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Sunday, January 30, 2011

Boeing says learned from outsourcing issues with 787

(Reuters) -
By Kyle Peterson

EVERETT, Washington (Reuters) - On a blustery and drizzly December afternoon in the Pacific Northwest, about 20 airplanes sat engineless and inert near the runway at a Boeing manufacturing plant. Huge, yellow blocks hung from the wings of some planes to substitute for the weight of absent engines.

Every few minutes, the heavy clouds parted to give a glimpse of blue skies over Everett, Washington, just north of Seattle. Then new clouds rolled in.

The parked planes are 787-8 Dreamliners, the world's first commercial aircraft with a body and wings made largely of lightweight carbon-composite materials instead of aluminum. Someday these sleek, fuel-efficient machines -- already painted in the liveries of their airline customers -- may change the face of air travel and plane-making.

But not today.

The program that produced these unfinished 787s is nearly three years behind schedule and, by some estimates, at least several billion dollars over budget. Dreamliner flight tests were halted in November after an electrical fire aboard a test plane. The tests resumed in December, and the company later announced yet another delay for the delivery schedule. The new ETA is sometime this summer.

About 45 miles away in south Seattle, members of Boeing's work force gathered at a union hall for a monthly lodge meeting, a holiday party and a chance to lament the seismic shift in plane-making strategy they say the Dreamliner represents.

The 787 is not merely a historic feat of engineering. The program also marks Boeing's departure from its own time-honored manufacturing practices.

Instead of drawing primarily from its traditional pool of aircraft engineers, mechanics and laborers that runs generations deep in the Puget Sound region around Seattle, Boeing leads an international team of suppliers and engineers from the United States, Japan, Italy, Australia, France and elsewhere, who make components that Boeing workers in the United States put together.

"Do you see the stupidity in that?" said James Williams, an imposing 43-year-old who has been employed by Boeing for 15 years, mostly working in factory safety.

Williams, whose father worked at Boeing for more than three decades, is just one of many in the company who blame the repeated Dreamliner delays on a splintered engineering strategy and a complex supply chain of about 50 partners.

Boeing itself has acknowledged that the system needs tweaking, and the company promises to bring more of the design work back in-house for the upcoming 787-9 model. But Boeing defends its reliance on outside partners, saying their work and investments made the Dreamliner possible.

"It is true that supplier involvement in the development and design of the 787 is significant," the company said in an emailed response to Reuters questions. "Suppliers helped us develop and understand technologies and options for the airplane as we went through the early phases of concept development. Suppliers have also provided more of their own development, design and manufacturing funding."

Whatever the advantages, Boeing's outsourcing is emblematic of corporate practices that have sent large chunks of U.S. industry overseas and to other states, battered communities and vaulted the U.S. jobless rate to nearly 10 percent, economists say.

Yet the biggest victim may be the culture that underpins the aerospace behemoth. Here in Boeing country, where children follow parents into the aviation business, outsourcing is plain heresy.

"It was like the family," said Williams, whose wife, Sarah, and three children joined him for the holiday party. "Can you outsource Mom? Can you outsource Dad?"


Boeing is the world's second-largest commercial plane-maker after its European rival Airbus. Founded in 1916 in Seattle by William Boeing, the company earned $68.3 billion in revenue in 2009, split between its defense and commercial airplanes divisions.

The U.S. Chamber of Commerce says the aerospace industry achieved $215 billion in sales in 2009 and provided more than 644,000 jobs. According to data compiled by consulting firm Challenger, Gray & Christmas, Boeing is the 24th largest U.S. employer, including private companies and government. It is the fourth-largest employer in the U.S. manufacturing sector, excluding wholesalers, distributors and construction companies.

All told, Boeing and its subsidiaries employ 160,000 people in the United States and abroad, including 73,000 people in Washington. But while the company remains a pillar of the local economy and is hiring right now in Washington, Boeing is not the engine of job growth it once was.

At the time of the September 11, 2001 attacks on New York and Washington D.C., Boeing's total workforce was about 199,000. Its defense and commercial units shed 20,000 jobs between January 2002 and January 2003 after the 9/11 attacks sparked a steep decline in air travel and aircraft orders.

