Boeing, the 787 and outsourcing

Posted on 10. Jul, 2009 by in Featured

Boeing Aircraft has had a very enviable record for getting aircraft out on time for many years. Along the way they have always been at the forefront of technology. In 1933 they built the first modern, fast and safe airliner the B-247, in 1938 the biggest airliner ever the B-314 Clipper and the first pressurized airliner the B-307 Stratoliner. The B-707 revolutionized air travel in the fifties by introducing the jet-set. The sixties began with the B-727 and ended with the B-747; the biggest airliner ever attempted at that time. In between came the B-737, still one of the best selling airliners in the world. The eighties produced the B-757 and 767. The B-777, with fly by wire technology, was introduced in the nineties. Again it was a new technology. Boeing recently announced another delay in the B-787 program. So what has changed?

In a word, outsourcing. Boeing decided to outsource as much of the 787 production as possible to save money. Outsourcing, so they would not have to pay their highly trained unionized work force, who expect and demand to be compensated for their expertise and experience.

They looked across town at Nike; they had grade schooler’s making shoes in Viet Nam for a few cents a week. How hard could it be to outsource aircraft production? They are now learning that making a running shoe is not quite the same as an aircraft. The delays have stacked up and quietly they have had to buy the companies they outsourced to. The latest failure is Vought, Boeing bought them last month. I wonder how the costs of the delays, including all the order cancelations, add up compared to paying their workers. Maybe they learned, probably not.

4 Responses to “Boeing, the 787 and outsourcing”

  1. Rick 11 July 2009 at 16:37 #

    Speaking as a manufacturer (not airplanes) of over 35 years, mostly in CEO or COO position, I have strong opinions about this. The worst thing a CEO has to deal with is fixed overhead. We have to obsess about “overhead absorbtion”, which can only come about with maximizing utilization of the plant, i.e. more than one shift, full production lines etc. One gigantic and seductive solution to the problem is “variable overhead”…and outsourcing is one major way to accomplish that. It’s a pay-as-you-go sort of thing. When a company like Boeing is in a knockdown fight with Airbus, I can understand their zeal to reduce fixed overhead. In this very competitive world…it’s something I’m sympathetic to.

  2. Chip 12 July 2009 at 11:05 #

    The realities of a world market. It is an extremely hard balance, and I too have had to deal with it. Ultimately IMO it is a question of control vs. cost. Control of quality, schedule etc.

    I have been involved with putting an airline into Africa. The original plan called for us (Yambuta Air) to use our own crews/maint/aircraft. After our initial funding fell through in the 11th hour we had to flex to a much cheaper model. We decided to go with an ACMI (aircraft/crew/maint/insurance)lease model, a flat hourly rate. It requires a much smaller initial investment but long term is more expensive. Another bonus is the rapid set up and drastic reduction of head aches for us. We provide the fuel and schedule. Ultimately we will set up our own program, for now it lowers the risk for investers and can establish the model/concept with a minimal buy in. Still a project in work.

  3. Rick 12 July 2009 at 12:04 #

    So there you are so right. In today’s market environment, investors want risk management big time. It’s why variable cost is getting into everybody’s lexicon. Even if it costs more in the long run, variable cost is better risk management for capital investment IMO. I’m glad to hear you’re dong this in Africa. You’re pioneering rough ground.

  4. Chip 12 July 2009 at 14:02 #

    Very rough ground! However our model is designed to flourish in the environment. We are not trying to pound a square peg into a round hole.

    It is virtually an uncontested market, with the lowest elasticity rate in the world. If we get funding we will be the only airline in a country of 52 million that is not blacklisted. The US Gov will insure everything, including cash, through OPIC.

    Unfortunately it takes a Venture Capitalist with vision and intestinal fortitude to invest in Aftrica. We are still working hard at it, but cash is tight these days.

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