Boeing v. Airbus (continued)

The epic battle between Boeing and Airbus for dominance of the world's commercial airliner market may be see—sawing back in the direction favoring Airbus. After delivery delays, weight overruns, and other problems (including worrisome reports of structural issues)�with the A—380 superjumbo, and the scrapping of its first version of the new A—350, the Big Mo seemed turned against Airbus.

But now Business Week reports worrisome problems with Boeing's new 787 Dreamliner, which has been setting order book records, and which appeared to have correctly forecast market trends toward point—to—point (as opposed to hub—and—spoke) operations. From the report:

Boeing's engineers are wrestling with several significant technical and production problems that could threaten the scheduled 2008 delivery of the jetliner.� At a time when Boeing has left itself with little margin for error, the wide—ranging series of glitches could create a domino effect if they aren't resolved quickly. The worst news: The fuselage section —— the big multi—part cylindrical barrel that encompasses the passenger seating area —— has failed in company testing. That's forcing Boeing to make more sections than planned, and to reexamine quality and safety concerns.

Elsewhere in the aircraft, suppliers are struggling to meet Boeing's exacting technological demands and ambitious production deadlines. Test versions of the nose section, for instance, were deemed unacceptable by Boeing. Software programs designed by a variety of manufacturers are having trouble talking to one another. And the overall weight of the airplane is still too high —— especially the single biggest part of the 787, the carbon—fiber wing. [....]

In a bid to tap the best talent and hold down costs, the aerospace icon has engaged in extreme outsourcing, leaving it highly dependent on a far—flung supply chain that includes 43 "top—tier" suppliers on three continents. It is the first time Boeing has ever outsourced the most critical areas of the plane, the wing and the fuselage. About 80% of the Dreamliner is being fabricated by outside suppliers, vs. 51% for existing Boeing planes.

It is too soon to know if these problems are normal teething issues with a new plane, or whether they might be fundamental. In particular, the inevitable issues involved in having suppliers which are competitors work closely with one another could hobble timely, effective, and complete problem—solving.

The building of commercial airliners remains one of the world's most demanding and riskiest businesses. Airbus has its share of the same problems, of course, and was patched together as a consortium of formerly independent and rival manufacturers. Only recently has it become a true operating company. It is quite possible that Airbus is further down the inter—organizational learning curve than Boeing, and if Boeing cannot obtain effective coordination, it could be crippling. Late delivery penalties and loss of of orders at the time that deliveries should be generating big cash flow can become a financial nightmare.

As always, one major mistake can cripple. Nobody even wants to think about the real downside, that a serious technological flaw could lead to ruptured fuselages and mass deaths. Both the 787 and 380 are psuhingtheir respective envelopes, and both rely on composites used to a degree exceeding anything else ever seen.

The commercial battle remains the most fascinating combat in the world of business.

Hat tip: Ed Lasky

Thomas Lifson�� 6 11 06