(FORTUNE Magazine) – THE LUCKY FELLOWS in charge of the Boeing Corp. have long been spared most of the traumas and tremors associated with running a vast commercial enterprise. This $16-billion colossus dominates its glamorous global marketplace. It is the largest aircraft manufacturer in the non-Communist world, as well as the second leading U.S. exporter and, according to FORTUNE's annual survey, America's third most admired corporation. The Boeing blue-collar work force is a loyal and industrious crew, the envy of manufacturers everywhere. The company's managers, from top executives to the factory floor, are among the most skillful in the U.S. But Frank Shrontz, 55, the soft-spoken Boeing veteran who took over as chief executive last year, may have some extremely shaky days ahead as he tries to protect the grand legacy he inherited. In the short run, he has to deal with grumbling from Wall Street. T. Boone Pickens, the corporate buccaneer who made a mild pass at the Seattle-based company this summer, appears to have shifted to other targets (see Money & Markets). His run at Boeing, however, did spotlight the company's desultory recent earnings (a mere $235 million on revenues of $7.24 billion in the first half of 1987) and laggard stock price ($50.75 recently, or only 14 times earnings). Shrontz's strategy of hoarding billions in cash to finance grandiose development programs is in keeping with Boeing tradition, but runs counter to the gimme-it-now attitude on Wall Street; he will have to spend increased time selling his story to investors. ''The company doesn't as a general rule pay all that much attention to its stockholders,'' says Wolfgang Demisch, aerospace analyst at First Boston. ''In the current environment, this probably doesn't generate any warm fuzzies for them.'' AT THE SAME TIME, Shrontz must cope with an inimical new environment for doing business. His chief competitor is the heavily subsidized European Airbus consortium, composed of French, German, and British units with a small Spanish participation. The aggressive pricing policies of Airbus have forced Boeing to slash its prices as well, leading directly to the company's current earnings slump. In the first six months of this year Airbus garnered over 35% of airliner orders in the world marketplace, to Boeing's 50%. As recently as 1981, Boeing controlled nearly 70% of the market. Boeing's major airline customers have become far more demanding since deregulation squeezed their profit margins. The big carriers increasingly seek to shift the financial risks of buying new aircraft to the manufacturer, and they are ever more aggressive in their negotiations. Steely-eyed numbers crunchers like American Airlines Chairman Robert Crandall (see Other Voices) and Texas Air top gun Frank Lorenzo are a lot tougher to deal with than the former captains of the airline industry, who were often caught up in the romance of their business. ''Oh, it's changed -- the white-scarf guys are all gone,'' sighs Dean D. Thornton, president of Boeing's commercial aircraft operations. In late August the carriers' hard bargaining caused Thornton and Shrontz to delay the company's major obsession right now, the multibillion- dollar development of a new high-tech airliner dubbed the 7J7. Shrontz also faces stiff new requirements the U.S. government has imposed on defense contractors. Along with its rivals, Boeing must put up a great deal more research and development money before any contract is granted. At a time when Shrontz would love to pump more earnings out of his aerospace business, the new government stance has increased Boeing's risk and eaten into the division's profits. In dealing with his formidable challenges, Shrontz can call on almost 30 years of experience at Boeing. An Idaho native and a law graduate of