Leeham News and Analysis
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Leeham News and Analysis
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Launching the NMA could mean new business model for Boeing
By Dan Catchpole
Feb. 14, 2019, © Leeham News: Commercial aerospace’s super cycle is alive and well—and looks to keep going through the foreseeable future. Major suppliers and OEMs, and industry analysts at the Pacific Northwest Aerospace Alliance annual conference are all optimistic about the industry demand. Analysts noted potential concerns, such as a trade war with China, a catastrophic terrorist attack, or an economic shock. However, even the often bubble-bursting Richard Aboulafia, an aerospace analyst and vice president at the Teal Group, said the party likely will keep rolling on for several years more.
Amid such a sunny forecast, Boeing is weighing whether to overhaul its commercial aerospace business model, said Kevin Michaels, a co-founder of AeroDynamic Advisory.
The company is working to close the business case on a new midmarket airplane (NMA), already dubbed the 797 by industry watchers. The NMA—or, if Boeing does not launch it, then its next single aisle airplane—likely will usher in “the next evolution of the jetliner business model,” Michaels said.
The new model, he said, has four key aspects:
- Greater vertical integration and in-sourcing work;
- Targeted, yet aggressive expansion of services;
- Redefining supplier relationships to capture more aftermarket revenue; and
- Introducing model-based systems engineering.
Getting vertical
Boeing is pursuing strategic vertical integration, oftentimes around systems. Michaels pointed to Boeing and Safran forming a joint venture to produce APUs as an example of the company’s strategy for bringing some production back in house. That is an area that Honeywell has dominated, and which Boeing and Safran do not have substantial background in.
“I think Boeing wants to send a message to the supply base,” that it is serious about vertical integration, Michaels said.
Another likely area for Boeing to move into is designing and producing the aircraft operating system, he said. That also includes making flight management systems and flight control systems.
The danger for Boeing is that vertical integration means higher fixed costs and labor costs that would be significant liabilities if the super cycle ended and demand dropped.
New supplier relationships
Cost-cutting is a way of life in Boeing’s supply chains. Most of its suppliers have made peace with Partnership for Success, Michaels said.
The rules are changing again, though. If a supplier wants to be on a Boeing aircraft program, it likely will “pay a royalty that is some portion of your aftermarket revenue,” he said.
For now, engine makers are immune to Boeing’s push to capture more aftermarket revenue, but they too could be affected on the next new aircraft after the NMA, he said.
Growing services
Boeing CEO Dennis Muilenburg has set an ambitious goal of increasing revenue from services to $50 billion in the next few years. Even if they fall short, it still marks a huge and lucrative addition for the company’s bottom line.
Model-based systems engineering
Boeing wants to introduce model-based systems engineering (MBSE) to slash engineering development costs and time, Michaels said.
The aerospace giant has been moving toward MBSE at least since the early 2010s. A company article from 2017 explains the paradigm this way:
“Model-based systems engineering intends to centralize all information about the system in a model, often called the ‘single source of truth.’ The model supports the system’s entire life cycle from requirements documentation to validation and verification exercises to maintenance and training purposes, just to mention some. Stakeholders like decision makers and suppliers as well as the development teams can access the model at different views and levels of detail, to access data according to their needs while consistency of the information is guaranteed.”
The model-based approach is a move away from document-based engineering, which is much less dynamic.
Boeing considers adoption of model-based systems engineering to be critical to hitting its price target to close the NMA business case, Michaels said.
The NMA’s value could go far beyond the confines of a tradition business case, though. “One argument for the NMA is that you implement MBSE, you roll out your new supply chain model with more vertical integration systems responsibility and you have more services capability with more aftermarket royalties,” Michaels said. “You figure this stuff out on a lower volume aircraft that is not betting the farm necessarily.”
Boeing could then apply its new business model to replacing the 737, he said.
That would mean the NMA is really part of a long-term two airplane strategy, rather than a standalone program, Michaels said.
“Model-based systems engineering intends to centralize all information about the system in a model, often called the ‘single source of truth.’ The model supports the system’s entire life cycle from requirements documentation to validation and verification exercises to maintenance and training purposes, just to mention some.”
Sounds like they’re being sold a new engineering IT system.
“Stakeholders like decision makers and suppliers as well as the development teams can access the model at different views and levels of detail, to access data according to their needs while consistency of the information is guaranteed.”
