Case Study on Boeing
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Transcript of Case Study on Boeing
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RevisedOctober14,2008
Boeing787:TheDreamliner(B)
In April 2008, Boeing confirmed a delay in the 787‐airplane and announced a 14‐monthdelayindeliveringBoeing’smostanticipatedairplane. TheBoeing787‐airplane,tobeputin service in 2008 initially, has become Boeing’s best‐selling new plane ever; as ofSeptember 2008, the Boeing company had orders for 895 airplanes from 58 customersworldwidewithanestimatedbacklogvalueof$151billion(seeExhibit1forthedifferent787‐airplaneconfigurationsthatBoeingoffers).
Although not a full‐blown crisis such as the one faced by Airbus with its A380‐airplanedelays, theannouncementwasnonethelessapotentiallyserioussetbackforBoeing.NotestheWall Street Journal: “Some analysts believe Boeing could be liable for asmuch as $4billion of concessions and penalty payments to airlines formissed deadlines. Boeing . . .plans to book the first 25 deliveries at zero‐profit margin to cover penalties.”1 AnalystestimatesindicatethatthedelaycouldcostBoeingover$2billiondollarsinpenaltiesalone,plusadditionalR&Dexpensesoverthenextfewyears(seeExhibit2).
AccordingtoBoeing’srevisedschedule,thefirsttestflightofthe787‐airplanewasexpectedto be carried out in late 2008, and the first deliveries in the 3rd quarter of 2009. Thecompanyalsoplannedadramaticallyslowerramp‐upinproduction;Boeing’sgoalnowistoproduce 10 787s a month starting in 2012, a figure significantly lower than originallyplanned (see Exhibit 3). Notes Boeing’s 787 spokesperson, Yvonne Leach, the averagedelayforall58787‐customersisexpectedtobeabout20months.2
ReasonsandResponsetotheDelays
ReasonsfortheDelay
Boeingattributeditsfirstdelay,announcedinOctober2007,toanunexpectedshortageoffasteners–the“nutsandbolts”thatholdanairplanetogether.Thejobofgettingfastenersbecamemorecomplicatedandresultedinfurtherdelaysbecausethesupplierswhorushedtomakethemdidnotproperlydocumenttheirworkasrequiredbyfederalauthorities.
ProfessorsSureshKotha,Olesen/BattelleChairedProfessor,UniversityofWashington,FosterSchoolofBusiness,andRichardNolan, William Harding Professor of Business Administration (Emeritus), Harvard Business School, and Philip M. ConditProfessorofBusinessAdministration,UniversityofWashington,FosterSchoolofBusinesspreparedthiscase.Thecasewasdevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.
1J.L.Lunsford,BoeingCEOFightsHeadwind‐‐‐DespiteProfitGrowth,787DreamlinerAndTankerContractLossTestMcNerney.TheWallStreetJournal,25April2008,B1. 2AccordingtoTheSeattleTimes(May9,2008)InternationalLeaseFinanceCorp.(ILFC),thelargestcustomerforthe787airplanes,wastoldthatitfacedanaveragedelayofover27months.
