January 2009 Archives

Take five

End of a busy week, and a good opportunity to take some time out for a brief update on where we stand in the 787 factory. We’ve now returned to what you might call a steady level of production with the final assembly joining of the fifth flight test airplane in Everett.

This airplane, designated “ZA005,” happens to be the first that will fly with the GEnx engines, and it will soon be accompanied by the sixth and final flight test Dreamliner. ZA006 is in production at our partner sites. As a matter of fact, assembly work is underway on 30 Dreamliners right now around the world.

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A pair of great views of the newly assembled ZA005 in the 787 factory – the fifth Dreamliner destined for flight test.

Major assemblies are now arriving from our partners - in close to the fully-completed state that we’re striving for during mature production. That’s a sign of real progress as we get ready to ramp up.

Speaking of progress, we’ve also turned power back on to Airplane #1 – the airplane that will conduct first flight. We’ve resumed testing on the airplane as well. Our work to correct fastener issues is completed on ZA001, and is progressing on our other 787s.

We get a lot of questions about whether the 787 program is on track or on schedule. Well, here’s how I’d answer that right now. Both the re-power on of Airplane #1 and the start of Airplane #5 assembly were scheduled for this week. And we hit them both.

Challenging year behind us, ahead of us

Clearly, today’s Boeing earnings report for the year-end and 4th quarter 2008 reflects the consequences of not achieving our objectives at Commercial Airplanes.

While Boeing posted a profit - $2.7 billion - for the year as a whole, we’ve also announced a $56 million company loss for the 4th quarter (largely as a result of a 4Q BCA loss of $968 million), on a 27% decline in revenue.

As discussed by company executives today, the machinists strike and the resulting factory shutdowns cut our anticipated commercial airplane deliveries in the quarter. The strike also impacted our customers and suppliers - issues that we’re working to resolve today.

But the challenges go far beyond the strike’s effects. Maybe it’s best summarized by saying 2008 was a tough year, with some good performance offset by a worsening economy, missteps in quality and production, and scheduling setbacks on the 787 and 747-8 programs.

So while we’re executing most of our programs well, we’re challenged by those few that aren’t. One that deserves a bit of discussion today is the 747-8 Program. For several years I had the privilege to be part of our effort to market and develop the -8, so I know how hard everybody is working.

However, we’ve suffered delays from unanticipated design changes, struggled with limited engineering resources, and then we had the strike. Those factors added up to our announced a $685 million “reach-forward” loss for the 747 Program. In plain language, that means that as things stand right now we expect to spend more than we’ll earn on many of the 747s yet to be delivered.

That’s the bad news. But I do see opportunities. Our market outlook continues to forecast demand for 980 airplanes in the 747-and-larger category over a 20-year period. Only a fraction of those have been ordered to date. That means there’s significant market upside potential.

I can also tell you that Boeing is focused like never before on boosting our productivity and on becoming even more efficient in everything we do - and those efforts will help drive down our costs.

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Full production in progress in Everett: A rare look at a fuselage move in the factory last week as a 767 section “flies” above 747s in final assembly.

I’m sure no one needs reminding that this is a challenging year in our business. Market dynamics change almost daily. Airlines are cutting employment, reducing capacity and taking losses. Airplane lessors are facing financing hurdles. In the face of those factors, our job is to help our customers succeed. And to do that we need to execute our programs and deliver airplanes.

I expect that 2009 will be a time for finally taking those big steps in execution. The 787 Dreamliner is scheduled to enter flight test in the 2nd quarter as we move toward first Dreamliner deliveries next year. We’ll start delivering the 777 Freighter this quarter. And we’re making great progress with the 747-8 Freighter. Overall our outlook is for between 480 and 485 airplane deliveries in 2009.

Yes, we’re concentrating our energy on righting our short-term challenges. But at the same time we’re focused on positioning our company for long-term competitiveness, with our eyes on the opportunities that are out there. As I said earlier this month, we are indeed living and working in interesting times.

$3.5 trillion economic impact

It’s not very far into 2009 and I’m already being asked what our outlook is for the year ahead. That’s a tough one to predict in any year, and this year is going to be tougher than most. It’s hard to say, for example, when we think our industry will return to its historical long-term growth rates.

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Click above to go to the ATAG report.

As I’ve said before, there are more questions than answers right now in this challenging economy.

But one thing is clear. Aviation will continue to be vital. Air transport benefits the social and economic fabric of the world.

That’s not going to change, even as we work through this difficult downturn.

We’ve mentioned the Air Transport Action Group (ATAG) here in the blog recently.

