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Boeing can't say it wasn't warned.
February 18, 2011 1:28 PM   Subscribe

The biggest mistake people make when talking about the outsourcing of U.S. jobs by U.S. companies is to treat it as a moral issue. Sure, it's immoral to abandon your loyal American workers in search of cheap labor overseas. But the real problem with outsourcing, if you don't think it through, is that it can wreck your business and cost you a bundle.
Case in point: Boeing Co. and its 787 Dreamliner. Boeing can't say it wasn't warned. As early as 2001, L.J. Hart-Smith, a Boeing senior technical fellow, produced a prescient analysis projecting that excessive outsourcing would raise Boeing's costs and steer profits to its subcontractors. [previously]
posted by ennui.bz (58 comments total) 19 users marked this as a favorite

 
Also, all those unemployed people can't afford to fly anywhere anymore.
posted by Devils Rancher at 1:32 PM on February 18, 2011 [9 favorites]


The Dreamliner decision boggles the mind.

You don't outsource something no one knows how to do.

You outsource the stuff that everyone knows how to do, so the vendors are competing on price alone.
posted by Cool Papa Bell at 1:41 PM on February 18, 2011 [25 favorites]


And US union workers are screwed.
posted by semmi at 1:49 PM on February 18, 2011 [3 favorites]


the designed the supply-chain on the 787 in part to break the machinists union:
Aircraft workers near Seattle suffered another blow in 2009 when, after a long battle to keep 787 assembly in Everett, Boeing selected South Carolina as the site of its second 787 final assembly plant. The company aims to ramp up 787 production to 10 planes per month in 2013.

The plant in South Carolina is expected to create thousands of new jobs in that state and is likely to be less disruptive to Boeing than its Everett counterpart, where four major IAM strikes in the last two decades have cost Boeing about 200 days in lost production. The machinists in South Carolina, a right-to-work state, voted against IAM representation.

Tom Wroblewski, district president of the IAM unit representing Boeing workers in the Puget Sound region, said downsizing and outsourcing have taken a toll on IAM membership, which is down to about 25,000 today from 42,000 in 1990.

Boeing can say that mistakes were made, but if they can keep the 787 in the air then they have a framework for chasing labor costs to the bottom. Once the 787 actually ships, as the articles indicate, the problem for Boeing is that they will be held responsible for making sure there are spare-parts and they get where they need to go, but having outsourced the production of those parts they will neither have direct control nor make as much money from the parts as if they did. Hence additional costs to buy out contractors when there are fuck-ups.

So, the next time some magical defense contract floats Boeing's way just in time for earnings reports, you'll know it was federal dollars that let these guys break the machinists union, break Boeing, and get away with it.
posted by ennui.bz at 1:54 PM on February 18, 2011 [12 favorites]


The merged company appeared to prize short-term profits over the development of its engineering expertise, and began to view outsourcing too myopically as a cost-saving process.

Sacrificing long term gain for short term profit? Don't they teach this in business school? It always winds up in things going to hell. Next they'll be begging for a bailout.
posted by Mister Fabulous at 1:56 PM on February 18, 2011 [1 favorite]


its gonna make a big hole when one of them birds slams into the ground. but hey, who knew the chinese were doping the o-rings with powdered panda poop?
posted by quonsar II: smock fishpants and the temple of foon at 1:59 PM on February 18, 2011 [1 favorite]


The funniest part is that in Seattle at the Museum of Flight is built on the site of Boeings original design/build factory, (essentially a barn.) Regardless, every historical photo in the place is about designing and building aircraft, not managing the overseas supply chain of designing and building an aircraft. fucking dopes.

