Outsourcing missteps interrupt Boeing’s dream

Outsourcing missteps interrupt Boeing’s dream
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First Published: Sun, Sep 06 2009. 11 00 PM IST

Battling odds: Boeing’s manufacturing plant in Washington, US. The company acknowledges that the delays have sorely tested the patience of suppliers and customers, and damaged its credibility. Kevin P
Battling odds: Boeing’s manufacturing plant in Washington, US. The company acknowledges that the delays have sorely tested the patience of suppliers and customers, and damaged its credibility. Kevin P
Updated: Sun, Sep 06 2009. 11 00 PM IST
Washington: In Boeing’s cavernous plant here, temporary scaffolding rises alongside several of the first 787 Dreamliners ever built. Workers climb steel steps to slip everything from wiring to hydraulic systems into some of the planes.
Battling odds: Boeing’s manufacturing plant in Washington, US. The company acknowledges that the delays have sorely tested the patience of suppliers and customers, and damaged its credibility. Kevin P Casey / Bloomberg
In other bays, crews operate giant tools that help shape parts of wings being built for older-model 747s, 767s and 777s. Staccato blasts ring out from air-powered rivet guns. Cranes hoist finished wings and fuselage sections onto the assembly floor.
The scene is one of disciplined industry on a gigantic scale. But the fact remains that the scaffolding for the Dreamliners should never have been needed. The wings and major sections of the fuselage were supposed to arrive fully fitted from outside suppliers and simply be snapped together.
But the suppliers were at first too overwhelmed to install all the systems. Boeing says that they have since come up to speed, and that it should be able to wheel away the scaffolding soon.
The reverberating effects of Boeing’s outsourcing missteps have taken a huge toll. The Dreamliner—the first passenger plane to be made mainly with light plastic composites— is at least two years late and still awaits its first flight tests.
Boeing acknowledges that the problems have sorely tested the patience of suppliers and customers, and damaged its credibility.
Already, 60 orders have been cancelled, partly because of the delay.
The firm’s chief, W. James McNerney Jr, concedes that Boeing lost control of the process by farming out more design and production work than ever and not keeping close tabs on suppliers. He says the firm is retaking control.
Even after the cancellations, the Dreamliner has more advance orders from airlines— about 850—than any other commercial plane in history. Part of what gives Boeing an edge is that its main rival, Airbus, does not expect to complete its first composite plane until 2013. At an average sales price that aviation analysts believe to be about $125 million (around Rs611 crore) each, those 850 Dreamliners could turn into $110 billion.
The appeal to the airlines is clear: with half of its structure made of plastics reinforced with carbon fibre, a composite that is both lighter and stronger than aluminium, and more efficient engines, the 787 could cut fuel costs by as much as 20%, Boeing says. That could enable it to fly greater distances, opening more routes for point-to-point service and lessening the need for passengers to change planes at hubs.
Boeing, which is based in Chicago, said recently that it was fixing the latest Dreamliner snag: a series of unexpected stresses where the wings join the fuselage. It says it expects to begin test flights this year and to start delivering the plane in the last quarter of 2010.
In many ways, Boeing’s troubles could not have come at a worse time, with the recession curtailing orders for planes (making the 787 delays a relief to some airlines that do not have the cash now).
And Boeing’s large military business, which helped buffer the firm from a similar collapse in aviation after the terrorist attacks in 2001, has been hit by cuts in Pentagon spending on big weapons systems.
Given the problems, the company is taking steps to conserve cash. It had about $5 billion on hand at the end of June, down from $7 billion at the end of 2007. It is also going through a management shuffle, with the announcement last week that James F. Albaugh, the longtime head of its military business, was taking over the commercial side. And aviation analysts have begun to sound more sceptical about McNerney, 60, a former chief of 3M who won praise for cleaning up ethical scandals after he came to Boeing in 2005.
“There’s a real feeling now that things are happening on his watch that aren’t so great,” said Richard Aboulafia, an aviation analyst at the Teal Group in Fairfax, Va. “I think this is his test.”
Others are asking a broader question: whether Boeing will be able to regain its old magic at driving projects home.
“It’s very clear that this company excels in dreaming big, so big at times they’ve even taken their competitors’ breath away,” said Heidi Wood, an analyst at Morgan Stanley. “But there has been something of a pattern lately where those big dreams have been harder to realize.”
At the time the Dreamliner was being planned, in 2003 and 2004, Boeing’s commercial aviation business was still suffering from the fallout of the 9/11 attacks. Boeing was also losing market share to Airbus, the European consortium that was winning the battle to sell mid-size wide-body planes with its A-330 series.
Boeing knew that it needed to make the next technological leap if it was going to get back ahead of Airbus. And most aviation experts still think that the Dreamliner, set to replace the ageing 767, could be a game-changer.
But after Boeing merged with McDonnell-Douglas in 1997, its top executives became more cautious about investing in new airplane projects. Boeing’s goal in the merger was to broaden its military business and give it a more reliable revenue stream to help offset the boom-and-bust cycles in commercial aviation.
With the Dreamliner, Boeing aimed to expand its longtime outsourcing efforts, which had mainly focused on manufacturing parts, to a risk-sharing program in which the suppliers would also be Boeing’s partners. “The idea was to get the risk off their books and get other people to do the heavy lifting for them,” Aboulafia said. “But the flaw was that led to a kind of ‘engineering light’ approach, and the problems on the 787 can be traced to that.” For instance, Boeing contracted out the design and construction of the wings— one of the most exacting parts of the aircraft—for the first time ever. It also let other firms wrestle with the complicated task of baking and shaping the plastic composites.
Stock analysts estimate that the company initially planned to invest $8-10 billion in developing the project, but could end up spending $20 billion, including the penalties it will owe for delivery delays.
Still, by last spring, things seemed to be coming together, as the first plane was passing some of its ground tests. But in late May, the latest crisis began when there were signs of stress during a wing-bending test.
Patrick M. Shanahan, the vice-president in charge of airplane programmes at the commercial aviation unit, said the readings were totally unexpected but not initially worrisome.
He said his technical team had been making bets about what type of last-minute problems might pop up to prevent one of the planes from making the first test flight by 30 June. No one thought that the plane’s structure, which had always exceeded testing expectations, “was going to bite us”, he says.
Even though Pentagon spending is turning down, the firm still expects its military revenue to stay flat over the next couple of years, at around $32 billion a year. And though the recession is hurting, Boeing still expects to deliver about 480 planes this year and has a total backlog of 3,400 additional orders.
©2009/THE NEW YORK TIMES
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First Published: Sun, Sep 06 2009. 11 00 PM IST
More Topics: Outsourcing | Boeing | Washington | Dreamliners | Plane |