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 Airbus A380.

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 demand.

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 Marketwatch report.

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 Boeing."

"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 1997-1998.

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 any slack.

FMI: www.boeing.com