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In addition to lackof fasteners, reportsTheWall Street Journal: “Honeywell InternationalInc.[was]scramblingtocompletehundredsofthousandsoflinesofcomputercodethatwillrun the airplane’s flight controls, a task . . . that both Honeywell and Boeing [had]underestimated.”3 In January 2008, Scott Carson, CEO Boeing’s Commercial Airplanesdivision, announced the second delay by noting the following: “[W]e continue to bechallengedbystart‐upissuesinourfactoryandinourextendedglobalsupply‐chain.”4 Heassured Wall Street analysts and airline customers that Boeing intended to conduct a“comprehensive assessment of its supply chain and production system capabilities todeterminethedetailsofthe787’sflighttestprogramandinitialdeliveryprofile.”However,at this time, he refrained from providing details about when customers could expectairplanedeliveries. InApril2008,Boeingofficialsannounced the thirddelayandrevisedthescheduleforthe787‐airplanedeliveries.Inannouncingthisdelay,Carsonnoted:
Ourrevisedscheduleisbuiltuponanachievable,high‐confidenceplanforgettingustoourpower‐on[inJuly2008]andfirst‐flightmilestones[inNovember2008].Also,whilethe fundamental technologies and design of the 787 remain sound,we have insertedsome additional schedule margin for dealing with other issues we may uncover intestingpriortofirstflightandintheflighttestprogram.5
From“BleedingEdge”to“LeadingEdge.”InalettertoBoeingemployeesdiscussingthethirddelayfacingthe787‐dreamliner,JamesMcNerney,Boeing’sCEO,inanopenlettertoemployeeshadthefollowingtosay:
Tome,twothemeshaveemergedfromthe787atthisearlystageinitslife.Onecenterson innovation, theother isonexecution. . . . Fundamental, game‐changing innovationlikethatwe’repursuingonthe787usuallyhasa“bleeding‐edge”qualitytoit–meaningit goes beyond “leading edge” into a realm where both the risks and the potentialreturnsarehigh....However,ourstruggletoexecutehascomeataprice,nottheleastofwhichistheimpacttoourcustomerrelations.6
Asanexampleofthe“bleeding‐edge”innovation,publishedreportspointtothechallengesBoeing has facedwith composites – the carbon‐fiber technology used for themajority ofstructuralsectionsoftheairplane(seeExhibit4).NotesBusinessWeek:
Thecarbon‐fibertechnologyhaspresentedadauntingchallengeforBoeingengineers.Ifcomponentsoftheplanearetooheavy,theplanelosesitsenergyefficiency.Butiftheyare too light, thepartsandeventheentireplanemightnotbestructurallysound.Thatwasthecasewiththecenterwingbox,thecriticalsectionoftheplanewherethewingsareattached.Itwasfoundtobetoolightandneeded[strengthening].Engineersdeviseda patch for the first six aircraft; the seventh will have the redesigned wing boxincorporatedfromthestart.7
Designingthepatchcostthe787‐programamonthindelays,andredesigningthewingbox,primarily the responsibility of Boeing’s partner, was now Boeing’s concern. One analyst
3J.L.Lunsford,Boeing’787FacesLessRoomforError.TheWallStreetJournal,September6,2007.4BoeingPressRelease,“BoeingShiftsSchedulefor787FirstFlight.”January16,2008.5BoeingPressRelease,“BoeingRevises787FirstFlightandDeliveryPlans.April09,2008.6BoeingPressRelease,“TimetoDeliveronthe787.”April21,2008.7J.Crown&C.Matlack,BoeingDelaysDreamlinerAgain.BusinessWeek,April9,2008.
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noted that “is a kind of biggie” and poses residual risk until the airplane flights tests arecompleted.8
Blaming Boeing’s Business Strategy.Many blamed Boeing’s “business strategy” for thedelays. Boeing has outsourced an “unprecedented” share of responsibility for the 787manufacturingtooverseas“risk‐sharingpartners”inItaly,Spain,andJapan(seeExhibit5).AccordingtoBusinessWeek:“[M]anyofthesepartnercompanies[first‐tiersuppliers]havestruggled,eitherinbuildingthecomponentsthemselvesorgettingthepartstheyneedfromothers [second‐tier suppliers], in time tomeet Boeing's rigorous construction schedule.“9FurtherareportinTheWallStreetJournalnoted:BoeingextolledthebusinessvirtuesofhavingsuppliersfromasfarawayasJapanandItaly build much of the fuel‐efficient new jetliner, with Boeing performing finalassembly. . . . But the plan backfiredwhen suppliers fell behind in getting their jobsdone,...[and]Boeingwasforcedtoturntoitsownunionworkforcetopiecetogetherthefirstfewairplanesaftertheyarrivedatthecompany'sfactoryinEverett,Wash.,withthousandsofmissingparts.Thatfueledbothangerandanxietyamongunionworkers.10
Published reports pinpoint to the botched assembly of the first 787‐fuselages at twofactories in Charleston, S.C. as a major reason for the delay. At Charleston, S.C., VoughtAircraftIndustriesmanagesonefactory,andGlobalAeronautica(GA),analliancebetweenVought and Italy's Alenia,manages the other. GA is responsible for integrating the largefuselagesectionsfromItalyandJapanwithBoeing‐furnishedparts.Accordingtopublishedreports: “The two factories planted here to build big Boeing 787 Dreamliner fuselagesectionsbeganasadisastrousexperienceinoutsourcing. TheirincompleteworkplayedalargepartinthesnafusthatsnarledthefinalassemblylineinEverettthathasdelayedthe787’sfirstflightby14months.”11ElmerDoty,CEOofVought,hadthefollowingtosayaboutsuchreports:
Vought’s role in the venture became problematicwhen the supply chain broke downand work that was to be completed by other major suppliers arrived in Charlestonunfinished. . . .TheproblemwasVoughthadnocontrolovertheprocurementofthoselargepieces.Boeing,astheprimecontractorwasresponsibleformanagingthosemajorpartners. . . .Tomanagethetraveledworkefficiently,youneedthatresponsibility. . . .Thatisbestdonebytheprime[contractorBoeing].