I don't know why I find it funny that executives don't recognize what the company they run does, but there you have it.
posted by Keith Talent at 2:10 PM on February 18, 2011 [5 favorites]


Executives think they can send every job but management overseas. The reality is that it's hard enough to manage someone in the next cube, let alone across an ocean. So after a series of catastrophes, companies start sending entire projects overseas, and that actually works pretty well. Until the overseas companies realize they're the entire operation, minus the salesforce, and if they just hire a couple salespeople in the states they can rake in all the money instead of just the thin slice they were originally getting.
posted by Nahum Tate at 2:12 PM on February 18, 2011 [12 favorites]


I like how immorality is acknowedged and dismissed in the face of the OMG YOU MIGHT LOSE A DOLLAR
posted by DU at 2:16 PM on February 18, 2011 [7 favorites]


Outsourcing isn't the point. Half of Boeing's plane bits are made in Europe, and half of Airbus's in America. That's efficient.

The test of American manufacturing ingenuity these days is logistics - putting it all together again. There's a lot of money in that, exactly because it is so difficult.
posted by Philosopher's Beard at 2:18 PM on February 18, 2011 [1 favorite]


Job 1 of a CEO drive up stock price by costcutting, collect bonus, move to next company, repeat.
posted by Ad hominem at 2:25 PM on February 18, 2011 [3 favorites]


Everyday, the good 'ol boys can come into work, pop the top on the five gallon bucket and puke because they are so sick/drunk/hung over from the night before.

Heaven forbid anybody ever EVER ever test positive or refuse to pee in the gloria-ous UA cup. Because that would be bad, really really bad.

Good luck with the 8 series; because the 7 series composite technology is going to crack and rot like a 70's Corvette once it catches a few hundred hours of 30,000 feet altitude UV rays.

Hasta la tierra, and good luck with China doing the US anything less than the $quality$ that was bid for and paid for.
posted by buzzman at 2:27 PM on February 18, 2011


I can't imagine any American corporate giant being swayed by an appeal to "morality." That seems like an argument formulated to resonate with the layoff victims but to roll right off the backs of the power brokers who do the outsourcing.
posted by Western Infidels at 2:33 PM on February 18, 2011


corporations outsource. It provides cheaper labor than they can get in the U.S. Here is why:
If every American worker worked at the minimum wage, labor would still be significantly cheaper in the Far East, where work is outsourced to.

Could you survive on minimum wage? Or less?
posted by Postroad at 2:35 PM on February 18, 2011


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

The problem here is defining what the core competencies are. The little company I used to work for was acquired. The acquiring company thought they were buying a technology company; they were actually buying a system integrator. Since as a device manufacturer this company did not understand systems integration they gutted the systems integration capability and are now looking very hard at writing off the entire acquisition cost and closing what they bought.

The acquiring company is Chinese, so the lesson goes both ways.
posted by jet_silver at 2:40 PM on February 18, 2011 [1 favorite]


The test of American manufacturing ingenuity these days is logistics - putting it all together again. There's a lot of money in that, exactly because it is so difficult.

America is quite good at logistics. Our sheer size combined with our industrial advancement have meant we have a great deal of practice efficiently shuffling things around, and America is historically as good or better than any nation on earth. For evidence, I'd point to WW2, where the US won largely by shipping more of everything to everywhere.

However, I'd dispute your contention that logistics is highly profitable. Where I've worked in logistics in the past, the margins were horribly razor thin because it's a very unfettered market. The barriers to entry are almost nonexistent, and it's the ultimate commodity service. If you can get the widgets from A to B on time, no one cares how you do it.
posted by Nahum Tate at 2:42 PM on February 18, 2011


From the second link:

Experience in the electronics industry has shown that out-sourcing work to regions of low labor rate is only a transitory phenomenon. The reason why the rates were low was that there had previously been no work there. Once the work became availble, hourly rates increased, so that the primary electronic companies kept moving the work to yet another as-yet-underdeveloped area, and the cycle was repeated. This may be cost-effective for small items, with production lives of only a few years at most, but it is inappropriate for large aircraft that may need spare parts throughout a service live in excess of 50 years (80 or more for some military aircraft) and for which the manufacturing program itself may last 40 to 50 years.

...

Out-source only on the basis of better facilities; never on the basis of a temporarily lower labor rate. Out-sourcing as offsets for sales must be acknolweged as an increase in cost, on average, not a desirable cost saving."

posted by Comrade_robot at 2:57 PM on February 18, 2011 [4 favorites]


Dear Stockholders:

Neener, neener, neener!

