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Challenges remain as Boeing 787 becomes reality

When Boeing delivered its first 787 Dreamliner to its launch customer All Nippon Airways (ANA) on 25th September, not only did it mark an end to more than 3 years of delays in the revolutionary aircraft’s first delivery which had originally been envisioned to take place in May 2008, the Chicago-based airframer also turned a dream into reality (“Boeing 787 is a dream (almost) come true“, 11th Jul, 11) in addition to ushering in a new era in commercial aviation. Despite the following day when the first delivery celebration event took place was a wet one with heavy rain, the euphoria shared by Boeing employees, All Nippon Airways (ANA) president and chief executive Shinichiro Ito and senior Boeing executives was not dampened.

“Today we celebrate a significant moment in the history of flight,” Boeing president, chairman and chief executive Jim McNerney declared.

“The 787 Dreamliner is the biggest innovation in commercial aviation since the Boeing 707 introduced the world to passenger jet travel more than 50 years ago. I want to thank ANA and all the employees of Boeing and our partner companies for the talent, technology and teamwork that have brought this game-changing airplane to life,” McNerney conceded.

“It is not often that we have the chance to make history, do something big and bold that will change the world in untold ways and endure long after we are gone. That is what the 787 Dreamliner is and what ANA and Boeing have done together – build what truly is the first new airplane of the 21st century,” Boeing Commercial Airplanes (BCA) chief executive Jim Albaugh said.

Indeed, the Boeing 787 Dreamliner represents the dawn of a new era, as it is a game-changing airplane by many measures, including materials of which the lightweight carbon fibre reinforced polymer (CFRP) account for 50% of the airplane by weight, which helped reduce fuel burn by 20% and slash maintenance cost by 30% versus similarly sized airplanes.

As the first 787-8 delivered to Japan’s All Nippon Airways (ANA), dubbed ZA101 and is the 8th example ever built which carries the Japanese registration JA801A, arrived in Tokyo Haneda International Airport on 28th September, eyes will be closely watching the aircraft’s entry into service (EIS) and its dispatch reliability thereafter when it enters commercial service by operating a charter flight from Tokyo to Hong Kong on 26th October before operating scheduled domestic flights to Okayama and Hiroshima from November onwards.

Image Courtesy of Boeing

Moreover, by no means does the first delivery of the 787 symbolise the end of challenges facing the popular aircraft programme, with the profitability of the programme and the achievability of the production ramp-up goal of 10 787s per month by the end of 2013 being questioned by Wall Street analysts.

For instance, the large amount of rework on early-built examples is taking longer than anticipated to complete, leading to a reported 3-6 month slip in the 787-9′s entry into service (EIS) as well as a similar length in delay for the production ramp-up plan to 10 airplanes per month. Though the company maintained that the goal of the 787-9 EIS and the production ramp-up to 10 units per month remains unchanged and is achievable.

The rework necessitated by flight testing discoveries and engineering changes also leads to fewer 787 deliveries this year, with flightglobal reporting a goal of 8 deliveries being earmarked for this year, similar to Aspire Aviation‘s previously reported target of 7 deliveries in 2011, with LN7, LN8 and LN9 being the only examples to be delivered this year among the first 20 examples built (“Boeing 787: A dream becoming reality & its road ahead“, 29th Aug, 11).

All Nippon Airways (ANA) said it plans to receive 12 787s by 31st March 2012 and an additional 8 examples in the financial year of 2012.

Profitability & production ramp-up
With US$16 billion in inventories and another US$17-23 billion estimated research and development (R&D) cost spent on the aircraft, according to CNBC reports, the Boeing 787 Dreamliner programme is widely believed to be no longer profitable, or marginally profitable at best.

New York-based Bernstein Research said in an August note to clients that the Boeing 787 programme is unlikely to achieve a positive gross margin over the first 1,000 units, with a -13.8% profit margin using the 45th example, a 787-8 destined for Chicago-based United Continental Holdings, as the baseline of production cost at US$164 million without engines.

“We estimate that Boeing will likely have a negative gross margin over the first 1,000 airplanes even under optimistic assumptions. This would require recognition of a substantial forward loss. Boeing, however, maintains that it will have a positive gross margin, which means either a steeper learning curve than we have projected or a larger initial accounting block, or both. We will look for indications when Boeing reports third-quarter earnings, at which time Boeing will need to set its accounting block size for the 787. We are expecting the programme to reach positive cash flow on a unit basis in 2016,” Bernstein Research said in a September 27th update.

Dismissing reports that the Boeing 787 Dreamliner programme will not be profitable until the end of this decade, Boeing chief executive Jim McNerney asserted that the 787 will be profitable from day one.

“In the way these planes are accounted for, we will be profitable from day one. We have a programme accounting method which matches cost and revenues and you may be asking the question when does the cash break-even happen, and that is a number of years out ahead of us, but not as late as you have just mentioned,” McNerney asserted.

Meanwhile, Boeing said it plans to ramp up the 787 production from the existing rate of 2 airplanes per month to 2.5 per month starting in November before ramping up to 3.5 units per month in March or April 2012.

This virtually means the 787 production ramp-up is behind its original schedule for a few months, which should have already reached a production rate of 2.5 units per month by the summer of 2011.

Make no mistake, significant progress continues to be made on the Everett final assembly line (FAL), with the amount of travelled work dwindling continuously and quality of parts, which refers to the completion rate of parts, arriving in the Everett line improving steadily and is progressing well.

Nevertheless should Boeing intend to meet its ambitious production ramp-up goal to 10 per month by the end of 2013 and have the 787-9 entry into service (EIS) on schedule, Boeing will have to work through the rework process rather aggressively and execute perfectly with zero margin for error now that any such margin has been largely, if not completely, eroded.

“The fact that production is currently behind plan makes it even less likely that the 10 per month goal will be met in 2013. Our models have assumed late 2014 for reaching 10 per month,” Bernstein Research said in the September 27th report.

Coupled with Boeing’s inclination to launch the stretched 787-10X variant which Aspire Aviation‘s source at the Chicago-based airframer puts a launch is very likely in 2012, Aspire Aviation believes the 787 surge line in Everett will be made permanent, in order to produce the double-stretched variant in addition to reducing the existing delays.

As such, the two 787 production lines in Everett and the one in North Charleston, South Carolina, will be producing as many as 17 787s per month by mid-2016, according to a flightglobal report.

Therefore executing the 787 production ramp-up plan flawlessly, which is highly questionable given the unsatisfactory track record on previous goals, is the prerequisite for further ramping up the 787 production to 17 units per month, a level unseen on any wide-body programme in aviation history, as well as ensuring an early availability of the proposed 787-10X variant.

Furthermore, producing a large amount of 787s could lower the per unit cost by reaping the benefits of economies of scale, thereby improving the overall profitability of the aircraft programme. Notwithstanding this, it remains to be seen if Boeing has the capability to ramp the 787 production up beyond the existing target, given the fact that it is already challenging.

However, Boeing and All Nippon Airways (ANA) executives remain optimistic that the ramp-up goal will be met this time around and that Boeing would continue to use line stoppages to minimise the amount of travelled work on the final assembly line (FAL).

“We are quite confident in Boeing’s ability to deliver on schedule this time,” ANA senior vice president (SVP) Satoru Fujiki said.

“I would much rather stay at the rate where we are for a longer period of time than get ourselves in a situation where we have to shut the factory down because we are trying to push more work in than [the factory] can consume,” Boeing Commercial Airplanes (BCA) chief executive Jim Albaugh commented.

Image Courtesy of Getty Images

A weighty matter
Another challenge for Boeing is to continuously reduce the weight of each new 787 being produced and delivered, as the first 787s built are significantly overweight.

“The early 787s are actually much heavier than later-coming deliveries,” All Nippon Airways (ANA) senior vice president (SVP) Satoru Fujiki was quoted as saying. “So, for those aircraft we have taken an option to introduce those aircraft for domestic short haul and regional operations.”

According to Aspire Aviation‘s two sources at the US airframer, the first 787 prototype, dubbed ZA001 which carries the registration N787BA, is 9.8 tonnes (21,500 lbs) overweight, a significant figure when considering the aircraft’s specific maximum zero fuel weight (MZFW) of 161,025 kg (355,000 lbs).

Line number 7 to 19 (LN7-LN19), the same sources confirm, are considerably less overweight at 6.1 tonnes (13,500 lbs). Line number 20 (LN20), the first 787 to feature increased maximum take-off weight (MTOW) from 219,539 kg (484,000 lbs) to  227,930 kg (502,500 lbs) to recover some of the payload/range capabilities lost owing to the overweight issue, is around 4 tonnes (8,800 lbs) overweight.

Line number 34 (LN34), dubbed ZA380 and the first 787 earmarked for China Southern Airlines, along with LN50 for Ethiopian Airlines, are block points for further weight reductions.

Line number 90 (LN90) will be the first 787-8 meeting the aircraft’s original weight target with no overweight issue, the sources say.

