Boeing 787s require 13 months of rework, concludes UBS

UBS Securities, in a research note issued today, estimates that the Boeing 787s delivered so far spent an average of 13 months getting rework done, with three delivered in April reduced to 9-12 months. Writes UBS:

On average, we estimate that the 11 787s delivered thus far spent 13 months in change-incorporation. While it appears Boeing did not deliver any 787s in May, we estimate that the three delivered in April (LU 37/38/42) spent between 9-12 months in change-incorporation.

Change-incorporation key component of 787 unit costs: Change-incorporation work is a key component of 787 unit costs. We estimate Boeing’s 787 unit production cost at ~$240M in Q1, more than double its assumed average cost at ~$109M over the first 1,100 units. We expect 787 unit costs to trend lower as mix of change-incorporation deliveries lessens.

JP Morgan, also in a note issued today, had this to say:

787 still on the right track, but it’s never easy. Boeing delivered no 787s in May, a step backward following three deliveries in each of March and April. This does not appear to be due to execution issues, but rather to a pilot strike at Air India and the carrier’s efforts to extract more compensation for delays. We anticipate that there could be at least four deliveries in June, which would bring Q2 deliveries to seven, above Q1’s five. Boeing will need a significant ramp in 2H to reach its guidance for 35-43 deliveries this year, but the ability to deliver aircraft directly off the assembly line rather than sending them through change incorporation should improve the flow, and more aircraft should be delivered from change incorporation as well. Management has indicated in the past that aircraft #66 would be the first to go from the assembly line to the flight line without passing through change incorporation, and this aircraft is now in the last position on the Everett final assembly line, although it is unlikely formal delivery will take place until July. While there will be ups and downs, such as May’s lack of deliveries, we continue to expect 787 execution and financial metrics to improve through the year.

24 Comments on “Boeing 787s require 13 months of rework, concludes UBS

  1. “We anticipate that there could be at least four deliveries in June, which would bring Q2 deliveries to seven, above Q1’s five. Boeing will need a significant ramp in 2H to reach its guidance for 35-43 deliveries this year,”

    JPMorgan obviously wants the 787 to be a success and will remain optimistic whatever undoable delivery plans are on the table..

    What really drives them?

    Apart from this I guess every aviation enthusiast wants to get this finally over with and 787s rolling of the FAL in an orderly way.. we’ve had more then enough disappointment’s over the last 6 yrs..

  2. Required man-hours/man-years per plane for the completion/change process
    would be of interest.

  3. The rework costs are mainly man hours, surely? So you could guess from the $129 million cost difference. 500,000 man hours?

    • ~250 man-years ?
      ( apropos: what path to $129m difference? )

      Debatable. Complete assemblies like the PACs seem to have been exchanged.
      ( on the third hand: I don’t think Boeing is done with spending $240m on a deliverable item at
      the moment )

      • Look at the number of employee’s re-working and divide by the number of aircraft finished in a year. It will be similar number. There are 30,000 people working 3 shifts.

  4. Peter Krakoq :
    Look at the number of employee’s re-working and divide by the number of aircraft finished in a year. It will be similar number. There are 30,000 people working 3 shifts.

    Are you sure about 30k people being assigned _just to rework_ the frames?
    ( that is an anthill of ~500 persons working simultaneously on each of the ~60 frames standing around)

  5. “Are you sure about 30k people being assigned ”

    No,lets make a guess at 1/4, so it would equal 200 man years per aircraft at a rate 36 aircraft per year (its spread over 3 shifts, BTW). There is going to be a whole raft of people supporting. You have to find a way of quantifying $100million added cost to produce each aircraft – it isn’t all materials and only some can be financing.

    • My assumption is $200++m for manufacture PLUS ~$100m of fixing cost.
      For an expected average of ~110m$ (over a set of 1100) I would
      expect cost for early specimen to be at least twice the average in a regular
      learning curve. The post production upgrade/fixing process is imho not part
      of a regular learning curve.

      • For the expenditure of 60million hours in a year they hope to produce 36 aircraft around 2million each. Full production is 120 aircraft, about 0.5million hours. The difference is over a million hours for each 787.

        What ever way you want to calculate it, its going to a big part of a million hours for rework

  6. As I stated on my article on the SR-71 ( “Industry today lost the track of doing the things focused”. The beam counters do their best to save on engineering (lack of vision, to be polite and not saying that, in my opinion, they are a bunch of idiots) and the result is what we see on ALL new projects: delays, over cost, technical problems, re work.

    Save today, using outsource from distant countries, low paid engineers and spent 10 to 100 times more to fix what was not done right and pay the penalties of delays and under performance.

    • Atur, you forget one advantage of outsourcing; you can always blame somebody far away that won’t hit back, because you’re the customer! Preserving the “we did it right” feeling..

      • For me new project negotiations with customers over time show a pronounced turn away from technical issues ( and talking to technical deciders) towards potential cost deferal and liability in conversation with bookkeeping people who
        regularly lack qualification to even understand the technical issues but also don’t see this as an issue as they assume this is taken care of by way of liability clauses. Argh.

  7. Meancounters mated with marketing is about the worst case I could imagine.

    On the other hand: managing public perception and shareholder value
    does not require actual assets. It requires good perception management
    by way of well designed “strategic communications”.

    You grow into the shape that restricts you.

    In this case the conformal shape is “quarterly results” and “shareholder value”
    and _not_ products delivered to some hapless customer.

