Boeing Has To Play Smart With The Military, And Pick A Bid for The Long Haul

Boeing just recently lost the battle for the LRB for approximately 60 Billion as it will hurt. Northrop won the bid as it will not result in closing its doors. The military tries to defend the industrial complex from extinction if the bids are a wash. Northrop was saved from extinction. Boeing lost, because it insisted on winning a 179 tanker order against Airbus. Lockheed won the F-35 and is endowed with Pentagon Billions. Boeing bid against Lockheed with its F-32 rendering. It lost from a STVOL consideration as Boeing wasn't quite yet ready for prime time on its presentation, but latter got it down solid.

The Boeing bid process has become victim with its own energy of bidding on everything big on the military, ignoring Government penchant for preserving the complex, as a necessary balancing act for the nation's defense. It needs manufacturing from multiple sources in order to achieve optimal results from competition. Boeing needs to court the military, and pick its battles rather than bid everything and insist on complaining when it loses. Boeing doesn't endear the military plans as they give one to Northrop as part of preserving its Military Industrial Complex health meter. Keeping Northrup around for the next decades is Job one. Don't worry Boeing you were tossed a Tanker bone away from the Airbus complex.

That is why Boeing needs to do a careful approach to the award process. The first objective is to identify what upcoming program will make Boeing Defense industry for three next decades. They should have approached its F-32 bid more seriously with its vast committed intelligence, engineering and capital R&D. Lockheed no longer builds commercial airplanes so it was a do or die effort for them. The military appreciated its attitude for do or die and gave Lockheed the F-35 bid. Boeing was doing well with its commercial realm and its offering was very close in the competition. However, Boeing could have done better during the award process and would have won it if wasn't so arrogant of an industrial base. They lacked humility and lost.

The F-32 should have been the Marine Bird period. The F-35 needed some beefing up but it gave it away when it had to accommodate three F-35 types from one design concept. Lockheed could have built a Navy deck launcher with an advanced Air Force Fighter frame. However, somebody had an outcome based education resume and insisted on everybody wins having one frame and Boeing you lose because you got the gold star last time. In a perfect world the DoD biffed it. They should have grabbed the Boeing design in a heartbeat for a dedicated STVOL fighter. However, the outcome based nerds with all the Gold stars awarded Lockheed the award because it was its turn. Then comes the LRB project and it's Northrop's turn.

If the Military was really interested having the best concept flying it would cherry pick the best concept from any manufacturer and not insist on playing like a bunch of first graders giving out bid award stars. The system really makes America weaker and it doesn't actually save $$Tax Dollars. The cost over runs are proof of that during JSF program. The old axiom is true: "good at all things, master of nothing". The Marines are a special group of people and they need an ugly jump jet on Steroids. The F-32 was that Jump Jet.

Wow, I digressed again, back to Boeing bidding strategy: 

• Boeing needs to pick only one bid program for a long term continued production run.
• Boeing does not need to go after every program, but it need to bid every program.
• Boeing needs to prepare for "a feature bid program with R & D behind it" with a do or die mindset
• Boeing needs to woo the Military by not complaining or objecting during bid losses
• Boeing needs to complete a bid development beyond expectations and eliminate mishaps (KC-46)

Bombs Away Its Northrop

Northrop Wins Air Force Long Range Strike Bomber Contract  <<<Link

Just in off the wire: Northrup beats Boeing, Lockheed for LRB contract more news later

Here's another look at the deal from Defense World <<<Link

Boeing-Lockheed may challenge award like they did in the Tanker award.

Boeing may need to lick its wounds and go big on its next bid up. If they do challenge the award it would be to its own detriment, because it becomes a big waste of time and money for everyone plus creating some DoD bad will it can ill afford. as big a fan of Boeing that I am, I am glad Northrup gets the award as it keep the competitive DNA working in our military defense complex. Northrup built the B-2 and its an awesome aircraft. Despite the naysayers coming from Boeing saying they have only built a handful of military aircraft recently. Boeing quickly forgets its own risky adventures in military building. The Lockheed F-35 program as hot as it has become is replete with setbacks. So Boeing -Lockheed, don't call the Northrop secret ops black when executing a contract as if it were a blank check.

