How Boeing Got Going.

It was the jet that Boeing didn't build that averted what could have become one of the worst crash landings in the company's 91-year history--and cleared Boeing to conquer the skies again. In October 2002, executives of the aircraft manufacturer met with a group of global airline representatives at a conference center on the Seattle waterfront. The executives were trying desperately to figure out what to build next to hold off a soaring Airbus. One Boeing boss drew a graph on a whiteboard, the axes being cruising range and passenger numbers. Then he asked the airline representatives to locate their ideal position on the graph.

The distribution of the data points showed the company that airlines favored efficiency over speed--the exact opposite of what Boeing was thinking. Two months later, Boeing ditched plans for a high-speed, high-cost jetliner to embark on a new program, the 7E7--E for efficiency--that has since changed global aviation and airframe manufacturing. Fast-forward five years to the prize: the 787 Dreamliner--a midrange cruiser that has already logged 47 clients for 684 jet orders, worth $114 billion in sales.

The 787, made in a completely new system, has also remade Boeing. The top-down, we-know-everything assembler had to evolve into a more cooperative, power-sharing systems integrator. Opening its eyes and ears to client partners is one lesson that Boeing (now based in Chicago) has learned. And it wasn't an easy one. Not long ago, the company was under fire for losing ground to Airbus, based in Toulouse, France, the competitor that had just primed its ascendancy by investing $10 billion in a modern-day Spruce Goose, the 555-seat A380. In 2003 a paper by two professors at the State University of New York at Buffalo even suggested that Boeing would be out of the jetliner business by 2013--the year the largest 787 model, the 787-10, is now set to launch. The 787-8 will fly from Paine Field in Everett, Wash., later this month to begin the shortest flight-test schedule in the company's history.

"There is an arsenal of lessons learned," said Scott Strode, Boeing's vice president of airplane development and production for the 787, during the airplane's July premiere in Seattle. "There's room to improve, but that will not change the fundamental belief that distribution and sharing is a good thing."

That includes sharing the jet's risks by getting more partner manufacturers worldwide to do the heavy lifting and take exposure for the $10 billion project onto their books. Boeing has taken risks with new materials and technologies and fashioned the Dreamliner into something that beleaguered airlines and their passengers might actually enjoy. Analysts say the 787 might be the first plane that passengers actually choose to fly because of new interior amenities, such as more pressurization, more humidity, bigger windows, more room as well as a lower carbon footprint per seat. That hits a sweet spot with airlines when coupled with savings in operations and maintenance costs.

Airbus, which was formed as a consortium of manufacturers, has long been a company that thrived on a shared approach, although most of what it is sharing now is pain. The company's woes--ranging from 10,000 announced layoffs this past spring to the two-year production delays (costing an additional $3 billion) of the A380 have wiped out the lead it had on Boeing. Total orders so far this year show Boeing with 701, 13 more than Airbus. In the weeks following the highly publicized 787 rollout on July 8, Boeing posted its largest quarterly profit in nearly four years, at $1.1 billion. And for the first time, its commercial-airplane unit earned more than its defense side; half-year revenues increased 15%, to $16.3 billion, with a 13% increase on airplane deliveries over 2006. (Defense revenues increased 5%, to $15.7 billion.) Boeing's backlog of orders increased 47%, to a record $208 billion, more than seven times the unit's 2006 revenues.

Clearly, Boeing learned by asking. "They went out there and had to come up with a winner," says Ray Neidl, U.S. director of Calyon Securities. "That aircraft would have to be a mainstay in the international, wide-bodied, long-distance competition for years to come." The lesson was kicked off by Airbus' announcement of the giant A380 in 2000, when it was still called the A3XX program. Boeing initially parried with plans for the Sonic Cruiser, to travel nearly the speed of sound, or 20% faster than the Mach 0.85 of conventional jets. "It would have been great for North American, European and Asian markets, but it would have entailed higher operating costs and higher fuel burn," says Neidl. Airlines, racked by higher fuel costs, needed relief. So the company changed course to what is now a 20% more fuel-efficient jet (compared to a 767-300ER), the 787--or what Boeing nicknamed the "son of the Sonic Cruiser."

Boeing is planning to shift the emphasis on speed to the production line. It took a page from lean manufacturing to help manage its restructured partner base and outsourcing of parts. The company has pushed outsourcing to new levels, about 70% of the aircraft. (Boeing and Airbus both averaged about 50% on previous jets.) The change in supply management has increased competition among suppliers and subcontractors, which will allow Boeing to speed up final assembly of the 787. The goal is three days, in contrast to 14 days for the 777. Boeing hopes to produce up to 16 aircraft a month, which would mean exceeding the 112 planned deliveries in 2008 and 2009.

As chief of the 787 program, Mike Bair has always had a firm grip on the Dreamliner's development, but that's because he knows when to let go. Bair says Boeing made as significant a change in how it approached systems, avionics and hydraulics as it did in giving more responsibility to its high-cost partner manufacturers such as Kawasaki Heavy Industries of Japan and Italy's Alenia/ Vought Aircraft Industries. For example, the specification control document, which explains how to build an electrical-distribution system, was about 2,500 pages for the 777. "[Partners] had to figure out 2,500 pages of stuff, and we monitored them applying 2,500 pages of stuff," says Bair.

On the 787, the equivalent assignment was 25 pages. "For high-level requirements, you go design it," says Blair. "We're not going to micromanage how you do it." Bair says this accomplishes three things: partners can show their expertise; there is no duplication of work; and innovation can flourish where "in the past it was our way or no way." He doesn't consider these new methods revolutionary."It's just that we've never done it to this degree before," he says.