A bit of a controversy arose this week when Bernstein Research published a report following the media briefing on the 787 program in which Bernstein predicted a delay for entry-into-service (EIS) from 1Q10 to 2Q10; a six month delay in going to production of 10 787s a month (from YE2012 to mid-year 2013); and a discussion that based on its interviews with customers and Tier 1 suppliers that early 787s will be 8% overweight (about 20,000 lbs) and 10%-15% short in range (about 6,900nm vs. 8,000nm).
Boeing disputed the overweight and range conclusions, saying that it was making progress in getting weight down and that range ought to be closer to 8,000nm than to the project 6,900nm.
We obtained a copy of the report and after a thorough reading conclude that the controversy is pretty much a tempest in a teapot. None of this is new news and furthermore, by the way Bernstein worded the report, there is plenty of room for interpretation.
Let’s first look at the weight and range issues. These numbers have been in the public domain in one form or another for the better part of a year. We had a full report on this, with analytics, on March 2. Boeing acknowledged long ago the plane was overweight, particularly the first six, which in aviation parlance may be called Lead Sleds, after the seriously overweight Lockheed L-1011-1. Lockheed didn’t get the weight off until later “block points.” Boeing is going to do the same thing. Starting with Airplane 7 (the first actual production model), much of the weight, but not all, is to come off. We understand very reliably that Airplanes 7-20, the next block point, will also be overweight, but not as badly as 1-6. We understand with somewhat less assurance that there may be some weight issues as late as Airplane 88, but this is likely to be largely inconsequential.
The problem on range isn’t confined to the airplane being overweight but also by the GEnx and Trent 1000 engines being over the target fuel burns. Both engines fell well short (the Trent more so than the GEnx) of targets. The initial installations on the first six airplanes are understood to still be short but not as bad as initial tests. GE and Rolls are readying later versions which are reported to be much closer to targets.
Bernstein wrote that early 787s will fall short in range and be significantly overweight. The analyst did not specify which airplanes or how many. Thus, there is room for subjective interpretation to suggest he’s right–or that he is wrong. The ambiguity makes it impossible to actually come to a definitive conclusion, but his statements are certainly correct with respect to the first six.
It should be noted that no airline is taking the first six; Boeing has acknowledged that these will likely be sold as Business Jets, where range/weight is less of a concern than these would be to an airline operator.
Where there is less certainty is about Airplanes 7-20 and just how far off the mark these will be. The further into the production stream, the less likely there are performance issues.
But none of this is necessarily inconsistent with Bernstein’s report.
Bernstein worries that major design changes will be needed in the 787-8 to bring the weight down. To be sure, there have been design changes but we are reliably told the “major” design changes will be forthcoming in the 787-9. Separately, Jon Ostrower of Flightblogger reported that the 787-9 will be as much as 30% different in design than the 787-8 to correct deficiencies in the current program.
Next, let’s look at EIS in 1Q10 or 2Q10. This isn’t new news, either, nor is Bernstein alone among analysts to project this. Just about every analyst doubts Boeing can complete flight testing in eight months, moving EIS from February 2010 to sometime in 2Q. We joined many times in this view.
Having been at the 787 media day, we saw Boeing’s detailed thinking, revealed for the first time, about how Boeing plans to shorten the flight testing. From a layman’s perspective, their outline seems to make sense. What can kill it, of course, is the number and severity of unknowns and the prospect these could exceed Boeing’s planning for the Unk-Unks. Given the history of the program, such skepticism is well placed, but at least now Boeing “has shown its math,” something the company rarely does when making projections (be they production on an airplane program or the funding gap). When Boeing fails to show its math, this only leads to doubt and uncertainty to the audiences officials are making their pitches.
Any controversy over the EIS date is overblown, because this has been “out there” for more than a year, too.
Finally, let’s look at Bernstein’s production ramp-up commentary. Boeing has always acknowledged that 10/mo is unprecedented for a wide-body program and that plenty of lead time will be necessary to allow its own resources and that of the supply chain to achieve this goal. The conventional wisdom is that Boeing has never produced a wide-body at a rate of more than seven a month (currently the rate of the 777), though historically we found a year in which 747s were delivered at the rate of 9/mo.
But speaking historically, the industrial partners always knew that Boeing planned on 10/mo for the 787. Spirit Aerosystems, in one of its SEC reports in 2007, mentioned plans to produce the 787 Section 41 (the forward fuselage) at a rate of 10/mo. We talked to a partner who planned for this rate as well. None of this is news. Whether this can be achieved by the end of 2012 remains to be seen, but this plan has been known for a long time.
What is a bigger question, in our view, is whether, when and where Boeing can open a second line to take production to 12, 14 or 16 a month and if the supply chain can accommodate these ambitious plans. We believe Boeing has no choice but to try for 12 or 14 a month to overcome up to three years in delays for customers and to offer new delivery slots for new customers–and to keep Airbus at bay with its A350-800, the sole model of this family that is a direct competitor to the 787 (the -9 version).
Long ago we spoke with a Boeing executive who suggested that it would make more sense to have two lines producing at the rate of 7/mo than one line at 10, 12 or 14/mo because managing downturns and upturns would be easier. The question is how the supply chain, including the industrial partners, could achieve this. They planned for, and in some cases, built factories for the expected 10 airplanes a month. To increase capacity 20% (to 12) or 40% (to 14) or 60% (to 16) would require major capital investment, not only for the tooling but also the physical plants. These would be expensive expansions in the tens or hundreds of millions of dollars (depending on the vendor). Then what, if there is a downturn, and all this expensive equipment and infrastructure becomes idle?
The questions about increasing production don’t revolve so much about the technical capabilities but more about the logistics and wisdom.
We think that if Boeing and its supply chain, including the efficiency-challenged industrial partners, can actually get production working smoothly, 10/mo by YE2012 is possible. But our guess is as good (or as bad) as anybody else’s, including Bernstein’s.
These issues aside, and we actually don’t think these issues are especially revealing because they’ve been known for a long time, Bernstein produced a superb report that thoughtfully outlines the risks–and there are plenty that remain–the issues, the challenges and comes to a conclusion that is hardly illogical or wacky, even if one disagrees.