Orders Building For The 787 Is Causing Airbus Some Worry

Recent ordering by EVA air and Norwegian Air for both the 787-9 and 787-10 should have caused Airbus marketing a recoil. In fact the low numbers of A350 orders of only a minus 29 A350 in the last two years during 2014-2015 should worry Airbus, as the market game is gaining tension for some of its executives in France. Looking at the Airbus' "-29 net order for 2014- 2015" is a strong reflection something is not adding up for Airbus. They just lost a competition with an EVA Air purchase straight across the Board against Boeing's 787-10 order for 24. 

Even though Norwegian Air is already a staunch Boeing wide body customer, it was expected they would order Boeing going forward for any new 787-9's and they did just that.

However, to the delight of Boeing it was for 19, 787-9's with an option for 10! Using the new math a fourth grader would determine 43 wide bodies are on the Boeing production docket from these two customers just mentioned. Airbus has only three added and 32 subtracted for its show in almost 24 months of pushing and shoving its customers towards buying the A350. 

Lest we not forget the 26, 787's net orders already for 2015, it brings the Boeing tally in late October to include 69 787 wide bodies ordered as compared with the -29 A350s net ordered in the last two years. Combining Boeing 2014 (41 net) with 2015 (69 tally), as it currently stands, it will total 110 787's during the two year period, as opposed to the Airbus -29 sinking sales with the A350 during the same time period! Either Airbus has run out of steam on its A350, or Boeing has figured out they have a pretty good product which may be better than what Airbus is pushing.

Boeing spent millions on market analysis as did Airbus. Boeing stuck to its guns on a 7,500 mile 787-10 where Airbus made its A350-900 an extended range route machine comparable to the 787-9 range. Key factors stalling the A350 offering as listed below.

• One hundred and forty 787 production units a year for Boeing shrinks Backlog immediately
• Bang for the Buck value on the 787 family is greater than the A350
• The A350 is five years away from reaching production capacity nearing Boeing's
• Boeing can sell 400 more 787 in the next five years while keeping the backlog equal to Airbus'.
• Airbus is done with large orders greater than 10 at a time going into the future.
• Boeing has more large orders coming, greater than 10, with the 787-family
• Fleet expansions comes from 787 operational leveraging (Norwegian Air is the Example) fuels the sales.

None of these factors mention efficiency or aircraft dynamics, and only address market positioning and customer opportunity. However, if you rely on the tale of the tape with side-by-side comparisons, Boeing has bracketed Airbus into a corner with its 777X family, a grave concern for Airbus as the A350-1000 is orphaned by the 777X proposition. The A350-9 becomes a stand-alone answer to all of the 787 family of aircraft. Airbus is faced with having customers fly the A350-900 within a region experiencing risk for diminishing load factors, where a 787-8 could do the mission better with an increased load factor for the customer. 

The 787-9 meets and beats the A350-900 in efficiency for long legged routes of 8,000 miles. The A350-900 is too much airplane for reflexing on any operational changes encountered when a competing airline has all three Boeing 787 types, where they will slide around a deploying roster of 787 according to its routing distances, needs, and actual market load factors. The A350-900 becomes orphaned as a  tool for fleet requirements not adjusting to what is needed.  It becomes an over built aircraft where someone like EVA air orders 24 787-10's just fitting within its operational dichotomy. The A330 NEO is not the answer on the cheap for beating the 787.

The 787-8 is slightly over built for regional markets of under 3,000 miles, but can adequately do the job well, however in the A350-900 case, it has to go big or not at all, just as it was designed by Airbus pomp. Airbus keeps building too much airplane for any customer flexibility.  

