RichardAboulafia.com 

:: November 2007 Letter ::

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Dear Fellow Inter-Site Factory Travelers,

There are many great forums to debate globalization. Davos, Switzerland. The United Nations. Snohomish County. That’s right. Snohomish. It’s near Canada. It’s also the home of Boeing’s widebody factories in Everett. It was there, on Halloween, that Mike Bair, the recently replaced 787 program manager, gave a spooky speech, frightening little children, globalists, and aviation industry analysts. While the rest of us innocently handed out M&Ms and Caramel Creams to neighborhood trick-or-treaters, Bair was busy undermining the global aircraft industry with some truly toxic ideas.

A quick synopsis: Bair said the global partnerships behind the 787 might have gone too far. The best way to build planes, he said, would be to create a giant “supersite,” a behemothic facility (in Snohomish or anywhere) to build everything. Subcontractors and partners could work with Boeing on the next plane, but they would be required to position their factories in the supersite. Everything would be done within short range, making managers look like nerds as they ride around on Segways. “We’ll see on the next airplane programs whether we can accomplish something like that,” Bair said.

Recently appointed Vice President—Supplier Demotivation, Bair criticized several partners on the 787. “Some of these guys we won't use again,” he said, referring to unspecified first tier partners and other contractors. Unless Bair was positioned as the “bad cop,” managing suppliers from an executive distance, open criticism of suppliers at the start of production sends a bad message to just about everybody. Reported by the Seattle Times’ Dominic Gates and the Everett Herald’s Michelle Dunlop, Bair’s speech sounds like a cri de coeur against the management…of the program he had been managing.

First, there are the implications for the 787. Traveled work has been a major issue for the program, which could lead to a preference for supersite production. But the largest cited 787 issues—fasteners and flight control software integration—have absolutely nothing to do with geography. Fasteners are globally sourced, and fastener makers would never relocate to be closer to a final assembly site. If the production process has fundamental flaws, will the 787 have a manufacturing cost disadvantage due to geography? Teal Group still believes in the 787’s remarkable technical and commercial appeal, but Bair’s comments could reflect a bigger manufacturing ramp-up problem.

Then, there’s the impact of Bair’s thinking on globalization. A very brief history of the last 50 years: As borders and governments gave ground to multinational enterprises and personal freedom, international trade grew at a record pace. Container boxes and ships, air cargo, CAD/CAM, the internet and logistical software provided tools to accelerate globalization. Distance became less relevant. Manufacturing became less vertical, creating global supply chains and industrial arrangements. US manufacturers have been transformed by this new paradigm, enjoying remarkable profitability over the past few years. Aircraft have played a key role in making this all happen. A jetliner supersite would reverse this process, ironically seeking a more efficient way to build aircraft.

Boeing has done extremely well with global sourcing so far. The 767 and 777 were hugely successful with exactly this kind of global supply chain. The top-tier 787 suppliers that Bair criticized, by the way, are valued partners or suppliers on these aircraft. And the 787 looks set to be the successful culmination of these global trends.

Geography has never been a problem for Boeing. Outsourcing (in the US and abroad) works great for the company. The real problem is that this time they trusted, but didn’t verify. In their zeal to maximize profit and spread much of the financial risk, they offloaded most of the airframe responsibilities without the due diligence needed to ensure that their partners could do the design and integration work. Boeing’s unrealistic 787 program schedule didn’t help either. Even if it was the partners that screwed up, it was ultimately Boeing’s mistake—the buck stops at the prime contractor.

The supersite idea, by contrast, sounds completely dysfunctional. Imagine the labor consequences. In good times, you’d see hellish wage inflation for engineers and manufacturing workers, with Boeing and its contractors all poaching employees from each other. In bad times, you’d have a regional employment slowdown that would create armies of workers scrambling to Mexico for maquiladora jobs. A jetliner “bust” cycle would cripple an entire region. Requiring foreign partners to relocate work and jobs to the US would eliminate Japanese, Italian or other government financial support for new programs (to his credit, Bair made this last point in his speech). You’d see fewer bidders vying to work with Boeing on the next plane. Of course, the prospect of a supersite does serve as a ploy to attract the mother of all incentive packages from state and local governments.

Bottom line: I believe this is the first time a major manufacturer has implied that globalization has serious limits and should perhaps be reversed. A supersite may be a disastrous idea, but a Boeing endorsement of the idea hands the anti-globalization Halloween ghosts and goblins enough rhetorical and anecdotal ammunition to write hundreds of memos questioning free trade and open borders.

The unions weren’t slow to seize the moment. Tom Wroblewski, District 751 president of the Boeing Machinists union at Boeing, commented to the Seattle Times: "We've told [Boeing] forever: When you offload work to all these places around the world, you lose control of the build process. That's where they are at right now. They've lost control." Even more ominously, Credit Suisse’s Rob Spingarn responded to the supersite proposal in a note: “We are encouraged that BA may already be applying lessons learned to the next-gen narrowbody program.” All of this makes me uneasy. As a globalization advocate, I feel a vague tingly sensation…like Wile E. Coyote noticing the shadow of an anvil growing larger around him.

Finally, IF Bair is correct about the best way to build a plane, it would mean that Airbus is nicely positioned. They have a collection of factories within 90 minutes flight time. That’s much closer to a supersite than the 787 production arrangements. Airbus Beluga flights are way shorter than Dreamlifter flights, and managers can travel rapidly between these plants. Until now, Airbus’s industrial structure has been vertical. But if they succeed with plant sales under Power8, and if they can get politicians to (finally) allow cross-border plant acquisitions and get everyone to use the same language and software, they can emulate Boeing’s outsourcing and enjoy their geographic advantage.

If nothing else, Airbus gets to learn from Boeing’s purported mistakes, unless Bair’s comments were a top secret Boeing black operation to make Airbus think twice about global sourcing. Kind of like Sonic Cruiser, but for industrial organization.

So Halloween has come and gone, and the anti-globalization ghosts and goblins are still here. As we cower in fear, Teal updates this month include the CH-47, NH 90, A/T-50, King Air, MD-11, A.129, TBM700, and the Jaguar. A new report covers the AVIC ARJ21. Enjoy.

Yours, Until Continental Drift Brings Those 787 Factories Together,
Richard Aboulafia

 

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