Boeing needs a second production line for the 787. Some say Boeing needs to get the airplane flying before worrying about a second line. While there certainly is some truth to this, the two decisions aren’t mutually exclusive.
Although the 787 seems to have become the poster child in some circles of how Boeing can’t walk and chew gum at the same time, let’s remember that the 737 and 777 lines are humming along nicely; so is the all-but-dead 767 line. The 747-8 is a challenged development, true, but as we’ve seen, Boeing is hardly alone with challenged airplane programs. Airbus still has issues with the A380 and the A400M is sidelined on the ramp for some time to come.
But we digress. While some aerospace analysts suggest Boeing should wait before committing to Line 2, we think Boeing has to move sooner rather than later–and by sooner, we mean make a decision in the next 90 days. It will take an estimated two years to get a second line up-and-running. And it is because things are as painful now that Boeing needs to move now.
The development and penalty costs are draining cash away from Boeing at alarming rates. At March 31, Boeing had $4.4bn in cash–and this is after a $1.8bn debt-and-equity issue. We think this is a dangerously small number for a company this size with the continuing cash requirements of the 747-8 and 787 programs.
The delays in the 787 program have pushed deliveries to many customers around three years beyond promised delivery dates. Compensation costs are adding up. There have been more than 70 cancellations from lessors and airlines–and more are likely. Still, unless the bottom falls completely out from under the 787 orders, Boeing faces delivery delays stretching toward the end of the next decade.
Boeing needs to reduce the delays. It needs to put an end to the penalties. It needs to start taking in cash. This is why Boeing needs a second 787 production line sooner than later.
Boeing’s business plan calls for going to 10/mo by the end of 2012. Even at this rate, customers face delays of up to three years for their airplanes. The only hope of reducing these delays is to go beyond 10/mo–to 12 or 14–as soon as possible. If it does take two years to get a second line up and running, even a decision made by the end of the third quarter means that at the earliest Line 2 would not start producing until 4Q11, and realistically probably a little later.
This is why Boeing needs a second 787 production line sooner than later.
What about new customers? With the delay-plagued backlog out toward the end of the next decade, Boeing can only offer new customers earlier delivery positions by establishing a second line and reserving some slots for these new sales. Otherwise these default to Airbus and the A350. Strategically, Boeing has to accommodate new sales.
This is why Boeing needs a second 787 production line sooner than later.
Where does the second line go? As every Boeing or Airbus follower knows, last week there was a great deal of news and speculation that Boeing is about to buy the Vought 787 facilities in Charleston, SC, laying the foundation for Line 2 there. We are among those who believe this to be the case.
Others hope not. The Seattle PI has this item about why South Carolina is being considered a Line 2, and it’s all about labor, according to those quoted. Unless labor here in the Seattle area shapes up, the theory goes, Line 2 is going elsewhere.
We don’t think it is that simple. Certainly labor needs to step up and provide stability against the uncertainty of a strike every three or four years. But we’ve closely analyzed the business mentality of Boeing CEO Jim McNerney and he isn’t just about labor; he is about cost and productivity. We believe that anyone who focuses only on the labor equation doesn’t see the Big Picture of Jim McNerney. A total package to keep Boeing here is necessary. A “total package” includes adjusting the cost of doing business in Washington State, which involves a wide-range of costs from labor to energy to property taxes to business taxes to transportation improvements and so on.
While many say Washington has catered to Boeing long enough–and to some degree, we concur–improving the all-encompassing business climate should be structured to benefit all businesses, large and small. We do not, as long-time readers know, like “corporate welfare.” But if other states (including South Carolina and Alabama, just to name two) offer incentives and tax breaks, our state needs to do the same.
There are those who take the position that it would be good riddance to Boeing. As infuriating as the company can sometimes be, this is a short-sighted position. Certainly losing Boeing would relieve congestion on the area roadways. But an entire aerospace industry here would be threatened by Boeing’s loss. Boeing, even in these bad times, is one of the major local philanthropic companies.
We love living in the Seattle area despite the traffic, despite the perpetual rain (we have to keep up this image here), despite the cockeyed taxing system. But one thing that does drive us batty is the propensity of Washington politicians at all levels to become complacent. After winning the 787 line in 2003 (following a total panic attack when it appeared we would lose it), politicians at all levels leaned back, breathed a sigh of relief and promptly forgot that we can’t forget. But we did.
We are again in a crisis mode. But the politicians still don’t get it. Whether Boeing decides in 90, 120 or 180 days what it will do about Line 2 and where, these timelines leave very little time for stakeholders to wake up and smell the bacon.
Very compelling arguments, Scott, on the necessity for a second line. I did not consider the cash flow implications from accellerated deliveries brought on by a significant increase in production capacity. However, do you think upstream suppliers can support this?
I think what you fail to grasp Scott, is that there is no ‘fast track’ to a second line.
