Go to the Globe and Mail homepage

Jump to main navigationJump to main content

A Boeing 787 sits on the assembly line at the plant in Everett, Wash. Boeing is racing to turn a record backlog of more than 4,000 orders into revenue and profit. (ANDY CLARK/REUTERS)
A Boeing 787 sits on the assembly line at the plant in Everett, Wash. Boeing is racing to turn a record backlog of more than 4,000 orders into revenue and profit. (ANDY CLARK/REUTERS)

Boeing speeds up factories to meet soaring demand Add to ...

As director of 777 manufacturing at Boeing Co., Jason Clark is busy overseeing more than 3,000 factory workers who build seven of the $300-million (U.S.) airliners every month.

He’s about to get a lot busier.

Today, that production rate rises to 8.3 a month. It may seem a small step, but the 20-per-cent gain is key to competing with rival Airbus SAS, and rewarding shareholders.

More Related to this Story

Standing on a platform two stories above the shop floor, Mr. Clark gestures to a machine drilling holes in a 777 fuselage. “It used to be all hand-drilled,” he says. “Now it’s automated.”

Boeing is speeding up its factories to produce jets quicker than in the past. It’s a race to turn a record backlog of more than 4,000 orders into revenue and profit – something airlines and investors will be watching when Boeing posts third-quarter results on Wednesday.

But the effort faces significant challenges. Can Boeing get enough parts and people? And can it outmanoeuvre to win orders from Airbus, which also is lifting production?

On the same day Boeing speeds up the 777 line, for example, Airbus is inaugurating a new factory in Toulouse, France, for its A350 jet, a competitor to the 777 and 787.

“Boeing and Airbus are trying to soak up all the demand out there and make it difficult for competitors to get in,” said Jason Gursky, an analyst at Citigroup in San Francisco, referring to Canada’s Bombardier Inc. and Commercial Aircraft Corp. of China (Comac), which are developing rival jets.

Airlines want new, more fuel-efficient planes to offset high fuel prices that crimp profits. They also are clamouring for Boeing and Airbus to design even newer versions to make fuel go farther and to replace aging fleets.

Investors, for their part, want Boeing’s lagging stock to head higher. Even though Boeing has posted solid profits, its shares are turning in their worst performance in 40 years, measured from the low point of the down cycle, said Carter Copeland, analyst at Barclays in New York. “Both in absolute terms and relative to the market,” he said.

Investors are still worried about delays in Boeing’s 787 program, even though production is rising. Some also fear Boeing and Airbus will flood the market with jets. Reports that General Electric GEnx engines failed on 787s and a 747, and a possible strike by Boeing engineers weighed on the stock, too.

Analysts surveyed by Thomson Reuters I/B/E/S expect Boeing to post earnings per share of $1.12 for the quarter ended Sept. 30. That’s down from $1.45 a year ago, due to lower margin on jets, loss of defence revenue and pension funding costs. Some analysts think Boeing will beat $1.12 for the quarter.

Analysts say the production ramp-up will generate mountains of cash that could prompt Boeing to buy back shares and raise its dividend. Mr. Gursky said Boeing’s board could raise the payout 20 per cent in December, and start buying back shares next year.

But Mr. Copeland says the company must be confident it can lower costs on the 787 before it will return cash to shareholders.

While the 777 increase is critical – it is among Boeing’s most profitable planes and its second-biggest cash cow after the 737 – it is only part of the strategy. Output of 737s is due to hit 38 a month in February, up from 35 currently. By March 2014, that rate is due to climb to 42. There is talk the company could try to reach 63 a month after that. Officially, Boeing would not comment on that rate. But by then the company expects to have three lines capable of producing 21 a month.

The two 787 lines, one in Everett and one in North Charleston, S.C., are scheduled to produce a combined five jets a month by the end of the year, and 10 a month by the end of 2013. The 747 and 767 production is not changing.

Stock investors usually track new orders and use those to gauge the company’s prospects. But with Boeing and Airbus delivering more jets, Mr. Gursky says that thinking should change.

“Don’t focus on orders,” he advises investors. “Focus on execution.”

Faster production poses risks, however. Suppliers must be able to keep pace and some, such as Spirit AeroSystems Inc. of Wichita, which builds 737 fuselages, could demand higher prices if it has to expand to meet Boeing demand.

“We’ve heard Boeing talking about 60 planes a month,” said Bob Brewer, Midwest director of the engineering union Speea. “That’s certainly going to have Spirit take a look at how they’re going to provide that many planes a month.”

Spirit did not respond to requests for comment.

A slowing economy could hamper production, as could shifts in oil prices. If oil falls below $70 a barrel, airlines often delay ordering new planes because old ones are fuel-efficient enough, Mr. Gursky of Citigroup said. If oil climbs above $130, airlines aren’t profitable and can’t afford new jets.

Mr. Clark’s 777 assembly line shows how Boeing is speeding up factories: automation. The jet, which entered service in 1995, is mostly built by hand. Nearly 1 million rivets hold the wings together, and many are still hand-installed. The clattering rat-a-tat of rivet guns, echoing in the factory, belies the detailed training required so rivets lie flush with the wing surface and don’t create aerodynamic drag that cuts fuel efficiency.

Boeing has started using a machine to drill rivet holes. It also is adding robotic arms in a paint room, and making other changes. Some parts of the line already are up to the 8.3-a-month rate. It used to take three and a half days, for example, to join fore and aft fuselage sections and set the plane on its wheels.

“It now takes us less than 24 hours,” Mr. Clark said.

Another improvement: flat-screen TVs show the status of hundreds of processes. Mr. Clark points to one showing “82 per cent” in red letters. Something is running 12 per cent behind schedule. “We have to work some issue there,” he says.

The 787 line has added a temporary “surge line” in Everett, to help it increase production. The first 65 planes, worth about $13-billion at list price, required work after they left the factory. Several have already gone to customers, and about four dozen are at a “modification centre” in Everett.

The 737 line has a new system for working on wings that is so secret, company officials wouldn’t let it be photographed for this article. The 737 factory is building a third production line for the 737 MAX, next-generation jet. And Boeing is tearing up the concrete floor of the factory to install new machinery.

“We’re doing that construction while we’re still building 35 planes a month,” said Eric Lindblad, vice-president of the 737 manufacturing operations. “That’s a lot of logistics co-ordination.”

Follow us on Twitter: @GlobeBusiness

 
  • BA-N
  • BBD.B-T
  • SPR-N
Live Discussion of BA on StockTwits
More Discussion on BA-N
Live Discussion of BBD.B on StockTwits
More Discussion on BBD.B-T
Live Discussion of SPR on StockTwits
More Discussion on SPR-N

More Related to this Story

Topics:

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories