It has been just over three years since July 8, 2007 -- the day that the former head of Boeing's (BA) 787 Dreamliner program first paraded the shell of the aircraft in front of the media. The Dreamliner is a $166 million, 250- to 330-seat passenger aircraft with 865 orders and an estimated $150.6 billion backlog. As I've written many times on DailyFinance, Boeing has missed deadline after deadline with the 787 program -- six times over the last two-and-a-half years -- and it now looks poised to do so for a seventh time. But will this be its last delay?
The sixth deadline for the first delivery of the 787 to Japan's All Nippon Airways was November 2009. But Bloomberg reports that Boeing is likely to miss its next deadline of late 2010 as well. As Bloomberg wrote, delivery "may be pushed back until the first weeks of 2011 instead of later this year as flight-test delays accumulate."
Scott Fancher, Boeing's third 787 program chief, tells Bloomberg that Boeing has found it needs still more time to change instruments needed for testing the 787 as it waits for Federal Aviation Administration certification. Fancher also noted that workers are doing more quality inspections than planned. He blamed the latest problem on a "supplier's improper installation of some tail parts that was discovered" in June.
The Price of Outsourcing Too Much
These little glitches reflect a deeper strategic problem at Boeing. As I described in my book, You Can't Order Change, Boeing built the 787 in a fundamentally new way, and it didn't adequately anticipate
the risks of that new approach. Boeing decided to outsource 60% of the design and manufacture of the 787, and it made the aircraft out of a composite material it hadn't previously used for large aircraft. Previously, Boeing had outsourced only aspects of manufacturing, not design, and it had used aluminum instead of composites.
While this new approach saved Boeing in up-front investment -- since its partners are now shouldering the cost of design until Boeing customers take delivery -- it also put the burden of satisfying tight delivery deadlines on suppliers who had not previously proven themselves to be reliable. When push came to shove, many of those suppliers failed.
Furthermore, since the composite materials used in the 787 had not been previously used in an aircraft of that size, engineers were unable to develop software models to predict how the plane would handle the stresses of flying. This inability to predict the response of the aircraft led to unpleasant surprises, such as the discovery of cracks where the wings attach to the fuselage.
I am confident that Boeing and the FAA will keep passengers off the 787 until all these bugs are worked out. But I wouldn't bet that the seventh 787 delay will be Boeing's last.
Investing Like Warren Buffett
Learn from one of the world's best investors.View Course »