the University of Idaho, Shrontz joined the company in 1958 directly from the Harvard Business School. His first job was in the commercial aircraft division, negotiating sales contracts with airlines. In 1973 he left the company to become an Assistant Secretary of the Air Force in the Nixon Administration and, later, an Assistant Secretary of Defense. He returned to Boeing in 1977, became president of the company in 1985, and last year took over as only the third Boeing chief executive since World War II. Though almost diffident in his manner and more likely than his predecessors to seek a range of opinions before making a decision, Shrontz displays the confidence typical of top Boeing executives. Industry analysts give him high marks for maintaining the company's passion to excel, and many predict that an executive like Shrontz, wholly familiar with the company's culture, is the type to lead Boeing through the thicket. Before he addresses any of his other woes, Shrontz must shore up his support among investors. The company reacted with considerable alarm this summer when Pickens announced he owned about $15 million of Boeing stock and was seeking approval to buy up to 15% of the company. Boeing's board promptly adopted a poison pill plan that would entitle shareholders to purchase newly issued preferred stock in the event any ''adverse person'' acquired 20% or more of Boeing shares. Company officials huddled with Washington State legislators in the hope of gaining some kind of anti-takeover protection. Its Washington, D.C., lobbyists began chatting up friendly U.S. Congressmen, pointing out Boeing's central role in many sensitive defense projects. BUT JUST WHEN Boeing officials were fully girded for battle, their adversary seems to have retired from the field. Pickens has said little of his intentions beyond a couple of cryptic remarks about Boeing shares being undervalued, but he has moved on to take big positions in Singer and Newmont Mining. Boeing management doesn't know what the feisty Texan is up to or whether he still owns his Boeing shares. Shrontz admits reading Pickens's recently published autobiography for insight. He no doubt lingered over the passage in which Pickens refers to some defense contractors as ''established ( crooks'' who are ''stealing the taxpayers' money.'' Pickens goes on to say that a high Defense Department official once suggested he acquire a defense contractor for patriotic reasons. Even if Pickens should take up his cudgel again, Shrontz vows, Boeing will not veer from the long-term strategy of gathering cash for big projects that won't pay off for years. His hoard totals about $3.2 billion, about $1 billion slated for 1988 taxes and much of the rest for the 7J7 project. Despite the possibility that all that cash may lure other raiders, Shrontz strongly rejects any notion of a stock buyback or recapitalization plan. He says, ''What we're not going to do is jeopardize the future of the company to pay off short-term investors.'' Shrontz cannot help being aware of the risk he is taking. This spring, then Allegis boss Richard Ferris persuaded Boeing to buy $700 million of convertible notes in his company as a way of keeping shares out of the hands of circling raiders. Boeing subsequently made a handsome paper profit on the deal, but Ferris lost his job because investors refused to sign on to his long-term vision of a diversified travel empire. Shrontz expresses some dismay at Ferris's swift fall, but he contends that Boeing's situation bears little relation to Allegis before the debacle. The big difference, says Shrontz, is that he is not trying to sell some radical new concept. He argues that he is merely continuing Boeing's tradition of placing big bets on cutting-edge technology and then raking in fat profits down the line.

