Boeing’s big opportunity

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By Scott Hamilton

Analysis

Introduction

Aug. 3, 2020, © Leeham News: Boeing has one of the biggest opportunities in decades.

This is counter-intuitive, given the disaster it faces with the COVID-19 crisis.

But in chaos, there are opportunities.

There are some key assumptions that must be made. But these are not outlandish.

Summary

Assume:

  • Boeing survives the virus crisis.
  • Boeing consolidates 787 in Charleston.
  • 787 demand doesn’t return, reactivating Everett line.
  • Sharp gains in production efficiency.
  • These lead to the Big Opportunity.

Discussion
Survival

Unless the COVID crisis gets far worse and far more prolonged than currently thought, Boeing will survive without drastic cuts. It will have huge debt to pay down, however.

But CEO David Calhoun repeatedly said since he assumed his position Jan. 13 that R&D spending for advances in production will continue.

If all the hopeful forecasts from the airline and aerospace industry by 2024 are correct, Boeing’s cash flow should be robust by then. Seven-Series airplane deliveries will be healthy. This will allow Boeing to pay down its debt. By 2024, Boeing will be positioned to launch a new airplane program.

Consolidating 787 production

LNA believes it is virtually certain Boeing will consolidate production of the 787 in Charleston (SC). With the rate going to 6/mo, splitting this between Everett and Charleston makes little sense.

Additionally, Charleston assembles only the 787. Everett assembles the 767-300ERF, KC-46A, 777 and, into 2022, the 747. Although rates are going down for the 777, these programs give Boeing the ability to allocate the factory costs across three programs (two after the 747 is terminated). The multi-billion-dollar investment in Charleston would have very little cost allocation if the 787 final assembly line there was closed.

Charleston produces fuselage sections for the 787. Moving these sections across the tarmac, so-to-speak, is a lot cheaper and logistically simpler than airlifting them to Everett.

The 787-10 is assembled only in Charleston. Some fuselage sections are too long for the Dreamlifters. A method for transporting them to Everett would have to be developed, a needless expense.

Charleston is a non-union workforce. Labor costs are lower than Everett. State and local regulations are more relaxed. Cost of living and doing business is less.

In 2017, LNA was told by a Boeing Charleston official that headquarters told them final assembly in Charleston is 20% cheaper than in Everett. The problem was the Charleston costs before the airplanes entering the FAL.

Reactivating the Everett 787 line

Calhoun said Boeing is going to try and figure out how to produce the 787 more efficiently. LNA believes this not only is a goal for FAL. It also is to address those front-end costs, which were not identified in our 2017 information.

LNA also believes Boeing will attempt to achieve more efficient final assembly to enable Charleston to produce more than the current cap of 7/mo should 787 demand recover. It’s also an option to build a new FAL line in Charleston.

Once the Everett 787 line is closed, LNA believes it will never reopen. LNA believes a decision will be forthcoming and announced around the third quarter earnings call, Oct. 28. It could come sooner or later, but not much later.

Sharp Gains in Production Efficiency

When Boeing was working its business case for the New Midmarket Airplane, then-CEO Dennis Muilenburg and later Calhoun repeatedly said a new method of production was a key to the plan.

LNA has written many times that advanced manufacturing techniques across the board were critical to the NMA business model.

The modernity of the manufacturing techniques used on 7-Series airplanes varies. As part of the Military T-X program new combined all digital development and manufacturing techniques were developed and tested.

As a result, Boeing Defense developed and produced two pre-series T-X fighter trainers in record time and with production quality first time round for the production documentation. The finishing of this program to a production aircraft called the T-7A Red Hawk is going well. The MQ-25 unmanned aerial vehicle is another Defense beneficiary of this new method Boeing has decided this new method will be used for all future civil and military programs.

Boeing Commercial Airplanes has advanced the manufacturing for the 777X wing, the MAX wing, on elements of the 787 and even on the ancient 767/KC-46A lines. The attempt to use robots at the Fuselage Automated Upright Build (FAUB) on the 777 Classic failed, however. Updating the manufacturing for a fuselage that was developed for manual riveting and fastening was the main problem.

