Boeing, just like its arch rival Airbus, is going all out on a new passenger airliner – the 787 Dreamliner. It is a response to Airbus’s A380 and while it has taken a while to get on to the drawing board – first being shown as the Sonic Cruiser and then the 747X – the 787 Dreamliner, which can seat between 240 and 296 passengers, has almost come to fruition.
But now some are wondering just how close the 787 really is to hitting a runway near you. The first delivery was originally planned for May 2008 but has now been pegged back to late 2008. Despite these major setbacks, which lead to a cut in revenue forecast for 2008 to the tune of $500m, Boeing’s profits for the last quarter of 2007 were up 4% to $1.03bn and the full year up 84% to $4.07bn, and the company expects to do better in 2008.
“Despite some development programme challenges, we are a strong company growing stronger, and we expect continued improvement in our financial results in 2008 and beyond,” says Boeing chief executive Jim McNerney. The company, in terms of commercial aircraft, had record sales in 2007 with 1,413 sales compared with Airbus’s 1,341.
Boeing says it has 857 firm orders for the new aircraft from 56 airlines worth around $144bn. It has blamed the delays on problems with the aircraft’s extended global supply chain and slow progress on the assembly line; a final delivery schedule and financial guidance for the 787 are expected sometime during April 2008.
“We are deeply disappointed by what this delay means for our customers, and we are committed to working closely with them as we assess the impact on our delivery schedules,” says Scott Carson, Boeing executive vice president and president and chief executive officer of Boeing Commercial Airplanes.
IS IT JUST A SUPPLY CHAIN ISSUE?
A new aircraft with new lightweight composite materials is a challenge all by itself. Changing the supply chain and the assembly process all at once is probably two steps too far too soon.
“Boeing probably underestimated the size of the risks involved,” says Robin Jackson, chief executive at ADR International.
George T Haley, director of the Centre for International Industry Competitiveness at the University of New Haven concurs: “If Boeing mismanaged anything, it is that they have tried to introduce an innovation in their supply systems at the same time they have innovated in product and assembly. Boeing should have held all systems and suppliers close to their assembly lines to facilitate cooperation between suppliers and Boeing.”
Because of the way the supply chain for the 787 is put together, a complicated array of companies share the risk and the profits of the new airliner. That means financial burdens will inevitably shift up and down the line as each company protects its own interest. The result could be short-term chaos and a delayed product in which everyone suffers.
Boeing is already likely to take a $2.5bn hit in 2008 for late deliveries and its 787 suppliers will be hit in the pocket too. Qantas has already indicated it will seek compensation from Boeing following the second delay and others, such as Nippon Airways, British Airways, Virgin Atlantic, First Choice and Chinese Airlines could follow suit.
It looks like Boeing’s eyes may, figuratively speaking, have been larger than its stomach and it has attempted to use what appears to be an automotive like production process with pre-fabricated sections being brought to an assembly line. Sections of the aircraft are to be flown in from Japan, Italy, South Carolina and Kansas and assembled in Washington in three days.
Some doubts have been expressed as to whether Boeing’s production timetable is doable. But the problems aren’t just with suppliers in China, there are hiccups much closer to home in the US.
EXPECTED TRIAL AND ERROR?
Nevertheless, it’s almost inconceivable that a company like Boeing won’t get this right eventually and fix it. “The best possible fix for the supply chain is to build experience and to weed out those elements of the supply chain that cannot live up to the required specs,” says ADR International’s Haley.
There are signs of improvement though. “Condition of assembly is much better and we will see continued improvements on the condition of each assembly shipped. All this helps to bring us back into alignment with the original design of our production system,” says Steve Westby, vice president of 787 Final Assembly and Change Incorporation in February 2008.
Things are actually moving and Boeing says it has 21 of its 787s at various stages of production. And how much more pain and embarrassment there remains down the line for Boeing and its suppliers whilst the lessons learned and the fixes are incorporated for Boeing and its suppliers remains to be seen.
“The primary thing that Boeing is learning, I think, is that it should not innovate in all areas at once. It has innovated in product, process and supply chain all at once, and innovation is messy,” says ADR’s Haley. Boeing may be guilty of overconfidence with risk management on this project too according to Haley.
“Boeing has not really mismanaged this effort from a technical perspective, but anytime you have a truly innovative product being developed, especially if it also requires significant innovation in the production process also. You are going to run into some potholes that throw your programme off schedule,” says Haley
Even the US Federal Aviation Administration (FAA) has gotten in on the act. Vital to getting the Dreamliner certification and for the cash to start to flow to the supplier partners, the FAA says it is concerned that the 787’s computer network is not sufficiently protected against intentional or unintentional in-flight access to the aircraft’s control, navigation and communication systems.
Boeing has said that these issues will be redressed by the time the first aircraft is ready for delivery. However, if that isn’t enough the FAA has imposed, ‘special conditions’ on the 787, in regard to the aircraft’s more-electric power architecture, which is not the news that Boeing, its partners or its shareholders would have wished to hear.
With a consortium of EADS (owner of Airbus) and Northrop Grumman winning a $40bn order from the US government to build 179 refuelling aircraft for the US Air Force, Boeing could do with a getting the 787 certificated and get on with deliveries as soon as possible.
Hopefully, everything should be ‘go’ now. There’s an old military acronym though, which applies to this situation, even with a new aircraft, and its surprising that Boeing with its military background hasn’t taken it on board – KIS (keep it simple). Changing too much too quickly and expecting things to work out is optimistic at best, naïve at worst.