Shrontz's predecessors were champions of the long view. Reserved, aristocratic William M. Allen, who headed up the company after World War II, pioneered the use of jet aircraft for commercial travel. His successor, the irascible T. A. Wilson, committed more than the entire net worth of the company to launch the 757 and 767 in the late 1970s. Shrontz has so far convinced his board that the best course is to continue the company's penchant for high-stakes gambling. Says Lee L. Morgan, former chief executive at Caterpillar and a Boeing board member: ''You'd be crazy to do something totally different. Frank is not crazy.'' Many Wall Street analysts who follow Boeing agree, and most expect the company to climb out of its current earnings trough fast enough and far enough to keep its large institutional shareholders moderately happy. They base their optimism largely on Boeing's solid management team and the company's record backlog of nearly $30 billion in commercial aircraft orders. Even Alan Benasuli of Drexel Burnham Lambert, the most bearish aerospace analyst on Boeing, predicts the company's per share earnings will jump from an estimated $2.85 this year to $3.00 next year and $5.00 in 1989. Shrontz would be wise to find some way to fulfill those expectations. If a recession or some other passing cloud were to slice into the company's profits, his shareholders would almost certainly become even more restive. One major key to the company's future is the fate of the 7J7, which is designed to be a successor to the 727. Currently more than 1,200 aging 727-200s serve airline fleets all over the world. Boeing stopped building the 156-seat plane in 1984, and the great majority will be going out of service over the next 12 to 15 years. The manufacturer who develops the right product for this immense replacement market will be supreme ruler of the aircraft business by the year 2000. Boeing is wagering somewhere around $4 billion that the 7J7, which will utilize a revolutionary propfan engine, will be the winner. When company strategists began the 7J7 project in 1984, they started with certain assumptions about their customers' needs. They presumed that fuel costs, which can amount to 40% of operating costs on some older aircraft, would begin to climb again. They knew that the federal government will probably stiffen noise-abatement standards in the coming years because of mounting opposition by community groups. They also figured that many carriers will be looking for larger planes because of the mounting problem of airport congestion. Boeing had a vague inkling as well that customer service, especially as it applies to the beleaguered business traveler, would make a comeback. Thomas R. Craig, the commercial aircraft division's director of market research, says, ''Sooner or later, airline executives are going to start using comfort as a selling point.'' Because it had been nearly a decade since Boeing launched a new aircraft, the 7J7 team took a close look at the bits and pieces of technology that had cropped up over the years. The team literally papered the walls of a large conference room with charts and diagrams describing each breakthrough and how it might apply to the craft they were designing. Some of the improvements were obvious winners. Digital autonomous terminal access communications, or DATAC, allows for simultaneous two-way transmission on certain electrical wires. Its use can cut the wiring in an aircraft 50%, or 46 miles. Aluminum-lithium, a new lightweight alloy, can reduce weight and therefore fuel consumption by a significant amount if used for large sections in the wings and fuselage. By far the biggest change would be the propfan engine, a radical concept that looks like a bizarre variation on the old, propeller-driven engines. Under development by the major aircraft engine manufacturers -- General Electric, Pratt & Whitney, and Rolls-Royce -- the engine has passed many relevant tests and now appears to be a promising choice to propel the aircraft of the future because of its reliability and fuel efficiency. Boeing engineers estimate that their propfan 7J7s will burn an astounding 85% less fuel than the 727. The new craft began to take shape last year. Company planners, assessing the market, decided that a 150-seat plane would fill the need for somewhat larger capacity. To handle the carriers' desire to provide more creature comforts, the company decided to widen the body enough to allow for two aisles instead of one. Such a move cuts back on fuel efficiency somewhat, but passengers greatly prefer the two-aisle arrangement, and carriers may be able to slice in half the average turnaround time -- the 40 minutes or so it takes to unload and load a single-aisle plane after it lands. The airlines might also use the configuration to pamper disgruntled business travelers, allowing for relatively roomy 2-2-2 seating in a full-fare section and less commodious 2-3-2 seating for the backpackers and grandmas. ALL THIS may sound irresistible, but the company's marketers have run smack up against the airlines' truculent attitude toward aircraft manufacturers. The carriers can afford to be choosy because of flagrant overcapacity among the plane makers. George D. Shapiro, aerospace analyst at Salomon Brothers, estimates the world market for jet aircraft