The NMA was to be the first BCA product to merge these techniques with the new development and manufacturing methodology in one airplane program.

LNA believes the effort to streamline 787 production with more efficiencies may be an attempt to merge more of these techniques into this program, which was developed with a mixture of old and new tools/techniques.

The Big Opportunity

This brings us to Boeing’s Big Opportunity.

To summarize the foundation:

  • The 747 and 787 bays are empty in Everett from some time in 2022 (the 787 sooner).
  • Boeing’s production R&D continues.
  • There is success in creating more production efficiencies with the 787 FAL in Charleston.
  • By the end of 2022, better predictions about the COVID impact recovery is apparent.
  • By 2023, production rates and the all-important cash flow are on the upswing.
“Clean sheet” production

With empty production bays, Boeing has the unique opportunity to establish “clean sheet” production without having to build a costly new production plant.

The 777X Composite Wing Center was a billion-dollar investment yet focused only on the wings. To be sure, the facility is large enough to build wings for other airplanes. According to information, NMA wings were to be built at the CWC.

Various advanced manufacturing processes on other 7 Series airplanes had to be retrofitted into the airplane and/or the existing production system. (The 787 is a special case. This was supposed to be a “snap together airplane.” But the industrial and design mistakes blew this up.)

The empty bays in Everett give Boeing the unique chance to design and install advanced production systems without retrofit challenges. These may be customized for the Next Boeing Airplane (NBA), whatever it is.

Next Boeing Airplane

The NBA, whatever point design it is, almost certainly will be a replacement for the 737-9 and 737-10. In other words, this new family of airplanes will start at about 180 seats, two class, in Boeing standard layout and go up. Increases in size are typically around 15%. This means the next size would be 207 seats and then 238 seats. Typical airline configuration use denser seating than Boeing do, so typical airline cabin can be 10 to 20 seats more than the Boeing standard.

Therefore, the next Boeing family of airplanes could be up to 200, 227 and 258 seats in airline two-class configurations.

A single aisle airplane could work. The 757-300 seats 243 passengers in two-classes configuration. However, the airplane—albeit with 2020-decade technology—would be an A321neo clone. An NMA “Lite” would be a game changer (to use an over-worn term).

Combined with the convergence of advanced manufacturing processes, the innovative NMA design and recast into an NMA Lite, Boeing will have an airplane which will force a response from Airbus.

(Airbus officials think new technology in the 2030 decade will obsolete any new 2020s airplane might conceive.)

Decision times

Boeing will need to begin making decisions in 2023-2024. The pressing need is to replace the MAX 9/10, which are a distant second to the A321LR/XLR. Calhoun said on a previous earnings call the NBA won’t be a response to the 321—but this is what Boeing needs.

Going “up” from there, into the Middle of the Market (defined as 225-270 passengers), provides a viable family of airplanes and a viable business plan.

If Boeing launches a new airplane program in 2024-2025, entry into service will be around 2030-2031. Airbus talks about an A320 family replacement about the same time.

With two empty bays in Everett, Boeing can start from scratch. Airbus will have an empty A380 FAL building in Toulouse and vacant facilities in Hamburg from 2021 as the last A380 is delivered.

This is Boeing’s Big Opportunity that won’t come again for a long, long time.

 

 

One Comment on “Boeing’s big opportunity

  1. In 2023-2024 the A321XLR should enter service.
    Then the next step Airbus could do is an A322, but maybe it’s only 2-3 rows longer. There might be an end to stretch the A321 further.

    That’s where a new 7-abreast makes sense.
    Also LH2 calculations show that bigger cross-sections are needed to store tanks in the fuselage.
    For example possible could be an A330-900 with an LH2 tank 11m long for 270pax and 3000nm.
    A new 7-abreast could do 2000nm sectors and 5- and 6-abreast will be nearly useless.

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