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.