Tuesday, July 7, 2009

Editorial: 7/7/09: A good day for the 787

Two year ago Boeing rolled out the 787 on 7/8/07 in a huge media event emceed by Tom Brokaw. Boeing was very proud of what they had accomplished to that point. The two years that followed was not something they wanted to crow about. Neither was the announcement in late June about another delay to the 787 that heard collective groans from airline executives, Wall Street, shareholders, Boeing employees and aviation enthusiasts around the world waiting for this plane to finally soar.

This last delay seemed more insulting, the cherry on the top of all the other delays (that's optimistic being after the cherry you can't add another layer) since it came so close to first flight and only a week after Scott Carson pronounced his confidence that ZA001 would fly by June 20, 2009. It was like Boeing was the gang that couldn't shoot straight. However the public perception, people have to understand that designing, building and testing airplanes, especially one with as much new cutting edge technology that the 787 has, is no easy feat.

Yesterday was a good day for the 787 program coming two years after rollout. It was a good day for two reasons:

1) The 787 finally moved on its own power in a series of low speed taxi tests which included low speed RTO (rejected takeoff) tests. These tests continued into Tuesday evening around 10 PM. These taxi tests followed the successful conclusion of final gauntlet testing which concluded on the evening of July 2nd before the 4th of July weekend. You can read Boeing's discussion of the final gauntlet testing here.

2) By far the biggest news and, in my opinion, the best news came from Charleston, SC when Boeing and Vought announced the sale of Vought's 787 work share and assets to Boeing. This makes Boeing more responsible for the fabrication and integration of 787 assemblies compared to what they originally envisioned in 2003 when they launched the 787 program. A lot of the 787 program is experimental and new. This not only includes the technology but the production system that Boeing had decided upon. Now this is where risk management comes in. Boeing's purchase of Vought's 787 unit and their purchase of Vought's share of Global Aeronautica is an exercise in risk management. They recognize the weakest link in their supply chain and in the end effected the necessary actions by which they could more directly control the situation. To be clear, Vought had made great improvements at the facility in Charleston as demonstrated by improved build quality and greater completion (less traveled work) of the 787 rear fuselage being sent to Everett. However, where the risk lay was in Vought's precarious financial situation and doubts about them being able to effectively and efficiently ramp up production. Vought had its doubts, Boeing had it doubts and the result was today's announcement.

Today's action by Boeing demonstrates that Boeing will not let this program fail. The projected costs of purchasing Vought's 787 site is estimated to be about $1 billion ($580 million paid to them directly plus the release of Vought from repaying advances that Boeing had given Vought for its 787 work). Clearly this kind of cash outlay represents Boeing determination to make the 787 program the cornerstone of the company for the foreseeable future. They cannot let this program fail. Now some will point to the assumption of Vought's 787 operations as proof positive that the 787 production model of outsourcing and systems integration is drastically flawed. Boeing purchase of Vought's share of Global Aeronautica is another example of Boeing proactive risk management.

But then how can they explain that other suppliers are doing well within this new production framework? MHI, FHI and KHI continue to build and deliver their work packages and are reducing traveled work. Spirit has been the brightest spot amongst the supplier partners with no more traveled work in the forward fuselage sections that are sent to Everett. And Alenia which had some quality problems very early on is performing very well. This indicates that, after the teething problems and the learning curve ramp up, Boeing's supplier partners are doing well and is vindicating the production model for the 787. Boeing did fail initially in overestimating the capabilities of the supplier base to quickly design test and build the composite structures and other breakthrough technologies for this aircraft and this is what put them in the hole. They had redeploy assets to get the supply base back in line thus from a risk management perspective the reacted accordingly and I believe they will continue to do so. I don’t think they’ll bring in more of the manufacturing work in house save for Global Aeronautica if they don’t show substantial progress ahead of the production ramp up.

Lastly, there continues to be speculation if this move will lead to the 2nd production line (it’s a matter of when not if) being located anywhere but Everett. (Scott Hamilton wrote a piece yesterday regarding the 2nd line). There is a lot of compelling arguments for locating the 2nd line Charleston which has been wrote about ad nauseum and thus I won't repeat it here but I do beleive that Boeing will decide later this year to locate the 2nd line in Charleston for the those reasons. Once the 2nd line is established and producing 787s, Boeing 787 backlog would be eased considerably, though that will all depend on the supplier's ability to produce enough throughput to supply both lines at the same time. If successful, it all started with Boeing taking control of the situation in Charleston with Vought.

1 comment:

gorbidog said...

Great editorial Uresh ... keep up the good work!