-- An American
posted by Twang at 2:58 PM on February 18, 2011 [1 favorite]


Just a thought, speaking of morals to people who have none usually goes nowhere.
posted by ZeusHumms at 3:00 PM on February 18, 2011


The funniest part is that in Seattle at the Museum of Flight is built on the site of Boeings original design/build factory, (essentially a barn.) Regardless, every historical photo in the place is about designing and building aircraft…

The whole management stack of Boeing moved across the country away from Seattle about ten years ago, pretty much explicitly to get away from all those icky airplane and engineering people who might have different ideas about how to do things.
posted by hattifattener at 3:09 PM on February 18, 2011 [3 favorites]


In going on 20 years of software/internet project management experience, I have NEVER seen a project improved, cost-reduced, time-reduced or otherwise made more efficient by outsourcing. On the contrary, it makes everything worse. Why management never learns that lesson is beyond me. I assume that when I get to the VP or Director level, they will give me some pill that makes me forget my experience and come over to the party line. It's the only explanation.
posted by spicynuts at 3:21 PM on February 18, 2011 [7 favorites]


The test of American manufacturing ingenuity these days is logistics - putting it all together again. There's a lot of money in that, exactly because it is so difficult.

and Boeing executives are admitting that they fucked up on the 787 costing *billions* on the project. except that as part of Boeing/Lockheed duopoly of US military aerospace contractors they are, you guessed it, too big to fail.

and thing is that, once the 787 is shipped and flying Boeing still has liabilities due to managing the supply chain on spare parts.
posted by ennui.bz at 3:24 PM on February 18, 2011


I'm just here to complain because I mistook the [previously] tag for [more inside], clicked on it, read some links that were confusingly out of date, and read a whole thread that was two years old. Then I got to the end and wondered why it was closed.
posted by kiltedtaco at 3:39 PM on February 18, 2011 [2 favorites]


The odd thing is that Boeing's core business is engineering, manufacturing, and managing complex systems. They should have known what to outsource and where the risks were in outsourcing because that's what they're good at.
posted by rdr at 3:49 PM on February 18, 2011 [1 favorite]


Learn from the Germans.
posted by humanfont at 3:57 PM on February 18, 2011


In going on 20 years of software/internet project management experience, I have NEVER seen a project improved, cost-reduced, time-reduced or otherwise made more efficient by outsourcing. On the contrary, it makes everything worse. Why management never learns that lesson is beyond me. I assume that when I get to the VP or Director level, they will give me some pill that makes me forget my experience and come over to the party line. It's the only explanation.


Undoubtedly true. But you forget that paying salary, benefits, severance, retirement, whatever to permanent employees is far far more expensive in the long run. The reason they outsource is not to save money in the short run but in the long run. Contracts with vendors can be terminated and then all those unemployed people aren't the company's problem anymore.
posted by Sublimity at 4:06 PM on February 18, 2011


Sure, it's immoral to abandon your loyal American workers in search of cheap labor overseas.

That's a hell of an assumption.
posted by ripley_ at 4:11 PM on February 18, 2011 [2 favorites]


This is scary, even though it is not from an unbiased source. Here a couple of choice quotes about 787 production issues:

"Qualification of low-wage, trained-on-the-job workers that had no previous aerospace experience" (emphasis added).

"Production records on deferred work were found to be incomplete or lost in transfer resulting in a loss of configuration control" - translation: partially completed components were moved between sites, but the records of what work remained to be done were messed up. Maybe they bolted panel 347a to panel 347b, or maybe not - no one knows.

I wouldn't want to fly in a 787 until they've been in service for a few years and all of the poor assembly problems have revealed themselves.
posted by monotreme at 4:19 PM on February 18, 2011 [1 favorite]


The funny thing is that Harry Stonecipher was the CEO of McDonnell-Douglas and drove the company into bankruptcy using the same out-sourcing strategy in the early 90s. So when Boeing bought up the failing company, guess who ended up taking over the management at Boeing -- Harry Stonecipher and his loyal staff of out-sourcers who proceeded to infect Boeing with the same disease. It was a bizarre and unlikely outcome similar to how the start-up ISP AOL ended up buying out the largest media empire in the world, Time-Warner.