Myriad other U.S. manufacturers also cut jobs during that economic downturn, and many of those never regained their former staffing levels.

"What you've seen is a continual decline in manufacturing employment that didn't just start 20 years ago," said Stephen Bronars, senior economist at Welch Consulting. "And it's accentuated during downturns, where you see the steepest decline in manufacturing employment when there's a recession."

At its numerical peak, in 1978, the U.S. manufacturing sector accounted for more than one out of every four U.S. jobs, according to government data. Back in the 1950s, manufacturing made up an even higher share -- more than a third -- of total employment.

"A lot of Western Europe was still reeling after World War Two, and so we didn't have the same kind of competition when it came to manufacturing in the '50s," Bronars said.

Since the 1970s, employment in manufacturing has fallen more than 30 percent in the United States, compared with about 60 percent in Britain, and about 20 percent in Japan.

Then came the 2008/2009 global economic downturn, which wiped out nearly 8 million U.S. jobs. About 2 million of those were in manufacturing. Economists believe that many of these positions are gone for good, forcing blue-collar workers to search for employment elsewhere -- often at lower wages.

In several ways, Boeing's replacement of in-house labor with outside partners is typical of this trend. Although some of its outsourcing is to other U.S. companies and some of its job reductions came from spinning off businesses, the net effect has been punishing for Boeing's Washington workforce.

From Boeing's perspective, change was inevitable. Its role as a truly international company -- with 80 percent of its commercial airplane backlog for international customers -- demands a diverse and global operation to blunt the shocks to the U.S. job market from the highly cyclical aerospace business.

"Clearly, Boeing is a global company with a global customer base, and our U.S. employees benefit from that," the company said in an email response to questions by a Reuters reporter. "U.S. jobs are created by selling airplanes around the world."


That is true as far as it goes, but building airplanes is far more complicated than other frequently outsourced jobs like, say, textile manufacturing.

Plane-making is best done by a group of engineers and builders working in close proximity without the distractions of language barriers, cultural differences and bureaucracy, said Tom McCarty, president of the Society of Professional Engineering Employees in Aerospace (SPEEA) local representing Boeing engineers in the Puget Sound region.

"Now with the 787, management felt they knew how to outsource the design jobs. Turns out they didn't," he said. "We're talking about how do you design and manufacture a plane like the 787?" McCarty said. "It's a very unique skill set. And schools don't turn out people who know how to do that. And there is a culture that has developed the composite knowledge of all those skills. We know how to build all these planes."

To be sure, language barriers and borders have not prevented Airbus from overtaking Boeing as the world's largest aircraft manufacturer in the past decade.

Driven by history and political necessity, the 40-year-old plane-maker was forced from the outset to create a system in which planes are built from large sections made in four countries -- Britain, France, Germany and Spain -- and then assembled in France or Germany. Airbus has also begun assembling smaller A320 150-seat planes in China for the local market.

The difference with the 787 and its future Airbus rival, the A350, is that both manufacturers are being forced to ship an increasing quantity of work for these planes beyond their traditional borders to share the risk and costs of giant technological changes aimed at making planes lighter to save fuel.

Still, Airbus has been more conservative on outsourcing. It contracts 52 percent of the airframe to outside suppliers. Boeing says it purchased 65 percent of the 787 airframe, which is comparable to the 777.

Because the A350 will not be available before 2013 -- a result of previous dithering over product strategy, according to its critics -- the EADS subsidiary can also afford to sit back and learn from Boeing's perceived mistakes on the 787.

McCarty said that by relying so heavily on foreign partners for their engineering, Boeing devalues the so-called tribal knowledge that facilitates practical application of complicated, academic engineering concepts that eventually produce a new plane.

Acquired on the job and over time, tribal knowledge is a key ingredient in the development of a new plane, some experts say. It is the shared method of performing countless daily tasks efficiently and in coordination with colleagues. In short, tribal knowledge is the grease that cuts friction throughout the design and assembly process.

"One of the things you don't want to outsource is your core competencies," said Karen Kurek,

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