Boeing to Rein in Dreamliner Outsourcing

After two years of delays caused in part by a far-flung supply chain, Boeing plans to do more work on its new 787 in-house

By Joseph Weber

Boeing (BA), beset by repeated snarls that have delayed commercial deliveries of its 787 Dreamliner into early 2010, is rethinking the global outsourcing model that critics say has caused much of the nearly two-year holdup. The company is making plans to bring more work back in-house.

Frustrated by production and design snafus that Boeing engineers say have led the company repeatedly to send staffers out to suppliers to iron out difficulties, the company's top executives are suggesting they will rely less on their outside suppliers. While the forthcoming version of the Dreamliner, the 787-8, may be affected by the plans over time, efforts to scale back on outsourcing are expected to be more aggressive on future versions of the plane, especially the 787-9, scheduled for delivery in 2012.

Boeing, which had originally planned to put its first 787 into the air in August 2007, now expects the initial test flight by this coming June. Customers, many of them irked by the delays, should take delivery on the first version in the spring of 2010. Boeing's stock, which topped 106 a share in the fall of 2007 as record orders for the new plane rushed in, now hovers around 42.

Putting Suppliers on Notice

Because of political and commercial sensitivities, Boeing executives are playing their cards close to the vest on just how far they will go in backing away from outsourcing. Changes could unsettle suppliers who are believed to account for some 70% of the 787-8 in dollar terms, a far larger share than Boeing has outsourced on other planes. Chicago-based Boeing has outsourced much of the work on the new plane in a bid to contain costs and because foreign purchasers and their governments like to see work on the planes done in their countries.

Boeing's legion of partners span the globe. Mitsubishi, Kawasaki, and Fuji in Japan, for instance, produce the wings, forward fuselage, and center wing box, respectively. Sweden's Saab makes cargo doors and Italy's Alenia Aeronautica produces a horizontal stabilizer and central fuselage. Companies in Britain, France, Germany, and South Korea make other parts. And at least 10 U.S. companies, ranging from General Electric (GE) to Moog (MOGA) chip in on various parts.

However, high-level managers in the commercial planes division have been hinting for weeks that changes in this supply chain are in the works. Scott Carson, who heads Boeing Commercial Airplanes, in late November told editors at Aviation Week (like BusinessWeek, a publication of The McGraw-Hill Companies (MHP)) that Boeing is determined to fix its supply chain woes. "We fully recognize that we made some mistakes in that regard," Carson said. "On the 787-9, we are pulling more of the engineering back inside to try and alleviate some of the issues we've had on the 787-8."