Air Transport World

Cutting costs - but not at all costs. (Boeing Co. seeks improved efficiency)

Boeing is looking to improve efficiency, quality and profits by boosting employee interaction and offering standardized option packages. Boeing's production lines are stuffed. The Seattle jet maker's sole domestic competitor, McDonnell Douglas, is alive but struggling. Boeing is the No. 1 manufacturing exporter in the U.S., which means it is in a favored position with a government keen on reducing the trade deficit. It is seen as one of the U.S.'s premiere corporations. So why is it making such a big deal about reducing costs and changing its corporate culture? Simple: Profits and Airbus.

in 1989, Boeing Commercial Airplane Group tallied a fifth record year of dollar sales: 963 transports worth $47.5 billion. But a strike, plus production and quality problems left deliveries short of the previous year's total. That, combined with losses on the military/space side, resulted in net earnings up only 10% over 1988 compared with a 28% increase the previous year. Considering the current boom, the payoff was not as great as expected.

Customer rebellion

This year, revenues will improve markedly. There will be no strike and Boeing is boosting production rates besides ATW, 5/90). But Chairman Frank Shrontz doesn't just want higher sales figures. He has set a corporate earnings goal of 20% return on equity. That compares with 11% in 1989. He is not the only one who has goals for Boeing. Customers such as American Airlines are rebelling against ever-higher prices. From Boeing's point of view, that couldn't come at a worse time. Airbus's expanding family of aircraft is posing a permanent competitive threat. Boeing also will have to cough up several billion over several years to fund its new 777.

The upshot of these factors is that the company is on a cost-reduction campaign, saying that it will become more efficient, perhaps by as much as 25%, that it will produce higher-quality aircraft and simultaneously preserve the airlines' right to customize aircraft. To do so, it is replacing traditional production methods with far more sophisticated techniques. Like so many other old-line companies, Boeing also insists that its corporate culture-the way its employees work with each other-must change if it is to be successful.

Boeing tried making a dent in production costs once before. The stillborn 7J7's potential to compete with the A320 depended, in part, on production-cost reductions of 20-25%. Lack of interest was one big reason why the project was canceled. Another, which the company acknowledges but doesn't volunteer, is that it could not reduce costs enough to be price-competitive with the A320, Airbus's first high-volume model.

Now Boeing is trying again, using the 777 as the major but not sole, focus for new, cost-lowering techniques. The company must do much better this time if it means to meet Shrontz's target and compete with aircraft that will be certified five years (MD-1 1) and two years (A330) ahead of the 777. The cost reductions also must be accomplished while the company increases production designed to achieve President Dean Thornton's goal of a 60% market share. For the year's first five months, Boeing sold 55% of big-jet units and almost 60% of big-jet dollar value, according to its own best estimates.

Paul Nisbet, aerospace analyst for Prudential Bache, does not think cost reduction should be difficult. …

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