For instance, Vought points out that while Israel Aircraft Industries was contracted tosupplythe787plane’sfloorgridasasinglestructure,insteadVoughtreceivedpieceparts.ReportsinthemediaalsonotethattheworkforceinSouthCarolinalackedstrongaerospaceexperience such as that found in Everett, Washington, home of Boeing’s commercialairplanedivisionand this lackof experienceof theworkforce is responsible for some the
8D.Gates,“TheLatestDelayofBoeing787PushesBackFirstDeliverytoThirdQuarterof2009.”TheSeattleTimes,April10,2008.9J.Crown&C.Matlack,BoeingDelaysDreamlinerAgain.BusinessWeek,April9,2008.10J.L.Lunsford,“OutsourcingatCruxofBoeingStrike.TheWallStreetJournal,September8,2008.11D.Gates.“BoeingExpertiseSpeedingup787partners.”TheSeattleTimes,June11,2008.
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delays.12 Reports also have pinpointed issues at the Spirit Aerosystems Plant, formerlyBoeingWichita,forthedelays.Spiritisresponsiblefortheforwardfuselageoftheairplaneincludingtheplane’scockpitinstallation(seeExhibit5).RespondingtotheDelays
Boeinghasrespondedquicklytoaddresssuchdelays. WithindaysofannouncingthefirstdelayinOctober2007,thevicepresidentandgeneralmanager,whowasresponsibleforallaspectsofthe787‐programsinceitsinceptionin2004,wasreassigned.PatShanahanwasnamedthevicepresidentandgeneralmanagerofthe787‐program.Shanahan,whojoinedBoeingin1986,ismostrecentlycreditedwithturningaroundtheChinookhelicopter,theV‐22 Osprey tilt‐rotor airplane, and ground‐based missile‐defense programs at Boeing’sDefense division. Responding to the Wall Street analysts’ questions, Shanahan noted:“WheredoIthinktheinherentriskis?Ithinkit’sinthecapabilitiesofthesupplychaintodothingsthatweneedtohavedone....Thatistheuntestedpartofthisproductionmodel....That’swhereourenergyandattentionis.”
Shanahanquicklyrevampedthe787‐executiveteamandreorganizedtheresponsibilitiesofBoeingexecutivesinthreeareas:(1)airplanedevelopment,(2)theglobal‐supplychain,and(3)thefinalassemblyanddeliveryareas. HealsotookactiontocomplywithMcNerney’sinsistencethatthe787‐teambemoreaggressivewithsuppliersby“stickingtheirnosesintosuppliers’ operations, including stationing Boeing employees in every major supplier’sfactory.”13 For example, he appointed Scott Strode to oversee all development activitieswithVoughtAircraftIndustriesinanefforttostrengthenmanagementofthesupplychain(seeExhibit6foralistofmanagementchangesunderPatShanahan).
To solve the problems in Charleston factories, for example, Boeing bought out Vought’sinterest in the joint ventureand followed itupwith changes to speed things along. NowBoeing and ex‐Boeingmanagers run the Charleston plants; Joy Romero, a former Boeingemployee with 25 years of Boeing managerial experience manages Vought’s plant, andMarioCapitelli,aBoeingexecutivewithsignificantoperationsexperience,runsGA’splant.Two retired Boeing‐plantmanagers initially brought in as consultants to solve problemsnowassistCapitelli.14
NotedRomero,Vought’splantmanager:
Vought’sCharlestonoperationshasfixedtheproblemsthatmarredearlydeliveriesandisnowapproachingBoeing’soriginalconcept. . . .Theproof isthis:DreamlinerNo.1’srearfuselagelefttheCharlestonplantinMay2007withonly16percentofitsstructurecompletedandnoneofthesystemsinstalled.ButwhentherearfuselageofDreamlinerNo.4wasdeliveredtoEverettlastweek(June2008),ithad98percentofthestructurefinishedand87percentofthesystemsinstalled.15
Also,VoughtIndustriesisnowresponsiblefortheassemblyoftheairplanefloorgrid,whileIsraelAircraftIndustries’rolewillbelimitedtosupplyingthefloorpieces.Changessuchas
12D.Gates,June11,2008.13J.L.Lunsford,“BoeingCEOFightsHeadwind.”TheWallStreetJournal,April25,2008.B1.14D.Gates,“BoeingExpertiseSpeedingup787Partners.”TheSeattleTimes,June11,2008.15D.Gates,June11,2008.
