N79969
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7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 7:07 am

This is an interesting article:

http://seattletimes.nwsource.com/html/businesstechnology/2001803700_boeingoutsource30.html

They are going to outsource very heavily.

Predictably, I have heard the unions are very unhappy. Surprisingly though, some of Boeing's board are not happy either. They say that most of the value creation will occur outside of the company. I think they raise a valid point.

Unlike sneakers or PCs, branding and marketing is not that important for airplanes. The value contributed by manufacturing to a pair of Reebok or whatever is a very small portion of the retail price. You literally pay for the name.

Close to the opposite is true for commercial airplanes.
 
pilotpip
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 7:27 am

It used to be true. As with other industries, aerospace is starting to see quite a bit of outsourcing. It's visible in all aspects. Regional carriers contract with the majors for shorter routes, many companies are now outsourcing repair work, and now it has moved to the manufacturing sector. Airbus has proven that aircraft can be built utilizing a large number of manufacturers from around the world. Embraer is outsourcing a large number of the major components of the 170 and 190 family. The only cost effective way of building a modern aircraft seems to be having other companies do the little things for you.

Coming from somebody who grew up in a union family, I agree that this could be a bad thing. Seattle may stand to loose big. Boeing is saying that the plane may not even be built there. At the same time, this creates jobs in other parts of the country and helps to 'spread the wealth'. GKN Aerospace in St. Louis is a prime example of this. They have purchased the old facilities abandoned when Boeing purchased McDonnell-Douglas. They make parts for the F-22 program and others as well. They hired machinists that were laid off by Boeing, and have increased the number of cargo flights operated from STL because of the need to ship the parts to final assembly points, causing my company to pump more jet-a. In this case, it's a winning situation for the region.
DMI
 
planemaker
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 7:47 am

If you look at the 777, Boeing outsourced a lot of the manufacturing, and the 7E7 will, as said previously, carry it even further by having "risk sharing partners" that fund the design and development of their work share.

Interestingly, there was a recent article that mentioned that Airbus might file some sort of trade complaint against Boeing if the 7E7 procedes as anticipated. Evidently, Airbus has calculated that the subsidies that Japan and Italy would provide to MHI, KHI & FHI and Alenia, repectively, will be more than the total amount allowed under the EU-USA trade agreement of a few years back.

Largely unknown in the industry is that Bombardier pioneered the "risk sharing partner" approach to designing and developing aircraft. Two examples that are assembled in Toronto are: the Q400, where De Havilland only makes the cockpit and wings (the entire fuselage and v/stab comes from Japan in one piece); and the Global Express, where Canadair only makes the cockpit and rear fuselage. The wings and center & aft fuselage comes from Japan, the tail cone from France, and the forward fuselage, h/stab, v/stab and rudder from Shorts in N. Ireland.


Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
N79969
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 7:53 am

Pilotpip,

I am sure that these decisions are being driven by business logic at some level. (Or I really hope). If they are, then ultimately Boeing, its customers, and suppliers will be left better off.

However I worry about the effect of consultants selling the latest business fad to Boeing. Or that Boeing is simply trying to emulate Airbus.
 
nudelhirsch
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 7:58 am

It has to be seen with the current situation.

Germany as an example...we have very high wages ("thanks" to the unions...) and the Euro is currently a pretty strong currency. So even in smaller branches in industry outsourcing is done. For our company (automotive, aerospace... supplier), it's cheaper to ship some skilled guys to eastern Europe to control high quality manufacturing. It's still cheaper to buy parts from other countries.

As we are facing an unemployment rate of over 10%...we sure appreciate, if our biggest carrier plans to buy a load of planes, worth a handful of billions, and if in the deal the supplier, like Boeing, cuts a deal with giving us some of the work.

Still it's pretty difficult, as a manufacturer of such high-tech machinery like aircrafts, not to give away main technology and knowledge.

So, outsourcing to the favor of the customer or his country, can be a good argument when selling planes in a big deal. So this would be a real win-win-situation...

Sure it's a bad deal for laid-off employees in Everett, but then...better than selling no planes at all...
And as Airbus is a European group, giving away employment is not a deal, as everybody is already on board...so Boeing can really give some good points when talking about a deal...

Just seen from the economical side of the world........
Putana da Seatbeltz!
 
N79969
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 8:49 am

Nudelhirsch,

Those are interesting and valid points. However as the article does point out that outsourcing does not necessarily generate sales. They wrote that the 717 has not sold at all in Japan, Korea, Italy, and Taiwan even though they build major 717 components.
 
gigneil
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 8:59 am

Actually, this sounds like Douglas logic being applied to the first major airplane since the merger.

I hope Stonecipher and McDonnell don't drive Boeing out of business too.

N
 
nudelhirsch
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 9:10 am

N79969, certainly outsourcing is not creating sales.

A little difference I would like to point out, the 717, being a good aircraft, but it's sort of an old concept, instead the 7e7 is sort of looking like build for success...
I think outsourcing will become more and more part of selling AC, after all turning out to be helpful.
Putana da Seatbeltz!
 
