Second Guessing 787 Second Line
During the third quarter earnings call, Boeing CEO Jim McNerney made reference that the company would announce within “a couple of weeks” it’s decision on where a second line for the 787 would be placed. The two contenders being Everett and Charleston, both represent opportunity and risk regardless of whichever location ultimately wins selection.
In the short term, and as I have asserted before, a second 787 line is frankly not as important as getting the first line in Everett fully operational and producing 787’s in a steady stream. Granted, Boeing needs to churn as many of these airplanes out to get paid on delivery, but with the first line nowhere near stabilised and a supply base that cannot physically produce beyond 7-airplanes-a-month, the second line will take a back seat until such time a ramp up is actually required.
“If there are areas in the [supplier] factories right now and we would want to push them to higher than they can do right now, we have time to get into [higher] production, get the rate up which can really start to exercise the [supply] system and then we ask “how good can we make this, how much can we lean it out” but right now, things are sized to meet with the existing facilities,” Boeing 787 VP Development, Mark Jenks told me earlier this year.
There are plenty of variables you can throw in the mix.
Passenger traffic is waning, yield erosion shows even less sign of abating and airlines are struggling to get finance together for their lofty orders placed during the last boom cycle and are deferring what they can, wherever they can. The pressing “need” to procure the 787 now comes second to surviving the downturn in order to actually live to see deliveries - case in point, Japan Airlines.
Jim McNerney may have touched on the labour issues that Puget Sound seems to be plagued with every few years, but the reality is that if the IAM agree to a long term, no-strike based contract then the omens indeed look good for Everett to perhaps emerge as a potential victor in site selection of a second 787 production line. The real question is, not so much perhaps whether Boeing can win such a concession, but rather, is the risk of setting up a new line with a new airplane in a state that has very little aerospace engineering talent on tap, ready to take on a big a task as producing 787’s? Or do you stick to your current locality, with years of industrial expertise that can grind operations to a halt when contract talks hit a brick wall?
Already, we’ve seen last year that a new hire at Charleston damaged the fuselage of an in-production 787 by incorrectly fitting a part - that was blamed on bad training and managerial oversight. No matter, these are the kinds of day-to-day operational challenges that lie in wait. Before all that, setting up a new production facility outside of Washington State will eat into Boeing’s cash reserve, currently around $6.6bn and would likely take around 20-30 months to complete, depending on the eventual size of its planned new operation.
There is the issue of production to consider too. Boeing’s plan is to ramp up production to around 10-airplanes-per-month by late 2013.
Currently, the suppliers on the program are unable to go beyond producing 7-a-month at maximum capacity. Going beyond that rate will require significant capital expenditure to facilitate the “feeding” of two production lines, regardless of their locations. Until 787 deliveries start happening, no one gets paid. Without money, cap-ex is not on anyone’s agenda since the coffers are empty and money is still being paid out for late design changes, such as the side-of-body fix that emerged this summer. Boeing knows this only too well, since it is still having to pay customers for the existing delays to the program as well as negotiate with individual suppliers about cost absorption for rework and other associated program costs they are unable to bear on their own in the absence of income.
Then there is the critical element of the 787 itself. As of writing, there are 618 firm orders for the 787-8 and 194 for the 787-9. The short range, high density 787-3 has 28 orders.
With the 787-9 not due for service entry until the fourth quarter of 2013 (click), one possible solution that hasn’t been considered by any observer is that Boeing may consider is placing the 787-8/-3 in Everett and the 787-9 down in Charleston.
Such a move would quell risk on model variation on both lines and provide stability in producing just one model. In that scenario, given the fuselage dimensions (not wingspan) of the 787-8 and 787-3 are identical, the short range variant could slot in easier on that production line, particularly as the 787-3 is the last variant that will come into production (on an eventual already functioning 787-8 line). On the 787-9, Boeing aims to bring back engineering work in-house, become more vertically integrated and avoid the pitfalls of the highly ambitious (and equally criticised) outsourcing model that has stifled the 787’s path to first flight thus far.
Boeing is evaluating the mix of airplanes that could be incorporated into a second line, irrespective of location and has yet to determine whether the Everett and eventual second line can both produce all models, or whether they’ll house specific ones.
A 787-9 line in Charleston also allows a longer lead time for staff training so they’re better prepared for when assembly of that model starts. All of this is of course speculative, but are issues that Boeing has to address if it aims to reap the success of the 787 as personified by its sales tally.
So while Boeing battles for control over better working practices, stamping out quad-year contractual misery, the second line is for now, an extension of what the company always foresaw: a great product that needs growth and support all around it to cater for the demand it has.
Despite its setbacks, the 787 has a solid orderbook, solid airline backing and a company that is now trying to get more of the outsourced work back under its roof.
Until the first line is up and running, a second line was always in the pipeline, however, its just not as important when you stand back and look at the bigger picture - because without a fully operational line in Everett, the business proposition for a second line, from a supply chain perspective simply cannot be reconciled, especially when revenue from deliveries is nowhere near a point of maximisation.
None of the eventual plans can become a reality until the first 787 flies - it’s been a long wait, but will certainly have been worth it.
All images courtesy of Boeing
UPDATE:
Boeing Announces Second 787 Line In Charleston - Link
SEATTLE, Oct. 28 /PRNewswire-FirstCall/ — Boeing (NYSE: BA) today announced that it has chosen its North Charleston, S.C., facility as the location for a second final assembly site for the 787 Dreamliner program.
59 comments October 26th, 2009
