Boeing’s 737 ramp up shows confidence in economy, ‘skyline’ and the unions

The announcement last week that Boeing once again is planning to ramp up production of its venerable 737 line show confidence on a number of levels:

  • The global economy continues to recover;
  • The strength of the backlog, aka “skyline,’ is strong;
  • The efficiency of the Lean production line only gets better; and
  • The confidence in the labor unions (notably IAM 751) appears to be gaining strength compared with the depths of anger following the 2008 57-day strike and the October 2009 decision to put the second assembly line for the 787 in Charleston (SC).

The recovery in the global economy has been inching along for several months, with Airbus and Boeing indicating in their annual market forecasts that things have been getting better. Boeing, in advance of the Farnborough Air Show, noted that cargo traffic–always a leading indicator or recessions and recovery–was coming back fast than previously forecast. (IATA also noted premium traffic is returning far more rapidly than once thought). At the Air Show, Airbus likewise noted global recovery and John Leahy, COO-Customers of Airbus and one never shy about expressing an opinion, declared that the recession is over. So Boeing’s decision to further up production supports this thesis.

The backlog, or skyline, is also strong. Airbus and Boeing routinely overbook sales, expecting cancellations and deferrals. This was true is 2009 and 2010 but is proving less so now. Without boosting rates, Boeing would be forced to involuntarily “bump” some customers, just as some airlines do when oversales occur and volunteers don’t step forward–only the penalties to Boeing would be far greater than some voucher issued by the airlines.

The Lean Production line at Renton (WA), where the 737 is built, continues to be the under-appreciated story of The Boeing Co. The 737’s Lean principals have been copied into the 777 line and are being incorporated into the 767 line. Boeing has the ability, with some rejiggering of P-8A Poseidon work which is partly shared in the 737 commercial building, to take 737 production to 42 a month (also under consideration).

Which brings us to the unions. The confrontations between Management and Labor need no recounting here. But increasing production recognizes the unions’ expertise. Certainly Boeing has no choice but to increase production at Renton if an increase is to be made–there won’t be a second 737 line somewhere. But without recognizing that the IAM 751 is up to the task, there wouldn’t be a production increase, either.

The news September 9 that Boeing is expanding 787 work in Puget Sound (Seattle) is also recognition that the labor here knows its job and can do it efficiently and with quality. They may have higher wages and benefits than Charleston (SC) (but certainly not Japan and Italy) but the efficiencies and quality of their work is unsurpassed. Now if only a long-term labor contract for production stability can be achieved, “all will be right with the world.”

It is clear IAM 751 has been finding and fixing many of the problems in the 787 program that should never have left the shop. It is clear that 751’s performance on the 737 and 777 lines are providing the profits and cash flow necessary to see Boeing through the 787 and 747 program difficulties. Management clearly recognizes this. The 751 clearly knows this. Let’s hope the belligerence on both sides ceases to be a macho thing when contract negotiations start for the 2012 amendments. Management has to accept that low costs don’t automatically translate into high quality. Labor has to accept that a long-term contract might mean some changes in the sacred cows of health care and pensions.

Boeing’s CEO, Jim McNerney, and other executives like to point to China, Japan, Russia, Canada and Brazil as emerging competitors requiring lower costs at Boeing.

With respect to China, Japan and Russia, they should be more concerned about technology transfers in the form of contracts. The efficiencies and work quality of American workers generally and Puget Sound workers specifically can’t be matched in this generation or maybe even the next.

The Canadian and Brazilians certainly know how to produce quality airplanes efficiently but so far remain in markets below those that interest Boeing most. But Boeing is clearly worried about Bombardier’s CSeries, despite McNerney’s declaration that the Comac C919 is the greater threat. Jim Albaugh, CEO of Boeing Commercial Airplanes, said at Farnborough a 737 rate hike was also needed to avoid “driving” orders to the CSeries, and we’re told part of the strategy in going to 42 737s a month is to “flood the market” with 737s before the CSeries and C919 can make much of a dent.

10 Comments on “Boeing’s 737 ramp up shows confidence in economy, ‘skyline’ and the unions

  1. more than likely- and unfortunately – the mc Nearney crowd has been swayed by some pretty power point presentations. That they cannot handle airplane production rates like auto production rates and rate changes has been well proven by the Just In Time fiasco on the 787. you simply cannot make a baby in 3 months by putting more men on the job, even though the graphics looks neat.

  2. Not that I am a big fan of unions, but I do wonder if all the execs, finance people and bean counters also give themselves the same amount of decreases in salary and benefits as they demand from the engineers and production workers?

  3. Does anyone on this board believe that people can change their outlook and try to come to terms.

    It seems to satisfy several contributors that there is a war and only a scorced earth policy can work…. no concept that some understanding can be gained and reconciliation is possible.

    It helps when both parties move towards mid field

  4. Don,

    We are talking about “lean production” benefits….not truncated production process. You cannot make a baby in three months but you increase the efficiency and production time as has been shown in the past. This has nothing to do with the delay of the 787

    • Long established ‘ learning curve ” analysis of aircraft production process typically shows a 10 to 14 to one ratio for the first plane built relative to the 100th built as to labor and ‘ flow time assuming no major change in process.

      Boeing forgot that in the 787 program – and in addition tried to use the JIT automotive process which is VERY dependent on both an established process, and a fully qualified- competent supplier chain.

