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Sources: Boeing to buy Vought's 787 operations

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Charleston.jpgBoeing is set to announce its intention to acquire the 787 operations currently run by Vought Aircraft Industries in North Charleston, SC in a major shake up of the supply chain for its new flagship product.

According to multiple sources familiar with the plan, Vought Aircraft Industries 787 arm is to be divested from parent company The Carlyle Group and sold to The Boeing Company.

"It's a done deal," says a source close to the agreement.

The same sources indicate that the sale of the Charleston 787 operations unit, known as the Advanced Aerosolutions (AAD) branch of Dallas-based Vought, will likely be the first key step to establishing a second production site for the mid-size widebody aircraft.

Both Boeing and Vought are adhering to their respective policies to not comment on rumors or speculation regarding mergers and acquisitions.

However, Boeing added that it has "long said that a second line is an issue we will consider in due course, and we have, and will continue to evaluate the many factors that will be a part of any decision. Our primary focus right now is getting the 787 into flight test and getting the existing production system running smoothly."

Boeing announced last week that a delay in first flight was necessary to reinforce the side-of-body of the 787, indefinitely grounding the fleet until the company can develop, test and install a remedial modification.

INSIDE:
  • What's Next?
  • The Campus
  • A Second 787 Line?
  • Protecting The Supply Chain
Photo Credit Vought Aircraft Industries (Left - Global Aeronautica, Right - Vought)
WHAT'S NEXT?
Though the Carlyle divestment and Boeing acquisition has not been officially revealed, sources tell FlightBlogger that the first ceremonial announcement is rapidly approaching.

The public announcement will be the kick off a week-long transition to shift operational control of the Vought facility to Boeing. Sources indicate that after the signing, Boeing will begin to transition Vought employees at a "job event" that will address the human resources component of the acquisition.

The transition will draw on the lessons learned by Boeing during the sale of the Wichita site in 2005 to the Canadian Onex corporation, which later became the flagship site for Spirit Aerosystems, another first tier 787 partner.

Boeing has been building toward this plan of action for quite a while, steadily increasing its staffing presence at the Charleston site.

At the Paris Air Show, Boeing's vice president of airplane programs, Pat Shanahan, discussed the role Boeing has played, separate from any proposed acquisition, in assisting Vought over the last several years:

"We've had people, whether its supervision helping them with incorporating [design] changes back in Charleston or whether its been folks helping them with their supply chain, that's been ongoing for a better part of the start up of the program [since 2006]. More recently we just had a higher influx of people into Charleston because you compare the capability and capacity, the limitation is there, it's not at Spirit, it's not at MHI or KHI or FHI. That's seems to have the biggest payoff."

THE CAMPUS
The North Charleston campus is made up of two facilities that sit on 240-acres of land at Charleston Air Force Base. The larger of the two sites is currently controlled by Vought and is responsible for the fabrication and integration of the composite barrels of Section 47 and Section 48 which make up the aft fuselage of the 787.

The second facility, Global Aeronautica, a smaller building to the north of Vought, is a 50-50 joint venture between Boeing and Alenia Aeronautica that sees the delivery of four structural sections, two from Italy (Sections 44 and 46) and two from Japan (Sections 45/11 and 43), that are integrated to become the center fuselage of the 787. The Global Aeronautical facility also includes a paintshop for shipsets heading to Everett.

Global Aeronautica opened its doors in December 2006 as a joint venture between Alenia and Vought, though Boeing acquired Vought's 50% share of the facility in March 2008 after Boeing sought to regain oversight of its supply chain through more direct control at the Charleston site.

A SECOND 787 LINE?
Several sources close to the decision making process indicate that the Carlyle divestment and Boeing acquisition of the Vought facility is likely to mark the commencement of a strategic initiative to launch a second 787 final assembly representing the first time a new Boeing commercial aircraft final assembly line has been established outside of Puget Sound.

The divestment of Vought's 787 operations may mark the precursor for a fundamental realignment of Boeing's commercial assembly strategy if it proceeds with placing a second 787 line in Charleston.

Every Boeing commercial aircraft in the jet age, with the exception of the 717, which was a holdover from the 1997 McDonnell Douglas merger, has undergone final assembly in Washington state.

The establishment of a second line in the southeastern United States would be the further manifestation of a trend away from states like Washington and California that have a strong labor presence, to Right to Work states like South Carolina and Alabama.