“We have said before that the first 787s are heavier. We continue to work our weight reduction plans aggressively. As we’ve said many times before, weight is an issue for every new airplane at this stage,” Boeing spokesman Scott Lefeber reiterated.

“We don’t provide specific details about block point plans,” Lefeber added.

Trimming the overweight before LN90 would be critical in recovering payload/range capabilities lost and make the early-built 787s more competitive. A noteworthy point is, however, that Boeing is progressing well on the weight reduction initiatives, particularly on the 787-9 on which the weight is “ahead of the curve” and that the around 4 tonnes overweight on LN20 more than halved ZA001′s staggering figure.

“Our understanding is that the 787 being flown to Japan today is significantly overweight and will be flown on shorter haul routes (e.g. Haneda-Okayama), with ANA’s second airplane to be considerably lighter, as are all of the airplanes after unit 20. Many weight reduction opportunities have been identified. They will be necessary to make the 787-9 attractive and essential if there is to be a 787-10 launch,” Bernstein Research said in a 27th September note to its clients.

Further taking into account the 2%-4% miss in specific fuel consumption (SFC) target on the Rolls-Royce Trent 1000 Package A engine, the performance shortfall of the early-built examples is severe, although early customers are likely to receive significant compensations from Boeing on these performance shortfalls.

The Rolls-Royce Trent 1000 Package B engine is expected to bring the engine’s SFC within 1% of its original fuel burn target which will feature a revised six-stage low pressure turbine (LPT) and outlet guide vanes (OGVs) with better aerodynamics, is still in testing and believed to be featured on Airplane 31, flightglobal reported.

Meanwhile, the General Electric (GE) GEnx-1B engine on the Boeing 787, which is believed to have missed its specific fuel consumption (SFC) goal by 2%-3%, will feature performance improvement packages PIP1 and PIP2, which will reduce the fuel burn on the engine by a combined 2.9%, thereby enabling the GEnx-equipped Boeing 787 to be slightly better or in line with the original SFC target.

Image Owned by Aspire Aviation

“During our testing, we noticed we needed to improve our SFC, and GE has plans in place to ensure we meet the SFC targets on both engine lines [the GEnx-1B on the 787 and GEnx-2B on the 747-8] through the PIP (performance improvement package) programmes,” General Electric spokeswoman Deborah Case acknowledged.

“The -1B PIP 1 provides a 1.4% improvement in SFC than the original configuration. PIP 2 will bring an additional 1.5% improvement in SFC,” Case conceded. “For PIP 1, we are nearing the end of ground testing and working on the FAA certification. GE has conducted flight tests on the engine and the results have been very positive,” Case asserted.

“GE did ship engines [with PIP2] in late May for flight testing. We anticipate the PIP 1 entering service early next year. PIP 2 on the GEnx-1B engine began testing in December 2010. We anticipate engine certification in June 2012 and entry into service in late 2012 or early 2013,” Case clarified.

In the meantime, Aspire Aviation has learned that the overall engine/airframe combination for early-built Rolls-Royce Trent 1000 Package A-equipped Boeing 787 missed its specific fuel consumption (SFC) goal by only 2%-3%, largely owing to better-than-expected aerodynamics of the aircraft found during testing.

While these performance shortfalls seem to be significant, one must put it into perspective as Boeing has identified many weight savings, including those on the 787′s wings and fuselages, which will eventually make the 787 a great airplane and when the first 787-9 – line number (LN) LN139, is being produced, further significant weight savings will be realised.

787-9 completes critical programme review, 787-10X development
With Boeing completing the critical programme review (CPR) on the 787-9, which leads to the release of engineering drawings to Boeing’s suppliers, the next challenge for Boeing and its suppliers is to produce the 787-9 parts on time and on weight target, which also lays the groundwork for an efficient and much lighter 787-10X.

“Yes, Boeing recently completed the critical programme review for the 787-9,” Boeing spokesman Scott Lefeber confirmed to Aspire Aviation.

“We are on track to deliver the first 787-9 in late 2013,” Lefeber emphasised.

As the 787-9 shows significant progress in weight saving, which Aspire Aviation‘s source characterised as “ahead of the learning curve”, more airlines are expected to switch from the smaller and over-engineered 787-8 to the more capable and fuel efficient -9 variant soon, Aspire Aviation has learned.

This bodes particularly well for the double-stretch 787-10X variant, as lessons learned on the 787-8 and the -9 can be easily applied to the new variant. Required research and development (R&D) and engineering resources would be minimal for the A330-300 replacement as the stretching work is simple and its foundation has already been laid by the 787-9.