at about 500 planes annually. The problem is that Boeing, McDonnell Douglas, and Airbus are producing about 700 planes a year. Little wonder that big airlines can make outrageous demands before committing to large orders. This year American's Robert L. Crandall negotiated extraordinary terms with Boeing and Airbus on a $2.4-billion order. Crandall was able to persuade both plane makers to retain ownership and lease him the aircraft rather than sell them outright. In some cases, he can return the craft on as little as 30 days' notice. Boeing aircraft division president Thornton says he cannot live with such liberal walkaway provisions for a start-up aircraft like the 7J7, but he concedes that he may not get the ''comfort level'' of firm orders he usually seeks before launching a new plane. The big carriers are still wrangling about size. Some U.S. airlines hope to persuade Boeing to jack up the number of seats by 20 or more. In any event, Boeing's deadline for delivering the 7J7, moved up a year to 1993, could slip further unless a sharp rise in oil prices causes carriers to replace their old fuel-burners faster than planned. The best guess is that the program will eventually proceed. IT IS BY no means certain, however, that the 7J7 will mean a bonanza for Boeing. For one thing, the plane might very well steal much of the current healthy market for two Boeing planes, the single-aisle 737 and 757. The 737 carries about 135 passengers and the 757 about 170, not far off the capacity projected for the 7J7. Shrontz claims not to be disturbed by the prospect. ''We'd rather obsolete our own products than let somebody else do it,'' he says. But the potential revenues lost from 737 and 757 sales, added to the billions needed for the new plane, make the economic gamble that much scarier. Boeing will not have the market to itself. Airbus has had spectacular sales success with its A-320, a 150-seat plane that will start reaching customers next spring. The A-320 is a single-aisle plane with 3-3 seating, and it costs $10 million more than the $30 million Boeing expects to ask for the 7J7. But the airlines admire the A-320's technology -- and the plane will be available years before the 7J7. Airbus will no doubt upgrade the A-320 to compete with anything Boeing produces. McDonnell Douglas also plans to go head-to-head with Boeing, outfitting two models of its 150-seat MD-80s with propfan engines and calling them MD-91Xs and MD-92Xs. Even worse for Shrontz, his competitors may gang up on him. Airbus says it has talked with McDonnell Douglas, Lockheed, and Rockwell about joint aircraft ventures. No agreement appears imminent. Shrontz cannot afford to ignore that possibility or any other scheme his competitors might be hatching. McDonnell Douglas, which nearly withdrew from the commercial aircraft business several years ago, has come back strong because MD-80 orders have continued to roll in. In 1990 the company is launching the MD-11, a remodeled DC-10 with 320 seats and impressive technology. The prospects for that plane are somewhat uncertain, however, because it will compete directly against a new Airbus A-340, which is of similar size and capabilities. Meanwhile, the Airbus group has been emboldened enough by its success in the world marketplace to lay plans for several more new models. Until now, one of Boeing's advantages over Airbus was a unique ability to provide customers with a whole ''family'' of airplanes, allowing them to choose a craft tailored to specific needs. Shrontz and his lieutenants are using every friend they have in government and diplomatic circles to challenge the Airbus consortium on the billions in subsidies it has collected since 1972 to make up for its estimated $10 billion in losses. An Airbus spokesman defends the subsidies: ''The only way for the Europeans to get into the game is the way they've been doing it, which is through government support.'' BOEING ARGUES that the playing field is nowhere near level, and company officials are telling their story to anyone with influence who will listen. ''In the last five years, I haven't once been to Tokyo when I didn't see ((U.S. Ambassador)) Mike Mansfield,'' says Thornton. ''Because he's so respected, he can call the top people in Japan and remind them there's a big trade surplus with the U.S.'' Last winter, Boeing encouraged representatives of the White House and Commerce Department visiting Western Europe to persuade their hosts that Airbus is violating GATT agreements against dumping products overseas. The officials tried, but the campaign has produced no results. To muddy the competitive waters even more, several big Japanese manufacturers have been making noises about entering the commercial aviation business. Boeing officials claim not to be worried because of the huge start- up costs and the small domestic market in Japan. The company has been involved in a joint venture with the Japanese in the past and has even sold a Japanese consortium 25% equity in the 7J7 project. Says Shrontz: ''Given what the Japanese have accomplished in other industries, you'd be a little foolish not to think they could do it in the commercial airplane business. But I don't think they want to take the technology and run with it. Our view is that if we don't work with them someone else will.'' With his