Farnborough Air Show 2016 - Day 1

Here's a summary of today's order action from Farnborough

Boeing

Donghai Airlines - 25 x 737 Max 8, 5 x 787-9 (MoU)

Standard Chartered - 10 x 737-800 (Firm)

Xiamen Airlines - 30 x 737 Max 200 (MoU)

Airbus

ALC - 3 x A350-900, 1 x A321 (Firm)
Virgin Atlantic Airways - 8 x A350-1000 (Firm)
Jetstar Pacific - 10 x A320 (MoU)
Air Cote D'Ivoire - 1 x A320neo (Firm)
Arkia - 4 x A330-900neo (Firm)

COMAC
China Aircraft Leasing - 60 x ARJ21 (MoU)
AVIC - 30 x ARJ21 (MoU)

Embraer
Arkia 6 x E195-E2 (MoU)
Kalstar 5 x  E195-E2 (Firm)
Nordic Aviation Capital 4 x E190-E2 (Firm)
Japan Air Lines 1 x E190 (Firm)

Mitsubishi

Rockton - 10 x MRJ90 (MoU)

Boeing details 787 progress during 1st quarter earnings call

Yesterday Boeing released its 1s quarter earnings which topped analyst expectations.  The 787 deliveries has contributed significantly to the improved bottom line and Boeing was more than happy to share the progress on the 787 program.

Boeing noted that they hit the 10/month production rate fully during the quarter but also have completed the preliminary design review on the 787-10.  Boeing will now proceed with the detail design of the 787-10 which is expected to enter production around 2016.

The production rate has stabilized at both Charleston and Everett which will also help them stabilize the delivery rate.  Boeing did note that there will be continued variance in the delivery rate as they are there are 18 customers receiving their first 787 this year and typically those customers have different requirements and testing that need to be done as well as differences in financing the final payment.  They did reiterate that they will deliver 110 787s this year. So far through today (April 24, 2014) they have delivered 21 787s.  I believe they can deliver at least 2 more, possibly 3 this month for a total of 23 to 24 for the year and 5 to 6 for the month of April.  Obviously they will need to pick it up in the later months going forward.  The lack of deliveries to Air Canada, I believe, hurt their April delivery number which could have added at least 2 more to that monthly total.  IT is rumored that the delays are attributable to issues with the IFE though it is not confirmed.

As mentioned earlier, Boeing said that the production system has stabilized.  The two issues that have also contributed to slower deliveries was the wing issue by Mitsubishi and the increase in travelled work on the mid body fuselage.  With regards to the former, Boeing said that there are only 3 more aircraft that need to be inspected and fixed thus that issue is largely behind them.  On the later, there has been a great improvement in the reduction of the number of open jobs.  Sources have confirmed this to me to be true but that there is still some improvement needed with regards to the travelled work.  It does appear that there are fewer aircraft going to the EMC and are actually going to the ramp to finish off the minor jobs still opened and then proceeding to the paint hangar.

The 787-9 testing is also going really well and Boeing is still maintaining first delivery in the middle of the year.  The 6th 787-9 to be built just rolled out of final assembly.  This is ZB167 that will be delivered to United Airlines in July.  This aircraft will participate in the flight testing program as well and I anticipate that it should start flying around the middle of next month.  It will undertake F&R/ETOPs testing with the GE GEnx-1B engines.  Boeing also said that unit cost for the 787-9 have improved 30% between the first and 6th 787-9 which is tremendous.  It should continue to drop as more aircraft are introduced into the production system and the assembly has stabilized.  However Boeing is expecting that most of the production over the next couple of years will be 787-8 vs. 787-9.

Lastly, dispatch reliability is continuing to trend above 98% but Boeing still is not satisfied and will be looking to get that above 99% which is not expected to happen until later this summer when improved software is introduced to the 787 fleet.

Full 787 List

Current 787 Production List

Delivered 787 List

787 Monthly Delivery Tracking

787 Customer Delivery

787-9 Flight Test Hours

Current 787 Operators

All Things 787: Projected 787 Deliveries


 

Boeing Execs Update on the 787 program through RBC Conference Call

Larry Loftis, VP and General Manager, 787 program and Pat Shanahan, Senior VP and general manager, Airplane Programs at Boeing were hosted on an investor conference call presented by RBC this afternoon.

