Pontifications: Boeing moves in China only the beginning

By Scott Hamiltn

By Scott Hamilton

Sept. 28, 2015, (c) Leeham Co.:The move by Boeing to establish a 737 Completion Center in China is only one step in a series of moves to increase its footprint there.

Boeing also said it will join with China’s National Development Reform Commission to develop:

  •  Industrial cooperation;
  • A “world-class” aviation transportation system through deliveries to China of Boeing airplanes and services;
  • Technologies to reduce aviation’s environmental impact and enhance sustainability;
  • Leadership and training for the next generation of leaders in China’s aviation industry;
  • Continued cooperation to support the safety, efficiency and capacity of China’s air transport system
  • Further cooperation in biofuels.

“Boeing and Aviation Industry Corp. of China (AVIC) will broaden their long-term collaboration to support Boeing’s commercial airplane programs,” the company announced last week in connection with the visit to Seattle by the president of China. “In a framework agreement, the companies said they intend to further advance AVIC’s manufacturing capabilities by adding major component and assembly work packages; strengthening leadership; and developing AVIC’s broad aviation infrastructure and business practices, including supply chain management.”

I believe this is only the beginning of a new push of Boeing’s expansion outside Washington State, elsewhere in the US and overseas.

Separately, last week it was also announced that a key supplier is done expanding in Washington State. Future expansion will be elsewhere.

The International Association of Machinists District 751, Boeing’s touch labor union, objected last week to the idea that Boeing will establish a Completion Center in China for the 737. Union leader called on Boeing to “stop using” workers as bargaining chips in this Puget Sound Business Journal article (Subscription Required, but here’s a link to a similar PSBJ story a few days earlier).

Torey Composites America, which as the name says, manufactures composites, is a key supplier for Boeing. It’s located in Frederickson in Pierce County (the Tacoma area, as in Seattle-Tacoma). It’s finishing up an expansion, but told The Seattle Times this will be the last here. Future expansion with be elsewhere, in part because Washington State is getting too costly in which to do business and in part to diversify the risk of having all eggs in one basket (a US analogy).

Boeing’s plan of the Completion Center leaked out a few days before the Chinese State visit. It came shortly after Airbus opened its A320 Final Assembly Line in Mobile (AL). Tom Enders, CEO of Airbus Group, told LNC there that Airbus made the case to its labor unions, and the European politicians, that a US assembly line meant growth. While the immediate 240 jobs on the US assembly line (eventually growing to 1,000) are jobs not in Europe, the growth in the US means that for every one job here there are three jobs created in Europe feeding the US line.

IAM 751, stung in the past by Boeing repeatedly moving jobs out of Washington and battered by an executive war on the labor unions, is less than sanguine, even after Boeing Commercial Airplanes CEO Ray Conner wrote and said no jobs will be lost in Washington.

I’ve not been shy about blasting Boeing’s war on 751 and the engineers’ union, SPEEA, whose members I frankly believe saved Boeing’s ass during the 787 and 747-8 program debacles. These union members figured out how to fix the production and design screw ups by the industrial partners, including non-union workers at Boeing’s South Carolina plant. The IAM 751 members figured out how to increase production of the 737NG and 777 Classic lines to record rates while reducing costs, providing the profits and cash flows necessary to keep Boeing from hopeless sinking under the weight of the 787 and 747-8 programs. For their hard work and dedication, Jim McNerney, former CEO, effectively flipped off his employees.

I’m not unsympathetic to 751’s skepticism and anger. But the world has and continues to change. More work going out of Washington (Seattle) is going to happen. Torey’s announcement is indicative.

Given the current state of the airline industry demand for new airplanes, Boeing (and Airbus) and their suppliers are, to a large degree, suffering from an embarrassment of riches and are victims of their own success. Airbus and Boeing are each studying going to production rates of 60 or more a month for their single aisle products, a move that strikes the proverbial terror in the hearts of suppliers who look at the capital expenditures necessary to ramp up their own rates necessary to meet the demands of their customers–and whether the rates are sustainable once the cap-ex is expended.

Boeing is faced with simply running out of room in the Puget Sound area. The 737 factory in Renton has a physical capacity of 63/mo. Everett is jam-packed with wide-body production as long as Boeing can maintain the 747-8 operation, something of which we maintain will cease sooner than later.

