As Boeing gets ready to roll out its newest Dreamliner, the demand for new long-range jets is slacking a bit. To top it all off, Boeing officials are worried about President-Elect Trump's Air Force One tirade and a potential trade war with China. We don't think they will be talking about the latter issue much, though.
On the day President-elect Donald Trump lashed out at Boeing Co. for the cost of replacing Air Force One, mechanics and engineers at the planemaker’s South Carolina factory were focused on another challenge: making the first 787-10 Dreamliner.
The manufacturer is counting on the newest and longest Dreamliner to help turn its marquee carbon-fiber jet into a cash machine. So far, the -10 is meeting deadlines and hitting performance targets, a rarity in an industry where delays are the norm. The question is whether a glutted market will crimp profit and sales — and whether Trump will further dent orders by raising trade tensions with China, a crucial market.
Boeing’s newest widebody is central to a plan to erase $27.5 billion in deferred 787 costs that were accumulated over a decade of losses. The first of three planned flight-test planes was loaded onto the final assembly line in North Charleston over the past week, achieving a production milestone ahead of plan.
“I’m very optimistic,” said Ken Sanger, a Boeing vice president overseeing development of the 787-10, the third Dreamliner model. “Without going into the numbers, the strategy is working very, very well.”
For now, the first -10 lies in sections on the factory floor as workers inspect its spun-fiber frame. A white protective coating makes the segments look like giant larva. Over the next two weeks, mechanics will slide them to the first position on the assembly line, where the longest fuselage barrel will be joined to wings, nose and tail. It will mark the first of five stages of a metamorphosis into a sleek flying machine.
If all goes to plan, Boeing’s most technically advanced jetliner will take its first flight over South Carolina’s wetlands sometime next year — Sanger won’t say when — and will be delivered to initial customer Singapore Airlines in 2018.
The manufacturer is counting on the -10 to mirror the drama-free development of the 737 Max and 787-9 three years ago, all products of a disciplined process it fashioned for new aircraft following the delay-plagued debut of the 787-8 five years ago. The new jet is the most expensive Dreamliner yet, with a list price of $306.1 million, and its market entry should coincide with growing profits for the 787.
Boeing has just started to break even on the jets after a decade, and will need to record an average profit of $34.4 million per plane over the next 800 Dreamliners to avoid having to report an accounting loss for the program. Company executives insist they can get there by combining savings from suppliers with higher pricing on the -9 and -10, the Dreamliners with the greatest profit potential.
The effort comes as Boeing’s pricing has been thrust into the national spotlight. On Dec. 6, Trump tweeted that “costs are out of control” for planned planes to serve future presidents’ extensive security and cyber-communications needs. Costs are “more than $4 billion. Cancel order!” he wrote about Air Force One. Later in the day, the president-elect told reporters in the lobby of Trump Tower in New York that “we want Boeing to make a lot of money, but not that much money.”
Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!
— Donald J. Trump (@realDonaldTrump) December 6, 2016
Trump singled out Boeing days after Chief Executive Officer Dennis Muilenburg called on him and Congress to ensure that U.S. companies have the tools to compete in a global economy. The Chicago-based planemaker, the nation’s top exporter and a major defense contractor, is under contract to build enhanced 747 jets that can transport presidents for decades.
Despite the hubbub, Boeing shares have outperformed the Dow Jones Industrial Average since Trump won the election, increasing 8.4 percent versus the 6.6 percent average gain of its peers through Wednesday. The stock rose as much as 1.1 percent to $155.97 at in New York on Thursday.
With the new Dreamliner, Boeing faces turmoil in the widebody market that’s already pressuring pricing, and that’s before any collateral damage from the trade war that Trump has threatened with China. A glut of used Boeing 777 and Airbus A330 aircraft, fueled by high production rates and cheap oil, is stifling sales of new long-range jets, said Richard Aboulafia, an aerospace analyst with Teal Group.
“The -9 and -10 are fine machines, but there is competition. It’s aggressive too,” Aboulafia said. “The twin-aisle market is glutted, pure and simple. There are a lot of programs in exactly the same position.”
While the stretched version has garnered only 154 orders — 13 percent of the Dreamliner backlog — Sanger said he is confident that -10 sales will gain steam once airlines see the plane in action.
Early indicators are encouraging: Suppliers are keeping pace and building 787-10 components to the same quality standards as the -9, Sanger said. That’s crucial if Boeing is to build its newest jet without bogging down the two other 787 models, which combined are being built at a record monthly pace.
NYC to Dubai
The newest 787’s weight is on target, also key if Boeing is to deliver the range and fuel-savings it has promised airlines. Workers in North Charleston are already assembling barrels for the second and third test aircraft for a plane whose range of 6,430 nautical miles will be ample to whisk travelers between between Dubai and New York.
“Performance is dead on,” Sanger said. “Are we satisfied with where we are? No, but we’re on a good path.”
The -10 is designed to haul 330 passengers in a frame spanning 224 feet (68 meters). That’s 18 feet longer than the -9, which seats 290 people in a two-cabin layout. The two models share about 95 percent of the same design-and-build processes. That means the new jet and its tooling will be familiar to mechanics in North Charleston.
As the first Boeing-designed jetliner built outside the Seattle area, the -10 is also a test of a strategy to diversify the planemaker’s manufacturing base. Boeing has steadily expanded since it acquired the campus from struggling 787 suppliers in 2009, and it has room to grow.
“That’s a vote of confidence that the South Carolina site has the skill, capability, the workforce, and the leadership to make that happen,” said Joan Robinson-Berry, vice president and general manager of Boeing South Carolina. “They believe we’re ready to do that job.”
–With assistance from Ben Brody
©2016 Bloomberg L.P.
This article was written by Julie Johnsson from Bloomberg and was legally licensed through the NewsCred publisher network.
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Photo Credit: Boeing employees in North Charleston, South Carolina, seen at the beginning of the final assembly process. Boeing
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