Boeing’s new mantra: incremental tech development

Boeing Co. CEO Jim McNerney has a new religion on airplane development: Steadily deliver incremental innovation rather than bank on “moon shots,” such as the 707 and 787.

On Boeing’s annual investor conference webcast on Wednesday, top executives emphasized company-wide efforts to cut costs, minimize risk and maximize new revenue streams.

Their message was focused on how the aerospace giant will reliably earn money for shareholders as it overhauls its commercial jetliner catalog and navigates an uncertain future of defense spending.

The man widely seen as McNerney’s heir-apparent, Chief Operating Officer Dennis Muilenburg, said Boeing has to be more “evolutionary” than “revolutionary” and pointed to the new 777X as an example.

Traditionally, the company’s best engineers worked on developing new technology.

“Now, we want our best engineers working on innovative reuse” of existing technology, Muilenburg said.

Boeing is taking what it learned about carbon-fiber composites on the 787 Dreamliner and applying that to development of the 777X’s wings.

“We’re still going to deliver revolutionary capability,” Muilenburg said. “The way we deliver is to build on technology we have. We get to the same end point if you take 10 low-risk, well-managed steps rather than one big step.”

Boeing has greatly increased production rates to 42 a month for the 737, which is assembled in Renton, and 10 a month for the 787, which is assembled in Everett and North Charleston, South Carolina.

The North Charleston plant is on pace to get to a rate of three planes a month this year, McNerney said.

The company expects to deliver more 737s this year than it did all jetliner models in 2011.

Boeing Commercial Airplanes has an order backlog of 5,154 airplanes, most of which are for 737s and 787s.

The head of Renton-based BCA, Ray Conner, said he is confident about bridging the production gap between existing orders for the legacy 777 and the 777X, which is set to enter service in 2020.

The company has firm orders for the legacy 777, which is assembled at Boeing’s Everett plant at Paine Field, through 2016.

“We have more in play that will come home relatively soon,” he said.

The legacy 777 will face pricing pressure, so the company has to make production as efficient as it can, he said.

One way to bridge the gap between the new models could be to pair orders for the 777X with the in-production 777, similar to what the company did when it introduced the 737 MAX to replace the 737 Next Generation, Conner said.

“It’s not a slam dunk, but I feel pretty confident,” Conner said.

Assembling the plane and producing the wings in Everett is a “big advantage” which has greatly reduced the program’s risk, Conner said.

Boeing chose Everett after the state of Washington extended major tax breaks for the company and after members of the Machinists union approved a contract heavy on benefit concessions.

Reliability for the in-service 787-8 is between 98 percent and 98.5 percent, and the company is aiming for 99 percent, Conner said.

Boeing still struggles with the cost of the 787 program. Right now it costs more to produce a Dreamliner than the price Boeing charges. The company has said it expects to start making money on each plane by next year, while many industry watchers say 2016 or 2017 is more likely.

By that point, the program is expected to be $25 billion in the red. It is already $23 billion behind.

Boeing Chief Financial Officer Greg Smith reassured analysts that the company is working to reduce production costs.

“Seven-eight-seven profitability is the priority,” he said.

While gains have been made, “we certainly have a lot of work ahead of us to do, and it’s going to take some time,” Smith said.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com.

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