Doing business in China requires Boeing do more than it is today when it comes to providing “benefit” (that’s what the Chinese call it) to China. Airbus already has an A320 assembly line there and agreed a few months ago to open an A330 completion center there. Boeing needs to do sometime similar to win sales. Extortion? You bet, but that’s how it’s done in China.

Hand-wringers think China wants to put Boeing “out of business.” Perhaps, in three or four generations, but if Boeing goes out of commercial aviation business, it will be more because of its own failed product strategies than because of any other reason. But in the meantime, Boeing’s huge backlogs and global realities means more work will have to go outside Puget Sound because of space and political considerations.

I’d add one more reason: Puget Sound is full of earthquake fault lines. One runs near Everett and another runs just north of the Renton plant (and, FWIW, six blocks south of my house–something I didn’t know until years after buying it). If either lets go a major quake, Boeing’s out of the airplane delivery business for a very long time. Having other assembly plants elsewhere is simply prudent. Although the Airbus plants in Toulouse and Hamburg were political decisions in those early days of its existence, natural disaster (or even fire) risks are mitigated. The A320 FALs in China and Mobile were tactical and strategic. Boeing, in my view, has to follow suit.

As for Torey, officials clearly see similar concerns. Diversifying the disaster risk is prudent. As for costly Washington State, it is what it is. And it’s something Boeing officials have been complaining about for decades.






32 Comments on “Pontifications: Boeing moves in China only the beginning

  1. Airbus sites ( in Germany ) either have a historical background in aircraft manufacturing like FXW ( Blohm & Voss shipyard’s aircraft department.) and/or were politically placed in/near structurally weak regions. The political decision was to leverage these existing places of excellence.
    Mega production sites like VW Wolfsburg tend to dominate their region in a negative way. Vast numbers of employes transiting to to/from work everyday is a waste of resources.
    Especially with high value parts it makes much more sense to move produce between manufacturing clusters then having vast numbers of people commute over ever longer distances every day.

    • Let’s not paint too an positive picture here. The split between French and German FALs also means additional logistics costs, and has seen ‘negative competition’ between the two plants as they each try to grab and maintain workshare.

      • Internal competition over workshare I’d see as an advantage.
        ( Except when the french side of Airbus paid for the anti FXW expansion Nimbie lawyers in Hamburg 😉
        Logistics cost ( rather small afaik ) is offset by easier and cheaper access to qualified workers ( there are a lot of very good workers around that just can’t be bothered to move house to some mega manufacturing place.) Partitioned manufacturing forces extremely clean and in depth interface definitions.
        Lack of those appears to be a bane at Boeing sites ( cue: 787 and especially the 748 where what was manufactured earlier was not represented in the documentation/papertrail resulting in extended problems to integrate the -8 design changes. )

        • It is a myth that internal competition is always positive for business. The ideal is that each plant will focus only on improving its own work; the reality is that each side will spend as much time and money on trying to make the other side fail.

          It’s also odd to claim that the logistics costs of supporting more than one FAL is ‘rather small’, given that Airbus needs to develop, operate and maintain its own fleet of large aircraft just to move the major assemblies around. (This also becomes a significant constraining factor when looking at how to ramp-up production).

          My aim is not to reject all of the benefits claimed about multi-site production, but just to balance them with the reality of what we actually see.

          • “My aim is not to reject all of the benefits claimed about multi-site production, but just to balance them with the reality of what we actually see.”

            No, you are postulating downsides ex cathedra 😉
            ( and probably a bit mired in dogma. )

            Imho you are overlooking cultural differences between Europe and the US IMHO. Afaics the US culture scape is often dominated by constant/dimishing volume competition.
            No Synergies.

            Not to say that the Airbus way is the only sensible one.
            But it seems to work rather well. There are a lot of fringe benefits from those “obvious market neoliberal inefficiencies”.

            Take hire and fire cycles at Boeing and resultant loss of competence and workforce loyality. Even if managements here would like to do the same : they can’t 😉

            There are a range of other “advantageous downsides” around.

          • “No, you are postulating downsides ex cathedra”

            Unfortunuately not. Rather, this is experience from within the business: it is incredible to have seen that the lengths people will go to, to ensure that their colleagues do not gain the upper hand.