FlagshipAZ
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 11:36 am

So where's the final assembly point of the 7E7 going to be at? Has Boeing made that decision yet? I've heard it's not Renton nor Long Beach. Sorry if this was asked before. Regards.
"Beer is living proof that God loves us and wants us to be happy." --Ben Franklin
 
pilotpip
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 12:28 pm

The decision was recently delayed. It was originally to be announced in December but I think it was moved to January.

Alabama, California, Oklahoma, Kansas, Texas, and South Carolina all have proposals and lofty tax incentives offered to Boeing to bring the final assembly to their state. While there is a plan to make a modified 747 for transporting whole fuselage sections to the final plant, Boeing stated that a location near water is a must in the event that they must use a barge instead.
DMI
 
aa757first
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 1:01 pm

Nose and cockpit: Korea Air Lines (Korea)

Sorry for going of topic here, buy KAL built the 712 cockpit and still didn't order any?
 
N79969
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 1:06 pm

Korean Air also builds components for the B747, 777, and PW4000-series engines.

[Edited 2003-12-01 05:21:07]
 
neednewairport
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 1:18 pm

GKN Aerospace, wow, don't often see the company I work for mentioned on these boards although you would think we would be considering our involvement in commerical and military aviation. Anyway, Pilotpip I work at the El Cajon facility here in san Diego CA.
 
sllevin
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 1:20 pm

As a point of historical perspective, the DC-9 was a significantly outsourced project in the beginning. The wings were built by DeHavilliand Canada (although Douglas later purchased that facility), and I believe some fuselage or tail components were built by AerFer in Italy.

Steve
 
pilotpip
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 1:46 pm

I used GKN because they have been a prime example of the positive effect of outsourcing. Hundreds of skilled machinists have jobs that otherwise were lost due to the Boeing buyout. They've invested a ton of money upgrading the facilities and are currently expanding. I may be wrong, but I think they are even making St. Louis their North American headquarters.

DMI
 
Greg
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 11:10 pm

Boeing looks for other manufacturers for two good reasons:

1. Risk sharing partners do exactly that (take the financial risk by investing into the production of the program).
2. Outstources those parts in which they have no value to add.

Smaller items will manufactured as part of 'offset' agreements for countries with large national airlines ordering the 7e7.
 
planemaker
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 11:21 pm

To amplify Greg's point about risk sharing, the partners are also responsible for for financing not just the production but the design and development as well. As Boeing has mentioned recently, their "expertise" is not so much in production but in "large scale integration" (i.e. final assembly).

Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
elwood64151
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RE: 7E7 Manufacturing To Mirror B717

Mon Dec 01, 2003 11:37 pm

N79969:

Outsourcing is not a fad. It has been going on for thirty years. Ever since Ford decided to dump its steel manufacturing way back when (prior to the "outsourcing" craze), people have been looking at ways to buy from someone else to reduce costs.

I don't imagine Boeing ever built much in the way of its own avionics? And I know they haven't built their own engines since P&W was forcibly split off along with United.

Gigneil:

What? Ford doesn't even build its deisel motors anymore. GM has outsourced almost all electronic components (granted many of them are to subsidiaries). IBM hardly builds PC processors anymore, letting Intel and AMD do the innovation. I'm considering about a business start-up where the entire manufacturing process would be out-sourced.

Outsourcing is not a bad thing. It reduces costs for the company by asking someone else, who makes more than just your product, to take some of their capability to make part of your product. Since they are making more than just your product, they can use their economies of scale to make it cheaper. That makes your company leaner and meaner, and better able to compete.

Bad for the unions and employees? Maybe. But it's how business is done, and frankly how it's been done for many, many years. The future of the company comes first. If some people get laid off, that's just how it is.

Remember, the Board of Directors has a responsibility to the shareholders. They have responsibility to the employees, but not to the same level.
Those who fail to learn history are doomed to repeat it in summer school.
 
N79969
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RE: 7E7 Manufacturing To Mirror B717

Tue Dec 02, 2003 4:45 am

Elwood,

Yes I realize that outsourcing is a widespread and often effective business practice. However it is not a cure-all. I realize that Boeing CAG today is basically just a prime contractor that manages many subcontractor relationships. If critical manufacturing and integration (such as wings) is deemed not to be a "core competency" then I wonder what is left for Boeing in the long run.

As far as consultants, they are not paid to say 'don't change a thing.' Consultants from McKinsey advised Swissair to build a portfolio of airline equity. We all know how badly that turned out. Management consultants (also McKinsey in this case) could not shower enough praise on the Enron-way of doing business. Hence my concern about consultants hawking bad ideas.
 
elwood64151
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RE: 7E7 Manufacturing To Mirror B717

Tue Dec 02, 2003 5:48 am

N79969:

Not all consultants are so bad. The real issues to look at when considering consultants are a) What is their previous track record; b) What is their track record in your industry; and c) How current are their successes (success ten years ago doesn't help today).

Consultants have a bad name, but some of them are quite good. I have a "wait-and-see" attitude here.
Those who fail to learn history are doomed to repeat it in summer school.
 
N79969
Topic Author
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RE: 7E7 Manufacturing To Mirror B717

Tue Dec 02, 2003 6:08 am

"Consultants have a bad name, but some of them are quite good. I have a "wait-and-see" attitude here."

I agree with you.

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