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Joyce Ray: Ladies and gentlemen, Chairman Fred Hochberg and James McNerney, the Chairman of the Presidents Export Council and Chairman President and CEO of the Boeing Company. [Applause] Fred Hochberg: Well thank you, thank you for staying with us this morning and the man who's sitting next to me clearly does not need an introduction as the President and CEO of Boeing Corporation and President - Chairman of the Presidents Export Council, I like to say and I am totally biased, it is certainly better on a Boeing, and a few months ago I came to coming down to New York and my flight was two or three hours late and I was late for a meeting and I don't like to be late for a meeting and I walked in and I said I have one word for why I am late for this meeting and the word was Airbus. [Laughter] The shuttle did not fly as scheduled then the second shuttle did not fly as schedule and the third shuttle didn't fly a schedule and I won't name that company that would be impolite but they fly the Airbus flight so it is always been on a Boeing. So I'm not going to go through a long introduction you have a program in front of you, many of you know Jim's work we are going to try I went I created a bunch of questions as though we would have about two hours here which we don't but to talk a little about the economy, economic policy, some thoughts about the peck export finance, SME's, let's see how far we get and we'll make this a conversation and then we'll be following with the lunch. Let me just start to make sure people have really understand Jim, you know many of us obviously fly on Boeing aircraft but maybe you could explain to the audience the full breath of the Boeing Corporation with satellite, military so people have an understanding of the full breath. James McNerney, Jr: Yes, good morning Fred and thank you. About half the company is what you would characterize as defense and space, satellites, space shuttles, space station as well as fighters and other kind of, other kinds of military equipment and then the other half is the perhaps better known part associated with the Boeing name which is the commercial business which is 737's, 747's triple 7's, etcetera so it's about half and half, although I must say in today's environment the commercial side is growing a little faster than the defense side given the budget realities here in town and given the opportunities we got with a new fleet of airplanes, the fuel efficiency in particular that's associated with them, so its that's roughly it, that's a good okay, yes. Fred Hochberg: And what's your view with this economy is going? You know we've had a lot of turbulence in the world no pun intended between its both in Japan, Libya, the Mid East, our own economy is growing what's your sense of where this economy is going, our US economy and the global economy. James McNerney, Jr: You know my sense is even though the recovery is a little slower than the normal recovery by the numbers, I see pretty -- aside from the pace of it which is a little slower, I see a pretty normal recovery quite frankly with the exception of those things that relate to real estate and construction. And real estate and construction are big job creators and recovery is huge and with those markets essentially remaining flat, remaining down, that's where a lot of the pop we normally get on the job side that we're not getting, we are getting it on the export side, we are getting it on the manufacturing side and so it's pretty normal except for that now you got Japan, you got North Africa which the economy has to work through my personal view is neither of those, their tough realities to deal with but I don't see either of them slowing down or substantially impeding what I consider a normal secular recovery. Fred Hochberg: Was beginning to add jobs again, in fact we added two and over two hundred thousand jobs in February, twelve months in a row, one of the largest rates ever and drop in unemployment 8.9 percent but still high unemployment, can you talk about what your sense is of employment both nationally what you see as a business and also at Boeing? James McNerney, Jr: I think, I think corporations are going to begin to add more jobs now, I think the productivity equation in many companies I don't want to say its maxed out because you're always looking for more productivity, but there is particularly for companies that are dealing in global markets because many markets outside the US are growing faster than the US is so it gauged well deployed multinationals, I think you're going to see adding more jobs including the Boeing company, I mean we're going to add a few thousand jobs this year, basically to fund growth on the commercial side of our business, 787 related and other things and so its we're at the point where productivity is maxed out and as the place begins to grow, jobs are going to come with it, albeit at a slower rate than we'd all like to see and we still need the real estate construction related jobs to pick up but we got to find, we got to have price discovery on a lot of the real estate out there and hasn't quite gotten there yet. Fred Hochberg: For Boeing, where might those jobs be a lot on South Carolina or its still Washington D.C.? James McNerney, Jr: Yes, I say a lot, both actually, both in North Charleston, South Carolina where we have a new facility building 787's and in the state of Washington because these are really the centers of our commercial business and virtually all elements of our commercial business is beginning to grow and then with the recent award of the tanker business which is sort of a 20-30 year window, 767 Washington based activity that will add to some growth out there in Washington state. Fred Hochberg: At our first panel this morning there was a lot of discussion about what we need to do in the US economy, some of it had to do with our education systems, in