      On the 737, having managed a major change in process, and established a competent supplier chain and a reasonable JIT flow time, the assumption is that the rate can be cranked up ad nauseaum. In the three pronged mantra known as faster, better, cheaper, the ‘ better” is the most likely to suffer. and with everyone working at max speed, almost any glitch anywhere in the system will have super major effects. Virtually all the ‘ slack’ in the system built in to handle minor upsets will have been removed.

      The net effects on the workforce and capital equipment will most likely result in a train wreck instead of a simple two car derailment when ANYTHING from hurricanes, earthquake, power outages, etc invariably happen during the next decade.

      granted, it is a sales- new airplane- order book dilemma, but pushing the rate game in these uncertain economic conditions is IMHO a menu for disaster

      • So far the production has reached 2 APM in the first quarter and DEcreased since then.

  5. The 737 is not only the most successful jet airplane ever built, it also
    happens to be the only airplane in production at Boeing today,”as is”
    without re-engining, which may well rescue the Co. from financial disaster,
    the 787 and the 747-8 being in a financially disastrous mode for the fore-
    seeable future and the 777 already being challenged by the A350.

    Two principal factors support the above conclusion:
    1. The demand for aircraft in the 737/A320 category, continues to exceed all
    previous estimates for the foreseeable future, which provides Boeing with
    the GOLDEN OPPORTUNITY to increase 737 production rates and increase the
    per unit profit margins even higher, without the risk of loosing any
    market share VS. the A320, for 5-10 years in the future.
    2. Continuing to sell large numbers of 737s “as is,” will also enable Boeing
    to delay any decision to re-engine or build an all new aircraft, without
    putting the program at a disadvantage VV.the A320, in spite of the fact
    that Airbus has just announced their intentions to re-engine the A320.

    Under the above circumstances, it is a mystery why Airbus made the decision
    to re-engine the A320 today, because they cannot even meet the demand for
    their existing A320 models for many years to come and because it will
    provide Boeing with the additional time and money to decide when to build
    their 737 replacement aircraft, WITHOUT the fear of loosing market share in
    this catagory to Airbus, in the meantime.
    The early and apparently untimely decision by Airbus to re-engine the A320
    now, may well force Airbus to build an all new aircraft as well, once
    Boeing does with the 737 and cause them to loose most if nor all of the
    financial benefits they expect from the re-engined A320, without any clear
    reason to do so today!

    • If the A320 takes the market with storm, Airbus might be cranking up production of the A32X/A32X- NEO to 50 per month from 2015 and 50+ for the NEOs from the end of the decade. Since EIS in 1988 Airbus has delivered just short of 4500 copies of the A32X family. Until the new Airbus NG narrowbody aircraft enters service in the 2026-2028 timeframe, Airbus could easily have delivered more NEOs than the number of A32Xs which they have delivered up until this point. Any new Boeing narrowbody won’t EIS until 2020, at the earliest. It will take a further half a decade to develop a “family” and to mature the production system as you’re cranking up to A320-NEO output. Also, don’t expect Boeing to better the A320-NEO by a double digit improvement if they freeze the design “to early”.

      So, what is Airbus achieving with the A320-NEO?

      With the competition from the A350-900/1000 and A320-NEO, Boeing is in the uncomfortable position in having to concurrently develop a new NB and WB in the same time period as any 777-300ER-NG derivative will have a hard time competing with the A350-1000 (regardless of what Tim Clark is saying).

    • Discussion has previously touched on volatility of the
      Narrowbody Orderbooks.

      My guess is Airbus will allow “upgrades” on existing orders and
      all NB types (can?)coexist on the same FALs. compare to A340/A330
      production on the same line with the majority of parts coming from
      the same bins.

      Boeing has to fullfill as much of its backlog before it evaporates away.

  6. Cleared for take-off

    Sep 23rd 2010, 10:42 by The Economist online | TOULOUSE

    http://www.economist.com/blogs/newsbook/2010/09/airbus_launch_new_a320_version

    Quotes:

    AIRBUS is about to unveil a new version of its best-selling A320 aircraft. Along with its main rival, the Boeing 737, such single-aisle planes are the workhorses of worldwide aviation, accounting for four out of five commercial jets sold. But the Airbus A320 NEO will not be an all-new aircraft built from scratch; instead it will be an upgraded version of the classic A320, with a choice of two new, advanced engines which will offer big savings in fuel consumption.

    Airbus bosses will meet on September 30th to put the finishing touches to the $1.3 billion project before putting it to the parent company, European Aeronautic Defence and Space Company (EADS). John Leahy, an Airbus executive, hopes to begin marketing the new plane as early as mid-October. Airbus’s chief executive Tom Enders says his only remaining concern is to be reassured that his core team of 200-300 senior engineers can move on to the new single-aisle plane without isrupting other programmes, such as the A350 wide-body jet or the A400M military transporter—both of which have already suffered delays. That hurdle should be cleared at next week’s meeting.”

    Mr Leahy thinks the new A320 NEO—which is likely to cost up to $8m more than the current model—will keep the product line going until 2025. He foresees sales of a further 4,000 planes, which is as many as it has delivered since the first A320s were launched in 1988. By 2025, he believes engine and composite fuselage technology should be ready for a dramatic improvement in weight and fuel economy. In the mean time, a touch of “frugal innovation” will keep the orders rolling in from cost-conscious airlines.

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