Certainly it would happen sooner in Everett than Charlston, but either way we are talking three to five years. Three for Everett, five for S.C.
Of all Boeing’s more recent failures, it’s total inability to smoothly ramp up production to high rates has been near the top of the heap. Even on mature designs and airframes. Since the 97’/98′ production debacle, it hasn’t managed it’s resources, vendors, and logistics very well. And the 787 proves that those shortcomings are still well entrenched. Recent focus on outsourcing can only have further diluted it’s abilities in this arena.
The current 737/777 rates were arrived at over time, in a very gradual, painstaking manner. It’s simply impossible to turn on a dime.
Take for example, the most recently announced 777 rate CUT. From announcement to actuality is a year or so. And that’s for a rate decrease.
Aurora: the upstream suppliers are the major issue, and don’t overlook the industrial partner base that would be required to invest in more facilities beyond the 10/mo in the business plan. Their CapEx will be a major hurdle.
OneMan: we have an expert opinion (and not from Boeing) that Boeing could have Line 2 open in two years from a decision to go.
Well, I have been a Boeing investor/watcher since 1977.
I’ve never been blindsided until the latest 787 delay (ruined me record, snif)
I think I have a pretty good grasp of what it takes to actually produce aircraft.
Now the actual physical plant is a layup. That’s not the problem.
It’s logistics, people, and training.
Boeing has a peculiar system. It doesn’t “train” employees. It simply makes sure that they meet FAA certification requirements. Other employees train them for their actual duties.
That takes time.
At each incremental step in the ramp up, the requirements on each employee change, thus, they are trained some more.
Boeing’s dealings with it’s vendors basically force the vendors to over-promise, living in fear of rate cuts. In the better case scenarios, Boeing vendors fall behind for just this reason. It’s all about parts. Parts caused the 98 disaster. Parts are the primary cause if the 787 delays.
Boeing’s curent system of production, while efficient on paper, is not very robust and particulary prone to breakdown at the slightest disruption. When it works it works well, when is doesn’t it doesn’t work at all.
You could easily have a facility in 2 years, producing about as many 787’s as Everett is now. Essentially none.
In the meantime, stack another 500million dollars in expenditures on top of the 580+ mil spent today, for no additional aircraft for three years minimum, program costs and physical plant, then another 500mil for people in Charlston, maybe 200 mil in Everett.
Keep in mind it’s going to take another two years at least to see 7/mo in Everett as it is.
At any rate the cash drain for a second line is going to be extensive (and high risk) before any sort of revenue is realized.
The argument that there’s no hope in burning down the backlog without doubling the production rate is compelling. But it takes much more than just a second final assembly line, which is only the tip of the supply chain pyramid.
A redesign of the wing and (supplemental) certification testing on top may just provide the two years you think it needs to set up that production capability. But Onemancrew is absolutely right about the risks. Wouldn’t it be more prudent to establish the learning curve at Everett and mirror the whole production chain once 7-10/month is really mature?
“Boeing’s curent system of production, while efficient on paper, is not very robust and particulary prone to breakdown at the slightest disruption. When it works it works well, when is doesn’t it doesn’t work at all.”
That’s a fundamental risk of JIT and lean manufacturing. Works great where assemblies and processes are simple…
Scott, your argument is quite compelling, particularly the need for Boeing to be able to offer better deliveries than is possible with one line.
My only issue with your time-line is the need to know what the fix of the wing/ box is going to mean in terms of weight.
It is already seriously heavy, and a significant add-on could negate the weight saving excercises currently underway. What then?
Andrew: On the conference call, Boeing officials weren’t specific about the weight gain but essentially said it was negligible. Boeing told us fewer than 40 airplane wing sets are affected, which can be modified during production (after the test planes).
No data was provided in terms of the long-term design on this particular issue. Readers will remember that there was an earlier wingbox issue that also added weight, and Boeing is making block-point design changes on these (around block point 20 or 88, we forget which).
Further, as readers of Flightblogger know, the 787-9 will have design changes on about 30% of the airplane to benefit from lessons learned in the -8 program.
If I were a present customer and found out someone gets to jump in front of me just because a second line opens, I would be pretty pissed off.
What good is it to accommodate new sales if you run the risk of offending/upsetting old customers? How could Boeing justify such a maneuver to its existing customers?
It will be quite interesting to follow the whole ramp up/2nd line issue. Can one trust a man to make a decision on a 2nd line when he doesn’t even know that his airplane won’t be flying for months at the time he (at one of the major industry events) announces it will fly within a week?
Thank you Scott,
You are totally correct, and realistically we are probably looking at less than 36kg to fix existing frames to make them flight worthy.
What I was really alluding to was the permanent fix, which has to go into the static test article, and then be applied to all subsequent -8 frames.
The -9 may well have a different design anyway.
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