Stonecipher really and truly hated the engineers at Boeing. He considered them just parasites on the company who contributed nothing. As a result of the acrimony, Boeing engineering expertise just evaporated. In the past it would have been unthinkable for a mistake to occur in which they had difficulty attaching the wings to the the center wing box because of engineering mistakes but that is exactly what happened after outsourcing much of the design.

Stonecipher would still be there today if he hadn't been caught boinking one of his underlings in the office.
posted by JackFlash at 4:27 PM on February 18, 2011


Experience in the electronics industry has shown that out-sourcing work to regions of low labor rate is only a transitory phenomenon.

That's why all the Mexican macquiladoras are empty. In just ten years or so, Mexican labor went from being the best thing ever to too fucking expensive. Why pay Mexicans a dollar a day when you can pay the Vietnamese a dollar a week? (And why pay the pain-in-the-ass American workers at all?) There's no bottom to modern corporate greed.

The other things that never get taken into account when dumbfuck managers make these decisions are all the little items that never show up on their reports: lost sales, customer dissatisfaction, lost productivity, real training costs ..
posted by Benny Andajetz at 4:45 PM on February 18, 2011 [1 favorite]


I got a job at the Indian company where you outsourced my job..

Also ... Outsource Executive Management (self-link).
posted by ZenMasterThis at 6:19 PM on February 18, 2011


Benny Andajetz: Why pay Mexicans a dollar a day when you can pay the Vietnamese a dollar a week? (And why pay the pain-in-the-ass American workers at all?) There's no bottom to modern corporate greed.

Would it have been better if the companies had not given the Mexicans or Vietnamese work (money) at all? If the wages are too low, why do they choose to work for them rather than their alternatives?
posted by mnemonic at 6:30 PM on February 18, 2011 [1 favorite]


Would it have been better if the companies had not given the Mexicans or Vietnamese work (money) at all? If the wages are too low, why do they choose to work for them rather than their alternatives?

It's not that that the wages are too low, it's that it's blatant exploitation. It's a powerful entity offering those with nothing a little something and then wielding that as weapon against American workers. (Remember America, where the company is? Remember the American workers they fired because they got the dollar-a-week Vietnamese?)

And it's just temporary, because next week the Vietnamese will be too expensive because Chinese prisoners will work for free.

But luckily all the savings got passed onto the consumers and the rest was used to reduce health care premiums for the last few American employees. (This is a race-to-the-bottom philosophy and everybody eventually loses.)
posted by Benny Andajetz at 7:08 PM on February 18, 2011


Better for whom? The former exec's argument (which is reflected in how everything played out) is this:

* Outsourcing may seem attractive because you don't have to pay people in Mexico or Vietnam as much.

* However, outsourcing comes with additional costs: You have to write much more detailed specifications. There are transportation costs. There are extremely large costs as a result of worse quality control. There are extremely large costs which occur because procedures were not developed all the way through. You are also losing expertise.

* Many of these costs are concealed by accounting rules, which require these costs to be billed as overhead to in-house production, which artificially makes outsourcing look much, much cheaper.

* The people who seem to win in outsourcing are the subcontractors; when given the choice, none of them wanted to be partners. They are guaranteed a profit if they have competently put together a contract. If there are cost over-runs, the main company is already heavily invested in them and will probably bail them out. They gain expertise, and in this case can now directly supply the lucrative spare parts market.

Overall, the argument goes (especially for things like airplanes), outsourcing is generally more expensive in the long run. There are a few instances in which he supports outsourcing. These are cases where outsourcing is being done because the outside company has a certain expertise.
posted by Comrade_robot at 7:12 PM on February 18, 2011 [2 favorites]


Conservatives: Embracing 19th century politics, so we can have 19th century living conditions.
posted by dirigibleman at 9:02 PM on February 18, 2011 [1 favorite]


It's not that that the wages are too low, it's that it's blatant exploitation. It's a powerful entity offering those with nothing a little something and then wielding that as weapon against American workers. (Remember America, where the company is? Remember the American workers they fired because they got the dollar-a-week Vietnamese?)

