Boeing CEO admits 787 Dreamliner errors

NEW YORK Tue Apr 22, 2008 11:23am EDT

A man looks at a scale model of Boeing's 787 dreamliner at their booth at the Singapore Air Show in Singapore February 19, 2008. REUTERS/Vivek Prakash

A man looks at a scale model of Boeing's 787 dreamliner at their booth at the Singapore Air Show in Singapore February 19, 2008.

Credit: Reuters/Vivek Prakash

NEW YORK (Reuters) - Boeing Co's (BA.N) chief executive has admitted that the company's ambitious plan to outsource most of the production of its new 787 Dreamliner jet has not been completely successful and could lead to a re-evaluation for future programs.

The admission is the clearest indication yet that Boeing's revolutionary plan to parcel out production of most of the carbon-composite aircraft to suppliers around the world has aggravated problems on the program, which is now running 15 months behind schedule.

"The global-partnership model of the 787 remains a fundamentally sound strategy," said Boeing CEO Jim McNerney in a memo circulated to employees on Monday. "But we may have gone a little too far, too fast in a couple of areas. I expect we'll modify our approach somewhat on future programs -- possibly drawing the lines in different places with regard to what we ask our partners to do."

The memo was published online by industry blog FlightBlogger (here), run by aviation enthusiast Jon Ostrower. Boeing confirmed the authenticity of the memo but declined to comment further.

McNerney's message, entitled "Time to deliver on the 787," comes shortly after Boeing announced the third major delay on the aircraft, which has not yet left the ground for tests almost a year after major assembly of the first plane started.

The Chicago-based company shook up the industry and upset some of its own employees five years ago when it announced a plan to hire outside companies to build most of the 787 and ship the parts to its Seattle-area plant for assembly, instead of making more of the plane itself.

OFFLOADS RISK

The plan, which offloads some of the financial risk of developing the plane to its main partners in Japan, Italy and elsewhere, was hailed as the future of aircraft manufacturing by some, but dismissed as mere cost-cutting by others. Naysayers felt that Boeing may have given up too much control of the manufacturing process.

Some of those fears have been realized, as suppliers have struggled to deliver finished work to Seattle, forcing Boeing employees to do more of the work themselves in a plant that was only designed for assembly.

The situation at the 787 plant was improving, said McNerney, who visited the site in the past few days.

"The condition of the assemblies built by our structural partners is improving noticeably with each successive unit," said McNerney in the memo. "And that is vitally important for getting us back to where we are doing only the work we originally planned to do in our own factory."

McNerney, whose reputation is at stake with the 787, said the "innovation" part of producing the 787 was on track, but "execution" was a problem.

"We have gotten the innovation piece of it right," said McNerney in the memo. "The execution piece -- with specific regard to the business model and our oversight of the supply chain -- has been much more of a challenge, and has produced a series of lessons-learned which we will collect and apply across the enterprise."

That could mean Boeing will take a different approach on its next big project, a replacement of its best-selling single-aisle 737 plane.

737 REPLACEMENT

Boeing has not yet made public any plans for a 737 replacement, but several airlines are calling for a new model, and analysts are expecting Boeing to bring a jet to market by the middle of the next decade.

Boeing's delays on the 787 mirror problems at rival Airbus, a unit of European aerospace group EADS EAD.PA, which delivered its A380 superjumbo two years behind schedule, devastating the company's earnings and seriously hurting its relationship with airlines.

The U.S. plane maker is at risk of a similar effect, with first delivery of the 787 now planned for the third quarter of next year, about 15 months behind its original target of May 2008.

The repeated delays have angered some of Boeing's customer airlines, which have ordered almost 900 of the planes worth about $145 billion at list value.

"Our struggle to execute has come at a price, not the least of which is the impact to our customer relationships," said McNerney in the memo.

He said he hoped to avoid revising the 787 schedule once again, which would further stretch the patience of customers and Wall Street analysts.

"We've taken a more conservative approach to setting our milestones, based on our experience to date and the idea that being wrong yet again would be more of a burden to our customers than taking a little more time to get it right," McNerney said.

(Reporting by Bill Rigby; Editing by Brian Moss)

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