terms of, and perhaps for the people in the audience is family members or are their children, what kind of skill sets are you looking for at Boeing and what do we think we need to do nationwide to deal with those issues? James McNerney, Jr: Yes, it's a very tough issue, I think obviously the specific skill sets that we look for tend to be STEM related science technology engineering and math, we tend to be an engineering intensive company but I think that is also the area where our nation needs to focus, we are as most everybody in the room I think knows, you know, in one shape or form, we are falling behind significantly in those kinds of disciplines that and they relate most directly to growth and to innovation and we really got to address that issue, now where do you get to when you talk about that issue you get to K through 12 because that's where these kinds of things either catch fire in the minds of young people or don't, it's tough to convince somebody as they enter college who doesn't have the toolkit available for an engineering degree in college to get all excited and go back and retrain so you've really got to address it earlier and that gets to a lot of the reform that we're beginning to see at the state level which is all about improving teacher capability, removing some of the bureaucratic elements that are in the way of upgrading teacher training, pay and school autonomy to address these kinds of issues, now you can clearly see me lining up on one side of that debate although I think we those of us who think that way are a lot closer the way the administration thinks than a lot of people would think, it's a huge issue, it's all about K through 12 and on top of that we're you know Boeing and lots of other companies are trying to figure out ways to be involved in our communities to encourage and mentor these kinds of people and activities. Fred Hochberg: Since it's a K through 12 issue, that does put the harvest from that a few years hence, what do you think we could do in a more shorter term? James McNerney, Jr: Well I think it's an all-hands-on-deck kind of activity between now and that I mean the it is financial support of some of the best engineering schools in the world I mean if you look at the MIT's the Cal Tech's the University of Michigan's the Purdue's the you can name about fifteen very world class engineering schools that where aerospace has over the last decade shrunk as a piece of it, speaking self-interestedly now as the Boeing guy but and has been taken up by things who relate more to computer science and bio technology, I think we have to fund all of that but I think we need a bigger piece of aerospace quite frankly to keep the industrial base of this country strong in a lot of different ways so there's funding, there's corporate involvement, there is mentoring, there is support of programs that can convert today's freshman. I think one thing I would just mention is teaching philosophy, I mean I think, I think we have a philosophy in many of these schools which is put people through boot camp as freshman and you have succeeded if you have knocked out half of the people that aren't good enough, okay, I think the opposite, I think we should be going after yield which is to get 85 percent and to encourage those that have a difficult time the first year to stick with it, get mentors, get we're trying to support those kind of programs that are focused on yield, and that's a short that's a big short term hit because you got a lot of old school people and God bless them their great engineers but that kind of headset made sense back in the day when you had more people than engineering jobs, today we got just the opposite. Fred Hochberg: Early this morning, Dave Cody was on a panel, we were talking about tax policy... James McNerney, Jr: Yes. Fred Hochberg: Dave was provocative; he said we ought to have a zero percent corporate tax rate, so... [Laughter] James McNerney, Jr: Go Dave, go Dave. [Laughter] Fred Hochberg: What about tax policy, what do we need to do to be more competitive, to be more innovative in terms of tax policy? James McNerney, Jr: Well I tend to be, I tend to be in the camp that says level the playing field, I mean the game is global now, okay we used to be in a world 20-30 years ago where if you won in the United States, you won globally, today its different with 95 percent of the worlds consumers, 70 percent of the worlds purchasing power outside the United States, so winning globally to win in the US is going to increasingly be the theme so if our multi-national corporations aren't competing against other multi-national corporations from Germany, France, China, Japan on a level playing field, its difficult and right now we do have a tax policy that is a different approach than what most of the global competitors have, they have territorial systems, pay tax in the place where the sale happens, a lower corporate tax rate, fewer loop holes and so I would support that approach and which is lower average corporate tax, remove some loop holes because I realize you can't do it on the backs of the tax payers totally and have a territorial tax system where you're playing is where you pay tax and therefore this issue of repatriation of money all this hundred billion plus, I forget the number, you probably know the number, it's a big number, its maybe bigger than that. Sitting outside the United States that doesn't come back because of the double taxation it faces having already paid tax in the local country so I think there's some things we can do that will encourage growth and make it easier for guys like me to invest globally because we'll know that there will not be a dramatic difference between the tax regime I face and my global competitor faces. But zero percent, I you know Dave... Fred Hochberg: That's a good number. James McNerney, Jr: Yes, yes I can support that realistically not so sure. Fred Hochberg: I think the