Because we all know that the only people who can work without being exploited are Americans.
posted by atrazine at 11:38 PM on February 18, 2011 [1 favorite]


It must be taken into account that Boeing's outsourcing was of a very unusual sort. What Boeing sought to escape were not so much Washington State's labour costs, but rather the heavy initial financial outlay for developing a new aircraft on its own. In this, Boeing's main motivation was emulation of its archrival Airbus, which has been doing this "flying bits of aircraft around" thing since its inception.

What Boeing failed to acknowledge, though, is that Airbus didn't do it out of choice, but sheer necessity. Airbus was born as a politically-driven loose association of European aircraft makers, each one of them too weak on its own to confront then-mighty Boeing and Douglas. Political necessities dictated a work-sharing agreement that had production distributed across several countries. Because France and Britain had already painfully learnt from Concorde how NOT to do this (having two separate end assembly lines from the beginning), the Airbus partners had to take the only practical route left, which was to specialize in designing and building different bits of the aircraft separately, and then bring them together. Over time, and with much effort and the occasional utter fiasco (like the A380 drama, when the German- and French-built sections of the fuselage initially didn't fit together), Airbus learnt how to make the most out of this approach (delegating risk and responsibility, specializing by task, driving internal competition), while minimizing the drawbacks. So much so, that Boeing ultimately grew jealous.

The funniest thing about Boeing's decision is that, at the same time it started this form of outsourcing, Airbus was moving in the opposite direction, integrating its constituent parts into a single company, and centralizing decision-making. And while Airbus just adopted a more conventional form of outsourcing, opening a second final assembly line in China for its single aisle aircraft, which is not quite risk-free in terms of intellectual property and technology transfer, it still makes some sense, since, unlike the Concorde precedent, it builds more than enough single-aisle planes to keep two assembly lines busy, and the Asian market for those planes is exploding.
posted by Skeptic at 3:18 AM on February 19, 2011


monotreme: "I wouldn't want to fly in a 787 until they've been in service for a few years and all of the poor assembly problems have revealed themselves"

So ... basically after X number of horrific crashes?

Can't say I blame ya.
posted by bwg at 4:42 AM on February 19, 2011 [1 favorite]


Could you survive on minimum wage? Or less?

Can the airline industry survive in a world where everyone other than a handful of executive-level employees are paid dollars a day?
posted by rodgerd at 5:23 AM on February 19, 2011


Reducing hourly labor costs was a relatively small part of Boeing's out-sourcing calculus. (Important to note that lots of work was outsourced to Japan and Western Europe, where wages aren't particularly low.)

One of the major concerns was trying to accomodate industrial policy: the nations where the component manufacturing was placed were often willing to subsdize it or (at least Boeing believed) put a pro-Boeing finger on the scale when flag carriers were picking between Boeing and Airbus.

Another issue wasn't so much American labor costs in general, but the Seattle unions in particular. Unlike the more savvy manufacturing unions who recognized that their only future lie in partnering with management, they retain a propensity for hugely destructive labor actions. In other words, not their wages or benefits, but their willingness to walk off the line, cause dozens or hundreds of delivery slots to slip, and impose billions in direct and good will losses upon their employers.
posted by MattD at 5:36 AM on February 19, 2011


Also, while Stonecipher is properly blamed for much that went wrong under his watch at Boeing, he can't really be blamed for McDonnell Douglas' previous long slide into irrelevance: according to Wikipedia he joined MDD just three years before its merger with Boeing. Moreover, it isn't as if Boeing was entirely trouble-free before the merger: it had a notorious quality slump in the late '80s that seriously damaged airlines' trust in it.

