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8 Jul 2009

Did Boeing have a choice?

Posted by Hans van der Zanden

The Boeing Co. announced Tuesday it has agreed to buy a facility of Vought Aircraft Industries for $580 million in cash, in addition to the release of an undisclosed amount of debt. “Integrating this facility and its talented employees into Boeing will strengthen the 787 program by enabling us to accelerate productivity and efficiency improvements as we move toward production ramp-up”, said Scott Carson, president and CEO of Boeing Commercial Airplanes. “In addition, it will bolster our capability to develop and produce large composite structures that will contribute to the advancement of this critical technology.”

Did Boeing have a choice? Vought has been a bottleneck – if not a pain in the neck – for Boeing from day one of the 787 Dreamliner project. In 2000 Northrop Grumman sold for $843 million its commercial jet-structures operation that made, amongst others fuselages for the 747, to the Carlyle Group, an investment firm headed by former Secretary of Defense Frank Carlucci. The company was renamed Vought Aircraft and in 2003 Boeing assigned to Alenia and Vought the fabrication of most of the composite fuselage barrel sections for the 787, including detailed design work. Vought soon ran into problems with composites – including the detailed design work. To cure the huge barrel sections they were responsible for fabricating, they had to construct and build the largest autoclave system in the world.

AIT (Advanced Integration Technology) served as ‘systems superintegrator’, an idea pushed by Boeing that was supposed to bring together the component subsystems into one integrated and uniform system. This included the fabrication of the large shape rings, but AIT’s Canadian machine shop had difficulty maintaining the shape of the rings. They soon became desperate and  according to a foreman for the machine shop that handled some of AIT’s work, “They were running around with fire in their eyes, looking to do something without a contract, without a purchase order, just anyone who could try to fix this for them”. They told us “You can fudge here, you can fudge there….they had us do all kinds of hocus pocus, and it still didn’t fit”. Four months went by and even as other major Boeing suppliers began production the AIT cylinders were still traveling back and forth to the company’s Canadian shop. When the shape rings still did not fit, the Puget Sound company stopped accepting the work. “It looked like a big, giant, multimillion-dollar disaster well on its way to happening”….“AIT is putting Vought in a major bind”.

Another incident involved an inspector of Janicki who made the moulds and left a wooden crate inside an autoclave, “First the mould, then the fuselage section caught fire”. At the next regular Thursday meeting, the 787’s project executive and head of the 787 Dreamliner program, Mike Bair, began his report with bad news: “We had a little campfire last night”. Everything was ruined.  In June of 2007 Ted Perdue, the vice president responsible for the 787 program at Vought, was fired when the company had to acknowledge that the program faced “ongoing schedule slippage” as a result of obtaining parts it was supposed to install before shipping fuselage sections to Everett, Washington. Two months later Vought’s CEO, Elmer Doty, had to admit financial and logistical problems. “Facing a cash crunch”, Vought was now the weak – or weakest – link in the program.

A first delay of three months was announced by Boeing in September of 2007. Then out of the blue came a second delay already the next month, which was followed with what seemed like regularity a third delay in January 2008, and then a fourth delay April next. Who was to bear the blame? Too late as the by now also ousted  Mike Bair came to the conclusion that Boeing should build its next plane differently. He proposed that instead of relying on the globe-spanning supply chain that caused the Dreamliner program’s  problems - “Some of these guys we won’t use again” – Boeing should instead concentrate major partner factories at a single manufacturing supersite. Having the major suppliers all located in one geographic location would facilitate far better coordination and communications.

Boeing eventually announced they would oversee development at Vought and agreed in March of 2008 to buy Vought’s stake in its venture with Alenia that assembled sections of the new 787 Dreamliner, “A move that may help the company untangle the production delays dogging its best-selling plane and will give Boeing “more influence” over the four sections of the fuselage that are assembled at the plant in North Charleston, S.C.” From now on “Boeing and ex-Boeing managers were calling the shots and leading the turnaround”. But even that move could not staunch the problems for in  July of 2008 Vought had to halt production after a Federal Aviation Administration (FAA) audit found lax manufacturing procedures that could result in damage to the aircraft sections that it was manufacturing. Vought finally started training sessions to teach “the high number of workers there who never worked on airplanes before” to clean up their substandard practices and maintain better production order because “Something as small as a stray bolt could potentially knock out a crucial wire or hydraulic line”.

Working hard to get things moving properly in South Carolina, Vought was now confronted with the machinists  strike in Seattle in September of 2008. This slowed production at Vought to a standstill. When problems with fasteners surfaced again and the fifth delay had to be announced December 2008, Vought was quick to remark that, “the problem was caused by Boeing engineers”, but they had to face the reality that “production lines were now likely to remain largely idle into the next year”. By now Boeing had become a pain in the neck to Vought: “It feels like we are tearing apart our work force”, Joy Romero, Vought’s vice president for the 787 program and head of the Charleston facility, said in an interview. “Our employees were starting to get the learning curve going. We were starting to make progress”.

Then, a shock announcement, Boeing had to announce a sixth delay. First test fight of the 787 would be delayed indefinitely, just days before the planned date of June 30, “787 ground tests continued before the entire test fleet went into a holding pattern”, and within two weeks Boeing agreed to buy Vought, and had to pay a bit more than $580 million. The undisclosed amount of debt involved $422 million in payments that Boeing had advanced to Vought, bringing the total purchase cost to an even $1B.  Did Boeing have a choice and does Boeing have a choice when other partners choose to follow Vought?

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