Wednesday, April 24, 2019

Boeing Financials: 787 Deferred Production Cost down to $22,029 mm from $22,967 mm last quarter

Under the cloud of the 737 MAX groundings in the wake of the Lion Air and Ethiopian crashes, Boeing announced it's earnings for the 1st quarter 2019.

for the 787 program, the deferred production cost decreased to $22,029 mm from $22,967 mm.  This is a very healthy decrease of $938 mm.  Boeing attributed the almost $1 bn decrease to the investment they made in manufacturing system but also in part to the supply chain efficiencies as well as the increase in rate to 14/month.

One down note from the earnings announcement is the cancellation of Jet airways orders due to the financial collapse of the airline.  Thus Boeing not only cancelled the 737 MAX order the airline placed but they also cancelled the 10 x 787-9s that was on order.  Boeing's order book for hte 787 now stands at 1,431

Given the current issues withe 737 MAX, Boeing is going to depend on the 787 and, to a lesser extent, the 777 programs to be its cash cow for the foreseeable future.

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Sunday, April 21, 2019

New York Times Reports on 787 Workmanship Issues at Boeing South Carolina; Boeing Refutes Allegations

The New York Times dropped a major article regarding work at Boeing's South Carolina plant that builds the 787 entitled "Claims of Shoddy Production Draw Scrutiny to a Second Boeing Jet".  The article lays out how Boeing supervisors essentially turned a blind eye to workmanship issues and discouraged whistle blowing as well as retaliated against employees that did filed reports of manufacturing issues.  The Times also reported on numerous instances of FOD with the manufacture of the 787 at North Charleston.  This is an issue that has plagued the KC-46A program out of Everett but has now been revealed to be an issue with the 787 in South Carolina.

In response to the NYT article, Boeing North Charleston sent a message to its employees:

The 787 program has a lot to be proud of these days. Our transition to Rate 14 continues to be the most seamless rate transition in the program’s history, and our Boeing South Carolina 787 manufacturing operations are the healthiest they’ve ever been. More importantly, our quality metrics show that we are performing at all-time high levels as well. That is a testament to each of you, demonstrating your pride and your ongoing commitment to excellence with respect to both safety and quality. 
A story that posted in today’s New York Times, however, paints a skewed and inaccurate picture of the program and of our team here at Boeing South Carolina. This article features distorted information, rehashing old stories and rumors that have long ago been put to rest. 
I want all BSC teammates to know that we invited the New York Times to visit Boeing South Carolina once they contacted us, so that they could see first-hand the great work that is done here. They declined this invitation. 
The allegations of poor quality are especially offensive to me because I know the pride in workmanship that each of you pours into your work every day. I see the highest quality airplanes – airplanes that meet rigorous quality inspections and FAA standards – deliver on time on a regular basis from Boeing South Carolina, where they perform exceptionally well in service for our valued airplane customers around the world. Our customers feel the same way, and shared their own thoughts with the New York Times: 
American Airlines said it conducted rigorous inspections of new planes before putting them into service. “We have confidence in the 787s we have in our fleet,” said Ross Feinstein, a spokesman for the airline. 
In a statement, Qatar Airways said it “continues to be a long-term supporter of Boeing and has full confidence in all its aircraft and manufacturing facilities.” Note that only a portion of their quote was included in the story, and we wanted to ensure you had their full perspective:“Qatar Airways continues to be a long-term supporter of Boeing and has full confidence in all its aircraft and manufacturing facilities as a strong commitment to safety and quality is of the utmost importance to both our companies. We have over 100 Boeing aircraft in our fleet, manufactured in both Everett and Charleston, with many more to join in the coming years as part of our significant, long-term investment in the US economy.” 
In fact, we also heard from Suparna Airlines and Norwegian in response to the story, and here’s what they told us: 
Suparna Airlines: “The entire process of the aircraft delivery was very smooth. We want to thank the Boeing team in South Carolina who worked diligently with the Boeing standard and discipline to make the delivery a pleasant experience for us. The airplane has carried out more than 200 scheduled flights with total flight hours up to 500 at an operational reliability of 99.99%. We are happy with the performance of our first Dreamliner.” 
Norwegian: “We are very satisfied with the quality and reliability of all our 33 Dreamliners, regardless of where they have been assembled.” 
The inaccurate picture the New York Times paints is also offensive to me because they are counter to our company’s core values. Quality is the bedrock of who we are. That’s why we relentlessly focus on quality improvements and FOD elimination at all Boeing locations. No matter how good we are today, we always believe we can be even better tomorrow. That drive to be the best will never change at Boeing as we continue to strive to be a Global Industrial Champion and the leader in quality. 
It’s unfortunate and disappointing that the New York Times chose to publish this misleading story. This story, however, does not define us. Our company and our customers recognize the talent, skill and dedication of this excellent Boeing South Carolina team that works together to assemble and deliver incredible airplanes. I want to leave you with a word from Kevin McAllister, Boeing Commercial Airplanes president and CEO, which was not included in full from the New York Times: 
“Safety and quality are at the core of Boeing’s values – there is nothing more important than that. The 787 program has delivered 823 airplanes to more than 76 customers since its launch. As Boeing marks 10 years in North Charleston, our more than 7,000 Boeing South Carolina teammates are producing the highest levels of quality in our history. And, we are seeing this translate across our work and the in-service performance with our customers. We test our airplanes and verify components are fully operational, and when we find a component that is not, it is replaced and tested again. This is core to our quality system, as it is for the industry. I am proud of our teams’ best in-process quality of production and stand behind the work they do each and every day.” 
This is a team that I am very proud to be a part of, and I’m thankful for all that you do every day.
In the article, the NYT attributes the issues being experienced at the North Charleston plant to schedule pressures especially as Boeing has increased its production rate to 14/month as well as pushing to use non-unionized workers.  Equally disturbing is reports of retaliation against employees who filed reports of improper work, the use of substandard and even defective parts and the persistence of FOD that continues to be found by customers well after delivery and that could pose a safety of flight issue.  The last thought on the FOD issue is this:  the 787 production system is decentralized with numerous suppliers building individual fuselage and wing sections which are shipped to Everett and Charleston.  It may be possible that the FOD issues could originate with the suppliers but it is still Boeing's responsibility to ensure that any FOD is cleared out during manufacture and prior to delivery.