I also have to point out that Boeing's outsourcing troubles with the Dreamliner will still have serious consequences in the medium term. As I noted, Boeing did this so it wouldn't have to finance all the development itself. Because of having to bail out its contractors, however, those savings have probably been obliterated, stretching Boeing's financial resources. Meanwhile, Airbus' A350 XWB is breathing down the 787's neck (unless it is itself delayed, which could still very well happen), and Airbus just announced that it's going to re-engine its single-aisle A320 family. The latter is a serious challenge to Boeing. Why? Although its design is originally much older, Boeing's 737 has a small fuel economy advantage to the A320. This has kept it a favorite of low-cost carriers. However, thanks to new engine technology, the re-engined A320 will have a 15% fuel economy advantage, which could wipe the 737 from the market.

Now, the catch for Boeing is that re-engining the 737 doesn't appear to be an option. Why? Well, those new engines are wider. The A320 has space to spare under its wings, but the 737 was originally designed in the age of much narrower turbojet engines. It is notoriously squat and already fitting the current generation of turbofans under its wings was an engineering feat (you'll note, for instance, that a 737's engine inlets are oval, rather than round). Fitting even wider future engines would require a major redesign of the aircraft. This is why Boeing always meant to replace it with an all-new aircraft, based to a great extent on the 787's new technologies. The outsourcing of the 787's development and production was meant to save funds for the launch of the 737's replacement, but all this trouble must have left Boeing rather short of funds, which explains Airbus re-engining move.

Thus, unless Boeing pulls a big rabbit from its hat, or Airbus runs into serious trouble, in five years Boeing will find itself abandoning the upper end of the market to the A340 and A380, the lower end to the re-engined A320neo (as well as new competitors such as Brazil's Embraer), and with only the 787 and 777 left, sandwiched in the middle-range and facing head-on competition from the A350. Not a comfortable situation, but one that will certainly feel familiar to Douglas veterans.
posted by Skeptic at 6:24 AM on February 19, 2011 [2 favorites]


Isn't it funny that we keep being told that we must sacrifice if we want to be globally competitive, but the company kicking ass here is Airbus? Don't they come from commie Europe, the land of unions, social programs, and soul-crushing taxes?

Competing on quality is almost always a much,much better strategy than competing on price.
posted by Benny Andajetz at 6:37 AM on February 19, 2011 [1 favorite]


Well, Benny, luck also counts. Much of Boeing's current trouble can be traced back to a single misguided decision some ten years ago. Facing the challenge of Airbus' jumbo A380, Boeing's execs launched the "Sonic Cruiser" project, which was binned after two years when it became evident that neither travelers nor airlines had much interest in it. While Boeing management has always pretended otherwise, they spent quite a lot of money in its development, hence the subsequent Dreamliner penny-pinching.

However, one may argue that the Airbus' A380 was itself a similar misreading of the market (only worse, since Airbus took it all the way to production). If Boeing hadn't wasted its time and money in the Sonic Cruiser, it would probably be eating Airbus' lunch now...
posted by Skeptic at 6:59 AM on February 19, 2011


Benny Andajetz Isn't it funny that we keep being told that we must sacrifice if we want to be globally competitive, but the company kicking ass here is Airbus? Don't they come from commie Europe, the land of unions, social programs, and soul-crushing taxes?

Alas, we spend some of those soul-crushing taxes on subsiding Airbus, so it's not really a fair fight. Also, we have Germans involved, who are really really good at engineering, from management through to unions.

Of course, Boeing gets subsidies too, and there are legal and regulatory regimes world-wide that make it a very distorted market. (Though since new aircraft designs cost so much to produce and get to market, I guess a free market would just end up either with one monopoly supplier, which we'd then break up to create competition, or with two big companies anyway?)
posted by alasdair at 7:13 AM on February 19, 2011


Well, Benny, luck also counts.

Agreed.

My point is that competing on price is a do-or-die proposition. You're golden when you're a penny cheaper than the next guy, but you're SOL when someone undercuts you. Race to the bottom.

