Thursday, September 11, 2008

Effects of the strike on the 787

About a week and a half ago a Boeing 747 LCF made a routine delivery flight from Nagoya, Japan to Charleston, SC stopping in Anchorage, Alaska to refuel. Now typically these delivery flight are routine and usually not the subject of a blog entry but with the IAM strike going on at Boeing, it does underscore a couple of things about the what is happening with Boeing’s production model and it’s relationship with outside contractors and its labor unions.

First let’s look at the 787 as of late last week. Jon Ostrower, reported in his blog that ZA001 had its nose cone attached and that the airplane is sitting on its wheels which means that the landing gear swing tests seem to have been completed. Jon also says that he saw flight test equipment on the airplane. Right now the impediment to Boeing getting the plane out the door (other than the strike) is getting the remaining flight test and cabin equipment installed on board as well as knock on effects from some small systems integration issues. Schedule margin is tight without the strike as it is and Jon and Scott Hamilton reported that first flight would be delayed as much as 5 weeks (into mid December at the latest) before any strike effects.

Adding to the pressure of the 787 program is a report by Geoffrey Thomas saying that the production problems on the 787 are hurting new sales of the airplane. Apparently, delivery slots are not available until 2020 which means that the impact of the production problems have effectively pushed out the earliest delivery slots by about 2 to 3 years unless Boeing can manage an orderly increase of 787 output to about 14/month.

Now because there is strike on doesn’t mean that work on the 787 has come to a grinding halt as evidenced by the LCF flights this week. The tier 1 contractors like Global Aeronautica, Vought and Mitsubishi will continue to produce their respective work packages for as long as they possibly can (without shipping further sections and wings to Everett). Depending on when the strike ends, this work during the strike period will eliminate traveled work going to Everett. Boeing can restart production on LN 5 when those parts arrive with no traveled work to be done thus utilizing the 787 production line in a manner it was intended. This can only help in increasing the production rate of the 787 in the near term. So while the strike is on going at Boeing that hasn’t completely bought the 787 production to a grinding halt and may in fact help the production system recover fully by the time the strike ends. One note to all this is that some Boeing’s 787 suppliers are starting to cut back on production, namely Spirit has said they are cutting back on production on some of the products they supply to Boeing without citing any specific Boeing programs. At the end of the day there will be progress in the suppliers’ efforts to clean up the production mess and get their end of the business back on track because of the strike. If Boeing can get its end in order then the production model for the 787 can be a big success.
Read an AP report here.

That all said the question that should be asked (and so far has not) is the IAM being very short sighted in its on the issue of outsourcing. James Bell Boeing’s CFO said at a conference yesterday:
The union, he said, "would like all of the work to be done in the Puget Sound area and that's not realistic." Boeing, he explained, would like "complete flexibility" to outsource work to suppliers; "We have to figure out what's the right balance."
There is nothing that could stop Boeing from selling its Renton and Everett plants to an investor thus turning Boeing into a pure systems integrator and having Renton and Everett bid on work packages much like other firms did when they went shopping for suppliers for the 787. We’ve already seen that happen with Boeing Wichita when those operations were sold to Onex Corp. and was renamed Spirit Aerosystems. Is something like that going to happen, probably no but it is plausible. It is one thing for the IAM to fight for better wages and health care benefits for their membership and their retirees but it is another thing to try and dictate to Boeing management what can be built where in a world of tight margins and intense price competition from Airbus. To see how much things have changed Spirit is going to be building fuselage panels for the A350 for Airbus. Clearly outsourcing is not just an American phenomenon but a global one and Boeing competes on a global stage.

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