August 2012

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Clean-Sheet - Boeing's all-new jet: The Business Model

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This is the last in a three part series on the development of Boeing's all-new jetliner. Part three places the business model Boeing may employ under the microscope as it learns from its past mistakes on the 787. Last Monday's Part One looked at market evaluations and the configuration and materials selection process and last Tuesday's Part Two looked at how Boeing will make the 20% leap in fuel efficiency in its new jet and what new advanced technologies are under consideration.
Mike Bair is a man in his element. 

Boeing's vice president of Advance 737 Product Development is working to configure Boeing's next all-new jet, an aircraft designed to fill the space below the carbon fiber 787, not simply replace its venerable 737 workhorse.

Though central to the development of an all-new aircraft is how Boeing chooses to industrialize the project and how it bridges the transition with its current 737 product line, which it expects to continue for decades to come.

With 843 sales, his goal is to replicate the 787's market success, while avoiding its pitfalls. Designing a plane that meets market requirements is part of Boeing's pedigree, though configuring a new jet is just as important as crafting and executing the right business model to avoid the mistakes of its predecessor.

Bair was one of the chief architects - and the original program manager - of the original 787 business plan that horizontally integrated supply partners, shifting both design and manufacturing responsibility away from Boeing, a model that has served up an excruciating lesson for the airframer with years of delays and billions of dollars of overuns on the program.

"I have a lot of scars, so I know what not to do this time around," says Bair who was replaced as program chief in October 2007 by now-vice president of airplane programs, Pat Shanahan.

Boeing has embraced its mea culpa attitude about its 787 woes, reflecting on its mistakes and generating headlines that reflect its contrition about the events of the past three years. While acknowledging its past mistakes is absolutely essential, not repeating them remains uncompromisingly more vital.

Specifically, Bair points to making the overall program schedule less aggressive and "adjusting the partner model" to meet a 2019 or 2020 entry into service for the new jet while avoiding the mistakes of the past.

"We went too far on the 87, and it cost us," he says of the partner model that initially saw all major structural components, save for the aircraft's vertical tail, built by supply partners.

Bair says Boeing is "not undoing [the partner model]," and adds "There's a lot of instances where it worked just the way we wanted it to, but there were too many where it didn't. So being more thoughtful and given the experience we've had on the '87', making sure we use that as we put together whatever the partner model is going to be on this airplane."
Another Form of Scalability

While structural scalability for composite material is central to achieving airframe efficiency, Boeing must also determine whether or not production rates of composite aircraft can meet and exceed the projected ramp up on its narrowbody line.

Bair says the new jet will have to meet at least the 737 rates Boeing plans for the jet in 2013 - at 38 per month - and even higher with production to meet the increasing demand for aircraft in the coming decades.

Using 787 as a guide, Bair says "It's going to be an issue with what kind of [composite fiber] laydown rates we're going to achieve. We're way better now than we were at the front end of the '87' and lots of ideas to get way better. We have to understand that to make this a thoughtful trade."

The first decision, says Bair, "is what are we going to make it out of? If it ends up being highly biased toward composites, then the current production facilities, [the industrial footprint] is going to be different." And second he adds, "If it ends up being highly biased toward metallics then we'll have to make a decision about - do we want to try and use some of the infrastructure that's currently building the [737 Next Generation] or not?" 

While a new final assembly line is a hallmark of new aircraft programs and Boeing conceptualizes the industrialization of the new jet, the amount of manufacturing Boeing keeps in-house is a central question for the airframer.

That question was one that defined the 787's early development, guided by a metric called RONA or "return on net assets", which is a measured ratio of commercial success weighted against overall directly owned infrastructure.

"Yes and no," says Bair on whether or not RONA will guide the new jet's development. "Clearly we were way too focused on not having assets on the '87', and having the right level of assets is the right way to run a business. We will be less focused, I would say, on RONA than we were on the front end of the '87.'"

Red Jet-Blue Jet

As Boeing looks to solidify its plans, an organizational theory known as Red-Blue may provide guidance to the airframer while it reflects on the hard lessons of the 787. Just as important, Red-Blue offers a path for using today's 737 as a springboard from which to develop an all-new jet.

At its highest levels, Red-Blue, pioneered by Dr. Theodore Piepenbrock an MIT and Oxford academic, helps explain why some companies thrive and others do not.