Boeing's chief competitor Airbus, which has partnered with Northrop Grumman, has said if it wins the protracted and controversial US Air Force tanker contract, it will conduct final assembly operations on the modified A330-200 aircraft in Mobile, Alabama.

Pat Shanahan said at the Paris Air Show that his company's decision on a second line is "more mature and advanced than it was a year ago," emphasizing that Boeing is "not going to ponder [a decision on a second line] a long time."

Aviation Week reported on June 21st that Industry Officials "expect the company to announce shortly that North Charleston, S.C., is its preferred location and to establish the line next year."

The report indicated that production would be launched at the second line in Charleston with the 787-9, which is expected to begin major assembly work in the fourth quarter of 2010.

The sources directly familiar with the manufacturing plans tell FlightBlogger that Boeing has found that it cannot meet a 10 aircraft per month ramp up by mid-2012 without a second assembly line.

Industry watchers add that the imperative to set up a final line has grown with the announcement of the latest program delay. As a result, a second line would be essential to making up what is expected to be significant lost ground after a revised first flight, certification and delivery schedule is announced to minimize further impact to customers waiting for their 787s.

Were Boeing to place a second 787 line in Charleston, the facility would be the manifestation of the once mused-about 'supersite' that former 787 program manager Mike Bair discussed in November 2007 as a potential solution for the company's supply chain woes. The supersite would manufacturer and integrate not only the individual aircraft structures, but deliver them to an on-site final assembly line that would see the aircraft completed and delivered to customers.

A Charleston assembly line would immediately benefit from a significant reduction in required flights by the Dreamlifter to move both structure and tooling between partner sites and final assembly operations in Everett, WA. Currently, the center and aft fuselage sections are flown to Everett from Charleston. In addition, the Italian Alenia-built horizontal stabilizer is delivered by way of the South Carolina site where the Dreamlifter refuels before continuing on to Everett.

However, Boeing has found significant challenges in Charleston as it has worked to begin production on 787 facing workmanship and experience issues at a greenfield site that has little historical aerospace manufacturing experience.

By contrast, Boeing's Everett and Renton, Washington final assembly facilities have almost a combined century of aerospace manufacturing experience.

Though, Boeing's Shanahan recently outlined the key factors surrounding any decision for a second line. "The real options," he said "are around 'how do you secure assurance of delivery?' And I think that's been a discussion topic around some of the disruption we've realized...at Boeing."

Shanahan was directly referencing the 57-day Machinists strike during September and October of 2008 that grounded jetliner production to a halt, drawing the ire of both Wall Street and Boeing customers.

Shanahan also cited "functional logistics" and access to "skilled labor...and high tech skills" as additional key criteria in any decision.

PROTECTING THE SUPPLY CHAIN
Vought Aircraft Industries has found itself at a convergence zone of declining production output by airframers that is likely to cause significant financial pain to the company in 2010.

Cuts in production on Boeing products like the 777, the Gulfstream G450 and G550 business jets, Airbus A330/A340 reduced output, slowing ramp ups on 767 and 747-8, an uncertain budget on the C-17, and Cessna's decision to suspend the Cessna Citation Columbus program are sources of worry for Vought.

"While decreases in production are inherent to the cyclical nature of our business each announcement has had an impact to our plan, mostly impacting 2010 and we continue to adjust our resource allocation accordingly. While we remain optimistic on the industry's long term fundamentals we are nonetheless prepared with additional contingency plans should things deteriorate further as some analysts suggest may happen," said Elmer Doty, Vought's CEO at his company's first quarter 2009 earnings presentation.

Vought had already been struggling financially while the industry had been thriving and the economic downturn only served to stifle that rebound.

In the wake of the nearly two years of delayed incurred by the 787 program as a result of the challenging logistical requirements, Boeing began 2009 examining how to rebalance its supply chain to apply its lessons learnt and push ahead with further development and production without similar disruption.

Boeing had already moved significant 787-9 engineering work back in house for the development of the first Dreamliner variant.

Recently at Boeing's yearly investor day in May, 787 program manager and vice president, Scott Fancher discussed generally the possibility of acquiring portions of the supply chain to strengthen its stability:

"You know, you get into a situation where either some of the first tiers, or their sub-tiers simply aren't able to perform, now there could be a lot of reasons for that, could be that their in financial stress...Now, it does happen and clearly as we go forward we'll look at some re-balancing of work scope as we sort through where work is most efficiently and cost effectively done, but by and large the focus is on helping our supply chain succeed, not moving the work in a rapid fashion [with travelled work]," said Fancher.

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