Who’s running Boeing? Don’t blame accountants

By Tim Raetzloff For the Beacon | Dec 02, 2010
 

Three weeks ago I speculated on what excuse Boeing would use for the fire in Dreamliner No. 2.

The answer: “Engineers have determined that the fault began as either a short circuit or an electrical arc in the P100 power distribution panel, most likely caused by the presence of foreign debris. Whatever this foreign debris was, it wasn't something big – such as a tool – it was probably something small. We're taking the right steps to ensure the power distribution panels are better protected against foreign debris.”

What of this? A fire caused by “foreign debris” too small to be found and identified! Speculation has centered on a loose wire, a small bolt, or a small washer. All valid possibilities.

Another valid possibility is that the power-distribution panel wasn’t assembled correctly in the first place and a loose fragment, perhaps a wire, settled where it shouldn’t.

It is beyond me how the engineers and technicians can know what the “foreign debris” was when none of the “foreign debris” was found in the ashes. It is disconcerting that the “most advanced” plane on Earth was brought down by “foreign debris” too small to be seen.

The flight-test program for the 787 Dreamliners that use the Rolls-Royce Trent engine was about 3½ months from completion when flight testing was stopped. It may be assumed that some additional testing will be required to validate the “fix” to the power-distribution panel.

Flight testing may not resume until early next year. A revised flight-test schedule will require 4 to 5 months unless another problem reveals itself.

An optimistic completion date of the test schedule is May/June 2011. Then the FAA must scrutinize the test findings before certifying the 787.

What is certain is that delivery of the first production 787 will not happen in mid-February. There is no question that the 787 will be more than three years late.

The 787 Dreamliner was to have been produced in four versions with a choice of two engines. 787-8 using Rolls-Royce engines will be the first variant delivered.

The second variant, the 787-8 using GE engines, now appears to be about 3½ to 4 years late. The 787–9 version of the Dreamliner will be more than four years late.

The 787–10 is still a pipe dream, and the 787–3 has been canceled.

Didn’t Boeing executives mock AirBus for producing the A380 more than two years late?

And the cost? Boeing is silent. Various analysts have tried to come up with numbers, but everyone is guessing until Boeing gives real numbers.

The first projection I heard was $12 billion. Heidi Wood of Morgan Stanley in a report earlier this year pegged cumulative losses at $10 billion, and she now suggests that first delivery may slip back to 2012.

Others have suggested the Dreamliner program may be up to $22 billion in the red.

If the Dreamliner program is even $10 billion in the red, it will require delivery of 1,000 Dreamliners to break even.

The 767 program just delivered its 1,000th aircraft after nearly 30 years of production. The 777 program just delivered its 900th aircraft after 15 years in production.

If the pessimists are correct that the Dreamliner program is $20 billion in the red, it will require delivery of 2,000 Dreamliners to break even. If Boeing is able to produce 10 Dreamliners a month (the proposed schedule), it will take 200 months, or 17 years, before profit.

There is financial toll on Boeing, and on subcontractors.

What happens if a subcontractor files for bankruptcy? The 787 production chain appears to have many weak links; which will break first?

I don’t think Boeing can afford to buy them all. Boeing has bought Global Aereonautica (now Boeing Charleston) and is acquiring Summit Aeronautics in Montana. How many more can Boeing afford?

Akbar Al-Baker, the CEO of Qatar Airways, was widely quoted this week as saying, “Boeing’s 787 program has clearly failed. When you put a company in the hands of accountants, you will always get garbage out.”

The significance of these blunt words is that Qatar Airways has ordered 30 787s and now seems to be looking for a way to cancel. What happens if Qatar cancels and other airlines do the same?

 

China Eastern says it will probably cancel 15 orders for the 787. All Nippon Airways, the launch customer, is asking for “serious consultation and full disclosure” from Boeing.

I disagree with Al-Baker on one point. Boeing is no longer driven by engineering, but I don’t think the accountants are in charge either.

Accountants wouldn’t have allowed the charade to go on this long.

I am convinced the PR group runs Boeing. When did Boeing hire Don Draper?

I remain short Boeing.

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(Tim Raetzloff, who operates Abarim Business Computers at Five Corners in Edmonds, evaluates Puget Sound business activity in his regular column in the Beacon.)

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