A two year lull in Airbus A350 orders is a grave worry. An Airbus A380 order would be surprise. The A320NEO is going very well, but the profit margin is thin, where Airbus risks tumbling into becoming solely a single aisle company within ten years.

Watching Boeing's 787-10 Production Clock

Currently, Boeing is receiving parts for assembly on its 787 family with frame #388 in sequence since the beginning. How far do we wait for the 787-10 to start production? The production order suggest it will be frame sequence Line #528. This represents Boeing 140 frames to go before the first 787-10 test frame enters Charleston's plants. This count is for both Everett and Charleston's sequencing. Everett produces more 787 each month even though the South Carolina has narrowed the gap.

Predicting the slide-in for a 787-10 frame in Charleston becomes a guesstimation. Charleston is about spot on with three 787 a month delivery pace. Everett has a 7.5 a month 787 pace equaling about 11 787 a month in total for both plants. This brings to the guessing game when the first 787-10 will enter Charleston's parts bin where the production clock starts ticking.

Looking at when it will happen, should be sometime in October 2016 when the first 787-10 frame will enter into Charleston's production line. An overall rate of 11-12 787 a month having an average going forward, reaches an extending count of 140 frames during the next twelve months. After this it reaches Boeing's 787-10 frame sequence # 528, estimating it to occur by this time next year.   Please take into consideration all the preparation for this to happen may be subject to change, and it could be delayed by days, weeks or months in the grand scheme of things. However, all things considered, October 2016 could be the 787-10 start month.

Considerations is also taken, from lessons learned from Boeing's successful 787-9 production process, which will be applied to the Charleston experience for the initial time since another 787-9 type began its matriculation in Charleston. Boeing most certainly will export its experienced expertise from Everett to Charleston for this endeavor of starting-up of the first group of 787-10. It will be a repeat of the 787-9 experience of success, only in a bigger version.

Late 2015 787-9 Orders Start Arriving

Norwegian Air says, order 19 787-9 and order 10 more options for the same. "Winging It" had predicted during all of 2015, Boeing would get its 100 787 orders. Because? It was due to happened and a gut instinct nuanced by operational cycles of four-five 787 years on many customer's fleets. The 787 count currently stands at a dismal 26-787 booked in 2015, now it can add 19 more 787-9's to that same book. A full Qantas order is not yet added and Ethiopian Air has not yet finished penning it book orders for 2015. Emirates is a hanging chad order with Dubai coming up. China is not done for 2015 wide body orders. The end of 2015 will push the 787 order book past 100, as it only needs to fill 74 = and now 55, and EVA air(24)= 31 to go 787's for the end of the year making up the "787's for 100 in 2015".

A combination of two to three customers will do the honors for Boeing and its customers as it will probably capture another 31.

Norwegian Air Shuttle Orders up to 29 Boeing 787-9s

"Boeing values Norwegian Air’s firm order at more than $5 billion at current list prices and says the deal is the largest single order for 787-9s from a European airline."

Boeing will close 2015 in a flurry of widebody orders where it may catch Airbus fattened order book in dollar value.

The Norwegian deal signals the 787 has entered into a fleet expansion era over fleet renewals of aircraft. The operational success found in the 787 is beginning to churn sales rather than the need for replacing old equipment. Those airlines who have piloted success with the 787 are now expanding market reach with follow-on orders. They now have a Boeing 787 equipment edge and are leveraging this edge through market expansion with the same equipment ordering.

The first batch of orders for the 787 during the 2008-2012 period were based on fleet renewals. This second layer of ordering has a basis in fleet expansion. Qantas/Jetstar has 787 operational knowledge for its 787-8's. Norwegian Air has achieved its operational Vision through the use of its 787. Ethiopian is ready to conquer its region as it has deployed a core of 787 making its dreams a reality. Many other airlines are sitting well and so far in silence, until the fleet expansion orders roll in. China is a region that is pivotable for the world's air travel. China's airspace is situated in the world for linking people with people. The 787 was built for flying over the pole from China or circumventing the Pacific Ocean. China is really situated for the 787. 