            The Airbus industrial set-up was, and continues to be, primarily driven by politics. The interesting question is: would Airbus be a more efficient and profitable business were that set up to be more centralised?

  2. Given Boeing has traditionally sub-contracted to Japan is this the first inkling of a move away from Japan to China? Obviously the timeframe will run into decades but it reflects the changing in significance of the two markets and their relative influence within the region. If I were Japan plc I would be a tad concerned.

    I am interested if anyone knows whether the development of such centres is likely to be efficient vis a vis current operations. I have always seen the Renton 737 operation as far preferable to the Toulouse/ Hamburg/ Tianjin/ Now Mobile A320 model in terms of out right efficiency of operation. Airbus appears to suffer a number of ‘Non value added’ movements as a result of the way in which it manages its production.

  3. Hello Scott
    I guess that natural disaster can be a powerful driver for choosing different baskets for your eggs.
    No to be underestimated.
    Are there hurricanes in charleston ? :d

    • @Crise, There are hurricanes in Charleston (and Mobile), and in fact Charleston is listed as a high earthquake risk area, too, though I’ve never heard of one there. San Antonio, Texas, on the other hand just had tornadoes.

      • Back in the early 90’s there was a small quake in the area. No damage but it was the first time I knew the area was on a major fault line.
        Some of the problems with labor is that for a long time they were spoiled with getting everything they wanted and still not satisfied.
        I remember some P&W employees in North Haven,Ct bragging about how they slept during part of their shift, took home micrometers and dial indicators,and playing cards because of no work and not cleaning up the work area due to union rules.
        I don’t mean to say that all union employees are that way,but it spelled the end of many jobs at P&W and Electric boat in Groton,Ct.
        Now the tide has shifted in that companies are hiring contract employees with no benefits and near minimum starting wages. Seeing both Boeing and Airbus set up shop in southern states due to the fact the word union is a dirty word in the south means huge savings for the companies and yet a step up for the locals whose wages have been depressed for decades. The new normal is here.

        • Sad but true. Unions problems are that once they have a good wage and benefits then they escalate to the ridiculous as the leadership want to be re-elected so they keep going for more and more.

          Kind of like congress actually. Makes you think if term limits are good for the President why not congress?

  4. Technologies to reduce aviation’s environmental impact and enhance sustainability;

    Tears in my eyes..

    I think aircraft become 20% more fuel efficient / clean every 20 years. E.g. 787, NEO etc. So about 1% every year. Put next to that airtraffic in China is growing 8%, per year! The tears have dried up.. W’re collectively seducing the public (too) with our “enhance sustainability”.

  5. I believe Torey initially supplied the CFRP from Japan, then opened the Washington State operation.

    they are a huge entity with other chemical interests included a facility in France.

    Probably a case of they don’t need to be bigger in Washington and it follow the party line of this place is too expensive (and it may be). Lots of empty space in the State, why not use it?

    Moses Lake would be terrific.

  6. While at the partially completed Three Gorges Dam, our guide explained that the operating turbines were made by GE, Seimens and a 3rd company. Then, without blinking an eye said “We will see which is the best, then copy it.”

    Without a doubt, Boeing has made a deal with the devil.

    ~ The Infidel Alliance

    • They will TRY to copy it. China still has the dubious distinction of making jet engines that are even less efficient than the Russian ones they copied and considering how far behind Russian jet engines are that isn’t easy.

      – Pickles

    • Probably a regular offsets deal.

      What is worth copying from Boeing?

      Keep in mind the Comac 919 leans on the A320 and foreign car manufactures very carefully educated their own staff for their US manufacturing sites.

        • There isn’t much to gain from understanding US intricacies on commerce / union interaction dysfunctionality.

          • And is where you are from that perfect? Me thinks not.

            The US does some things well, we have our own problems but so does everyone else.

            Some things like production are well done with some companies and worth copying as is a great deal of technical competence.

            Sadly we then sell and give that away, not so good.

          • “And is where you are from that perfect? Me thinks not.”

            Me too.
            A dumb copy of the competing imperfection doesn’t make sense either. ( then I like our imperfections better than the US ones 😉

            “Some things like production are well done with some companies .. ”
            Yes, industrialisation used to be rather good. ( see US made Merlin engines )

            “.. and worth copying as is a great deal of technical competence.”

