Company Hopes To Avoid The Problems Of Success
By all accounts, it's good to be Boeing right now. With the days
counting down to the end of 2005, it looks all but assured the
Chicago, IL-based aerospace manufacturer will accomplish their goal
of besting rival Airbus for the commercial airliner sales crown for
the first time in five years (on sales almost exclusively from
overseas carriers in India and the east).
The company -- already on track for its best sales year in
almost two decades -- is also working to bringing innovative new
products such as the 787 Dreamliner to the market, while also
updating its standard-bearer 747 to better compete with the mammoth
Yep, times are good right now... maybe too good.
According to a CBS Marketwatch report, the aircraft builder may
be experiencing too much of a good thing -- and if the company and
its suppliers haven't learned from mistakes they each made the last
time Boeing found itself in a similar circumstance, in the
late 90s... they could falter.
The last time the manufacturer's commercial airplane business
was faced with a similar scenario was 1997 and 1998, when Boeing
set out to ramp up its airplane production by 50
percent in about 18 months to meet a spike in carrier
While the spirit of the company was willing then, the flesh was
weak: a shortage of raw materials and parts, combined with
production problems, cost Boeing billions of dollars -- $1.6
billion in the third quarter of 1997 alone, according to the
Customers complained about delays in receiving their aircraft,
and that animosity lasted several years after the jets were flying.
Perhaps worse, Boeing's stockholders openly accused the company of
misrepresenting the severity of production problems to present a
positive face to Wall Street during the company's acquisition
of McDonnell Douglas in. Boeing's stock plummeted, as did its
credibility -- and only recently have both rebounded.
What's different now, says Boeing spokesman Craig Martin, is the
company has 1997 to look back on, and to learn from.
"One of the major differences is the vast majority of the
executive leadership around here lived through '97, '98," said
Martin. "They are -- to a person -- determined it will never happen
again, and particularly not on their watch."
Boeing plans to take a slower approach to ramping up its
airplane production this time, by 35 percent over the next two
years -- or more, according to the report -- to give production
lines and suppliers alike the chance to make the transition.
Announced delivery schedules have been made out of
consideration for this slower pace.
The company also has a new chairman, James McNerney -- who
assumed the CEO role in July after a sex scandal led to the resignation
of Harry Stonecipher. McNerney has been on the
board at Boeing since 2001. He has been with Boeing through the
difficult times since 1997, as well as the market downturn since
9/11 -- and he has been praised for keeping investors notified of
the status of the carrier's manufacturing operations and the health
of its suppliers.
The latter, in particular, is key to Boeing's future. A report
issued by UBS Investment bank analysts follwing their interview
with McNerney stated "according to Mr. McNerney, the supply chain
is the main thing that can go wrong and derail the cycle for
"There's a real problem with material costs," said William
Alderman, head of aerospace investment bank Alderman & Co. "It
is, in part, coming from when you ramp up production; the supply
chain has chokepoints."
The expected slashing of production time for its new aircraft
should help, from the current time of 13 days for a 737 to an
expected three days for the upcoming Dreamliner. Again, however,
the success of that figure directly relates to the positive outcome
of Boeing's increased reliance on a smaller pool of outside
suppliers, some of which are providing entire subassemblies (such
as wings) for the new medium-range aircraft.
According to Marketwatch, Boeing relies on a pool of
approximately 2,000 outside companies for various components --
nearly 800 fewer than the company had at its disposal in
Boeing must also make every attempt not to be derailed by labor
issues. As was extensively by reported by
Aero-News, production was hampered for more than a
month earlier this year while the company was involved in a
contract battle with the International Association of Machinists
And Aerospace Workers (IAMAW).
Boeing's emerging success, and the leverage that gave unions,
wasn't lost on IAMAW representatives when they went to the
bargaining table with Boeing, nor with their counterparts at SPEEA
during that organization's later talks with the manufacturer.
"Our members were aware of that and understand they had a better
bargaining position than (they had in) the after-effect of 9/11,"
said union spokeswoman Connie Kelliher. "I think people are pretty
proud we'll beat Airbus for the first time in five years."
The overall feeling at Boeing, as well as its suppliers, is they
are aware they have even less room for error today than they have
in the past. After all, Airbus is more than willing to make up for