $50 million in indirect goods at 12 different online auctions, he said.

Vance Coffman, Lockheed Martin's chairman and CEO, said that at least half of the firm's $13 billion in annual purchasing should eventually go through the new exchange. Bethesda, Maryland-based Lockheed Martin is also lobbying officials at the U.S. Department of Defense on the exchange, Coffman said. They have been receptive, he said, "but they clearly want to know more about what this exchange will do."

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