Among the many tenets of Dr. Piepenbrock's work is a system of developing a product incrementally over time, evolving technology piece-by-piece to better understand the costs of production.

This method - a hallmark of "red" development - reduces the overall risk to a program as illustrated by the A320neo's new engine or Next Generation 737's updates, rather than replacing each product outright. This steady, methodical, long-term development is known as "red" growth.

On the opposite end, "blue" growth would see product development making large leaps with new processes and new technologies. "Blue" is well illustrated by the 787 business model, as Boeing put in place both new technologies with its composite primary structure and more-electric architecture, as well as new processes with its globally distributed supply chain. When put into action, the result was a non-functional relationship with many suppliers, resulting in the costly re-integration of the responsibilities of some of its partners.

There remains a real risk that the production methods and underlying technologies designed for the 787 are not scalable for an all-new aircraft sized smaller than the long-range twin. If so, Boeing finds its revolutionary composite, more-electric Dreamliner as a technological island in a sea of metallic alloys and pneumatic bleed systems. As Boeing entertains a composite structure for its new jet, industry officials say composite technology is more easily adaptable to a seven-abreast layout, whereas a six-abreast single-aisle would not be an efficient use of carbon fiber.

One key lesson of the 787 is that the bridge to Dreamliner did not provide enough of a clear passage for Boeing from the 767 or 777, despite a limited attempt with the 717's distributed business model and composite empennage and floor beams of the 777, accounting for 12% of the aircraft's structural weight.

By the company's own admission such leaps in composite wing and fuselage were "on the bleeding edge" of technology, an acknowledgement of the disconnection of the 787's major leap from the company's own development history.

While "red" growth would seem to ideal in all situations, "blue" leaps are preferred in certain situations, suggests Piepenbrock's work. The key is tailoring the right strategy for the right product in the right market. In the case of a mature industry like aerospace manufacturing, a strategy that harnesses incrementally evolving scalable technology is ideal.

A two-product strategy?

Today's 737 is an ideal example of incrementally evolving a product. The aircraft's evolution is embodied in the progression from cigar engine pods under the wings of the original models to high-bypass CFM International engines on the Classic -300, -400 and -500 and then to the Next Generation's new wing, engine and avionics.

Though within this evolution was a utilization of the 737's industrial footprint, accelerating from 21 aircraft per month in 1997 to 31.5 per month today with a lean moving line, with plans to advance to 38 per month by 2013.

Boeing has continued that commitment to "continually improving" its product line with the CFM56-7BE engine, Sky Interior and exterior drag cleanup. Yet, what comes next to extend the life of its best-selling product may provide the technological and industrial bridge to the new jet as a way of validating the technologies required to deliver incrementally the kind of efficiency the airframer aims to provide in a clean sheet aircraft.

Of the potential for future improvements to the 737, says Bair, there's a "large lists of things we can do to it. It's not a piece of magic, it's a whole bunch of little things."

Bair says incremental changes, as well as big leaps are central to the Boeing foundation of developing new aircraft:

"You do new airplanes when you have a large enough package identified that it makes sense to move to a new platform," though Bair adds a flipside to the big leaps: "You make an investment on a new platform, and what it does is give you the opportunity for more improvements on that investment. I don't think it's either/or, I think it's a combination of the two."

The duality of the answer underscores the challenge of if and how Boeing moves forward with a new jet. Despite having a host of potential improvements for the 737 up its sleeve, the market is pushing Boeing toward an expensive all-new aircraft.

Reflecting on the history of the 737, Bair says Boeing "artificially truncated" the 737 Classic line after Boeing needed mechanics to transition to building the 737 Next Generation models.

"We could have sold a lot more [737] Classics for quite a while during that overlap, there's no reason why that phenomena won't occur this time and probably even more likely that it's going to occur."

With 2100 unfilled orders, Bair says the size of the 737 installed base at the end of this decade is going to be "enormous" and expects airlines to say, "I just need another 20 or 30 or 40 [737s]" and that can go on for quite a while. I think there's a very large probability that there's going to be a very long overlap" with a new jet.

While Bair says the strategy of developing an all-new jet isn't "strategically tied" to today's 737, what comes next covering or sitting just above the 737 segment "could be complementary and they could live side-by-side for a long time."

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