            IMHO this capability goes hand in hand with properties of the US society that I don’t see as valuable to put it mildly.
            On that basis it is also not an easy copy for the Chinese.
            They are probably better served to look at the Toyota model
            or go their very own way.

            “Sadly we then sell and give that away, not so good.”

            People that see the products of creativity as a limited supply item tend to not be able to be fundamentally creative.
            Good at accessorizing, yes.

  7. I believe the only model that Airbus assembles at multiple sites is the A320/321.
    A330/A350/A380 final are in Toulouse.
    The A380 has the interiors installed in Hamburg and the deliveries are split between Hamburg and Toulouse (in my opinion a big profit wasting, ego booster for Toulouse).

    • A380 deliveries were a “Politikum”

      What do deliveries actually cost?
      In relation to the product negligible imho.

      Then, Hamburg and Toulouse each already had delivery centers.

    • “in my opinion a big profit wasting”

      Absolutely. I find it odd for anyone to claim that any such inefficiencies should be disregarded, when the business as a whole is struggling to establish a reasonable level of profitability, and this project in particular.

      Such costs do matter and are significant, when you consider the aggregate of staff, infrastructure and logistics.

      • What beancounters deem efficient has a good chance of not being that at all. they invariably stumble over the fact that their model does not match reality.

        • That statement is somewhat vague; is it a specific reflection on the Airbus industrial set-up, or just a general slant at business accountants?

          • Boeing has shown much more map/reality mismatches.

            But see it as a general critique on accounting/commerce theories.
            Especially in the US it is a religion and seems to build on dogmatic basic assumptions.

    • One of those political compromises like stuff spread all over Europe to get the Airbus entity working in the first place.

      Boeing scatter 787 production all over the world and supposedly will make it pay off (someday) At least Western Europe being so very small its all a lot closer.

  8. The biggest waste on the A380 IMHO is the delivery process. How much simpler if it had been assembled in Hamburg.

  9. 737 Completion Center

    Do we just mean clicking in seats & bins, cabin wiring, carpets & paint the thing, or is it more?

    If not its more like the foreseen Tianjin A330 completion and delivery center..

  10. Torry:

    I read the article on Torry in the Seattle paper.

    Frankly its the usual spin on a technical move. Everett like LA is overgrown and any company that started in the city the land costs are astronomical for expansion. Doesn’t matter what city so nothing unique about Seattle area.

    there is lots of land in Washington state and a give away tax structure, got nothing to do with trying to build inside a large city. All they have to do is move North and or East and they can get all the land they want cheap.

    That said, South Carolina is wide open with low environmental standards and an ideal place to put an entire factory (they will do the whole process end to end which they do not do in Washington). It also happens to be close (big surprise) to Charleston where half the 787s are assembled (actually more than half made as the fuselage sections are made there as well). Ergo a good place logistically as well as you can fly product to Italy for that part of the operation.

    I will bet there is a plant in Japan that is in big expensive area to supply the wing materials.

    and once they have satisfied the US market why would they build more in the US?

    So again, typical business spin in lock step with the Boeing mantra, tell a lie often enough and it becomes the truth.

  11. All this talk of production efficiency and profitability ignores one enormous ominous fact. CHINA IS A COMMUNIST country, HELLBENT on stealing our technology. Boeing is a major depositor of American Public as well as private technology, NASA, DOD. Allowing a Boeing plant to partner with a Chinese “state owned, even if they say it is not” company, is beyond folly. All communication with that plant will be intercepted and their computer networks will be compromised. God help us if Communist China steals 50 years of research, because our politicians are too corrupted by the super wealthy to put AMERICA’S best interests first.

  12. “CHINA IS A COMMUNIST country, ”

    at least they behave rational.
    Not a certainty by far with some “exceptional” others.

    “HELLBENT on stealing our technology.”

    If you don’t have anything than just that set of technology you obviously have a problem. But if that is the case you also obviously did not make that technology on your own.

    Everybody else would just invent more. You can’t keep inventions under a lid while also selling their use.

    IP was invented by lawyers, creative in cheating but otherwise uninventive people.

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