Data protection laws will get in the way of that.
“Boeing considers adoption of model-based systems engineering to be critical to hitting its price target to close the NMA business case”
I’m not saying they are in the wrong, but can someone explain to me why it is that Boeing decide to build an aeroplane, define its dimensions, thrusts, weights, range and speed and then attempt to make the business case? I may well be in the wrong, but I’d compete different business cases and build the winner. Putting the aeroplane before the business case might well explain the A380 news this morning.
To me the NMA looks more and more like an experiment or a case study than a real plane. And I actually that is a very clever move. They practice this new system on a plane that has very small chances to be built in reality, so there is very little the team can spoil.
I really like the idea of MBSE. When it works it is exactly the oposite of the A380 drama, where they found out that the cables don’t fit only when they try to install them…
This also confirms that the NMA is very effective smoke-screen for the 737 successor.
The main issue with MBSE is with certification authorities that loves documents and paper! They are no used of certifying a requirements baseline instead. But that’s the future, and it guarantees a much safer and reliable product, specially with so high integrated systems, where you cannot distinguish anymore where is the avionics or the flight controls system begins and ends, for example.
“This also confirms that the NMA is very effective smoke-screen for the 737 successor.”
The timeline for NSA is too soon for NMA to be a smokescreen for NSA. There is no reason to build the NSA when Boeing has 3000 737s to build. In fact announcing NSA devalues and kills the 737 backlog as airlines swap orders.
The NMA is a de-risking strategy for the NSA. Boeing is terrified of having a 787 sized problem on the 737 line. NMA is a way to work out all the technologies they intend to implement on the NSA before building a single NSA: system architecture, wing design, building methods, and cockpits will be shared.
I expect the NMA line will become the NSA line once validated and speed is increased.
NSA and NMA will be siblings like the 757 and 767. If NMA is a market failure, it will ensure the success of NSA. If NMA is a success, all the better for the backlog.
Thank you Garrett for verifying my theory. Looks like you agree that in the end its all about the 737 successor and how to build it. The NMA is a training camp which might or might not yield a usable result (which is highly unlikely I think).
Indeed, had Boeing announced that they run studies about future single aisles planes, it would weaken the market for the 737MAX. So they try to avoid that. That’s what I call a smoke screen.
There is no way back from MBSE, Chris.
You see even a shade of that happening even now in Oil&Gas with ‘digital twins’ around complex refineries, oil fields. And everywhere else (cars, power plant, etc)
Such R&D capabilities is why they bought the Dassault Catia system MBSE tools. 1+B$ over 20y… So yes they got something sold to them indeed but the 787 taught them better.
I think you may not understand what Systems Engineering is, or why you’d model it instead of having Word documents…
It’s entirely about determining what it is the customer actually needs (they never actually tell you), and assessing how well you’re going to satisfy their needs, mostly long before you get your CAD tools warmed up.
You do use CASE tools for this job. MBSE is nothing to do with how the manufacturing design of the product is represented. Its how you capture and analyse requirements.
In case you don’t know, companies like Toyota are supremely good at doing this, and it’s no wonder they’re the biggest car company in the world. They’ve even done this to their own production system. They don’t even set production targets for their suppliers…
In short, SE is often as much about forcing engineers to recognise that their view of what’s wanted is not always correct (90% of the time they’re wrong, according to a pan industry study done by Carnegie Mellon) and to accept the results of the SE analysis. How well that’s accepted, well, it’s a cultural thing. Takes real discipline and faith in the process, even if what’s been found is counterintuitive.
The fact that Boeing only now seems to be thinking of adopting modern SE techniques is not surprising, given the planes they’ve churned out over the past decades. For a system that complicated it’s impossible to marshal and comprehend all the necessary information in docs.
Toyota arent largest car company in the world. They are number 2 . But its best to say they are amoung the top 3 with over 10 mill sales.
Companies like Boeing or Airbus have long asked customers what they need- range, passengers, cabin amenities etc.
Trouble is the airlines dont know who the design wings to be the most efficent…Boeing is especially good at that.
The idea that say, Emirates or British airways would define the model that decribes the aerodynamic , structural and manufacturing decisions that a wing design entails is laughable.
Then there is R&D , airlines dont get deeply into completely new techniques of doing something, they only know what they know.
