Speculation grows for Boeing 787 plant in South Carolina

Reports that Boeing is negotiating to buy a key link in the 787 Dreamliner's global supply chain have intensified speculation it may be laying the groundwork for putting a second final-assembly plant out of state.

Industry Web site Flightblogger and The Wall Street Journal reported online Wednesday that Boeing is in talks to buy the South Carolina plant where Vought Aircraft Industries builds the two rear fuselage sections of the 787. Both companies declined to comment.

Several analysts said they wouldn't be surprised if Boeing looks closely at opening a second final-assembly plant to parallel the Everett plant.

"You've got such a gigantic backlog relative to what you've said production will be, you almost have to" start a second site, said JB Groh, an analyst with D.A. Davidson in suburban Portland who follows Boeing. "And I think they've been pretty forthright about saying they're going to explore every opportunity."

Aerospace analysts and local political leaders said they were not aware of any effort by Boeing to buy the fuselage factory in North Charleston, S.C.

Dallas-based Vought is a financially troubled supplier to many major aerospace companies. Its fuselage plant is adjacent to another 787 facility, known as Global Aeronautica, in which Vought owned a 50 percent stake until selling its share to Boeing in June 2008.

Airlines and other customers have 866 of the cutting-edge Dreamliner planes on order, despite delivery delays that have now stretched to two years.

Boeing's ambitious target of rolling out 10 Dreamliners per month by the end of 2012 would likely require a second final-assembly site, but the company has said it won't make any decision until next year.

More flexible

Analysts said Boeing has more flexibility to look outside the Puget Sound region because the process for putting together the 787 is far different from for the company's other airplane lines.

"This thing is supposed to show up like a box of Legos, and you just put them together," Groh said.

He recalled Michael Bair, the former head of the 787 program, saying once that all the company needed for final assembly was "a place to keep the rain off."

Of course, the initial Dreamliner-assembly process has proved much more complex than advertised.

Unanticipated shortages of fasteners, inexperienced workers running far behind in installing the internal systems, and unforeseen stresses in crucial places where the wings join the body — such problems have plagued the debut of the first mostly composite airliner.

Boeing's model of global design-and-supply partnerships has been left looking somewhat ragged.

"With the 787, they went too far in trusting everyone to get the design and integration to work right," said Richard Aboulafia, aviation analyst with the Teal Group in Fairfax, Va.

For that reason, he said, design of new commercial jets may become more concentrated in the Puget Sound region, even as actual production becomes decentralized.

No "sucking sound"

"I don't think that you'll hear a sucking sound of production jobs moving away from Seattle" to South Carolina, he said. "But future aircraft lines will be built like the 787, and that means final assembly can be pretty much anywhere."

Buying the Vought plant would bring a key 787 supplier under Boeing's direct control and give it a facility and work force already familiar with the plane, Aboulafia said.

Both features would make it easier to build a second assembly site in North Charleston, he said.

South Carolina, a "right-to-work" state where labor unions have historically been weak, also would offer Boeing a respite from what Aboulafia called the "rather toxic labor-relations environment in Seattle."

Adam Pilarski, senior vice president at the aviation-consulting firm Avitas, noted South Carolina has one of the highest unemployment rates in the nation and might be willing to offer Boeing rich incentives to lure several hundred 787 jobs to the state.

"I would not be surprised that if you went looking for a really good deal in this depressed time, especially in a Southern state, you probably could get one," he said.

Pilarski said the repeated delays in the 787 program are costing Boeing millions in additional work and compensation to impatient customers, and the company needs to ramp up production quickly if it hopes to make money on the plane.

"They (customers) wanted this plane three years ago," he said. "So you had better at least double the lines."

Vought may want out

Vought, controlled by private equity firm Carlyle Group, is deep in debt and struggling with cutbacks or delays on several key supply programs.

Early on, its fuselage sections were among the most problematic, but it says those being delivered by April were "built to greater than 99 percent completeness."

Not everyone is convinced. Robert Spingarn, a New York-based analyst with Credit Suisse, wrote Wednesday that "we see a purchase as a negative signal, at least short term, because (even if negotiations have been ongoing for some time) it suggests that Boeing continues to be dissatisfied with Vought's attempts to correct problems with 787 production."

Vought may also be under financial pressure to bow out of the Dreamliner program.

It has invested heavily to gear up for Boeing's 787 and 747-8 programs, and the Dreamliner's repeated delays mean it isn't getting paid as expected.

Production slowdowns at Airbus, Gulfstream and Cessna have also buffeted the company. Its first-quarter operating income declined 27 percent from 2008 to this year.

Vought's chief financial officer assured analysts in May the company was in talks with Boeing to alleviate its cash crunch, and "as long as these discussions keep going positively, as they are, we don't see any problem meeting our liquidity needs in our business plan."

But Vought CEO Elmer Doty also acknowledged that "the 787 program overall remains a very fluid and challenging effort for Vought." He added that "the cash-flow implication of changes to the schedule and engineering scope are significant for a company of our size."

Vought produces the Dreamliner's two aft-fuselage sections in a 350,000-square-foot facility that sits on what used to be 240 acres of forest next to Charleston International Airport and Charleston Air Force Base.

Global Aeronautica has a slightly smaller facility just north of Vought's where it integrates the two Vought sections and also combines structural sections from Italy's Alenia and Japan's Kawasaki.

There's also a 60,000-square-foot building where it applies surface finishes to more than 60 percent of the fuselage and a 14,000-square-foot worker-training center.

Boeing and Alenia are now 50-50 partners in the Global Aeronautica plant.

Officials with both the International Association of Machinists and Society of Professional Engineering Associations in Aerospace (SPEEA) said establishing a second final-assembly operation anywhere but the Puget Sound area wouldn't make sense.

It would be another form of outsourcing — and Boeing's 787 delays to date show that's counterproductive, said Bill Dugovich, SPEEA's communications director.

"The experienced work force is here," he said. "It just doesn't seem like a good idea."

Several Washington state political leaders said Boeing would have told them if it had made a decision about buying the Vought plant or putting a second 787 final-assembly operation in South Carolina — and they haven't heard anything yet.

Leaders wondering

U.S. Rep. Rick Larsen, D-Lake Stevens, said if Boeing acquires the Vought plant "and it solves the chronic 787 supply problems ... and increases the odds of keeping jobs in Washington state, that's a good thing."

He added that Everett has the infrastructure and work force to do all final assembly for the plane.

Spokespeople for U.S. Rep. Norm Dicks, D-Bremerton, and U.S. Sen. Patty Murray, D-Wash., said Boeing hasn't informed them of any move in South Carolina.

Gov. Chris Gregoire and Boeing Commercial Aircraft CEO Scott Carson talk frequently, said Pearse Edwards, Gregoire's spokesman, and "Vought has come up in their conversations" as recently as late last week.

But Carson has told Gregoire he will let her know when a decision is imminent, Edwards added, and he hasn't called.

Business reporters Drew DeSilver, Eric Pryne and Amy Martinez contributed to this report, which also includes material from Bloomberg News and Seattle Times archives.

Information in this article, originally published July 2, 2009, was corrected July 9, 2009. A previous version of this story stated that Vought Aircraft Industries builds the two rear fuselage sections of the 787. It should have mentioned that it also joins them together.