Boeing 787 delays cast hard light on outsourcing

CHICAGO Tue Sep 22, 2009 2:37pm EDT

The Boeing 787 Dreamliner sits outside the Boeing assembly plant in Everett, Washington, July 8, 2007 before it's world premiere. REUTERS/Robert Sorbo

The Boeing 787 Dreamliner sits outside the Boeing assembly plant in Everett, Washington, July 8, 2007 before it's world premiere.

Credit: Reuters/Robert Sorbo

CHICAGO (Reuters) - Commercial airline customers are accustomed to flight delays -- but two years?

That's how overdue Boeing Co's (BA.N) revolutionary 787 Dreamliner is, and the meter is still running. The company says it plans to fly the fuel-efficient aircraft by the end of the year and has staked its credibility on the claim.

The 787 has a record number of orders and a design seen as a "game-changer" for the commercial airplane industry. But it is also the product of an unusual confederation of manufacturers from around the world.

In some ways, the 787 project tests the wisdom of heavy reliance on outsourced labor. Boeing, the world's No. 2 plane maker behind EADS EAD.PA unit Airbus, hopes the 787 validates a strategy that sent an unprecedented amount of work overseas to foreign suppliers.

The Chicago company turned to its suppliers much earlier in the development process than usual to tap in to foreign ingenuity and cut costs. They helped the plane maker create and understand technologies and provided additional development, design and manufacturing funding of their own.

Boeing's bumpy road to rolling out the Dreamliner was pockmarked with several glitches in the supply chain including problems with parts and software.

The most recent delay, announced in June, ruffled the feathers of Wall Street analysts and left Boeing scrambling to repair its credibility.

Even as the company gears up for the test flight, it now acknowledges that it outsourced too much of the 787 -- now six years in the making -- and will conduct its global partnerships differently in the future.

"We wouldn't do it exactly the same way," Boeing Chief Executive Jim McNerney said at an investor conference this month. "There's plenty of blame to go around. It's not just our suppliers' fault. It's equally our fault in many cases."

"I would draw the lines in a different place," he said. "I'd have more shared engineering done together. I would certainly have visibility on the supply chain across corporate boundaries. But I would still have the same supplier/partner concept."

Some experts, union leaders and even employees believe the company took a wrong turn when it developed its global partnerships.

In a September 10 letter to Boeing senior executives, Brian Norris, a technical designer working on contract at Boeing on the 747-8I program, challenged the company's outsourcing.

"Everyone that works for Boeing knows that poor management decisions, poor planning and leadership, and last but not least outsourcing have delayed the 787 program," he wrote.

Norris, whose contract position with Boeing ends in December, encouraged Boeing to bring more work to the United States, a move that could lure more U.S. military contracts.

A GIANT GLOBALIZED PUZZLE

The Dreamliner is already famous for its innovative design, which uses lighter, more durable composite materials and promises huge savings in fuel and maintenance costs.

Boeing says its Dreamliner team has about 50 suppliers from the United States and around the world. The partnership features six companies from Japan, six from Britain, five from France, two from Germany, two from Sweden, and one each from South Korea and Italy.

They make sections of the fuselage, landing gear, parts of the wing, pumps, valves, engines, brakes, doors, waste systems escape slides, tires, tubing, cabin lighting and ducts.

Boeing uses three 747-400 cargo planes called Dreamlifters to retrieve the completed components from the suppliers and deliver them to its assembly plant in Everett, Washington.

Boeing has used the Dreamlifters since 2006. In that time the price of oil has doubled to nearly $150 a barrel, plummeted below $50, and is now back around $70, playing havoc with jet fuel costs and budgets.

Since Boeing began work on the Dreamliner in 2003, the supply chain has had glitches. The company announced the first of five delays to its delivery date in September 2007, blaming a shortage of bolts and problems with flight control software.

Subsequent delays also have been linked to problems with suppliers, slow assembly and a strike by its own employees that shut down Seattle-area plants for 58 days in 2008.

The most recent delay resulted from a structural problem in the area that connects the wing to the fuselage. In August, Boeing said an Italian supplier had stopped production in June on two sections of the fuselage due to structural issues.

Boeing still has a record 850 orders for the 787 on the books, even after customers have canceled orders for 73 of the planes. Boeing and the airline customers have remained mostly quiet about the cancellations. The weak world economy and financial problems for carriers are behind some, analysts say.

But Tom Wroblewski, president of the International Association of Machinists union, believes outsourcing remains the root of the problems that have plagued the 787 program.

"It's no surprise, at least to us, that this production system that they used on the 787 is a failure. That's what we warned the company about from the beginning," Wroblewski, whose union represents 45,000 active, retired and laid-off Boeing workers in Washington state, told Reuters.

"They still appear committed to this production system. They say they need to make changes," he said. "Well, I hope they've learned from those mistakes."

(Reporting by Kyle Peterson, Editing by Peter Bohan and Matthew Lewis)