President has the idea of a little more as usual... James McNerney, Jr: I think so. Fred Hochberg: A little more of the tax mutual in the corporate scale. James McNerney, Jr: I got it. Fred Hochberg: One of the things that we'll be wresting with this year is free trade agreements and they are still a very tough sell to the American public and for American workers, what else could the business community do to do frankly a better job of making that case, it doesn't feel like the business made that case very well and your work has been certainly benefited from. James McNerney, Jr: Yes, I mean, you know every airplane that goes down the line in our factories has delivery of the international customer on the tail, and so there is a very direct connect between the 80 percent of our planes that go to global customers outside the United States and the way our workers feel about it, threre is that dread and that's the issue, I mean I think people tend to be afraid of global trade because they don't see the direct connection because they tend to they're thinking tends to morph into outsourcing which is an unrelated thought, it tends to relate to my job could go away, understand that because you know comparative advantage is all about some jobs to be more, some kinds of activities to be more valuable, one trading partner and another type of job and another and that could create dislocations, I get it, but we I've never seen a bigger disconnect between selling something and the reality, I mean the sales points are without trade agreements, our partners have advantages that we don't have, they have lower tax coming at our kind of tariffs coming at our country that we have going with theirs, we want to remedy that. The Europeans have already have free trade agreements with, for example, Korea, Panama, Columbia, TPP the Trans Pacific Partnership, and so it's remedying a disadvantage in most cases we used to lead years ago, two or three decades ago the US was always the first one out there with the bilateral agreements, multilateral agreements that brought down impediments to free trade, now we're lagging behind dramatically, you look at the last I forget what the numbers last thirty agreements have been made, most have been made by our competitors, and we got to catch up and so making that sale, you know, that the Koreans have two or three percent coming into this country, we have 11 percent going into Korea, lets remedy that, that means 11 billion dollars of exports to Korea that we don't have today now that's a pretty straight forward sale unless it gets mucked up in sort of domestic political agendas, and we got to cut through that and to answer your question, it has to be done locally, it has to be done with Governors, Mayors, and people who work in factories and that's when, on the Presidents Export Council, we're trying to put together an activity, we've got a handbook out of the BRT for this providing a database as a toolkit for people to use as they discuss this issue, but this has got to be won locally, this discussion has to be won locally, here it's kind of a theoretical discussion that everybody can kind of agree on, but the pressure is local, and that's the hesitation that a lot of the members feel and that's where we're trying to go. Fred Hochberg: What do we do to get the business community to sort of more step forward on that? I understand the point but it does feel like the business community... James McNerney, Jr: Yes. Fred Hochberg: In the workplace could do a better job. James McNerney, Jr: Yes I agree with you, I agree with your Fred, I mean I think its everything from painting and I know Caterpillar is doing this, you had Doug here I guess earlier today the paint the flag of the country that this that the earth moving equipment is going to now that's simple stuff, get a connection with your workers, but I think also mayors and governors, because mayors and governors, and they're going to play a bigger role in the political equation over the next two years. You look at the way the state legislature races are shaping up, the way governor races are shaping up as well as the senate race, the voice that supports this kind of activity is going to increase and we've got to harness that wave that I think can represent a counter balance to some of the voices that say no but we've got to give them the words that's the tool kit, the handbook we've got at the BRT, that's the activity we're spending more time with mayors and governors right now on this and other issues proportionally than we have and we're trying to encourage all members of the PEC and all members of the BRT to do the same thing, and we got to do more, I take your point. Fred Hochberg: When we talk about trade, frankly the subject goes to China, and there's a lot of also discussed this morning, China's both a customer, a supplier and a competitor. James McNerney, Jr: Yes. Fred Hochberg: What's your approach to China, because they are also about to build a new passenger airplane. James McNerney, Jr: Yes. Fred Hochberg: And what do you think what would you recommend to people in the audience how, as they think about their business how they might approach this better? James McNerney, Jr: Well there's kind of that breaks into two kinds of questions, how does an individual company deal with that reality and I'll answer that, and then secondly how do we try to encourage and shape China to be part of a league of nations that is implied by their WTO kind of obligations and those are two different things, but first of all how does an individual company play it, you can't chose any one of those dimensions, you're only a customer, you're only a supplier, you're only a competitor, and just play along that dimension, life is not that simple and so for Boeing, who has used China as a supplier, a huge customer, they're our biggest customer in the consumer in the commercial aircraft, and they are an emerging competitor, they