May 15, 2008

October 11, 2007

Boeing Delays Dreamliner Delivery

By Thomas Lifson
Yesterday, Boeing admitted that the first delivery of its next-generation wide-body airliner, the 787 Dreamliner, would be delayed by 6 months. While not a catastrophe, the setback erodes some of the competitive halo Boeing has enjoyed during a period when its competitor Airbus stumbled badly, repeatedly delaying delivery of its own flagship new airplane, the A380 super jumbo. The UK Times quoted  one analyst who said:
"The 787 delay is possibly the best thing that has happened to Airbus all year. It's a reminder that these things never go according to plan."
No one is terribly surprised, as Boeing was widely regarded as telegraphing such a delay ever since the July 7th (7/8/7) first rollout of the Dreamliner from its Everett, Washington factor, still unable to fly. Last month. Boeing admitted that the first flight would be delayed. But until yesterday, the company had stubbornly stuck to its story that deliveries would go as scheduled.

So is Boeing following the Airbus path, denying the extent of its problems and likely to encounter further delays, and costing the company billions in penalty fees and tarnishing its reputation?

Based on the evidence so far, probably not. But due to the complexity, size, and cutting edge nature of many technologies employed in the plane, further slip-ups remain a distinct possibility. There are, and always have been, technological risks to innovation. Boeing will naturally make every effort to meet the revised schedule, and even boasts:  
"The newly revised schedule for first flight and first delivery addresses the production challenges and restores margin for the program to deal with issues that may be uncovered in final ground or flight testing." (emphasis added)
In other words, after sticking to its original delivery date, the company had seen all margin for further error vanish. By taking a full six month hit now, the company has admitted its problems and restored a little slack into the schedule, to allow for unexpected contingencies. Which are a normal feature in the introduction of complex new airliners.

Although there was some acerbic commentary, Wall Street seems not overly concerned. Boeing stock was down 2.4% at the closing bell yesterday, not a calamitous decline. Via Bloomberg:
"Boeing has bitten the bullet and accepted that the schedule is beyond them," Robert Stallard, a New York-based Banc of America Securities LLC analyst, wrote in a report to clients today. He has a "buy" rating on the shares. "While this is obviously not a good-news day for Boeing, we believe that few investors had recently been placing much hope in the firm meeting first delivery in May 2008."
But the level of interest in the question of further delays has led to the creation of website where people can in effect wager on whether or not Boeing will make its new delivery schedule on time.

The Problem

Boeing has outsourced a very large portion of the manufacturing process to a very large number of suppliers all around the world. Most notably, the wings and fuselage barrel, made from high technology composite materials, are manufactured in Japan. But significant other components are made by other companies, and Boeing's role is focused on systems integration and final assembly. In its ability to share development costs, risk, and to tap into considerable expertise in the skill sets of its partner companies, this has been an excellent strategy for Boeing.

But there are risks in such extensive outsourcing. When suppliers stumble on critical components, the impact reverberates throughout the entire manufacturing system. According to an account in the Wall Street Journal,
...the entire industry has been beset by a shortage in titanium and aluminum fasteners used to hold airplanes together. Boeing's problems were exacerbated because suppliers were also having to master new manufacturing techniques associated with building much of the fuselage from carbon-fiber composites rather than aluminum.
Last month, Boeing officials acknowledged that the first flight was running four months behind, but they said they still believed they could still make their original delivery schedule if everything went perfectly.

Since then, Boeing has continued to have trouble assembling the first airplane. At the same time, suppliers who are working on major assemblies for subsequent airplanes have had trouble getting some of the parts they need to complete them, making it necessary for Boeing to rework the schedule.

Reworking the schedule of work can cause a shuffling about of subcomponents, so-called "traveled work." Design News wrote last month, well before yesterday's announcement, quoting Mike Bair, GM and VP of the 787 program:
As a result of the fastener shortage, assembly had to be "re-sequenced" resulting in more "traveled work," which is partner work pushed further into the supply chain. "The fundamental issue we are dealing with is that the production system has not and was not designed to deal with traveled work."
So Boeing has found that it has some further skills to hone in the realm of systems integration. There is no doubt a learning curve effect as Boeing and its suppliers adjust to the process of coordinating their efforts on the thousands of components being produced and assembled.

By comparison, the problems Airbus experienced with the A380 were based on internal integration issues, especially the problems combining design work done in Germany and France on different and incompatible computer aided design (CAD) systems. The incredibly complex wiring required for an aircraft of the 380's size was aggravated by all the various configurations of the aircraft interior promised to airline customers when selling the giant bird.

Most industry observers assume Boeing privately kept airline customers informed of the building up of difficulties, and that none were terribly surprised at the delay. But this is described by the UK Times as "devastating" for All Nippon Airways, which had planned to introduce the 787 into service between Japan and Beijing in time for the Olympics. Northwest Airlines, the first US customer for the Dreamliner, is publicly maintaining equanimity. The Detroit Free Press reports:

Northwest Airlines said delays in the delivery of the Boeing 787 Dreamliner should not affect its operations.

"We're fully expecting an updated schedule in next few weeks," said Northwest Airlines spokesman Dean Breest. "We're disappointed by the delay. But we're well positioned to adapt."
In the end, the story for Boeing is one of adaptation, too. If it is able to work with its suppliers to iron out the kinks in the supply chain and assembly process, then the six month delay means little. It is by no means certain that all deliveries will be delayed by six months.

Next week, Airbus delivers its very first aircraft to Singapore Airlines. The world's civil aviation press is focusing on that happy and significant event. Boeing will apparently have to wait awhile longer for some good news of its own.

Thomas Lifson is editor and publisher of American Thinker.
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