Boeing claims Q1 setbacks on 787 nearly overcome

Washington DC
Source:
This story is sourced from Pro
See more Pro news »

Boeing is close to overcoming two fresh setbacks discovered within the 787 production system during the first quarter as the manufacturer strives to stay on track with an ambitious set of production and delivery goals this year.

Mitsubishi Heavy Industries notified Boeing in early March that a change in the Japanese supplier’s manufacturing process may have produced hairline cracks in a wing spar on 40 787s then on the assembly line.

Boeing has inspected and fixed 37 of the aircraft covered by the MHI notice, says chief financial officer Greg Smith, speaking to analysts on a first quarter earnings conference call on 23 April.

“As of last night, there were three airplanes left to go,” Smith says. “That’s behind us at this point.”

The 787 production line also was slowed during the quarter by a new problem inside the centre fuselage assembly line in Charleston, South Carolina.

Boeing introduced a new mid-body join production process with the 787-9 at the same time that it increased the production rate to 10 aircraft per month. The combination of the new design and the rate increase created a bottleneck at the mid-body join position, which is the section most affected by the stretched 787-9 airframe.

The Charleston workforce has “burned a significant amount of jobs” to clear the bottleneck, Smith says, but he acknowledges there is “still some work to do”.

The wing rib cracks and the mid-body joint assembly problems are still not expected to change Boeing’s plans to deliver 110 787s in 2014.

Meeting that delivery goal, however, is also challenged by the growing mismatch between the 787 production rate and the delivery rate, as the production rate climbed to 10 per month in January.

Although Boeing was producing 787s at the 10-per- month for nearly the entire quarter, the company delivered only 18 of the roughly 30 aircraft it produced to customers.

Smith attributed the variation in the delivery rate to monthly fluctuations, which are driven partly by Boeing’s plans to deliver 787s to 18 new customers in 2014, as each new operator requires extensive preparations before launching service.

Although the cadence of deliveries will vary from month to month, Boeing is “comfortable” with reaching the goal of delivering 110 787s over the year.

Keeping the delivery rate on track is critical to Boeing’s goal of reaching profitability on each unit delivered in early 2015.

Another piece of Boeing profitability strategy involves delivering the 787-9 in mid-year to Air New Zealand, then ramping up deliveries of the more profitable variant in the 787 family.

Smith declined to directly compare the 787-9’s record on production cost to the smaller 787-8 variant.

“We’re seeing the improvements we’d certainly expect,” Smith says.

One metric Smith shared is the rate of improvement in unit cost and flow times on the 787-9 line. The rate improved by 30% from Line Number 1 to 6, he says. By comparison, Boeing revealed last year that the 787-8 line achieved a cost reduction of 60% – but over a span of 92 aircraft (Line Numbers 8 to 100).

Meanwhile, Boeing is working to placate a set of nervous investors. Although the company's share price has more than doubled in value over the last five years, Boeing shareholders still seem wary of any surprises. It was only three months ago that Boeing share values plummeted 6% in only a few hours, following the company's announcement forecasting core earnings per share of up to $7.20 in 2014 instead of $7.50 as the market consensus anticipated.

Perhaps to woo back the shareholders' confidence, Boeing returned $3 billion to investors during the first quarter, including $2.5 billion as part of a share repurchase programme and $500 million in enhanced dividends. Boeing also raised its full-year guidance at the end of the first quarter to $7.35, citing the benefit from a tax settlement. So far, investors appear to have adopted a wait-and-see approach to Boeing's promises, with the share price hardly budging over the last three months.