Sky-High Expectations for Boeing


The new 787 topped 500 orders in record time, but far-flung components and a planned production-rate increase pose hazards

Without a single jet yet built, Boeing's new 787 program has already reached an aviation milestone: the fastest commercial model to reach 500 orders. An additional order on Apr. 3 for five 787 Dreamliners from Japan Airlines put the program over that critical sales mark, as it appears set to smash all jet-sales records.

Yet even as the first assembly of this new jetliner is set to begin in May and its sprawling global supply chain appears to be running smoothly, Boeing faces a huge hurdle: The company will need to execute nearly perfectly on the 787 to live up to the high expectations.

Airlines and investors anticipate that Boeing can produce this commercial jet with minimal hiccups and complications. But Boeing's production missteps on its 737 and 747 programs in the late 1990s, and the recent factory delays of Airbus' A380 super-jumbo jet, are stark reminders of how easily things can go wrong in new aircraft production.

Now, demand from 43 different airline customers, as well as anticipated orders from British Airways (BAB) and the big U.S. carriers such as American (AMR) and United Airlines (UAUA), is pressuring Boeing's new production system.

The "Acid Test"

"You can bet everyone in the industry is nervously watching how well Boeing will handle the assembly of these new composite jets," says Richard Aboulafia, aerospace analyst for the Teal Group. "Despite all the positive rhetoric coming from Boeing, there is no one on the senior leadership team who is sleeping all that well these nights. They still have to put together the first airplane, and that's usually when something can go wrong. Everyone knows that. This is Boeing's acid test."

A senior Boeing executive said Tuesday the company plans to significantly boost production rates after the first two years of production—which begins in May, 2008. Assembly could exceed 10 airplanes a month, beginning in 2010, which would set another record. But Boeing declined to specify a rate increase.

"We've clearly captivated the world's airlines with this airplane," said 787 program chief Mike Bair, in front of thousands of Boeing workers gathered for the announcement at the Everett (Wash.) engineering center with JAL officials. "Going over 500 airplanes so early in the program is absolutely unprecedented in commercial aviation."

Supply Chain Snafu

The previous record holder for quick-order tallies was Boeing's line of larger "next-generation" 737s, which the company introduced in the 1990s with the 737-700, 800, and 900 versions. Yet the 787 is piling up orders nearly 30% faster than that plane, a notable feat in an industry where single-aisle jets have always outsold widebodies.

The production challenge is compounded by a global supply chain that relies on partner suppliers to design and build big chunks of the airplane, such as the wings and fuselage sections. This process also ventures into unknown territory, and so far it has been a journey fraught with many close calls. The most recent concern has been the Italian company Alenia Aeronautica. It was late constructing a new factory to build rear fuselage sections, putting the team nearly three months behind at one point. But as Bair pointed out recently, the Italians have been catching up.

So far, even this complicated supply chain journey isn't yet in danger of missing its contractual obligation to deliver a 787 to Japan's All Nippon Airways in May, 2008. All Nippon (ALNPY) remains the largest 787 customer, with orders for 50 jets. Among U.S. carriers, Houston-based Continental Airlines (CAL) has ordered 20 and Northwest Airlines (NWACQ) is down for 18.

Boeing has also been under pressure to continue reducing the airplane's overall weight. According to Bair, the plane is about 2% overweight but he called the issue manageable and says he is confident the plane will meet its weight targets. The next test is to actually weigh the parts of the airplane.

Staying Positive

But Tuesday was an excuse to focus on the one side of the story that continues to shine without blemishes. Standing before thousands of Boeing workers, Bair thanked JAL's vice-president of engineering, Kunio Shimizu, for putting the 787 over the 500-order mark. JAL's total 787 order has grown to 35 airplanes. With the help of several orders from unidentified customers, the new JAL order brings the 787 order total to 514 airplanes since its April, 2004, launch. Those numbers continue to make it the fastest-selling commercial airplane in history.

Bair declined to say how many Dreamliners the Chicago-based aerospace giant plans to produce per month at its Everett (Wash.) factory once the assembly process hits its stride in 2010. Analysts predict the monthly number could exceed 10 airplanes a month, which would set another record for a new airplane program.

Bair said Boeing's commercial airplane division is resisting any temptation to raise rates in the first two years of production, which is scheduled to produce 112 airplanes in 2008-09. Bair said the production-rate hike is going to be higher than executives had predicted. "In 2010, it will be the highest production rate ever for a widebody airplane," Bair told reporters after the gathering.

The 787 appears on schedule to make its first flight in late August and enter commercial service in May, 2008. Built with lightweight composites and more fuel-efficient engines, the twin-engine, 225-seat 787 burns 20% less fuel than other airplanes of similar size.

Holmes is a correspondent in BusinessWeek's Seattle bureau .

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