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thesewerebeingcarriedoutthroughoutBoeing’sglobalsupplychainsysteminanefforttorationalizetheproductionsystem,andredrawtheareasofresponsibility,actionsneededtospeeduptheproductionoftheairplane.ProductiondelaysattheSpiritAerosystemsplant,formerlyBoeingWichita,werealsosaidtoberecoveringwell.ManagersattheplantwereconfidentthatSpirit,whichwasworkingon Airplane #4 (in June 2008), will deliver the next airplane virtually complete. Theyattributed its success to Spirit’s Boeing heritage and the familiaritywith tools, processes,andexperiencegainedinpaststintsinEverett,Washington.16Reflectingonthechangesandprogress,ShanahanremarkedinApril2008:
We have addressed the major challenges that slowed our progress while trying tocomplete the primary structure – the parts shortages, engineering changes, andmanufacturing changes – and we are well into the systems installation that is theprecursor to putting power on the airplane for the first time. We have also workedclosely with our partners to achieve higher levels of completion of their parts ofsubsequentairplanes,andwewillcontinuetodriveimprovementsinthesupplychainandproductionsystemperformance.17
Following the revised schedule announced in April, the 787‐team, under Shanahan, hassuccessfully completed the “power on” sequence for the first 787‐airplane in June 2008.Thepoweronsequenceisacomplexsetof“tasksandteststhatbringelectricalpowerontothe airplane and begin to exercise the use of the electrical systems.”18 It represented amajormilestone paving theway for the first flight test of the 787‐airplane to be done inNovember 2008. However, not all things were going according to plan. A new wrinkleappearedonthehorizon–astrikecalledbyBoeing’smachinistsunion.
ChallengesMovingForwardALaborStrikeThreatensProgressOnSeptember6,2008the27,000Boeingmembersof the InternationalAssociationof theMachinists(IAM)walkedofftheirjobsafternegotiationsbetweenunionleadersandBoeingmanagers failed to reach an agreement on a proposed three‐year contract. Thiswas thefourthtimeinBoeing’shistorythatmembersofthisunionhavewalkedofftheirjobs.Thefirststrikethattookplacein1948lastedfor140days.Morerecently,however,astrikein1995lastedfor69days,andonein2005lastedfor24days.Analystspredictthatthestrikewilllastbetween30to60days.TheyestimatethatthestrikeiscostingBoeingabout$100millionadayinlostrevenues.Boeing’soffertotheIAMworkerswasa11%wageincreaseoverthelifeofthethree‐yearcontract,aswellasacostoflivingadjustment.Italsoagreedtoincreaseworkers’monthlypensionby$10amonthto$80(a14%increase)foreachyearofservice. Duringthefirst
16 D. Gates, “Boeing Dreamliner’s Front End Gets Finishing Touches at Spirit AeroSystems. TheSeattleTimes,June13,2008.17BoeingPressRelease,April09,2008.18BoeingPressRelease,“BoeingAchieves787Poweron”.June20,2008.
