NBAA: Beechcraft stabilises once-troubled production system after bankruptcy

Wichita
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When the rebranded and Hawker-less company – called simply Beechcraft – emerged from a nearly 10-month bankruptcy restructuring process in February this year, something very unexpected happened.

The workforce and the production system that had endured years of financial and even existential turmoil – which included threats by the company’s leadership to move the entire factory from Kansas to Louisiana – suddenly started performing better than it had in years and even perhaps decades.

Having closed production of the Hawker-series business jets and the Premier 1A, the reappropriated production lines inside Plant 4 immediately got to work, delivering the turboprop- and piston-driven aircraft that remained in the restructured portfolio.

The virtually seamless transition even stunned Beechcraft’s director of operations Bill Brown.

“I didn’t think we could go from bankruptcy in February and finish the year making 50% more airplanes than I did the year before,” Brown says. “That seemed like a really tough road, but we were on schedule in February. That’s crazy.”

Beechcraft formally emerged from bankruptcy restructuring on 19 February. A statement released on the same day proclaimed that it is now “a stronger company with both financial and operational strength and stability”.

After shedding more than $2 billion in debt and emerging from bankruptcy with a clean balance sheet, the financial regrouping implied by the company’s statement was obvious.

However, Beechcraft had only recently revealed the extent of an internal shake-up, which began in secret in 2009 and continued apace through bankruptcy, reinventing nearly every aspect about the way the company builds the signature King Air family.

As the company rebuilds its image and formulates new products, the internal changes on the factory floor will certainly be critical. More importantly, company officials acknowledge now that all of the pain endured by employees during the bankruptcy restructuring would have been fruitless if the company failed to reinvent the King Air production system.

“We started with the recognition that we had to have a company in total that would operate in a lean manner in a market that is substantially smaller than it was prior to 2009,” says Beechcraft chief executive Bill Boisture.

“There’s a thousand things you have to do better to get to this situation,” he adds. “It’s pretty hard to simplify, but it comes from every member of the team understanding what will make a profitable, sustainable Beechcraft and then going out and changing things that have been here for in some cases decades.”

The production challenge confronting Beechcraft as the company started sliding into bankruptcy status was stark.

Brown recalls the atmosphere inside Plant 4 three years before the company filed for bankruptcy protection in May 2012.

In 2009, the Hawker Beechcraft production system was broken. Green business jets were leaving Plant 4 to be completed at a facility in Little Rock, Arkansas, ostensibly on schedule, but still requiring an average of 2,000 man-hours of labour. Overall, the factory on average was running 80,000 man-hours behind schedule, and management’s goal at that time was to “catch-up” to be only 20,000 man-hours late, Brown says.

At the same time, the supply chain tracking system that feeds parts to the final assembly line was also not working. The system was producing 10,000 “exception messages” a day, Brown says, with each one requiring an operator to intervene.

“So what do you think those people were doing with the exception messages?” Brown asked. “They were ignoring them or just clearing them. So parts flowed through here.”

Other fundamental problems bedeviled quality scores on the assembly line. Mis-drilled holes, for example, were the biggest single cause of rework in 2009, Brown says.

However, investigating the root cause of the drilling problem revealed an even deeper issue inside the factory. Workers were using out-of-date and sometimes damaged drill motors, Brown says. Why? Because some workers did not trust the company to repair and return the drilling motors, machinists kept them hidden from management.

That is just a small glimpse of the operational issues plaguing the production system in 2009. The company, founded by Walter and Olive Ann Beech, had for many decades been held up by the industry as a benchmark for quality and innovation. However, the company had been adrift strategically for many years. Raytheon acquired Beechcraft in 1980, but spent several years looking for a buyer. Goldman Sachs and Onex finally bought the company in 2007, but the financial crisis that started in 2008 set Hawker Beechcraft on a course to bankruptcy.

In the meantime, Boisture was brought in to turn the company around, but the leadership understood that it would not be quick process.

“Where we’re at today is only because of what we started in 2009,” Brown says. “We fixed so many elementary problems that Raytheon ignored.”

The lean manufacturing revolution implemented across the aerospace industry in the last two decades had largely bypassed the Beechcraft production. As late as 2011, assembly workers sifted through grey plastic tubs to find the parts they needed to install on the aircraft. There was no system in place to track and deliver parts to the assembly line “just in time”. Inventories of parts built up inside the plant, sowing confusion about how much was really available.

It was necessary to completely reinvent the production system. There was a new sales environment. Beechcraft could no longer depend on a large backlog of customers waiting patiently to receive an aircraft ordered months or even years before. The production system needed to be capable of responding quickly as new orders were signed, and the old manufacturing methods no longer worked.

“What that means working back from selling an airplane is you have to have a system that provides you a high quality airplane to sell,” Boisture explains, “and to do that on a given schedule. Then the supply chain that supplies your production line has to have integrity – both the internal supply chain and the purchase materials supply chain.”

In early 2010, the company embarked on an aggressive plan to implement lean manufacturing techniques in the factory. The key to the whole effort, however, involved a software upgrade. The company was using an enterprise resource planning system, but it was not fully integrated.