Here's a synopsis of their comments and what was said on the call:

To date Boeing has delivered 38 787s overall and 35 in 2012 to 8 different customers. Boeing customers have told the company that the aircraft is meeting fuel burn expectations and passengers are also delivering great feedback in terms of comfort of the aircraft.

Started the year at 2.5/month production rate and will end the year at the current rate of 5/month. Boeing is tracking to plan to increase production to 10/month by the end of 2013. 

The next rate increase is to 7/month which is expected in mid 2013, whereupon it will stabilize at that rate before increasing to 10/month.

Boeing is well past the 90% engineering release milestone on the 787-9 and that was completed about 3-4 weeks ahead of schedule. The supply chain is largely the same as the 787-8 but have bought some work back in house. Schedule – the airplane is meeting all engineering milestones.  It is on original schedules with some suppliers ahead of schedule. The major components are currently being assembled by the major (tier 1) suppliers while wing assembly will start later this year into the very early part of 2013.  Boeing will introducing the 787-9 in to final assembly in late spring – late summer of 2013 and flight test in fall 2013 with EIS in early 2014. There will be 3 flight test aircraft with all three currently in production. the wing spars are currently being built at MHI (Mitsubishi Heavy Industries). There is a buffer in the schedule but it is looking like they won’t need it. The 787-9 weight has been stable and has improved by a couple hundred pounds. Boeing is planning for  6 months for flight test, but has been doing flight testing on the 787-8 to gather data to support the 787-9.  We now know why Boeing has been flying ZA005 lately. There is extra flow in the production system that has been allotted to the 787-9 in case there are issues during assembly of that aircraft.
 
Boeing has 3 final assembly lines going for the 787 and allows them a greater degree of flexibility to manage the ramp up of the 787 while introducing the 787-9 into the system.  The current plan is to continue to have the production split between Everett and Charleston at 70%/30%.  Boeing has been very pleased with the improvements in the production system over the last 12 months. The quality of the work and processes improve everyday, and the learning curve is tracking to their expectations. The curve at Charleston has been very good (for a new site, makes your wonder if Boeing had better expectations). Boeing has transferred best practices at Everett to Charleston and information is flowing back and forth very freely.  Boeing's intents is to make sure they have one standard set of best practices for both sites (one production system for 2 sites). 

Boeing has the ability to go beyond the 10/month production rate. The ability to go beyond 10/month will be determined by the market.  There's no constraint on bricks and mortar aspect of increasing the rate. Boeing has an understanding of the capabilities of the suppliers as well as their own capabilities.  The question will be the capacity of the suppliers and the rate to adding capacity.

By the end of the year, Boeing will have 60% of pre-LN 66 airplanes delivered. The remaining aircraft that are awaiting change incorporation will be delivered during 2013 to 2015 (Boeing currently has 23 aircraft undergoing change incorporation or awaiting change incorporation including 3 test airplanes).  The ones that remain are the lower line number and will take longer to complete as the extent of the changes  needed are extensive. There are firm homes for the majority of the planes that have yet to go through change incorporation. there are a couple that still need to find a customer (I'm guessing that these are ZA004 and ZA005).

With regards to delays, Boeing says that there  aren't any systemic delays (which would take weeks or months to resolve) in the production system but one off delays amounting  to a few days delivery of the 787 to customers because they are still learning.  Boeing would not comment on delays to specific customers or countries (China).

On the 787-10, Boeing is not ready to launch yet as they still have some work to do before they are ready to launch the program.  (Note they have said anything about Authority to Offer, ATO). Technically they are confident of the 787-10; operationally and financially they are trying to be more measured with their plans for the aircraft.  They are expecting an EIS at the back end of this decade (2017-2019 timeframe?).  It depends on when Boeing has finished the work they are engaged in with regards to the 787-10.  Boeing expects substitutions between the family of 787 models (go up or down within the different 787 models).

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.