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yearof thecontract,Boeingoffered topayabonusofat least$2,500or6%ofaworker’ssalary,whicheverwasgreater.19Theunion,however,wantsapayraiseofatleast13%andagreaterincreaseinpensionbenefits.Althoughwagesandbenefitswereimportantissues,“jobsecurity”emergedastheissueforunionmembers.NotesareportinTheWallStreetJournal:Attheheartoftheunionmachinists'strikeagainstBoeingCo.isahigh‐stakesshowdownoversomethingtheaerospacegiantoncetoutedasamanufacturinginnovation:Itsefforttooutsourcekeyrolesinproducingitsnew787‐Dreamlinerjet. . . . Boeingsaysitneedsflexibility in its manufacturing to avoid the problems that have befallen other bigindustrial companies,while the union is fighting to keep asmany jobs as possible. Theflashpoint in that debate is Boeing's troubled 787‐Dreamliner program, which strikingworkerspointtoasExhibitNo.1intheircaseagainstoutsourcing.20
In 2002, during the last contract negotiationswith the union, Boeing inserted a contractprovisionthatisattheheartofthecurrentlabordispute.NotesTheEconomist:The union is worried about a more insidious form of outsourcing, closer to home. ApreviousagreementallowedBoeing’ssupplierstodeliverpartsstraightontothefactoryfloor at its Seattle sites.Thenext step, theunion fears, is for contractors to start fittingpartsontoplanesontheline,displacingwell‐paidworkers.Itwantsjobsecurity,withthepayrollheadcountlinkedtothenumberofordersandproductionrates.Itwantsachancetocompeteformallywithoutsourcingcontractsinabidtokeepholdofthework.Butitsaggressivepaydemandsandstrikeactionwouldseemtoworkintheoppositedirection.21
Althoughtheunionleadersobjectedtothisprovisionin2002,theywereunabletomusterthe required two‐thirds support from their members to call a strike. According to TomBuffenbarger,IAMPresident,“TheunionjustwantstobeabletohaveashotatmakingthecasethatourworkerscandothosejobscompetitivelybeforeBoeingshipsthemout.”22While a prolonged strike could negatively impact the delivery of the 787‐airplane, someanalystsseeasilverlininginthestrikeandresultingworkstoppage.PointsoutanarticleinTheWallStreetJournal:
Intheshortterm,somesuppliersaretakingadvantageofthestriketocatchupwiththebacklog thathaspiledupas theyraced tokeepBoeingsupplied inrecentmonths. . . .‘It's nice to actually get caught up a bit, but it will be a different story if this thingstretchesmorethanamonth,’saidasupplierwhoaskedthathisnamenotbeusedfor
19Underthenewproposedcontract,theaverageunionmemberisexpectedtoearnabout$65,000ayearbeforeovertimewages.Withovertimeworkerscouldtakehomeanother$10,00ayearormoreinadditionalwages. Underthecontractthatexpired,theaveragewageforaBoeingmachinistwasabout$27anhouror$56,000ayearbeforeovertimewageswereincluded.20J.L.Lunsford,“OutsourcingatCruxofBoeingStrike.TheWallStreetJournal,September8,2008.21“StrikingDifferences.”TheEconomist.September11,2008,printedition.22QuotedinLunsford,September8,2008.
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fearofviolatingconfidentialityagreementswithBoeing.23
Theprogressbeingmadebythe787‐teamisclearlythreatenedbythecontinuationofthelaborstrike.Publishedreportsnotethattheworkersareangryenoughtostayoutuntiltheendof2008.”24Despite the concerns being raised by workers, Boeing’s senior management is confidentthatits“businessstrategy”ofoutsourcingisindeedsound.WhileMcNerney,Boeing’sCEO,admitted that Boeing has had problems executing its new strategy he sees no reason forchange.McNerneyreiteratedhiscommitmenttoBoeing’scurrentapproach:
The global partnershipmodel of the 787 remains a fundamentally sound strategy. Itmakessensetoutilizetechnologyandtechnicaltalentfromaroundtheworld.Itmakessensetobeinvolvedwiththeindustrialbasesofcountiesthatalsosupportbigcustomersofours.Butwemayhavegone little too far, too fast inacoupleofareas. Iexpectwe’llmodify our approach somewhat on future programs – possibly drawing the linesdifferentlyinplaceswithregardtowhatweaskourpartnerstodo,butalsosharpeningourtoolsforoverseeingoverallsupplychainactivities.25
PotentialStrikebyEngineers
In September 10, 2008, Boeing engineers’ union, The Society of Profession EngineeringEmployees in Aerospace (SPEEA), representing 21,000 workers presented a proposal toBoeing for a new three‐year labor contract since their existing contract is scheduled toexpireonDecember1,2008.Inadditiontoseekingwageincreasesandchangestopensionand healthcare plans, the proposal was “proposing limits to Boeing’s use of contractlabor.”26 In the past, Ray Goforth, SPEEA’s executive director, has called Boeingmanagement “to correct its flawed reliance on global partners and bring the work back[insideBoeing].…Sendingengineersaroundtheworldtohelpsupplierssimplytransfersallof the aerospace knowledge to other companies in other countries.”27 Stan Sorscher,SPEEA’s director of research, has noted while outsourcing design for say sneakers maywork, outsourcing an airplane design cannot because it requires a tight community ofexperienced mechanics and engineers working together to overcome the inevitablechallenges. Henoted:“Wethoughtthe787wouldbethetestcaseforthis. . . .Theresultsare in.”28 In this judgment,Boeing’s currentapproachwith the787‐airplancewas flawedandneededre‐examination.