Toward the end of last year they published an informative updated report called “The economic and social benefits of air transport.” (1.2MB pdf)

The report found that:

  • The air transport industry generates 32 million jobs globally
  • The value of all goods transported by air represents 35% of all international trade
  • Aviation’s global economic impact is valued at more than $3.5 trillion, or 7.5% of the world’s total GDP
  • Aviation transports more than 2.2 billion passengers a year

The ATAG report offers a thorough analysis, pointing out that the industry’s most important economic contribution is “through its impact on the performance of other industries and as a facilitator of their growth.” For example, helping countries expand their access to international markets, enhancing tourism, and improving productivity by attracting investment and encouraging innovation in locations that have good air transport links.

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Flights in progress video: Click on the image above for a truly global view - a 24-hour moving snapshot. Every day. each day, the world’s fleet of 19,000 aircraft, criss-crosses the world, carrying cargo, and connecting people, countries and economies.

Air transport also has social benefits. Delivering essential services and supplies to remote areas, and providing humanitarian assistance in the wake of natural disasters would be difficult without air transport.

The bottom line is, we’re in a difficult economic environment right now, and it’s affecting aviation as it is all other sectors. But our industry is - and will remain - crucial to just about everything that makes our world what it is today.

By the way, if you like our flights in progress video linked above, also click on the screensaver Star Alliance makes available on their site.

Tough decision

In my last blog entry I talked about the challenges that we all face in 2009. Now comes word that the U.S. is in the middle of the worst loss of jobs in more than 60 years - and as companies large and small are having to adjust to our worsening economy, Boeing is not immune.

As I’m sure you’ve heard, we’re taking the tough step of reducing Boeing Commercial Airplanes employment by about 4,500 positions in 2009. This will bring BCA employment to around 63,500 jobs – which is about where we were at the beginning of last year. Most of the job reductions will be right here in the Seattle area and in Washington state, and will take place during the second quarter.

You don’t need any more proof than this that we’re challenged right now with a very difficult business climate. As our Commercial Airplanes CEO Scott Carson put it, we’re doing this in order to make sure we remain well positioned and are able to control costs under the current economic conditions.

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777 final assembly under way in Everett last month.

I started at Boeing in 1981 – just before what turned out to be one of the biggest downturns we’ve seen in this industry. I’ll never forget going through the process of watching many friends and colleagues - some who’d just started working at Boeing, and many with whom I’d developed strong relationships in the work environment – having to change jobs or go on to other things outside the company. It makes a strong impression on you.

The job reductions will mainly be in areas not associated with airplane production. But that doesn’t make it any less painful. I’ve gone through a number of these cycles in our business, and it’s difficult for everyone associated with Boeing.

We’ve tried as best we can to maintain as stable an employment environment as possible. Ultimately, our success as a business is the best recipe for continued and stable employment. But there are things that we just can’t control, and one of those is the difficult time we find ourselves in during the global economic slowdown.

As we continue, the same fundamentals remain. We need to deliver on our airplanes backlog. We have to continue to be more productive. And we need to continue to make progress on our development programs.

The job reduction is a step we have to make in order to meet those goals, remain competitive, and adapt to the uncertainties in the marketplace. We’re facing fierce competition. As Scott Carson pointed out to employees, we’re not in this industry alone. Our competition is not standing still, and neither can we.

The difference a year makes

As we all get back into the swing and we start 2009 business in earnest, I couldn’t help but go take a look in the archives to see what we posted last year at this time.

Last January we were talking about a great year which had just concluded. It’s a real eye-opener to read that post today. Little did I know how right I would be when I said 2008 was going to be a very busy year. It calls to mind the saying, “may you live in interesting times.”

No record-breaking year to talk about this time around. And I think you’ll agree that the overall mood right now is subdued, not just for us at Boeing but for our competitors and customers – the entire industry really.

I don’t think there’s any need to “sugar-coat” the outlook for 2009 and beyond. It’s going to be tough, challenging, difficult – you fill in the blank with your adjective if you like. No one knows in which direction the current economic environment will turn, or how long it will be before we see an uptick. Clearly, we all have more questions now than there are answers.

But looking back for a moment, despite the tumultuous year that was 2008, Boeing finished with 662 orders for commercial airplanes. Now, if you’re a glass-half-empty sort I suppose you could interpret that as less than half the record Boeing orders total we saw in 2007. But I think we all should step back and see that in the big picture, 662 orders amounts to a solid year of business in any year. This despite all of the well-publicized industry challenges in 2008.

Keep in mind that during other down years earlier in this decade and in the 1990s our annual orders were frequently in the 200s. So it all depends on how you want to view the glass right now.

As we look ahead, we will focus on execution - delivering our backlog – and on improving our productivity to remain competitive. We’ll also be moving forward on our development programs such as the 787 and 747-8.

On the production side, clearly, the work stoppage during the latter part of the year affected how many deliveries we could achieve. We delivered a total of 375 airplanes – including 290 737s, 14 747s, 10 767s, and 61 777s.

There are a lot of positives on the horizon, including first delivery of the new 777 Freighter, first flight and flight test of the 787, and further progress on the 747-8. So let’s all take a deep breath as we close one chapter, and set out to make 2009 a year for the history books.

 

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