commercial aircraft division immersed in such a stew of problems, Shrontz has hopes of extracting more earnings from his other lines of business. He may meet some frustration there too. The aerospace division, which brought in about $3 billion in revenues in 1986, has been on something of a roll since division president Mark K. Miller drew up a list of five ''must-win'' projects in 1985. The five -- a short-range nuclear missile called the SRAM II, updated avionics for the antisubmarine P-3 plane, something called a hard mobile launcher for small ICBM missiles, a remote- control launching system for these ICBMs, and various modules for NASA's proposed space station -- could eventually bring in about $8.5 billion in revenues. Miller zeroed in on the five projects, allocating the necessary money and people to make Boeing's bids attractive. He made sure his entire division was attuned to the needs of the teams working on the big five. Says Randolph Mitchell, vice president for Boeing's aerospace operations: ''Everybody knew that if you got in the way of one of those must-wins you better have a damn good reason.'' Miller's scheme has proved out. Boeing snatched the first four contracts and will hear about the fifth, the space station proposal, sometime this autumn. But knowledgeable aerospace analysts fear the company may have bid too aggressively on at least part of the work. They question whether Boeing can complete the jobs without running into awesome overruns. Says Michael Gardner, a longtime Boeing follower at Shearson Lehman Brothers: ''The odds are very high that they'll be bitten by at least one of these new contracts. The question is whether it will be just one or all four.'' Shrontz is trying to whittle his operating and procurement costs by about 5% annually over the next five years in order to make money on his defense contracts and keep his prices low enough to compete with Airbus. The campaign, which the company undertook after talking with cost-control wizards at Ford and IBM, provided something of a corporate culture shock at first. Boeing employees were accustomed to hearing praise for their efficiency; rude remarks from managers about waste were a genuine departure. To get his workers' attention, the manager of one department that produces airplane interiors gathered a month's worth of scrapped parts and paperwork, loaded them into three large dump trucks, and deposited the mess in the middle of the factory floor. Then he stood next to the scrap heap while delivering a speech about pride on the job. With the help of outside consultants, Boeing has also set up a series of ''design-build'' teams composed of various employees who work on different stages of a project. For the first time, manufacturing workers can tell engineers directly when a theoretical vision turns impractical on the production line. For example, some metal aircraft parts are strengthened when bombarded with small pellets in a process called ''shot-peening.'' Boeing's engineers had always assumed that the job could be carried out faster and more cheaply if workers applied the pellets only on parts that absolutely required the process. In fact, workers spent hours masking all the other areas before proceeding. Once engineers on a design-build team found that out, they quickly approved the shot-peening of entire sections and everyone went on his merry way. That's the kind of success story Boeing officials are used to relating to visitors. Boeing has always been known as a company where all employees, no matter the color of their collar, take a serious interest and genuine pride in their work. In many ways, the loyalty and dedication of the Boeing work force has been instrumental in building the company's legendary excellence. Most people at the company with some gray in their hair turn out to have been Boeing employees for at least 30 years. BUT IF SHRONTZ is to make it through shark-infested waters to shore, he will have to rely even more than his predecessors on this tradition of employee loyalty. Here again, he could have trouble. The company's operations now spill across half the U.S. and beyond its borders. Boeing managers are suddenly confronting disgruntled workers and rapid turnover, the kind of horrors they are not used to handling. In late August the company settled a heated 60-day strike at a Canadian subsidiary that makes De Havilland commuter planes. It all adds up to a formidable menu for Shrontz. Even while conceding that the challenges ahead are arduous, this very sedate executive can scarcely conceal his scorn for anyone who dares to suggest that Boeing might falter. ''It beats selling shoes,'' he says with a kind of swagger in his voice. In that moment, he clearly feels atop the best company selling the best damn product the world has ever seen. That's the attitude that pushed Boeing to the pinnacle and may very well keep it there.

CHART: INVESTOR'S SNAPSHOT BOEING SALES (latest four quarters) $16.0 BILLION CHANGE FROM YEAR EARLIER UP 8%

NET PROFIT $583.0 MILLION CHANGE DOWN 8%

RETURN ON COMMON STOCKHOLDERS' EQUITY 12% FIVE-YEAR AVERAGE 12%

STOCK PRICE RANGE (last 12 months) $61.50-$42.75

RECENT SHARE PRICE $52

PRICE/EARNINGS MULTIPLE 14

TOTAL RETURN TO INVESTORS (12 months to 8/28) -12%

CREDIT: NO CREDIT CAPTION: NO CAPTION DESCRIPTION: See above.