Big changes for Boeing's Dreamliner

By BusinessWeek

Boeing (BA, news, msgs), 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.

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Boeing, which had originally planned to put its first 787 into the air in August 2007, now expects the initial test flight by 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.

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. 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 (KWHIY, news, msgs) and Fuji (FUJHF, news, msgs) 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, news, msgs) to Moog (MOG.A, news, msgs), 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, recently told editors at Aviation Week that Boeing is determined to fix its supply chain woes. "We fully recognize that we made some mistakes in that regard," Carson said at the November meeting. "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."

And the executives, chastened by the missteps, appear to be readying suppliers for the likelihood they will lose some work, perhaps in production as well as in engineering design.

Engineering Vice President Mike Denton has suggested that the company is hammering out details about the changes with suppliers, whose contracts would likely have to be recast if changes are extensive.

"Our engineers and production workers are basically correcting the problems that should have never come to us in the first place -- problems that are the result of the partners really not being done," Denton said in a company podcast in the fall, as reported by the Web site Air Transport Intelligence.

"We will probably do more of the design and even some of the major production for the next new airplanes ourselves as opposed to having it all out with the partners."

Boeing may also want to "dual-source" some work, relying both on Boeing staffers and on suppliers to provide parts. But spokesman Russ Young said nothing has been disclosed on how the work may be parceled out.

Perhaps wary of unsettling suppliers or of raising hopes among Boeing workers that more work will be coming their way, company spokesmen declined to make any executives available to provide further details.

Continued: 'A couple thousand engineers too far'

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