Boeing buys half of South Carolina 787 assembly plant

Boeing has agreed to buy Vought Aircraft Industries' stake in a venture that assembles sections of the new 787 Dreamliner, a move that may help the company untangle the production delays dogging its best-selling plane.

The acquisition will give Boeing "more influence" over the four sections of the fuselage that are assembled at the plant in North Charleston, S.C., Boeing spokeswoman Yvonne Leach said Friday. Terms weren't disclosed.

Replacing Vought chips away at a strategy Boeing is using for the first time: having vendors build large sections that the plane maker later assembles.

Vought had "been sort of a bottleneck on the production ramp-up and a poor performer in terms of managing to put those sections together at a fast pace," said Peter Arment, an analyst with Greenwich, Conn.-based American Technology Research. "This is part of the program that Boeing thought their suppliers would be able to handle. Their hand was more or less forced, given the performance with this joint venture."

Calls seeking comment from closely held Vought, which is owned by the Carlyle Group and was once part of LTV Corp., weren't returned.

Ownership of the joint venture, Global Aeronautica, will now be split evenly between Boeing and Alenia North America, a subsidiary of Italy's Finmeccanica, Boeing said in a statement.

Boeing's market value has dropped about 28 percent since the first delay was announced in October for the Dreamliner, which has about 900 orders in the company's most successful new-plane sales campaign ever. Boeing, which plans to update the 787 schedule in early April, declined 75 cents to $73.47 in New York Stock Exchange trading Friday.

Boeing originally planned to begin deliveries in May 2008. Parts shortages and suppliers' unfinished work led to delay announcements in October and January. The slowdown also is attributed in part to the use of an unusual material: lightweight carbon fibers in its wings and fuselage instead of aluminum.

"These are typical startup challenges," Boeing's Leach said. "We're setting up a whole new production system, and you always have startup issues."

Recently Boeing also acknowledged it has had to strengthen the center box that attaches wings to the plane, prompting customer International Lease Finance to predict the 787 won't arrive until the third quarter of 2009 instead of early next year. Boeing's modifications of the center wing box include adding aluminum supports to strengthen the section where the wing attaches to the fuselage.

The Global Aeronautica plant plays a key role in Boeing's global system for building the Dreamliner. It joins the center wing box, made by Fuji and Kawasaki; one fuselage section from Japan; two fuselage sections from Italy; a fuselage section built at an adjacent Vought facility in South Carolina; and other parts from Canada and France.

But the first assembled Dreamliner fuselage arrived from South Carolina with much of its internal wiring system not completed, triggering a string of delays that have yet to be overcome.

"This was born of necessity rather than strategy," said aviation analyst Richard Aboulafia of the Teal Group in Fairfax, Virginia. "Boeing didn't do an adequate job of verifying their capabilities."

Boeing's Leach said the main change is in ownership and she doesn't expect much turnover. "Boeing's going to come in and have more influence over what happens" at the plant, she said.

The union representing about 24,000 engineers at Boeing and some 787 suppliers called Friday's announcement "a necessary first step" to bringing the work in house. Some Boeing employees are working as much as 40 percent more overtime to resolve issues, the Seattle local of the Society of Professional Engineering Employees in Aerospace said in a statement.

Aboulafia doesn't expect the company to abandon the new manufacturing process. "I don't think anyone's arguing for reversal of outsourcing and cooperative arrangements with industrial partners."

$10.4B contract awarded for V-22

Boeing and Textron received a $10.4 billion contract for the V-22 Osprey that ensures production of 167 more of the aircraft through 2012, the Pentagon said Friday.

The multiyear contract will save as much as $427 million over annual contracts to manufacture the tilt-rotor plane, the Pentagon estimated. The Defense Department had 132 aircraft on order before Friday's contract announcement.

The V-22 has rotors that tilt so it can take off and land like a helicopter. The military sees it as useful for long-range Marine Corps and commando missions.

Separately Friday, Lockheed Martin beat out Boeing to win a $766.2 million Pentagon contract to design and build a radio system connecting aircraft, ships and ground stations militarywide.

The deal could lead to the installation of tens of thousands of radios and ultimately be worth billions to the company.

The award is a key piece of the Joint Tactical Radio System (JTRS), a major Defense Department program to replace much of the military's existing radio equipment with radios that will let the Army, Navy, Air Force and Marines communicate.

Bloomberg News