Inamomentofintrospection,theformerheadof787‐program,MikeBair,notedthatBoeingmightaxethe“global‐spanningsupplychainthathascaused itsrecentproblems.”HewascandidinnotingthatsomeengineeringdesignworkwaspulledbackinsideBoeingbecause
23 J. L. Lunsford and D. Michaels, “Boeing Strike Rattle Key Suppliers.” The Wall Street Journal,September12,2008.24J.L.LunsfordandD.Michaels,September12,2008.25BoeingPressRelease,“TimetoDeliveronthe787.”April21,2008.26 S. Ray. “SPEEA demands return of outsourced work.” The Seattle PostIntelligencer, Thursday,September11,2008.27QuotedinD.Gates,“LatestdealofBoeing787pushesbackfirstdeliverytothirdquarterof2009.”TheSeattleTimes,Thursday,April10,2008.28D.Gates,“IAM:Contracttalksintrouble.”TheSeattleTimes,July30,2008.
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someofthepartnerscouldn’tdeliver.HecommentedthatBoeingfoundthatsomefirst‐tiercontractors promptly turned around and outsourced their design engineering work tosecond‐tiercontractors,whichexacerbated theproblems. Hesaid, “Thereareacoupleof[the supplier partners] where I could see us going back to a build‐to‐print solution [asapposed to build‐to‐design followed by the 787‐program]. . . . The right way to do thiswouldbetohaveallthosepartnersacrossthestreet[akindofsupersite]soyoucouldjustroll them in. . . . We’ll see on the next airplane programs whether we can accomplishsomethinglikethat.”29
BoeingengineersbelongingtoSPEEAhavegoneonstriketwotimesintherecentpast:oncein1993 foraday,andagain in2000 for40days. NotesHarleyShaiken,a labor‐relationsprofessoratUniversityofCaliforniaBerkeley:“Thewholeunderlyingissueofjobsecurityisproving to be pivotal to what’s taking place at the bargaining table, and it reflects thesuccess thatBoeing ishaving. . . .Both theMachinistsand theengineerswant to see thatcontinue,buttheywantasuccessfulBoeingtomeanmorejobs,notasmallermanufacturingpresence.”30 The crux of the problem for both labor unions is Boeing’s business strategyemployedinthe787‐airplaneprogramanditsuseinfutureprograms.
ThreeStrikesandYouAreOut...
NotesRichardAboulafia,arespectedanalystwiththeconsulting firmTealGroup:“I thinkthere’sanawful lotridingon this [the787‐airplane]. It isoneof those three‐strikes‐and‐you’re‐out scenarios from the standpoint ofmanagement, from the standpoint of a lot ofpeoplewhoareneeded tokeep the faith.”31 On thebrighter side, the787‐airplane is theonlynewmidsizeplaneavailableinthemarketplace;theAirbus’A350‐airplane,beingbuiltwithagoalofslowingthe787’smarketpenetrationwon’tbedeliveredearlierthan2013,atbest. Thus, airline customers have little choice other than to wait for the 787‐airplane.However,itisclearfromanalysts’reportsandcustomers’growingconcernsthatBoeingcanill‐afford another delay, for a prolonged delay had the potential to turn into a full‐blowncrisissimilartotheonefacedbyAirbuswithA380airplane.AndasMcNerneynotedinhisopenlettertoemployeesinApril,thereispricetobepaid,theleastofwhichistheimpacton Boeing’s customer relations. Is it time, as the two labor unions asserted, tofundamentallymodifyBoeing’sbusinessstrategyfornewplanedevelopment?
29D.Gates,“Boeingmayjunkworldwideassemblefornextjet.TheSeattleTimes,November7,2007.30QuotedinS.Ray,2008.31QuotedinD.Carpenter,“Boeing787LaunchtoBeDelayedAgain.TheAssociatedPress,Thursday,April10,2008.