“We found out that engineering would come up with a [design] change, and they would send it to planning. Planning would take it out of the engineering system and put it in the planning system. Planning would send it to supply chain. Supply chain would take it out of the planning system and put it in the supply chain system,” Brown says. “Between all of those something would miss – either a dash or a dot – and you go to a supplier and they’d bring us back a part that doesn’t fit. It’d be off a couple inches.”

So the company upgraded the software to align operations and engineering. The goal was to make the transition from a passive software system to an active one, which anticipates parts shortages and surpluses based on demand. The transition, however, was anything but smooth. Like many software-based system upgrades, something that seemed simple became far more complicated. A crisis developed as quickly as the new system was activated.

“Not one part number matched. Not one,” Brown says. “So ‘Part 123’ that’s been ‘Part 123’ since the 1960s became ‘Part number 456’, and nobody knew it. So nobody could even order a part because they didn’t know the part number.”

It took time, but the bugs in the new software system were fixed. The company replaced the grey plastic bins full of parts with prearranged kits, each laser-etched to identify and track the components. Sub-assemblies are now staged on the factory floor, allowing workers to know the inventory precisely. If a supplier misses a shipment, the workers on the assembly are no longer the last to know.

The implementation of lean manufacturing techniques was not enough, however. Even as bankruptcy loomed in early 2012, company leaders were considering more aggressive reforms in the factory.

Then, disaster struck. A massive tornado ripped through Wichita on 14 April 2012, only three weeks before Beechcraft formally filed for Chapter 11 bankruptcy protection. The tornado first struck the Spirit AeroSystems production complex, then moved northeast on a line to the Beechcraft plant. The storm lifted part of the factory roof, sucking out sheet metal, but the factory somehow escaped major damage, and the roof settled back on the walls intact.

The clean-up would cost the company precious time as it prepared for a financial restructuring, but the forced shutdown of production created a rare opportunity.

“We took that and we said: ‘We’re going to fix up some things’,” Brown says.

The company was able to install a gleaming new factory floor, the kind that reveals any foreign objects that can damage aircraft parts in assembly. There were more investments made in new tooling, as Beechcraft workers reimagined how to build the King Air. The bill for all of the upgrades was more than $3 million.

“I went to my boss and I said: ‘I know we’re bankrupt and we’ve got no money, but we’ve got to do this. We’ll never get this chance again. Let’s do it right’,” Brown says. “My boss said: ‘Why are you asking me? You’ve got the authority. Go get it done.’”

The result was a new production solely devoted to assembling the wings, which is also the biggest constraint in the King Air assembly line. As long as the wings are completed on time, the assembly positions downstream can catch up even if one position falls behind by a day or more. A one-day delay at the wing assembly stage, however, means the aircraft will be delivered one day late, Brown says.

Even as corporate managers restructured the company’s finances in bankruptcy, Beechcraft tasked the assembly workers to come up with the best way to redesign the wing assembly fixtures. At first, Brown did not like what they proposed.

“I said: ‘We got too many tools’,” he recalls. “But what they’ve convinced me is, by spreading the work out we can be on a better cadence for quality and schedule with fewer people on a part and still hitting the rate down the line.”

The workers also made their jobs safer by installing the tools on a raised platform, eliminating steps that caused injuries and physical stress.

Getting the new production system working in Wichita was not the only challenge. In 2011, Beechcraft also opened a new factory in Chihuahua, Mexico, outsourcing work previously done only in Wichita. The move was intended to relieve rising cost pressures, but progress initially proved to be slow.

Brown pointed to a nose assembly of the King Air 200 inside the factory. It had recently been assembled in Chihuahua and shipped to Wichita. In the beginning, the assemblies would be delivered within tolerance limits, but all at the extreme end of an acceptable range.

“The people that build these airplanes [here] can look at this and go: ‘that’s not going to work’,” Brown says. “You can’t transfer that. It’s 50 years of craftsmanship. And we tried to do that and we failed so bad. We reworked everything. And the time it takes to get them up to speed – even though the dollar per hour is less in some cases – it gets so complicated they spend more hours. You almost break even. That’s why we brought some work back.”

Two years later, Beechcraft has become more confident in their new colleagues in Mexico. The nose assembly for the King Air 300/350 family will soon be transferred to Chihuahua, followed by the other aircraft variants from 2014-15.

The facility that once built Hawker 4000s and other jets now produces only King Airs. Instead of parts bottlenecks and supply chain breakdowns, workers are now delivering aircraft at a steady clip of nearly three per week. The goal for Beechcraft is to make the factory capable of producing as many as 200 King Airs per year reliably, as well as 150 Bonanzas and Barons combined.

Whether the turnaround is enough to make the new Beechcraft a sustainable, long-term business is another question. Some analysts think that a standalone company making only turboprop- and piston-driven aircraft is a ripe target for acquisition by a business jet maker with an appetite for a lead-in product line.

Boisture seems aware of those assessments of the company he restructured precisely to survive in the new economic environment.

“It’s a profitable, sustainable company,” Boisture says. “[The analysts] are right about that. Whether that ends up being attractive to somebody else is a question that I won’t conjecture on but that’s what the company is today. The company was shaped this way in order to be able to sustain itself in this economy.”