A couple of years ago Jim McNerney, the chief executive of Boeing, was in London to persuade the world’s airlines that they should purchase the 787 Dreamliner. Over lunch at a Mayfair restaurant I asked McNerney whether he and Boeing had learned anything from the chaos that was unfolding at Airbus.
The European aircraft manufacturer was at that time doing a swallow dive from the high board into concrete. It had withheld information on how serious the production delays on its flagship A380 project were and was writing off billions of euros in lost revenue. Chief executives were departing on a monthly basis, there were accusations of insider trading and Airbus’s customers – led by Emirates – were threatening to pull the plug on the whole company.
Without pausing for thought, McNerney said no. He felt there was nothing to learn from Airbus. I thought at the time that such arrogance was hubris and events since have proved the foolishness of McNerney’s words.
Boeing announced last week that the 787 Dreamliner, one of the world’s most important industrial projects, is now running 18 months late.
The first of these new revolutionary, carbon-fibre aircraft was originally to be delivered to All Nippon Airways next month but Boeing now says delivery will be at the end of 2009.
With more than 890 orders taken for the 787, worth more than $150 billion (Dh550bn) at list prices, this delay is a disaster. Boeing’s share price has slid 25 per cent since it became clear last year that there was a problem with the 787, wiping $18bn off the company’s value. Boeing will now face demands for compensation from dozens of airlines and that will cost it dearly – expect the bill to run into billions of dollars.
Even a casual glance at the French farce going on at Airbus in 2006 should have given Boeing pause for thought, but the Americans ploughed on with a production schedule that would have been aggressive for a hang glider let alone the most radical change the industry has seen since jet engines. Boeing gave itself 11 months to build the first plastic plane, fly it, test it, gain certification worldwide and deliver it to customers. No chance.
Big industrial projects always run into problems and Boeing had no slack in the timetable. Everything needed to go right to meet first delivery and, as the A380 had shown, that rarely happens with new aerospace designs.
The technology is so complicated, the engineering so advanced, the cost of failure so high that these products cannot be treated as though they are coming off a Toyota assembly line.
However, Boeing is not the biggest loser from the 787 disappointments. Rather, it is those airlines that ordered the Dreamliner and now have to wait an extra 18 months (at least) before they receive deliveries. The reason the Dreamliner is so important and the reason it has become the fastest selling commercial aircraft in history is that its radical design makes it much lighter than existing planes. It therefore burns 25 per cent less fuel and with oil prices looking to settle at more than $100 a barrel that is something no airline can afford to pass up for an extra year and a half.
Rising costs, primarily fuel, are strangling the aviation industry. Six airlines have been grounded in the past 10 days alone and suddenly the sunshine the industry was enjoying at last November’s Dubai air show has been replaced by ominous-looking clouds.
Frontier, Oasis, Skybus, Aloha, Champion Air and ATA Airlines have all gone bust or sought bankruptcy protection in recent days and it cannot be long before some really big airlines call in the liquidators.
Italy’s Alitalia could go under any day and the big US carriers such as American and United are flying gas-guzzling old junkers that must be costing a fortune to operate. How long can these airlines survive with costs as high as they are?
The 787 offered some hope but that has now gone. Airline executives I have spoken to are understanding of the engineering difficulties that the 787 faces but are angry that Boeing did not do more to prevent them in the first place.
Jim McNerney had the opportunity to learn a lesson from the French and his failure to do so will cost Boeing and the world’s airlines a lot of money.
- David Robertson is business correspondent of The Times of London.