Making a superior product, while generally more expensive to make and sell, gives you way more options.
posted by Benny Andajetz at 7:16 AM on February 19, 2011 [1 favorite]


Benny you have misinterpreted what Boeing was trying to do here. Read what Skeptic said - it wasn't about the cost of producing the jets and price competition. It was about the total cost of development relative to Boeing's financial capabilites. The 787 was literally the first major civil airframe development program designed not to be a "bet the company" sort of effort. History is littered with companies that failed because of a program failure. Ironically Stonecipher ran one of them. 787 is a huge debacle, but it is a debacle that doesn't threaten Boeing's survival the way the old style of building the program would have.

Civil Aviation airframes are already intensely price driven. Airbus and BCAG are proof that even a duopoly under certain circumstances can totally lack pricing power.

Also Boeing has never been fabulous profitable, and its always mostly been an assembly business. Avionics + Power are much more profitable businesses.
posted by JPD at 7:43 AM on February 19, 2011


Benny you have misinterpreted what Boeing was trying to do here. Read what Skeptic said - it wasn't about the cost of producing the jets and price competition. It was about the total cost of development relative to Boeing's financial capabilites.

I understand that. The wrong turn here, as is too often the case, is that management deigned that they knew better than the engineers and workforce. And they did it with plenty of evidence that it was a bad move. It's a classic case of refusing to dance with them what brung you.
posted by Benny Andajetz at 7:51 AM on February 19, 2011


Skeptic - I think you paint far far too rosy an outlook for Airbus. The re-engining move is more a function of EADS' issues, and a need to push a new single aisle out further into the future. A380 appears to a be a disaster, A400 also a disaster, A350 still in development. Also the engine OEMs end up doing all of the development so its a pretty cheap upgrade all things relative. BA will have to do a new single aisle for sure, but from a financial perspective even with the 787 debacle their books are in much better shape, and most of the incremental costs from the botched 787 development have in theory already been paid for.
posted by JPD at 7:52 AM on February 19, 2011


Eh - I'm guessing lots of the engineers thought it was a great idea. Global Logistics! Decentralized Development!! If the composites had worked the way the engineers thought they would you'd be seeing hagiographies for BA's management. In theory even BA labor liked it - Boeing has a history of absolutely staggering hiring and firing binges as programs wax and wane - if the program is a success that marginal labor ends up being at the subcontractors. The right-to-work issue is a canard. If BA had done this traditionally the new plants still would have been built in the South or in Oklahoma - that's a different conversation.

This is just an example of good idea that ended up being a lot harder then people thought, and now the people who were innately conservative and wanted to keep doing things the old way can now just point fingers and say "I told you so"
posted by JPD at 8:00 AM on February 19, 2011


Also Boeing has never been fabulous profitable, and its always mostly been an assembly business.

I apologize for the derail. I know that that big aviation is an unusual market. My father was an aerospace engineer, so I'm pretty intrigued by it but I'll admit I don't know all the minutae.

I do know it's a small-margin, big-dollar market, though. The new 747-8 sells for what, 320 million, give or take? And Boeing has 50+ on order. If I were playing with kind of numbers, any change in procedure would be thoroughly dissected before being implemented.
posted by Benny Andajetz at 8:03 AM on February 19, 2011


Right - small margin industrial business = mostly assembly. Low margin tho doesn't mean bad business, but it this case it takes a lot of capital to get those low margins.

Avionics and Power are much more profitable business in the long-term. Profit defined as return on capital.
posted by JPD at 8:11 AM on February 19, 2011


There are two issues here.

In my view Boeing likely made poor decision in outsourcing such complex project.

But outsourcing as such is not evil - it has lifted more than quarter billion people out of absolute poverty in China. Walmart has done more to help people than any other entity.

Not to say that there aren't lot of problems with outsourcing practices.
posted by zeikka at 8:29 AM on February 19, 2011


JPD Oh, of course things are far from rosy for Airbus, and, as I said, if Boeing hadn't totally dropped the ball, it could have given Airbus a serious kicking during the last ten years. However, the situation now is that, although the A380 is a failure (I wouldn't go as far as to call it a disaster), it's yesterday's failure, with the development costs already written off and a few hard lessons learnt. It has also served one of its main purposes, which was to strangle the 747s sales (Boeing has also invested quite some resources in updating the 747 just as they were struggling with the 787, yet the order book for the new 747-8I makes that of the A380 look positively plentiful). The A400M is run by Airbus Military, which is very much a separate company, and while it IS a disaster, being a military project that's pretty much the customers' problem (that is us, the taxpayers).