It was na airline that came up with carbon fibre composite material – and no it wasnt NASA or Thomas Edison either as Americans tend to think. It was a British aircraft research Institute
A lot of British airliners owe their lack of success to the over-influence of one customer – British Overseas Airways Corporation/British European Airways, British Airways as it became. Vanguard, Trident, VC10.
Boeing did better. Their products sold.
Its absurd to compare the ‘influence of one customer’ on British airliners , because thats exactly what Boeing and Douglas and for a time Lockheed did . Just that the very much larger US avation market had MORE large customers at the time:Eastern, United, Delta, TWA etc.
The 747 was designed for Pan Am and the 707 ? It was designed for one very very large customer The USAF as the 367-80 ,( around 730 built!) they just widened the fuselage to compete with Douglas designed DC8.
Because of the much bigger production base the 707 especially was produced in many versions …to suit specific airlines… and of course updated versions like the ones that really sold like 707-120 and 707-320.
The pattern of selling well begets more versions to satisfy more airlines continues today as the end of the A380 shows what happens when low volume means you cant make changes.
Duke: You forget the 707 was the right size as well for pax numbers.
And yes Boeing did take all its expertise with B-52 and B-47 and used that as the foundation for the design. So what?
I guess Boeing etc should have felt sorry for the Brits and their limited market and shot themselves in the foot?
Maybe we should not have rebelled?
Maybe we should get over it?
I do know something about systems engineering, Rolls-Royce put me on their course for it a few years ago.
The chief take-away I got from it was how often the concept was ignored on the grounds that things don’t work like that, it’s never been done before or we’ve always done it the old way. Also that insufficiently few people were taught to use the software, causing large numbers of engineers to rely on those who could access the system. These people became the ‘Single Source of Truth’
I’m sure Boeing will do better than RR, it may be run by proper managers – you know, Americans – rather than graduate British engineers who have either been turned into administrators or promoted no further than their first level of competence, or both.
Anyway, flow down and management of requirements was a big thing at RR and the net result was more coxes and no more oarsmen. If the system doesn’t actually help achieve, but just measures what is achieved then it’s a band aid sop to higher management and little more. At RR it was a band aid on top of many, many others.
I do believe that Toyota – they have a factory in Derby just down the road from RR, and their performance was jealously noted – do the job much better. Teaching everybody to use the new system to its full potential probably, nothing much more simple than that.
Mind you, if you want to change the lightbulb in my Nissan, you need to have two inline wrists and an eyeball embedded in the palm of your hand. And a couple of hours free time. Remember that the first customer of Boeing is Boeing Production, not necessarily airlines, engineers, pilots, cabin crew, tow-tug staff, honeywagon drivers or passengers.
CL
Thank you, love it, good one to start the day off with!
I don’t know about Boeing’s SE prowess vs RR’s, but I’m pretty certain that Airbus are better at it then Boeing… I’ve met a number of frustrated RR SE’s in my time.
Toyota’s real secret is that they’ve perfected the process that produces the people that train others to design how a factory should be operated and how cars are designed. It’s very meta, but it’s difficult to understate how important that is to their success. It requires long term staff retention, patience and investment in suppliers, etc. It doesn’t work if a company has a hire/fire approach to cost control.
RR’s situation is very different to Toyota’s, and it’s this kind of variation in business situations that is often forgotten when comparing how companies A and B go about things. For example the impact to a customer of Toyota missing a delivery is small in the big scheme of things. RR being late is really bad news. That has to skew a company’s approach to SE, product development and production. So whilst one looks down the road at Toyota in envy, it’s important to bear in mind that not everything Toyota does translates literally, unmodified, to RR’s business. I’m not saying RR are perfect!
MBSE is not an IT system, it is a methodology that has been successfully used on many other programs before, the Space Shuttle and the International Space Station Programs would be two examples. It is a methodology, not a software or IT package.
Boeing has to be careful no to repeat the Honeywell customer relaitionship disaster that caused them to be kicked out of the 787. Letting MBA’s loose in Chicago without Aerospace feeling can easliy cause Customer uproar when new pricelists for spares, licenses and Tech support are issued.
So, Boeing’s already as desperate it turns the business model upside down, squezes it’s supliers to make NMA a valid case. On top must see it as a basis for NSA as a B737 sucessor.
