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Boeing hard at work to cut costs, keep 777s rolling out

By Dominic Gates
Seattle Times aerospace reporter

MIKE SIEGEL / THE SEATTLE TIMES Don Newell, left, and Allan Yotty work on door parts on the 777 in Everett. Today's celebration will mark the rollout of the 500th 777.

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Boeing employees will gather in Everett this afternoon to celebrate the rollout of the 500th 777 wide-body jet.

But behind the hoopla for Boeing's star jetliner — one of the commercial-airplanes division's biggest cash generators — top executives have some anxieties.

"This is the premier twin-aisle airplane in the world," Dan Becker, the man in charge of all the airplane programs in Everett, told a group of employees last summer at a private presentation.

Then he added: "It has only one problem. It costs too much."

The 777 dominated its market segment within a few years after entering service in 1995. But recently, the jet has stumbled in competition as rival Airbus aggressively undercuts its price.

Corresponding Airbus models have beaten the 777 in sales for the past three years.

While dismissing that as a temporary setback, Boeing is nevertheless taking action.

Inside the Everett plant, Boeing is dramatically transforming the production line, cutting costs to the bone so that it can sell the plane more competitively.

Internal documents reveal Boeing hopes the makeover will reduce its manufacturing costs by 7 percent, 7 percent and 15 percent in the next three years and will shrink the time it takes to assemble each 777 jet from 26 days to just eight.

Boeing would not comment on the production figures.

The company will get rid of the massive tooling and scaffolding that now surround the fuselages in assembly and gradually remake the entire production line in an adjacent bay of the huge building.

The new 777 line will be modeled on the successful 737 moving line in Renton.

The urgent impetus for the sweeping manufacturing changes was made crystal clear by Becker, vice president and general manager of 747, 767 and 777 programs, in his presentation last summer.

He spoke July 21, the day Airbus announced at the Farnborough Air Show near London that it had won a huge order from startup airline Etihad of the United Arab Emirates. The order included four A340-500s and four A340-600s, direct competitors to the 777.

"We lost a big one"

"This morning we lost a big one," Becker told the employees. "We have been competing for that contract for a year, and the reason that we didn't get the 777 in there is because, even going lower than we've ever gone before, we couldn't compete on price."

At the same time, Becker expressed confidence the dramatic cost savings from the planned production changes could restore 777 production rates to those last seen in the heady days of 1999.

	MIKE SIEGEL / THE SEATTLE TIMES The new 777 line is being remodeled on the successful 737 moving line in Renton. Jigs, scaffolding and decks are disappearing and crane moves are less frequent.

"If we choose to not reduce the cost, we seal our fate at two or three a month," he said. "If we can figure out how to reduce the cost, we have the possibility of building seven a month again."

The company committed to building the 777, the star of its fleet, in 1990. Widely acknowledged as an engineering marvel, it was championed by former Chairman Phil Condit.

With the 747 jumbo jet aging and set to be eclipsed by Airbus' superjumbo A380, the 777 is Boeing's wide-body flagship.

The jet rolling out today, going to Air France, is a 777-300ER, a new extended-range version that entered service this year.

On the horizon are two more new 777 derivatives — an ultra-long-range version that in 2006 will fly farther than any other airliner, and a freighter model due in 2008.

Today's airplane will be the 36th and final delivery this year. Most of those models have list prices of around $185 million. Only the Renton-built 737 narrow-body airplane generates more revenue.

Excluding design engineers, about 1,800 people work directly on the 777 production line in Everett, more than the combined number working on the 747 and 767 programs.

Inside the factory today, production is split between the old system and its replacement.

In the old bay, a balcony provides a view of the old system.

An enormous jig — a heavy metal fixture that holds the parts in place — wraps around the center of the airplane. Decks and scaffolding hem the plane in place.

At the wing-body join, where the wings are attached to the short barrel of the center fuselage, mechanics walk along acres of decking that engulf the partial fuselage, the deck steeply sloping down from the wingtip to the floor. From here, there's no way to move the aircraft section out except by crane.

The new line will look utterly different.

The jigs will be gone. The scaffolding and decks will be gone. Crane moves will be minimized.

Instead, resting on trolleys on a clear floor, the fuselage pieces and wings will move forward continuously during assembly in a barely perceptible flow of about 35 feet per shift.

Marks on the factory floor will show where the aircraft should be every half hour.

Employees or outside suppliers will deliver parts alongside the assembly line, to the mark where they are needed, just before they are to go onboard.

Mary Dowell, the 777 final-assembly superintendent, has been at the Everett plant for more than a year planning the manufacturing changes. Dowell led implementation of the 737 moving line in Renton.

She describes the goal as a balletic and super-efficient orchestration of tasks that requires workers who have been building planes for 30 or 40 years to change their ways.

"It's hard to grasp. It doesn't come easy," Dowell said.

But she is confident of success. So far, she said, two days have already been shaved off the production flow.

With powerful twin engines competing against the four-engine A340s on long-haul routes, the 777 has unbeatable fuel efficiency.

It is highly reliable and has a bigger, more comfortable cabin than Airbus airplanes.

The company's list prices show the 777s selling at a $20 million-plus premium over the corresponding Airbus jets.

"The 777 is Boeing's one true killer app," said Richard Aboulafia, an industry analyst with the Teal Group. He describes the basic 777-200 as the "single best plane in its class."

But when the airline industry collapsed in 2001, it did so unevenly, affecting Boeing customers more than Airbus customers.

"From 2001 to 2004, I estimate that the U.S. airline industry probably lost $27 billion," said Adam Pilarski, an industry analyst with Avitas. "The rest of the world was moderately positive in operating profits."

The two largest U.S. carriers, American and United, are big 777 customers. Last week, American deferred orders for seven 777s, pushing the deliveries out six years.

Loyal customer

Fortunately for Boeing, it has managed to hold onto the 777 market in Japan. Yoji Ohashi, All Nippon Airways chief executive, said the airline planned to retire its Boeing 747s and replace them with 777s.

"We plan to make it a mainstay of our fleet," Ohashi said, according to London's Financial Times.

Analyst Pilarski said Europe-based Airbus "is establishing a bigger base of customers who for commonality reasons and for political reasons will be buying the A340."

"But in the long run," he added, "I would expect the 777 to outsell the A340."

Nevertheless, the aggressive pricing apparent in sales battles is worrying Boeing. In this climate of lowball pricing to grab market share, the cost-cutting in 777 production may be necessary for survival.

Yet Boeing's scrambling to slash costs and its investment in new versions of the plane are bullish.

Internal documents show Boeing is planning to accommodate exactly the resurgence in orders that Becker suggested to employees in July. It envisages that by the first quarter of 2007, monthly production can increase from the current three planes to seven.

Whether it moves to those rates depends critically upon sales in the meantime.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Copyright © 2004 The Seattle Times Company

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