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Exhibit1:TheThreeProposedModelConfigurationsofthe787Airplanes
7878 7879 7873
Passengers 210‐250 250‐290 290‐330*
Range(NauticalMiles) 7,650to8,200 8,000to8,500 2,500to3,050
Cabinwidth 18feet,10inches 18feet,10inches 18feet,10inches
Wingspan 197feet 208feet 170feet
Length 186feet 206feet 186feet
Height 56feet 56feet 56feet
Cruisespeed Mach0.85 Mach0.85 Mach0.85
Maximumtakeoffweight(pounds) 484,000 545,000 364,000
Totalcargovolume(cubicfeet) 4,400 5,400 4,400
Entryintoservice 2009 2012 2010
Price(millions) $157to$167 $189to$200 $146to$151.3
Consideredthebasemodel,thismodelisaimedatreplacingmidsizejetssuchasthe767andAirbusA330.
Thisstretchedversionisaimedatreplacingmidsizejetssuchasthe767andAirbusA330.
Optimizedforshorter‐rangeflights,thisplaneisaimedatreplacingtheAirbusA300,Boeing757‐300,Boeing767‐200and‐300.
* One-class configuration
Source:BoeingCorporationandTheSeattleTimes
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Exhibit2:PenaltyCostsEstimatesAssociatedwiththe787airplaneDelays
OriginalDeliveries
RevisedDeliveries
(optimisticcase)
2008 37Assumesabout5planesamonth 0
2009 75
Assumesalittleover6planesa
month 40DeliveriesstartinOctober
2010 132
Assumesalittleover10planesa
month 65
Assumesalittleover5
planesamonth
2011 164
Assumesasteadystateto14planesa
month 85
Assumesabout7planesamonth
2012 164
Assumesasteadystateto14planesa
month 120
Assumesasteadystateto10planesamonth
572 310
5,014(TotalMonthofDelays) X
$0.5(MonthlyPenalty,millions)
=$2,507(millions)
Penaltyforthefirst310planes
Source:Jefferies&Associates,2008.
Exhibit3:Announced787AirplaneCumulativeDelays
FirstFlight FirstDeliveryNumberofplanestodeliveredby2009
OriginalTimeline Aug‐07 May‐08 112
October2007Revision Mar‐08 Nov‐Dec2008 109
January2008Revision Jun‐08 NotSpecified ‐
April2008Revision* Oct‐Dec2008 July‐Sept2009 25
*Boeingalsochangedthetimingoftheintroductionoftwo787derivatives‐‐the787‐9and787‐3.The787‐9alargervariantoftheairplanewillbethefirstderivativeofthebaseline787withdelivery planned for early 2012 while the 787‐3, a shorter‐range model previously slated todeliverin2010,willbecomethesecondderivativeofthisfamily.
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Exhibit4:MaterialsEmployedinthe787Airplane’sStructure
Source: The Seattle Times
Exhibit5:MajorRiskSharingPartnersInvolvedinthe787Program
Source: The Seattle Times
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Exhibit 6: List of Leadership Changes under Pat Shanahan
ChangesmadeafterassumingleadersinNovember2007:
Scott Strode, a VP formerly in charge of the 787‐airplane production, is reassigned to oversee alldevelopmentactivitieswithVoughtAircraftIndustries.
Mark Jenks, formerly in‐chargeof the787‐wing team, ispromoted tohead the787Developmentand isresponsibleforairplanedefinition,certificationanddeliveryofthefirst787‐airplane.
BobNoblewillcontinueasVPresponsiblefortherelationshipwithBoeing’sglobalpartnersandwillleadthe787SupplyChaingroup.
Steve Westby will remain as VP of manufacturing and quality, leading the 787 Final Assembly andDelivery.
JeffStone,mostrecently,productionoperationsleaderontheF‐22Raptorjet‐fighterprogramwillsupport787BodyStructuresgroup.
KathyMoodiewillleadtheinteriorsinstallationandberesponsibleforpreparingtheairplanesforflight
AdditionalchangesmadeinJanuary2008:
HowardChambers,formerlyheadofBoeing’sSpaceandIntelligenceSystems,wasnamedasdeputytoPatShanahaninJanuary2008.
JohnVanGels,formerVPofoperationsandsuppliermanagementatBoeing’sdefensedivisionwasaskedtooverseemanagementofthe787supplierpartnersaswellasthefinalassemblyoperationinJ
Source:TheSeattleTimesandBoeingPressReleases.