are building a 737 size airplane over the next five to ten years and we have to balance that the two places we won't go is IP that is important to the next to the current next generation of airplanes, we won't go there, and we won't compromise global quality and cost because of the kinds of relationships we put together there but we are we will be pragmatic about encouraging supply, satisfying customers and working with them on things that will ultimately be competitive to Boeing because they all play together, it is a county where the government plays a role on all three of those things, and so it's impossible to ignore any one of those dimensions, as to the second part of the answer which is we've you know one of the reasons that we supported the US government taking a stand on WTO in Europe is that we know China is coming, okay, and we are trying to encourage a where the bright lines are drawn and where they aren't, if you're going to be a member of OECD and you are going to be a member of the WTO, we're encouraging the US government to make clear things like launch aid and that was made abundantly clear in the ruling which was a dramatic victory for the US, I mean 20 billion of subsidies identified in Europe, 3.7 in the US, the 3.7 in the US is stuff that happened 20 years ago, we've all stopped doing it, of the 20 that Europe was found to have violated, four has to be paid back immediately and 15 has to will dramatically change their business model, because the business model is around direct subsidy of airplane development, which we have never done, so that was a dramatic victory for clarifying the rules of engagement for developing countries as they develop products like airplanes and we're very hopeful that that will help us as we start dealing with the Chinese as they start supporting their efforts, what's right, what's wrong, what is allowed, what isn't. Fred Hochberg: Is the WTO the best place to deal with that because the OECD has tried to get China and Brazil and others to join and it's been, it hasn't happened as yet. James McNerney, Jr: Well I think the WTO I mean we can all think of a number of WTO judgments we don't like or we could think of the unreasonableness of the regime, etcetera, but you know I'm hard pressed to come up with a better way to engage an otherwise very diverse community with very diverse interest you know, I happen to think it works reasonably well and so I'd rather try to keep work on something that works well 80 percent of the time in any one persons judgment, than try to recreate a new regime that would just open up a Pandora's box in some respects. Fred Hochberg: Lets talk a little bit about the PEC and your work there, exports are up 70 percent in your first year as PEC chairman and that's a good track record. James McNerney, Jr: Thank you, thank you. Fred Hochberg: What else should we be doing as a country and even specifically to Exim, what else should we be doing to build on that momentum, to make use - at 70 percent we will double in five years, but we still got four years to go, what are your thoughts on that? James McNerney, Jr: Well we have made as the PEC, we have made 15 very specific recommendations to the President, many of which support things he is doing now, like free trade agreements, just want to see a faster, more impactful now, others of which his administration is not pursuing yet but the most important of which though is the reauthorization of the US Impact, okay, that's one of the 15 recommendations, get the governor slots filled, let's get the authorization, let's get lets clarify the rules of the road and as you know, most of corporate America is very supportive of your initiative and we want to make that very clear as from the PEC's standpoint, but you know it ranges from IP protection which in the minds of many from Disney to Microsoft is billions of dollars of lost revenue in places like China and other places. Visa reform, immigration reform, encouraging - and this overlaps some of your activities Fred, encouraging small and medium sized businesses, making it easier for them to export, it's the same issue you got, how do you make it easier for them to interact with you with programs that can work, because they don't have the size of staffs that Boeing has that sort of muscle their way through and so how to make it easier for them, how do you provide programs like your supplier financing program that your that I think is going to be very successful when you get it up and going... Fred Hochberg: We want to sign you up for... James McNerney, Jr: I know, I know, we're studying it Fred, we're looking at it very favorably though, no, we think it's a good idea and we like to figure out a way to work with you on it. The small and medium business I can't you know I forget what the number is but of those small, medium sized businesses that export most of them export to one country, okay, so they know the mechanics of it but you know so why not export to two countries, we'd have a dramatic impact on that export number and there's export control regimes, we're trying to support secretary Gates on simplifying raising the standard protecting the things that are really important, the stuff you can buy in RadioShack no longer needs to be on the list, and the but there's a host of things, and these ideas add up to about six hundred billion of improvement in exports if implemented which against a 1.8, 1.9 billion dollar number, that's a very meaningful and we're only into our first year, so we're just, we're trying to do sort of one idea, one implementable idea at the time working with you and working with commerce and treasury trying to get these things done. Fred Hochberg: In light of the difficulty in and we're still trying to pass free trade dealings, some of which has been negotiated over and over the years, Korea most recently. James McNerney, Jr: And renegotiate. Fred Hochberg: And renegotiate, and