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.
“When you start messing around with a fellow’s meal ticket they’re bound to get annoyed about it.”
Perhaps management should limit the training function to employees close to retirement, they would have the most self-interest in the success of the new workforce if they want their pension benefits to be secure?
It amazes me so many blame the union for the present situation. But those who actually work at the company see things differently.
First was it the union who paraded the 787 out to the press as ready to go! Was it the union who lied to the shareholders, employees, press, customers! Was it the union who told employees to buy the contract threw heavy intimidation or else!
Now if the company had just told the truth from the beginning, that the 787 program had major problems, the union would have never went out on strike. But union members were lead to believe the company was poised to make billions and were not going to share. The union already got hit from 9-11 and were waiting for payday.
Does anyone really believe that a strike would of happened if the truth had been told. But as it is, Boeing lied to everyone and now brought this on themselves. You have got to wonder how so many analysts missed this story?
Perhaps some of the press should be looking at the upper management as the ones to blame, first for ethics violations, then for becoming the liars they are! Perhaps some new management is needed. Someone who knows the meaning of honesty and good will, trust. Then perhaps a better result will come from negotiations with the unions. But, hey what do I know…….
Is it possible for this Company to come together and succeed?
The issues above indicate so many obstacles. In truth, the most important thing to stabilize attitude and cooperation between Management and Labor. There will be an increase in hiring in Everett ( surge) so jobs are not immediately threatened. There is future work in the upcoming years ( 777, 737) so there are ways to appease Labor and perhaps enter into a future contract that serves both parties.
Airbus is hemoraging monies and the possibility of the 350 being delayed or not built at all would benefit the 787 enormously.
This changes the overall production options of the Company and hopefully a chance for management and labor to reconcile more realistically.
@Eric Bloodaxe,
They are taking space from the 767 line to reach surge rate, i.e. they can’t do it with the existing line.
Not sure what article you think of that says the surge is 10 per month, I can’t find it in any of the articles I have seen.
However, if what you say is true, that they are spending the money on tooling, employeeing and training of people to get the Everett capacity to 10 and then just abandon it – It certainly validates my statement that they are prepared to spend money on getting out of Washington. How much profit is given up?
I agree that reducing union influence is a major reason but I think there is more to it. Way too much of Boeing’s revenue is going through that single enormous building. It is never a good thing to have all eggs in one basket and with this they have another basket.
Personally I’d like to see them move the entire 787 line to SC for this reason. Overtime make Everett the location for a single brand new line, 777 or even 737 replacement. Require much more of that model to be produced there so the most important things are within “screaming distance” and pulsate under the same environmental conditions to keep things in sync, sell the rest.
Leelaw sez “Perhaps management should limit the training function to employees close to retirement, they would have the most self-interest in the success of the new workforce if they want their pension benefits to be secure?”
Fact is, I had a similar experience with an equally insensitive manager.
I worked for a FBO in Michigan, they hired me to set up a factory approved TPE331 major repair facility, spent nearly $100 large doing it-the best of everything- and was a happy guy until the boss came around with a guy I’d seen in the shop and says “This is Ken. He doesn’t know what you do. He doesn’t know why you do it or how or what it costs. In fact, all he knows about Garrett engines is that they’re painted a light green color. Teach him everything you know so he can order you around because he’s your new boss.”
Three months later I was back in California working for Atlantic Aviation and going to GE school in Linn, Mass.
Erik Bloodaxe sez: The problems with managment are directly related to the merger. Yes, it’s largely Condit’s fault. He was a CRAPPY CEO. The first rule of M&A is eliminate the CEO of the company you are taking over. Give him a nice hand shake, a fat check, then send him PACKING. Step 2 is to evaluate his Lieutenants and eliminate any potential rivals there as well. NONE of this Condit did. Stonecipher totally steamrolled him. MD managers who had completely screwed up their company came into Boeing (who yes, had problems of its own) and continued to screw things up, but now they had even more mayhem to cause with a truely global company.
Specifics, my good fellow, will make an argument that’s worthy of respect. At this point all anyone’s said that supports this McDonnell Douglas indigestion/blame theory is they’ve named a couple names that everyone knew.
You know what it sounds like to me? People are more interested in blaming people for something that happened 15 years ago, when Douglas-at least LGB commercial- was stabbed in the back and left to bleed to death-rather than look in the mirror and say “That was then. This is now. What am I doing today to make things better?”
The first thing a lot of people at Boeing could do is quit blaming all their problems on something that happened a long time ago, and recognize that today, as Pogo saith, “we have met the enemy, and he is us.” or, for the more intellectually minded “The fault, dear Brutus, lies not within our stars but within ourselves, that we are underlings.”
I’ll stop the blaming once the company exec’s stop it’s lying ways. No one seems to want to address this in any way, shape or form?
I guess if you have stock in the company, it’s easy to overlook.
I’ll stop the blaming once the company exec’s stop it’s lying ways. No one seems to want to address this in any way, shape or form?
I guess if you have stock in the company, it’s easy to overlook.
So address it already and quit yer gripin’.
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