"I think we suck," Mulally said.
The harsh rebuke momentarily stunned the 450-odd members of the Rotary Club of Seattle gathered at the Westin Hotel for Mulally's luncheon address, but they recovered and gave him a supportive round of applause.
Nevertheless, the remark is sure to send shivers down the spines of politicians and community leaders who have spent months struggling to persuade the aerospace giant to build its proposed 7E7 here.
The ever-affable Mulally quickly tried to snatch his comment from the air, and he jokingly pleaded with his "friends from the press" not to quote his four-letter word.
"What I really mean is," Mulally said with a smile, "we've got a lot of work to do."
He said he is "really encouraged" by the recent work of Gov. Gary Locke and the Legislature to improve Washington's competitiveness. In addition to his Boeing role, Mulally is co-chairman of Locke's Competitiveness Council.
Nevertheless, Mulally followed his jab at Washington's business climate with specific complaints about the state, citing cumbersome regulatory and permitting processes.
He also dismissed the $4.2 billion transportation package approved last April as woefully inadequate.
"This is a Band-Aid," he said. "This doesn't even get you started."
Along with business-friendly changes to the state workers'-compensation and unemployment systems, Locke and the Legislature crafted a $3.2 billion package of Boeing-specific tax breaks if the company builds the 7E7 here.
Mulally's blunt words came during a question-and-answer period after his prepared remarks, when a member of the audience asked him his perspective on Washington's business competitiveness, and in particular its transportation system, given that he had served on Locke's council.
Speaking to reporters later, Mulally said he regretted using such blunt language, but he didn't backtrack from his critical tone about the business climate, noting the state still ranks high on workers'-comp and unemployment costs and low on measures of permitting efficiency.
Mulally is CEO of Renton-based Boeing Commercial Airplanes, which is finishing a nationwide search for the most economical location to build the 7E7, its proposed 200-seat widebody jet. As many as 80 sites in 20-plus states have bid for the plant, but Locke said last month Washington is one of a "handful" of states still in contention.
Mulally has said the company's Everett plant will be the "base case" for comparison with other sites, but he has made it clear Boeing's 87-year history of building its new airplane models in Washington could come to an end if the economics are superior elsewhere.
Boeing has declined to say how many sites are in contention or if Everett, the longtime home of Boeing widebody planes, or Washington's other potential site, Moses Lake, are among the leaders.
No 7E7 plant decision can be made, however, until Boeing's board of directors reviews the project's business case and gives it a green light. The company has said its board will make that decision and, if the answer is yes, choose a plant site by the end of the year.
Mulally echoed recent upbeat assessments about the plane's future from Boeing Chairman Phil Condit and Chief Financial Officer Mike Sears.
"As the economic recovery happens, people are really appreciating the value of a long-range airplane that can go point to point with a significant improvement in efficiency," Mulally said.
"So everybody — the airlines, the finance organizations, the banks, as well as the Boeing team — is getting more and more excited about the viability of the 7E7."
If approved, the 7E7 will enter service in 2008.
Over the near term, Mulally expects the world's airlines to continue their financial struggles through at least 2004; though travel is recovering, he said airline profits remain elusive because carriers are using cut-rate prices to fill seats.
Consequently, Mulally does not expect a recovery in airplane production until 2005 "at the earliest."
He also left open the possibility of more Boeing layoffs in 2004. The company's forecast calls for 280 airplane deliveries this year and 275 to 290 next year. If next year's figure is fewer than 280 jets, more job cuts could be necessary.
Boeing has cut more than 35,000 jobs since Sept. 11, 2001.
One issue Mulally did put to rest was a Rotarian's suggestion that he run to replace Locke as governor.
"I never even thought of anything like that," he told reporters. "I'm concentrating on managing commercial airplanes for the good of all of us who are tied to it."
David Bowermaster: 206-464-2724 or email@example.com