The 787 order book could easily swell to 1500 787 aircraft ordered by 2020. Currently Boeing marks 1097 787 booked in total. It's just a matter of time, as the 787 markets keeps expanding. The Airbus offering is late to the market gate. Most airlines depend on consistent financial conditions. That is why they have five year plans. Boeing is close to breaching into a five year backlog as it stands back with a 764 unit backlog for 787’s. The Build rate of 125 787 a year, times five years, equals a 625 unit reduction for its 787 backlog. However, the annual order rate variable changes as airlines determine its own capability through fleet aging, market expansion and financial sourcing. That order rate variability is a tricky composition for Boeing when matching its production capability with market demand.

Boeing has taken the position of building the orders booked as fast as customers will take the 787 into the market. It's paid off on several issues looming over Boeing stock values. It has generated cash from delivery. It also has made strides towards perfection of its production floor and supply chain efficiency. The downline providers can plan better and make more efficient gains in an "active supply chain".  All of the high 787 production solves multiple problems in its one function. Though not being a program panacea. However, it is the most efficient way solving Boeing financial conundrums while satisfying market demands when Airbus is not ready for filling in the inventory gaps Boeing can provide at this time.

A Boeing strategy has come together from the production floor. If a customer orders an Airbus WB fleet today, Boeing can now deliver faster using its smaller backlog and higher production rate. That same niche of Boeing WB could be making revenue sooner for the customer than if placing an order with Airbus. Airlines tend to like that product feature almost better than cheaper fuel prices. A Boeing 787 delivered 18 months sooner than placing an Airbus A350 order, fixes the annual report for customer stockholders giving the customer a significant advantage of 18 months of "sooner" than could be done otherwise ordering the A350. The "sooner" becomes aligned with the customer’s five year plans.  

Boeing's Deferred Cost Soften During Third QTR

Boeing has been tap dancing around deferred cost for some time with its 787, KC-46 programs or the 737 Max programs. It is not to say they cannot become profitable over the long haul from having a swelling Deferred Cost notebook. However, it is to say the program risks do pile up in the form of cash as deferred cost.

Every Boeing risk can show up on a project can turn into a deferred cost line item. So what is the Gremlin called "Deferred Cost", set aside from a program profitability structure. As mentioned before on this Blog a recognition is given for this occurrence and moved off a project's books and set in its own room until further notice. Boeing can recover the accumulation of this cost through judicious use from its solutions gained while expending capital for mitigating of any risk encountered. The 787 project had more than 27 Billion deferred problems encountered during its inception until the end of the third quarter 2015. The accumulation of risk cost has been deferred into this pot during the journey from R & D to current production.

The 787 has only accumulated about a 2% gain in deferred cost during the third quarter which is a decrease from about a 8% increases found during 2013. The big news is the 787 learning curve on the factory floor. The Dreamliner is becoming a very efficient build from start to finish, pushing 787's out the door without expectations of any mishap in process. 

This is called a cash cow in the industry. More aircraft made this way reduces the margin of deferred cost or having accounting value set aside because it's viewed as part of the overarching development of the aircraft. A true per unit profitability has not been obtained through its continuation of R&D expenditures, nor experiencing other risks it has encountered during its deployment to customers. 

However the day is coming where the 787 will have a benchmark moment where Boeing will have an actual cost for the 787 which will give the 787 an actual profit mechanism. 

The deferred cost account then can have a contribution towards its reduction, coming from the 787 production flow and other programs borrowing from the 787 lessons learned and risk resolutions applied to its own program. Accounting is for people who love order out of chaos.

Boeing has a backlog window to achieve its cash goals providing a little more time for the 787 profitability segregated from deferred cost.

