Growing into 777 production posed as possible South Carolina role
says it is “in the middle of a process” that might take at least part of the assembly of its most successful widebody twin-engine aircraft out of Washington state to a South Carolina plant where it recently pledged $1 billion in infrastructure investments and 2,000 new jobs.
“We have figured out by-and-large what airplane to build,” Chairman James McNerney said of the proposed Boeing, an update of the 17-year-old family that dominates large widebody sales. But the company continues “to evaluate [which] design and production locations” to assign to it, he says.
His comments during a first-quarter earnings call are further evidence of how willing Boeing is to shake up its standard procedures. The company's expansion pledge at its North Charleston, S.C., campus covers the next eight years. Its facility are currently the sole integration factory for the 787's composite aft and center fuselage and a secondary site for final assembly. But the pledge has not been accompanied by any specifics.
Instead McNerney emphasized the company's confidence in using a light-weight composite wing and more fuel-efficientGE9X engines for the 777X as Boeing girds for the challenge posed by the -1000, which is due in three years.
While praising the main 777 factory in Everett, Wash., for the smooth ramp-up to an 8.3-aircraft-per-month build rate, McNerney made clear that Everett is not the only option on the table for the increased workload that will flow from developing and producing the 777X and its major assemblies. “The bigger a composite wing gets, the more efficient it becomes—and this is a big composite wing,” he says. But Boeing still “has to think through” where the wing is to be developed and produced. Over the next few months the company will talk “in a granular way what makes sense” about the program's work placement.
North Charleston already is moving beyond its initial 787-only role. It has been selected to produce inner composite linings for the 737 MAX's engine nacelle, part of a broader move to increase in-house component production. Last week, Boeing said it will expand its Winnipeg, Manitoba, facility to 665,000 sq. ft.—a 22% gain—mainly to construct one-piece composite acoustic inner barrels for the MAX's new nacelle inlet. Winnipeg is one of Boeing's composite structures specialists that normally ships to Seattle, but in this case it is a supplier to North Charleston.
Workloads are influencing the launch timing of Boeing's other big program expansion, as well. There is significant customer interest in the 787-10X, which will be launched this year, he says. “The cost is not high [and] the technical risk is not high” to undertake the fuselage stretch that will provide seating for about 300 passengers. “I think we are feeling very good about all of those issues.”
But McNerney says there is ongoing monitoring of the stability of the 787 production system—particularly the supply chain—as it pushes production to 10 aircraft per month by year-end. Add in caution about returning to normality once recovery from the battery issue that has grounded the world'sfleet is complete. “When that all comes together—and I anticipate it sooner rather than later—we're going to be making a call” to launch, he says.
(BCA) has essentially completed engineering work on the 787-9 and remains on schedule for a first flight in the second half of this year and first delivery early next year, McNerney says.
Despite the battery drama, the rest of the 787 production flow is in its best-ever shape, says Greg Smith, executive vice president and chief financial officer. The supply chain is flowing properly and rework is no longer an issue. Current unit costs, on Line No. 100, are 60% less than in early production at Line No. 8.
“So, good progress in Everett and South Carolina,” says Smith. Boeing expects to pass the program's break-even point in about two years—1.5 years after it reaches the maximum build rate of 10 per month.
But improvements are prompting a thinning of the BCA ranks. Since last October, it has cut 700 contract employees, an effort that will continue “where appropriate,” says chief engineer Mike Delaney. In March, the company announced that 800 machinists will be laid off by year-end, mostly because post-production change incorporation work, which was labor intensive, is drying up on the 787 andprograms.
On April 19, BCA handed out 60-day warning notices in the first round of what are expected to be 1,500-1,700 layoffs of engineers and technical workers by year-end. A slowdown in non-recurring development work on the 747-8, 787-9 andtanker programs is blamed.
Normally, new development absorbs workers shifting off older programs, but Delaney says launches of potential saviors, the 777X and 787-10X, will not come soon enough. Even if the aircraft were approved this summer, the time lag between program launch and hands-on work is too long to sustain the jobs, a Boeing official explains.
As of March 31, BCA employed 84,085, down nearly 670 from Dec. 31, 2012. The layoffs mark the unit's first jobs downturn since it began ramping-up production rates in 2010.
While production on the main commercial programs—737, 777 and 787—has been increasing to meet demand, 747-8 orders are in a slump and its monthly rates will be adjusted downward to 1.75 aircraft from two. First delivery at the new rate will not be until next year, but BCA is not saying just when the lower rate is to begin. Two years of a weak cargo market and a slow intake of passenger orders are hitting the 747 hard. The company received three orders in March—the first since last July. Of 110 total orders taken, 70 are for freighters.
Although the 787 battery-related groundings have kept Boeing in the headlines for three months, the company is gaining, not losing, 787 orders and its stock has risen 14% since January. Smith says the full cost to the company of the 100,000 engineering hours devoted to developing and testing the battery fix is “minor” compared to overall R&D expenditures, although he declined to put a price on it.
While first-quarter revenues were off 3% at $18.9 billion, earnings per share rose 18% to $1.44 and net income is up 20% at $1.1 billion. BCA accounts for most of that, butsaw its operating margins increase 1.3 points to 10.3% and earnings from operations rise 12% to $832 million.