The clincher is going to be the A350. If (and it's admittedly an enormous if, considering all the precedents on both sides of the Atlantic) its development goes on more or less according to plan, it's going to be on the market only 2-3 years behind the 787, and put a big dent in its sales and Boeing's cash-flow. Once the A320neo follows (and this should happen pretty quickly, since the engines are almost ready), Boeing is going to struggle mightily to gather together the cash to respond.
posted by Skeptic at 11:02 AM on February 19, 2011


Isn't it true though that all new aircraft have manor cost overruns and production delays. How much of this is outsourcing and how much is just middle management sniping on and overdue and overcharge project.
posted by humanfont at 11:40 AM on February 19, 2011


humanfont Neither the one nor the other. It's unfortunately quite customary in the aerospace field to make wildly optimistic assumptions regarding development cost and time, regardless of previous (generally bitter) experience. This is mostly a carryover from the defense business, I presume. The weight of meeting those crazy promises is dropped onto the frail shoulders of middle managers and engineers.
posted by Skeptic at 12:02 PM on February 19, 2011


making the A350 appear w/o issue is quite a statement though. I also think people who pitch the "Airbus or Boeing is dead" storyline neglect the fact that the airlines want at least two producers.

A400 matters only because of cashflow issues at the parent. Same with issues at Boeing Defense bizzes - which have subsidized BCAG forever.

Yes humanfont - every new aircraft ends up with big cost overruns, production issues etc, etc. Part of why the 787 is such an embarrassment for BA is because they were so sure the decentralized development model would solve those issues. Turns out its just really hard to serially produce airplanes.

I don't think Stonecipher had Airbus envy. I'm virtually 100% sure he had earnings multiple envy when he looked at LMT et al and someone told him it was because of the bet the farm nature of airframe development.
posted by JPD at 12:04 PM on February 19, 2011


The 787 was literally the first major civil airframe development program designed not to be a "bet the company" sort of effort. History is littered with companies that failed because of a program failure. Ironically Stonecipher ran one of them. 787 is a huge debacle, but it is a debacle that doesn't threaten Boeing's survival the way the old style of building the program would have.

That is a good observation. This is their first try at building a completely new plane with new materials, and they are going to be successful at it. Maybe not for a while, but they are in the traditional low spot for aircraft manufacturers. Investors (and management for that matter) can't see the light at the end of the tunnel. They just see money going out and delays coming in.

Imagine how good they will be at it the next time around?

(It is kind of like that math conundrum: 1 mother can make 1 baby in 9 months. But 9 mothers can't make 1 baby in 1 month. So get your contractors out designing the little things they are make all at once, and in 9 months you get a plane. Why reinvent the wheel when there are contractors out there already making them? Yeah, you get the occasional Toyota gas pedal ridiculousness, but it is probably STILL cheaper to design/manufacture this way.

It's not like planes (or flight-worthiness requirements) are getting less reliable. If the damn thing even gets rated, it will be safer and more advanced than half the junk in the sky.)

Good luck with the 8 series; because the 7 series composite technology is going to crack and rot like a 70's Corvette once it catches a few hundred hours of 30,000 feet altitude UV rays.

A- Carbon fiber != fiber glass. B- I think they plan on painting the planes.
posted by gjc at 2:18 PM on February 19, 2011


gjc Whether the fibers in the composite are carbon or glass doesn't matter a thing. It's the plastic matrix which can be affected by UV rays. But I don't think this is an issue anyway: the resin must be properly tested and certified for aeronautics. And UV resistance is definitely part of these tests. It isn't as if this is the first use ever of composites in aeronautics.
posted by Skeptic at 3:23 PM on February 19, 2011


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