Winging It Fall Reading Assignment

Every so often, "Winging It" likes to put out a reading assignment worthy of anyone's time that loves aviation, and the churnings of the Business. Today, a CAPA article made the cut featuring Ethiopian Airlines, a long favorite topic of this blog. The first delivered 787's went to Ethiopian Airlines when Winging It first said, "watch Ethiopian and see what they will do with the 787 and its profits".

EthiopianAirlines: Dreamliner boosted profits

Christmas Past Winging It Quote: 2012-2013 Circa

“Another look is for Ethiopian Airlines in what the 787 does for its bottom line.  They will be a good case study, since they own such a smaller number of aircraft and fly long routes. The 787 will have an immediate impact from its operations, where you will see how it drives the bottom line at the end of next fiscal year.  This is a manageable study of its business plan and bottom line. You may gain a distinct appreciation for the 787's financial impact on Ethiopian  Airlines."

Now the Capa Reading assignment <<Link

The 787 May Never Show Boeing The Money But...

Currently the 787 program has dug a "Never Mind" development hole of Billions of dollars. The accountants slide this pile of money aside from the current 787 costing and revenue spin cycle. The "hole” pile of money will never see the light of day until burning receipts on Boeing's 787 free of debt day.

Plan B has moved into plan A. All Boeing aircraft are on deck. USE 787 technology for new programs so Boeing can burn through its already accumulated R&D costs expended on the 787 program. The 777X and the 737 Max programs are borrowing from the 27 Billion of Boeing cash pit lost on the 787 program during the last ten years. Even the KC-46 has a 787 avionics arrangement in its pilot’s cabin. The 787 was not especially for the 787, it was for all of Boeing's family of aircraft.

The $27 Billion hole was for every flying example in the Boeing family and can only be recovered through a family counselling session.  All that money thrown in the pit is stand aside money for Boeing programs concurrently moving forward. If the KC-46 uses 787 avionics then let the accountants move some money out of the 787 money pit into the KC-46 program. If 100 more 787 are delivered then move some more money out of that same pit as a consistent rate under the flag of profitability of each 787. However, if all 787 deliveries are made, it won't eliminate the Boeing money pit. It needs other programs to prosper and spread that pit of debt proportionally amongst each program with due diligence, according to its own borrowings of technology from the 787 program. 

Perhaps the 777X uses laminar flow technology from the 787 program or it uses engine development and other core Technology breakthroughs, paid from the Boeing money pit. The accountants will attack the money pile with a vengeance and reduce the debt accordingly. The money backtrack can make the 787 profitable when the pile is gone. Every executive gets a complimentary backslap when the money pit is gone, not by the doings of a stand-alone 787 program, but the Boeing family of aircraft and military programs borrowing from the 787's $27 billion dollar pit of costs set asides. Accounting is an opportunity for annual meeting speeches.

In real terms the 787 program wasn't about the 787, but was about catching and passing Airbus from a strategic standpoint. It had to leap frog Airbus from top to bottom in development and position. Going from a commonality perspective to an engine application throughout its family of aircraft. Mission was accomplished and Boeing has retooled its marketing reflecting it has beat Airbus at its own game. The Money pit is not a 787 debt for which the 787 will never pay back and be called profitable. It's a companywide money pit for every aircraft going forward which will be profitable from the sum of its parts. Every Boeing program will take from a 787 spawned systems, ideas, or parts and write downs from the Boeing 27 Billion dollar 787 hole.

Boeing Vision statement has to have the 777X, Max, and KC-46 (747-8i) for making the 787 profitable.  After all it's the sum of all Boeing's parts.

Air India Delays Incompetence By Not Charging Boeing

Air India's much misaligned National air carrier who has for so long complained about 787 glitching out on so many scheduled flights, has now made a mature decision for its 787. It will not charge Boeing for its delivery delays with compensation on its last six models yet to be delivered. 