According to Boeing Commercial Airplanes (BCA) vice president (VP) for business development and strategic integration Nicole Piasecki, the 787-10X would be a 320-seater with a range of 6,800 nautical miles (nm) powered by two 74,000 lbs (329 kN) engines, which will be a “relatively small statement of work” and burn 20% less fuel than an Airbus A330-300 with a 10% and 5% lower operating cost than the A350-900 XWB and A350-1000 XWB, respectively.

With a possible entry into service (EIS) in 2016, Boeing can develop the 787-10X which is fully paid for and capitalise on the demand for this airplane with superb economics, as interests for this airplane are strong which come from airlines such as International Consolidated Airlines Group (IAG)’s British Airways (BA) subsidiary which will issue a tender later this year to replace its 55 Boeing 747-400s and is already a large 787 customer with 24 on order, Emirates Airline and other A330 operators around the world.

In doing so, Boeing could maximise investment returns with minimal costs while dedicating scarce engineering resources for the re-engined Boeing 737 MAX (“Boeing 737 MAX to help recover sales momentum“, 5th Sep, 11) which is due to enter into service in 2017 and a potential 777 upgrade dubbed the 777-8X and 777-9X, which promises to bring a 10%-15% fuel burn reduction with a new 787-styled composite wing and a new General Electric (GE) engine with a service entry in 2019 or so (“New Boeing 777X likely to be a highly efficient derivative“, 14th Sep, 11).

In conclusion, while the Boeing 787 Dreamliner has a turbulent history of perennial delays, issues with its global supply chain and performance shortfalls, it nonetheless has a bright future lying ahead with a proposed 787-10X variant, significant weight-saving opportunities being realised and a strong sales potential in the next 20 years to come.

As All Nippon Airways (ANA) chief executive Shinichiro Ito summed it up the best, “There is a Japanese saying, ‘the more difficult the birth, the more beloved the child’”. And it is a child that the flying public is going to love and, perhaps, Boeing’s shareholders as well should the 787 be profitable and generate strong cash flows like the 777 does over the longer term.

Image Courtesy of Boeing

7 Comments

  1. Christopher Dye aka CubJ3 October 4, 2011 Reply

    Very nice, balanced job, Daniel. It looks lilke the 17/mo (or even 10/mo) depends on supplier ability to increase production with good quality, which must vary from supplier to supplier. McNerney keeps sayaing B’s supplier relationships are good, but they went from 10 to 17 very recently and very quickly, so, if they are not just plain lying about their capability (one always has that suspicion with B), I wonder, do you have any inside info that tends to validate or not validate B’s expressed confidence that it can reach 17 by ’16? An article with your usual attention to detail analyzing projected supplier performance capabilities would be extremely interesting and on point. B is counting heavilly on the entire 788/9 to dominate the 200-290 seat wide body mkt, and the 7810 to compete with the A359 in the 300- 330 pax segment (I assume the A 358 will disappear).

  2. Author
    Daniel Tsang October 5, 2011 Reply

    Re Christopher,

    Really thanks for your praise & suggestion.

    The 17 rate per month is only being considered and NOT finalised, and it would be apparently unwise to go higher should Boeing keep struggling with meeting its 10 per month target by the end of 2013.

    For the suppliers world, it is much more difficult to get through them, to be honest and I have tried contacting Mitsubishi Heavy Industries (MHI) on additional investment on the 787 production ramp-up, such as if MHI has to invest in another plant & more autoclaves.

    MHI refused to comment, as were FHI & KHI, but if I understand it correctly, MHI is now expanding its production to support the 787 ramp-up.

    One exception is Spirit AeroSystems, which provide really good media information and prompt responses.

    Anyway, I will still try to expand my network into those aerospace suppliers, although this requires much time and is much more difficult.

    Thanks,
    Daniel.

  3. keesje October 5, 2011 Reply

    Good article with lots of information.

    Reamarkable :

    “Nicole Piasecki, the 787-10X would be ….. burn 20% less fuel than an Airbus A330-300 with a 10% and 5% lower operating cost than the A350-900 XWB and A350-1000 XWB, respectively.”

    Amazing how a company that has hit the wall so frequently and publicly on performance/ milestone / market forecasts starts announcing the superiority of another undefined / untested variant like there’s no tomorrow..

    Still a good part of the press / public absorbs it without even questioning. Go Dreamliner!

  4. Paulo M October 6, 2011 Reply

    Nice blog

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