I’m not sure if this Business model change is possible, usually you need new entyties to do so. Also, the biggest aftermarket is the engines, but these are very expensive to develop. What will GE say if Boeing does want to cut their profits?
Exciting times!
Didn’t we just vertically UN-integrate? Well sheese, that didn’t last long did it?
Actually there are 3 programs involved in what is called Black Diamond.
TF-X, the Carrier fueler drone and 797. It has more to do with digital and production efficient (whether or not it works is ???) than anything else.
Boeing cut 6 billion off the Trainer contract. Low bid the drone and hopes to be able to make the 797 at low costs.
Have to see. Talk is easy, someone has to make it work.
I do know of one case where and mfg is using 3d Printers to model parts and have been successful lowering the costs to the point of holding the line on price increase while fixing previous inherited problems.
Boeing is moving to an all digital design and implementation as well as production efficiency put into the new programs.
As my mother says, stay tuned!
MBAs are just waiting for a chance to swing for the fences with their new ideas. When those same MBAs break the production line with really stupid ideas; they blame subcontractors, engineers, and labor and force concessions from each to preserve the bottom line.
Agreed. I was on the sidelines of one of those great ides.
Lets consolidate all our buying and contracting (x industry) like the Auto Industry did. We will see it to you for the low price of (x) and you will save 5 million the first year. We will take X amount for doing that for you.
As I recall it cost the company who sucked in (well they are adult) about 10 million the first year and it quietly died as the year went on and we never heard about it again!
Ok, one was based on fixed factory, mfg and the other delivery of service scatted all over hells half acre and nothing to do with mfg.
In Boeing case they are a central assembler even if its low volume.
They are testing the tools and they are known for having gone to digital design with the 777 successful and subsequent programs.
As CL noted, you have to teach everyone and then everyone has to be all in.
There is a revolution of digital, 3D printing, computing power capability and the tools being designed to work with all of it and implement it.
When you cut 6 billion off a bid (TF-X) you have to believe strongly that it will work (you could just cut a billion or two) and the tools there or management would never have allowed that low a bid.
My guess is the KC-46 was starved for resources to developed the system that is the future (supposedly the KC would work ok with the old one and applying a new system to one not designed from the ground up is not in the mix, it has to be all or nothing)
Can they pull it off? We will see. We know there will be hiccups, that does not mean it not valid.
While I detest Boeing’s human and country strategy, I think they have a solid base for going ahead, and what the future is anyway. As the German car add used to say, you can go fast or get out of the way.
Aerospace is so costly that its rife for a revolution.
@Garrett, indeed there’s stupid ideas, and there’s stoopider…..
http://www.bizjournals.com/seattle/news/2019/02/15/analystboeing-could-impose-a-royalty-on-engine.amp.html
Well, dont cell phone makers do something like that – charge fees , royalties or even a share of the income stream for apps preloaded on ‘their phones’
After all isnt an engine just another ‘app’ ?
The problem with that approach is the engine makers could say: to share revenue, we would have to repurpose one of our old engines but charge more for it.
If a moonshot NSA takes about 7-8 years, 2019-20 seems a good launching moment. The MAX backlog is about 7 years, but a next global recession will go over it and some airlines will change their minds. Taking a detailed look at the orderbook, many are less than rock solid orders. E.g. the biggest customer is “Unidentified” and those tends to evaporate without a noise. 2019 seems ok for launching. Apart from United, the global legacy’s are missing in the 737-9/-10 orderbook.
https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_and_deliveries#Orders_and_deliveries_by_customer
The things you list are not panaceas, yet some Boeing executives peddle them as a response to supplier problems with the 787 program.
Reality was that some suppliers were troubled, such as Smiths Cheltenham/Yakima (landing gear control, actuations, and indication). Eventually GE took over Smiths Aerospace, I don’t know how well that worked.
Having a troubled supplier take over a smaller troubled supplier to ease Boeing’s coordination workload was a bad idea.
Suppliers vary in time and even between divisions, the case with HydroAire and Smiths.
A problem was giving suppliers more of a stake in the outcome, which enabled bad suppliers to deliberately be obstinate.
And of course some Boeing managers were troubled. I suspect there’s extra cost in the airplane because other Boeing managers couldn’t trust them so added features in their own system.