The original delivery schedule for those six 787 were have to occurred during July 2015 through March 2016. The AI schedule now moves to a later date of November 2016 through August 2018. 

The no talk position by its airline leaders suggests other possibilities than just shutting up about the 787 problems it has encountered. Winging It has always considered, AI not ready for a prime time player renovating its fleet with the 787 aircraft. They are just not ready for supporting the most technologically advanced aircraft in the world. They have acted as if they are a third world operation complaining about all the technological glitches Boeing has caused them.

The other world airlines have received copious quantity of 787. The likes of Japan Airlines, ANA and United have had their fair shares of "problems", since first delivery of the 787. Battery failures, landing gear issues and fire just to name a few problems other have experienced during the last four years.  

However, Air India has come out as one of the biggest complainers of problems of which none of its problems have even reached the same level of problems by the leading airlines just mentioned. Air India has finally grown up with its 787. The problems are mitigated through both Boeing and Air India's participation. They have grown up and are ready to go get the last six units entered into its production slots. No longer will they publicly lambast Boeing for its problems. Every aircraft ever made has its problems. 

Every airline ever operated also contributes to those problems. Air India does not get to escape that distinction of being exempt from responsibility when preparing for new technology which every other airline had prepared for, and then goes and mitigates glitches in a systematic order. ANA knew it had to gain an operational level never before considered when taking on its first high tech 787. 

Air India appeared to have a nonchalant attitude of business as usual with its 787 problems. That idea didn't fly well with the 787 on deck. Air India was behind the operational curve from the start. Even with all the glitching, they weren't prepared well for the inflight events and wanted to assign blame rather than assign technicians to the source problem. They called Boeing instead and complained and wanted more money for its trouble with the 787.

The question remains, why does Air India have all the problems and all rotten luck flying the 787, when others have had problems, but the others also make its own luck fixing problems instead of going to the press over it?

The answer is simple and here it is: Everybody having a 787 has grown up flying it in a very fast sequence. Air India is politically dependent of its country. So every politician or AI CEO politicize the problems so no responsibility is passed, "on their watch". Boeing then takes a public flogging from Air India's experience of multiple mishaps. Air India is about to lose part of its order (6-787) unless somebody takes responsibility for the 787 they own, just as all major airlines have done during its own difficult 787 times, they take "ownership" and move forward.

Plan B Air India: Nobody talks about the deal we have with Boeing fixing our problems. "People, we have a problem", and Boeing is going to fix it! Nobody talks, unless you resign from your well paid job first. Zip it up! Boeing is going to fix our problems and Air India will receive the delivery of six more 787's from Boeing starting in one years through 2018. 

Air India not to seek compensation from Boeing for delayed deliveries of 6 Dreamliner aircrafts 

Complaining is now off the table as the Air India begins acting like an Airline. The culture of blame has died as a way of staying on the job. Air India is growing up at last.    

More Orders Will Fall Into Boeing's Lap During 2015

It ain't over till it's over is the theme for this year ordering for Boeing, as it closes off 2015. I have termed the issue as "Hanging Orders", much like Broward County’s hanging chad during the Broward County Florida, USA presidential vote count, the year back then is the 2000 election cycle. George Bush won it, despite the hanging Chad.

The year is 2015 and aviation sloths need a big magnifying glass for its cogent analysis for the upcoming final count on the Boeing final tally. I have copiously surveyed the news nuggets and come up with this news nugget from our friends at Flight Global:

"Moreover, on 24 September Boeing issued a vague statement that China Aviation Supplies Holding Company, which buys jets for China’s airlines, would obtain 190 737s and 50 unspecified wide bodies. Some of these aircraft, when confirmed, will likely be 787s."

When it will be a confirmed statement is a 2015 matter, I assume Sherlock. China will be rocking the Boeing Order Book making chump change out of the Middle East’s aspirations for dominance during 2015, possibly?