How Boeing Got Going

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Boeing hired North Carolina--based New Breed Logistics to manage the lightly tooled final assembly of the major composite parts coming in to Boeing's Everett plant from as far away as Italy, Japan and Australia. To Richard Aboulafia, vice president of analysis for Teal Group, an aerospace and defense consultancy, the 787's production process qualifies it as the iPod of aerospace--essentially not only the new face of aviation but of American manufacturing as well. "Look at your iPod. Where was it built? Who the hell cares? That's not where the value is," he says. "You design, you integrate, you sell, you support, you finance. There's a lot to be said for putting it together under your roof, but leave bending metal or pouring plastic to someone else."

Bair says the 787 has been a more complicated management process because Boeing doesn't have day-to-day inside control but says the diversity of cultural perspective and expertise has strengthened the team. Also playing in Boeing's game: financiers and bankers. What do bankers know about building aircraft? "They gave us some great advice in terms of configuration in the airplane, going to a more standard aircraft and having the ability to switch engine manufacturers," says Randy Tinseth, vice president of marketing. The payoff: higher residual value of the airplane. Aboulafia says getting that kind of endorsement probably took a lot of hand holding and diplomacy, but the lesson is to get out there with the best business case you can offer: "Any doubts that the partners have are gone, of course, because this is the most successful launch in the history of any aircraft."

Technically, a key selling point is the use of carbon-fiber composites in 50% of the Dreamliner by weight (80% by volume), adding to the new jet's reputation as a "game changer." Carbon-reinforced plastic in places such as the wings, fuselage and floorboards not only makes the aircraft lighter--and reduces fuel consumption--but also provides the opportunity to change systems integration, rework maintenance programs, overhaul cabin interiors and upgrade aerodynamic performance. Boeing is working with the world's largest producer of carbon fiber, Tokyo-based Toray Industries, which is still fine-tuning its mass production (this is the first large-scale work Toray has done) and tooling. But with the use of more carbon-fiber composites in aircraft--the A350 will also be 50%--Boeing is on top of the trend.

In the $60 billion duopoly of airplane manufacture, however, the question is: For how long? The two companies enjoy one of the more entertaining rivalries in business, never passing on an opportunity to slag each other's products. While many clients think the 787 is the best solution for the increasing demand in the point-to-point market, for instance, Airbus knocks the 787-8 as too small. Tinseth says Boeing initially wanted to make the 787 larger, but airlines talked the company out of it, trading size for range, so the new aircraft could replace the 767s in their fleets. "We still believe there's a market for big airplanes. It's just not as big as [Airbus] thinks it is," says Tinseth.

Airbus' counterstroke to the Dreamliner is a bigger (average 314 seats), more technologically advanced, fuel-efficient A350, an "Xtra Wide-Body" plane planned for rollout in 2013. The goal is to compete with the Dreamliner for new business while rendering the economics of Boeing's transoceanic 777 obsolete. Boeing is already headed for a larger plane, the 787-10, a potential 320-seater, primarily because of demand from airlines like Dubai-based Emirates and Australia's Qantas Airways.

To Airbus, the message of Boeing's 787-10 is clear: "The fact that the airplane is on the drawing board today is an accolade to the competitive threat from the A350-1000," says Chris Jones, vice president of marketing for Airbus. Qantas has placed 65 firm orders for the 787 and has the option of 20 more. But an Emirates spokeswoman says the airline is still undecided over the 787 or the A350. Emirates is the largest purchaser of the A380, at 55 orders.

Boeing says it isn't sweating the A350. First, it has a five-year technology lead over the A350-900. "When all the dust settles, the important thing is that we keep progressing," says Bair. "They will figure it out, but we will be five and six years into knowing what we know and be that much better at it." And the 47-strong customer base that Boeing has for the 787 shows validation of the company's vision and its intent to dislodge Airbus' grip on the medium-range market. Boeing is trying to make the 787 easier to buy too. It offers airlines the choice of two engines, made by either GE or Rolls-Royce. Airbus offers only a customized Rolls-Royce Trent engine because the engines GE offered to A350 customers fit only two of the three versions. GE won't make an engine for the A350-1000 to compete with the one it has developed for the 777.

The spacing between rollouts of its 787 models also gives Boeing a slight advantage. Boeing plans to have about two to three years between its 787-8, 787-9 and 787-10, in order to have time to work out any bugs that might arise during test flights. But Airbus will have only one year between its 350-900, 350-800 and 350-1000 launches, meaning it has to be closer to flawless, a status it clearly hasn't reached with the A380.

Some Airbus watchers blame the A380--with 165 orders--for hogging valuable resources and causing delays in the A350 schedule. The two planes stand for Airbus' somewhat divergent views on how to meet the needs of travelers as all aspects of flying grow. Critics say the company overestimated the double-decker market--and overcommitted with its investment of $16 billion. On Oct. 15, the A380 will be delivered to launch customer Singapore Airlines after more than a year's delay. "Airbus was thinking that people wanted massive airplanes to go between the continents," says Neidl. "What's wrong with that is that they don't." The A380 might work for flights to hubs such as London's Heathrow but probably not for intermediate cities, where passengers prefer direct service. And while seat-mile costs can be reduced for an airline with such an aircraft, too many seats to fill can erode yields.

Analyst Aboulafia offers this blunt assessment: "It's probably the single biggest mistake in aviation history. Even if the development program weren't technically botched, you still have the problem that it's just the wrong plane." Boeing expects to deliver its revamped 747-8 in 2010, costing about $4 billion to develop and probably priced at about $292 million, vs. about $319 million for the competing A380.