Insight- Tuesday 9 February 2021: Filling the Gaps at Boeing – Part 3

News

Problems with the Boeing 787 are currently impacting Boeing, with 787 deliveries halted since last October and unlikely to resume until the end of this month. The company has now about 80 787s that it has continued to produce during the time that deliveries have been halted as work is continuing on inspecting and correcting aircraft.

While details about these issues have been sparse, the issue is related to fuselage joining and “skin flatness,” with inspections focusing on areas in which construction and clamping alignment are out of specification thresholds. The issues are related to the rear stabilizer, with two separate quality defects in the rear fuselage.

Boeing has now expanded the scope of its inspections to include work performed at supplier partner facilities. Unlike the earlier battery issue, the company has not been particularly transparent with the media regarding this problem.

Analysis

This issue with the 787, and the roughly 80 aircraft that have been delayed since October, is such that all deliveries should be concluded by December 2021. The delays and inventory of completed airplanes is substantial, and will negatively impact Boeing’s cash flow in 2021. Despite a lower production rate, the delayed deliveries will likely result in 2021 having more deliveries than 2022 as airplanes scheduled for 2020 are delivered.

The problems on the 787 keep emerging. The first major set of problems, from fasteners to poor fit of parts, resulted in the program being three years late. The second major problem, a battery which had a tendency towards thermal runaway and two fire incidents, resulted in a mandatory FAA safety grounding for the aircraft. This delay, while not likely to impact safety of flight, highlights on-going quality problems at Boeing with not only the 787 but the 737 MAX as well.
The latest fuselage and rear stabilizer issues being out of specification that has resulted in Boeing being unable to deliver aircraft for several months indicates that significant rework is required. That, of course, impacts both cash flow and profitability.

Insight

This third major incident with the Boeing 787 program will likely result in the program never being able to break even, because of the additional costs to repair the defects and potential compensation to customers adding to high costs to solve previous issues. With a shrinking production schedule and an order book that is unlikely to significantly increase during the pandemic, it may be a couple more years until the 787 can get back on track. But by then, it will be a 15 year-old design, and customers may shy away from a program that couldn’t achieve manufacturing quality consistently for a decade.

Of course, if one were to choose a time to shut down production for a wide-body aircraft, it would be at a time of limited demand given the shutdown of international routes. If a problem had to happen, this is good time for it to happen as the impact is likely smaller than it might otherwise be.

But the quality issues at Boeing go well beyond the 787. Manufacturing quality for the 737 MAX was called into question when the FAA inspections of the 425 MAX aircraft built during the grounding found rags and other debris in fuel tanks, indicating a systemic lack of concern on the assembly line. The company has not yet regained its production certificate for the 737 MAX, meaning every aircraft must be inspected by the FAA rather than approved through Boeing’s internal quality process, a costly extra step. Additional quality issues with the 787 do not enhance the FAA’s or airline confidence in Boeing.

Boeing will likely restore its production certificate once the FAA has the opportunity to see full-scale production of the MAX. But with slow production rates that may not happen for another year, resulting in higher costs as each MAX must be individually inspected.

A quality problem brought down the 737 MAX, and has now halted production of the 787. How long can quality problems persist at Boeing before they are addressed? There is a problem in Boeing’s corporate culture, and senior management hasn’t yet found the cure. That cure, however, is likely related to the relationship of financial management with engineering decisions.

Trying to save a few million dollars by avoiding training for the MAX ended up costing the company billions. The old adage “you get what you pay for” also applies to building airplanes, and Boeing’s leadership has focused on financial engineering, stock buybacks, dividends and incentive shares at the expense of product quality. Boeing’s declining market share is a direct result of poor decisions at the top of the company.

Ernest Arvai

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President AirInsight Group LLC