Korea has been negotiating we hope to get it voted on, we're working at the details of Columbia. Should exporters in this room and people look forward to additional free trade agreement to the next 3,4, to 5 years or is that just do we need to look elsewhere because these has been so hard to get through. James McNerney, Jr: Well, I personally feel and I think those of us on the PEC feel that we need this should be a starting point not a Oh boy its hard let's stop doing it, and I think the priorities now are the three trade agreements Korea, Panama and Columbia and then the Trans Pacific Partnership. Trans Pacific Partnership is very important because it creates a supply competitor to China and other places, I mean it's a very important agreement, and beyond that I think we should keep looking and I think the if you see a more balanced political equation over the next two to six years where both sides of the political spectrum have a more equal place to compromise I think in that environment we may find more fertile ground for some additional trade agreements, I'm hopeful, I think it's right for American business I think it's right for American competitors and I think it creates US jobs. Fred Hochberg: Since you've been on both sides of this and part of these free trade agreements and the things we've talked about overlaps, what do you think is the biggest misconception business leaders have on people in government and people in government of those in the business sector? James McNerney, Jr: Now that a loaded question, there's a real opportunity to answer this one wrong is there? [Laughter] I think the big discovery quite frankly, it's not a discovery because I've been hanging around government although I'm a little more deeply involved now, is there is more common ground than I think people think, I mean I think, I think UCare is deeply about American business winning overseas as I do, UCare is deeply about are we holding employment in places like Everett, Washington and St. Louis, you care about that as much as I do, and my tendency is try to find that common ground and focus on that rather than obsess over the fact that you know you've had a different life that I've had you know and its but although your background is almost as much business as mine, using you as the example, but you know I think the, it's I never think it pays to focus on the differences, I think it always pays to focus on common purpose and values and figure out a way and just sort of, just sort of blow through the differences. Fred Hochberg: Just shifting a little bit towards the the global market place, when we help you compete in other countries, you often see other countries export credit agencies perhaps more forward leaning, more aggressive, more doing different things, anything they're doing that we ought to do a better job we've already consider in this country that some of our competitions really doing, even the finance area or just in the trade promotion area? James McNerney, Jr: I think the I think the only thing that I would say is that things happen a little faster sometimes in some countries you know, and you and I have been working on how do we shorten the cycle times, how do we get our staffs working on a common process rather than a hand it off process, where we're double checking and you know so I think but some of those places don't have the thoroughness you do, okay, but I think if you just want to isolate one difference that reflects well on them, I think there's a little more speed sometimes, but I would rather have you than any of them. Fred Hochberg: Government at the speed of business, but it's not a slogan; we're actually doing it we're getting there faster. James McNerney, Jr: I know, I know. Fred Hochberg: Last year I sat on the stage with Jeff Himolt, you and Jeff worked at the same company... James McNerney, Jr: Yes. Fred Hochberg: Dave Cody and you worked at the same company, Al Malloly worked at - what was it at that GE water cooler that made all you guys so export oriented? What could others in this room learn from that? There must to be something that was, was like an incubator for many many years? James McNerney, Jr: Well I think it's GE is a very competitive place, and very competitive culture, not a political culture, so it's all about performance and since we're at GE tends to be in businesses that are all globally deployed and where winning globally is very important, one lead to another, you know, if you're going to win in that culture you had to had to be very global and had to be global quickly and so I think it was, it was the only way to win so that's why we are the way we are and... Male Audience 2: I was given this question I really didn't want to answer, ask it so... Fred Hochberg: Have we run out of time yet? We are about out of time, I'm going to tell you the question and not ask it because it's not my kind of question, which was who'd you root for the Bears or the Sea Hawks, not my kind of question, any you.... James McNerney, Jr: Bears, Bears. Fred Hochberg: Did you say Bears? Oh that's good, who's here from Chicago? Anybody from Chicago oh alright, so listen James. James McNerney, Jr: It wasn't much of a game either, yes. Fred Hochberg: I do want to thank you, I want to thank you for your service on the Export Council, and I want to thank you from all of us at the Exxon Bank, we are proud to work with Boeing, we are proud because frequently when we help Boeing get into sell aircraft into a country, we followed with small businesses, we follow with medium size companies, and so you are very much a trail blazer and your company is a trail blazer... James McNerney, Jr: Thank you. Fred Hochberg: ...and some of the best exports in the world so thank you for joining us and we're going to come back right after lunch but let's give Jim a round of applause. James McNerney, Jr: Thank you, thanks very much, thanks very much, thank you. [Applause]