What Boeing Should Learn from the 787's Late Lift Off
On Tuesday, Boeing (BA) had a pretty successful test flight for its bet-the-company 787 Dreamliner, which has been delayed five times over the last two years. The 787 is a $166 million plane, with a capacity of 250 to 330 passengers. Boeing has 865 orders for it and an estimated $150.6 billion backlog -- 59% of Boeing's total.
In the months-long run-up to yesterday's flight, Boeing stock has risen 89% from its March 2009 low. But if that stock is to soar any more, Boeing will need to change how it develops new aircraft based on the lessons from its mistakes with the 787. Before getting into those lessons, it's worth pointing out that yesterday's test flight was cut short -- by about two hours -- thanks to what test pilots claimed was poor visibility.
In fact, the flight achieved about half of what Boeing had hoped for. As Bloomberg News reports, a new aircraft needs to accumulate points toward certification, and yesterday's flight achieved only half of those points because the pilots had to turn back every 15 minutes due to rain clouds, which limited the pilots' ability to see. For example, Boeing missed points due to the 787's failure to reach the planned speeds.
The Dreamliner has a long way to go before it become a reality. Teams of 600 engineers and 400 mechanics will work nonstop to get the Federal Aviation Administration to certify the 787. Future flights will begin in about a week after more instrumentation is added. Pilots will push the jet to extremes, simulate emergencies and test the 787 in thunderstorms and icing conditions, according to Bloomberg.
The 787 has taken longer from development go-ahead to customer delivery than any aircraft in Boeing history. Yesterday's flight was six years to the day that Boeing gave the go-ahead for the 787. And if everything works out according to the current schedule, the 787 will have taken at least nine months longer from first order to delivery than the 707 -- Boeing's first jet -- which was first flown over 50 years ago, according to Bloomberg.
These delays have cost Boeing money and credibility. On the money front, the company took a $1.6 billion third-quarter loss this year and a $2.5 billion third-quarter charge directly related to the Dreamliner's issues, according to the Wall Street Journal. And it has also lost about 45 orders for the plane since the 910-order peak in 2008.
How can Boeing avoid such problems in the future? It could be a decade or more before the plane maker actually needs this advice, so it's offered with the knowledge that much will be different in a decade. Having said that, here are four lessons that Boeing ought to incorporate into its next bet-the-company effort:
If the aircraft involves new technology, don't outsource the design. A key flaw with the 787 was outsourcing 60% of the design and manufacturing on an aircraft that was 50%-made out of a new material -- composite plastics instead of aluminum. Outsourcing so much of the design is asking for trouble if a future aircraft involves a such a difficult-to-predict technology.
If you do outsource design and manufacturing, pick suppliers who share Boeing's values. With the 787, Boeing mistakenly assumed that its suppliers around the world shared its sense of urgency about meeting schedules. If Boeing works with outside firms for a future aircraft, it should conduct exhaustive research before choosing those suppliers to ensure that they share Boeing's commitment to hitting deadlines.
Trust, but verify what you hear from suppliers and managers. With the 787, Boeing executives assumed that the comforting sounds they heard from suppliers and managers were true. For future aircraft, Boeing executives must spend time in frequent face-to-face meetings with the people doing the actual design and manufacturing work to find out what's really happening.
Don't let marketers set the delivery schedule. With the 787, Boeing set the initial delivery date on July 8, 2007 (7/8/7), apparently because a program manager thought it would be cute. The aircraft that was actually paraded in front of the media that day was missing thousands of fasteners. Boeing should set the schedule for future aircraft based on hard-nosed, conservative engineering estimates -- with huge slack time added.
But all these lessons are for future Boeing decision-makers. In the interim, I hope for the company's sake that the data that comes from these tests don't delay the 787 even further. Nevertheless, I have no doubt that Boeing and the FAA will delay that schedule if more time is needed to make sure that the 787 flies safely.
Peter Cohan has no financial interest in the securities mentioned.