Will Lean 767 Line mean new life for this airplane?

Boeing’s plan to implement a Lean production line for the 767 has significant implications for this aging product.

Boeing tells us that the line will result in a 20% improvement in unit time in construction. This does not correlate into a 20% improvement in production costs, however. Productions costs consist of materials (raw materials, fasteners, finished parts, and assemblies), perishable tooling, support labor, production labor and plant and equipment. Unit time improvements are directly related to reductions in production labor costs and have a proportionate decrease in support labor costs.

The reduced costs will not only enable Boeing to price aggressively for the 767-300ER and 767-300ERF for future sales, more critically, Boeing will be able to aggressively price the KC-767 (based on the -200ER) for the USAF tanker competition. This is especially critical because the competition has essentially become a price shoot-out over a Best Value contest. Northrop Grumman’s 2007 offering, the Airbus A330-200-based KC-30, was $15m less expensive per airplane than Boeing’s conceptual KC-767 Advanced Tanker.

However, we expect Boeing this time to offer a variant of the existing KC-767 Italian tanker, reducing development costs. We also believe that Jim Albaugh, the new CEO of Boeing Commercial Airplanes, is believed willing to price the 767-200 more aggressively than was his predecessor, Scott Carson.

In Boeing’s internal way of doing things, Boeing Commercial sells to Boeing Integrated Defense Systems the basic 767-200. IDS applies the military hardware and sells the entire product to the Air Force. Based on information we deem reliable, we understand that Carson was unwilling to provide “launch customer pricing” to IDS (and therefore the USAF) but that Albaugh is willing to do so.

Although Boeing will achieve cost reductions for producing the 767, don’t expect the list price to decline. When we asked Boeing about this prospect, the company replied: “Airplane pricing is based on several market forces and not based on cost. Improving our cost structure gives us more flexibility to meet market demands and remain profitable.”

Aviation Partners Boeing now produces winglets for the 767, but these will remain an after-market product and not an in-line production item.

Boeing designed a 21st Century look for the 787’s interior and has adapted this for the 747-8I and 737 (the latter known as the Sky Interior). But as yet there are no plans ready to announce to offer a similarly-inspired interior for the 767.

With All Nippon Airways canceling its order for 28 787-3s, Boeing now has zero for this model. Will the 767 become Boeing’s low-cost answer to the market segment originally to be filled by the 787-3? The 767 was eclipsed by the A330-200, and many thought the A330-200/300 would be obsolete with the 787 and A350. But Airbus breathed new life into both models by making the argument that these aircraft fill a market segment of 5,000-6,000nm. Airbus also created an A330-200HGW (High Gross Weight) with a 7,200nm range. Sales have never been better.

With a lower-cost 767, Boeing has more pricing flexibility. With after-market winglets, the airplane becomes more fuel-efficient, though still not as good as the 787. Still, a lower-capital cost, more fuel-efficient 767 might well be repositioned by Boeing as a mid-market solution in a way that Airbus so-positioned the A330.

It’s food for thought. Boeing may just have found a way to breathe new life into the 767, especially if it gets the tanker deal.

12 Comments on “Will Lean 767 Line mean new life for this airplane?

  1. “Aviation Partners Boeing now produces winglets for the 767, but these will remain an after-market product and not an in-line production item.”

    Could someone please explain why it is so hard for Boeing to offer winglets as standard on a 767?

    • no, I cannot know for sure, but I can imagine there being a penalty ascociated to the winglets.
      They’re big, with a large moment arm. I don’t believe the 767 wing was designed with this fatigue load at the tip of it’s wing – so you’re probably looking at reduced inspection intervals, and maybe even lifetimes. Some airlines won’t mind burning through their hardware at an acellerated speed, but there remains the balance between reduced resale value and reduced fuel burn.

      • Hmm,
        does Boeing usually allow larger customisations for
        the 767 at build time?
        If no:
        My guess is this fits in with wanting to change over to
        lean production ( hiding major rearrangements on an
        absolutely inflexible production line ) ?

  2. Scott,

    I’m wondering if the lean 767 line is related to any compensation Boeing is giving for 787 delays. Perhaps the point of the lean line is not so much to reduce production costs as it is to reduce production times so Boeing can get 767s ASAP to their disgruntled customers.

    If this is correct, then I also wonder if producing more 767s is necessary because Boeing can’t ramp up 787 production as fast as they would like, and so anticipate delivering 767s as compensation for 4-5 or more years to come.

    Any thoughts?

    • Interesting theory but we’ve not heard anything about this in our discussions with Boeing. Boeing plans to double 767 production to two a month in 2011 (ex-tanker, which doesn’t foresee production deliveries until 2015, should Boeing win the contract), so Christopher’s hypothesis may have some traction. But only a few orders from 787 customers have been placed for 767s, so the pure numbers at this point are largely inconsequential.

      Also: The 787 Line 1 is supposed to go to 7/mo. Charleston is supposed to go to 3/mo but has an acknowledged capability of going to 5/mo. The 787 Surge Line can do 3/mo, so Boeing in theory can crank out up to 15/mo if the supply chain could match it–a very challenging prospect. If Boeing could go beyond the baseline 10/mo by 2013, who needs the 767 as a 787-8/9 back-up? But there is a hole where the 787-3 once stood.

      All hypothesis, to be sure, but food for thought.

  3. “In Boeing’s internal way of doing things, Boeing Commercial sells to Boeing Integrated Defense Systems the basic 767-200.”

    The same principal is applicable for Airbus and Airbus Military.

    “Boeing Commercial Airplanes, is believed willing to price the 767-200 more aggressively”

    All depends on whether NG/EADS will bid. If not, there is no reason to reduce prices.

    “Aviation Partners Boeing now produces winglets for the 767, but these will remain an after-market product ”

    Why does Boeing promote their KC-767 with the winglets installed in their videos?

    “many thought the A330-200/300 would be obsolete with the 787 and A350”

    In my opinion A330 and the A350 complement each other, they do not compete on range or payload.

  4. It appears that the 767-based offering will include winglets. I’m curious if those will be included in the final assembly in Washington or added later during militarization in Kansas?

  5. Sounds like Boeing is doing another half job again, due to the promisses it has had to break to customers costing them far more then Airbus ever lost on the A380 project.

    Boeing = dissapointment.

  6. Pingback: 777 production spotlighted « Leeham News and Comment

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