  8. My hunch is that many of the planes in the current 787 pipeline won’t actually be delivered. At least not to the customers they are currently destined for. As JP Morgan has it in the quote above, the key is achieving a production that doesn’t require rework. They are not there yet, but when they get there, I suspect Boeing will want to put their resources into ramping up the production rate rather than rebuilding incomplete planes. The rework effort will slow and customers will be unwilling to wait for a substandard early model to be rebuilt, when they can get an upgraded model fresh off the production line.

    The end result will be that some of the planes will be trickled out as VIP models. The rest will be scrapped.

    • “The end result will be that some of the planes will be trickled out as VIP models. The rest will be scrapped.”
      But probably the right thing to do: rework plus penalties
      versus parting out these frames and stuffing new hulls ( plus some new parts )

  9. @artur

    I am not sure you can say that all new projects are delayed. There might be one exception. The CSeries is not late. Things are still looking good six months or so from the first flight. If there is a delay it will be a small one. As far as I can tell.

    The individual who is largely responsible for the successes of Bombardier is Laurent Beaudoin, who is currently Chairman of the Board. He happens to be a bean counter himself. He was just starting his career as a chartered accountant when Armand Bombardier asked him to look after a troubled subsidiary. That was more than fifty years ago.

    Early on Bombardier developed a rigorous method to manufacture trains, the so-called Bombardier Manufacturing System. And they have imported the process to the aerospace business that they have created later on. Ever since that time they have always strived to stay at the avant-garde. Bombardier currently uses Six Sigma and Kepner-Trego methodologies. But in addition to that they have adopted new tools like Failure Mode Effects Analysis (FMEA) which is used in the medical, pharmaceutical and automotive industries. They have also deployed Material and Information Flow Analysis (MIFA), along with Advanced Quality Planning (AQP) and Advanced Logistics Planning (ALP) strategies.

    Ever since the time the Global Express was brought to market Bombardier has tried very hard to keep a tight grip on its global supply chain, which is very extensive. And at Bombardier the bean counters are able to cooperate with the engineers in order to achieve a common goal. I generally have a low opinion of bean counters who “run the show” in the aerospace business. But it’s not the case here. It is an integrated effort based on team work.

    Recently Pierre Beaudoin, CEO of Bombardier and the son of Laurent, said “People who invest in our company understand there is a long-term shareholder (the Bombardier family), and that’s why they should invest in Bombardier; because we create value over the long-term. If they look for a company that wants to create value over the short-term, they’re not investing in the right company.” This is a refreshing statement in the context of the “next quarter” management style that we see everywhere around us.

  10. It should be no secret that Boeing still has a way to go before they have it all running smoothly on the 787. Objective observers without “Boeing” tinted glasses never bought the hype about early rampup etc. etc.

    Funny how some commenters here slam one researcher for being too pessimistic about the 787 and some slam another for being too optimistic.
    Someone is missing, as in they have failed to make a comment here.

  11. Well if the LN66 is rework free, its the next one off FAL, so they are near that goal now.

    I have not heard anything about scrapping early frames, you made that up?

    • I have not heard anything about scrapping early frames, you made that up?.

      That’s a bit harsh. I speculate that the logic of production means Boeing will find it more profitable to bang out new planes in bigger numbers than struggle to rework incomplete ones that customers don’t particularly want. The consequence is that some early planes will never actually be completed.

      The production line is bottle necked at final assembly: more planes are entering FA than leaving, Boeing’s first priority will be to catch up, so the stockpile doesn’t grow even bigger. Their second priority will be to ramp up assembly along with its suppliers. They are under huge pressure to get to ten planes a month as quickly as possible. Their third priority will be to finish off the incomplete planes, starting with the more recent, more desirable and more easily adaptable planes.

      It could be several years before Boeing get back to rework the planes they are processing now. There will have been a couple of performance improvement packages on the 787 and its engines by then. Customers who were due early models won’t wait for the reworked plane and will already have taken later and better production models. Who will want the substandard planes?

      There are about 25 undelivered and incomplete planes from the first batch of 40. These are the ones at risk, I think.

      • Well they have said they will be done with the reworked frames by the end of 2013, I havent heard anything new regarding that. LN7 seems to be near completion, that is the first LN for a customer built. Slots would be a problem if they do as you think, some customers would have to wait even longer for their frames. The turning point will be when no more rework frames are added to the huge numbers currently filling paine field. It should be soon as LN66 is in the last position on FAL. To ditch those 25 frames B would have to speed up production a lot to compensate. It just seems hard to believe.

        Only way to free slots is a cancelled order, like AI maybe?

  12. LN66 is off the FAL, so Boeing better own up to its promise. Will it or will it not?

    • I’m not sure getting a plane off the production line without rework is the be-all-and-end-all. The important point: is production still bottlenecked at final assembly or can they keep up with the supply chain? It’s possible to have a small amount of rework and deliver more planes than are taken into final assembly. In other words reduce the stockpile. The opposite is also possible: there is no rework but final assembly still limits the overall production.

  13. Would anyone be able to clarify why it takes close to 13 months to complete the rework and change incorporation. Does the fact that the rework is not done on an assembly line make it more onerous. Isn’t it equally important for purposes of increasing deliveries to reduce this stockpile and have they developed a team and process to accomplish this.

    Is the UBS report a guess/estimate or is it based on knowledge about what is involved.

    • I think things will speed up even with the oldest frames, even rework has a learning curve. The 31-65 frames will be done much faster, most of them before this year ends. Then for the rest of the below 30 frames should be done in 2013. It will be hard to estimate a time when things change, some parts took long time to get etc As this program matures it will speed up. 13 months maybe was for the first year of rework, it doesnt say if this will be true going forward.

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