The Times does not report on any similar issues at Everett and it is not known if the 787 line in Washington is experiencing the same issues as North Charleston and if they are, is it at the same rate as at the South Carolina plant.

It is interesting that Boeing, in the statement it released, noted Qatar Airways statement of support of the program including mentioning that Qatar Airways has several North Charleston built 787s.  However, it is important to note that Qatar Airways has had issues with North Charleston and had complained vociferously to Boeing management about the work done on their 787-8s built at North Charleston.  Apparently Boeing took these complaints seriously enough that they switched the manufacturing site of subsequent 787-8 for Qatar Airways to Everett from Charleston.   Qatar Airways has since firmed their 30 787 options for the 787-9 and it appears that these 30 airplanes will also be built in Everett and not in South Carolina.

Given the 737 MAX and the KC-46A issues, this is something that may attract increase scrutiny from regulators especially the FAA.  In fact with this article out I believe the ball is in the FAA's court to look into the complaints filed by employees and former employees and see if there are corrective actions that need to be made.  It is important to note that there has not been an accident of the 787. I have heard of one off issues at Boeing South Carolina related the manufacture of an individual 787 at the facility but I'm not sure if I can categorize this as a systemic issue which the Times articles seems to imply. I have noted that there is one Air China 787-9 that was assembled over a year ago but has yet to make its first flight and I have to wonder if there was an assembly issue with this particular aircraft in light of the article.  Stay tuned.

Saturday, April 13, 2019

Boeing Delivers 17 787s in March,; 36 for quarter amid ongoing 737 MAX woes

Testing Complete3
To be assembled in Everett123
To be assembled in Charleston124
Parts Arriving6
Undergoing final assembly7
Storage/Change Incorporation and Re-Work0
Change Incorporation and Re-Work0
Pre-Flight Prep9
Production Testing4
Non Customer Flight Tests0
Ready for Delivery3

Even though Boeing really didn't have a good month in March, the 787 program finished the 1st quarter of 2019 in strong fashion with the delivery of 17 Dreamliners to customers as well as book a total of 20 net orders for the 787-9 (Lufthansa).  In the first quarter Boeing delivered 36 787 (29 x 787-9 and 7 x 787-10) thus averaging 12/month.  During the same period, Boeing received orders for 38 787s (34 x 787-9, 4 x 787-10).  Now that Boeing is delivering at a rate of 14/month, they have to target the same number, in terms of average monthly orders.  Boeing's order average for the 1st quarter is 12.67/month which I feel is a decent rate but my expectation is that they will book between 13 and 14 787 on average per month.

The notable deliveries that occurred in March include: Korean Air's final 787-9 on order and Egypt Air's first 787-9 on lease from AerCap.

During March, Boeing rolled out 14 787s, 7 from each assembly line thus reaffirming the production rate is 14/month and split evenly between Everett and Charleston.  The final assembly time for both locations range from between 15 days and 18 days but it is safe to say that there is no distinction between either locations with regards to 787 production except that Charleston will be the sole supplier of 787-10s while Everett will be the sole supplier of 787-8s.

I am expecting that Boeing will deliver up to 18 787s this month with 3 already delivered.  Among these deliveries is the 2nd 787-10 built and used for flight tests using the GE-GEnx-1B engines.  This airplane is to be delivered to United Airlines around the end of the month.  Also Air Canada will receive the final 787 from the order of 37 787s.  The bulk of the deliveries will be 13 787-9 with one 787-8 (already delivered) and 4 787-10s.

Lastly,  there is one notable 787-9 that has been sitting in Charleston for over a year now.  This Dreamliner, ZB061 (LN 688, B-1216) was to have been the last 787 delivered to Air China last year.  Instead it is currently serving the role as the most expensive paper weight made by Boeing.  It is still listed as assigned to Air China but there is still no dates for first flight or delivery.

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