This year is important for Boeing Co.’s presence in South Carolina. Starting in March, Palmetto State will be the only place where the company will build its 787 Dreamliner.
When the aircraft maker announced in October that it would make North Charleston its sole base for the program, it was a change that planted its footprint more firmly in South Carolina and marked a retreat from its former manufacturing stronghold in the Pacific Northwest.
Consolidation comes at a tumultuous time for both the Boeing program and the 787 – which goes beyond the pandemic that decimated the demand for passenger aircraft.
Quality issues are being reviewed, planes are being inspected and no 787s have been delivered since October.
Boeing leaders reiterated during their January 27 quarterly earnings report that the consolidation of the 787 assembly line in South Carolina would take place in March, several months ahead of originally planned.
But the timetable is not yet clear for other key aspects of the Dreamliner program: in the short term, when deliveries will resume, and in the long term, when sales prospects will recover from the pandemic.
Stern sections are built for 787 jets in production at Boeing, January 7, 2021, in North Charleston. Grace Beahm Alford / Staff
Dry delivery
For several months, Boeing inspected all of its completed 787s for a production failure in the jet’s fuselage. Suppliers were also instructed to verify the problems and this – together with COVID-19 – was responsible for a total break in deliveries.
In the January 27 earnings report, CEO Dave Calhoun confirmed that these delays continued into the new year.
January was another month with zero delivery, and February will see “few, if any” of the jets delivered to customers, Calhoun said. This means that there has been at least a three-month delivery drought for the 787.
Because of that, the jets have accumulated in stock – about 80 in total, said Chief Financial Officer Greg Smith. This means that in order to unload all of them by the end of 2021, as he said the company plans to do, Boeing is expected to deliver an average of just over seven of these jets per month starting this month.
In addition, new planes that leave the line will also need to be delivered to customers.
The aircraft that helped put South Carolina on the global aviation map will be built at a much lower rate this year – low enough that the North Charleston plant is producing two fewer planes a month, on average, than when the program was peak.
When 14 out of 787 were manufactured per month, South Carolina built about half. Now, after several tariff reductions announced in 2020, the factory will assemble just five per month. This means that at least 60 planes will leave the International Assembly final assembly plant this year.
In 2019, when the program was not affected by the pandemic or a major production problem, Boeing delivered 158 Dreamliners, or an average of around 13 per month, between the two 787 locations.
In 2020, only 53 were delivered, and three months came and went with no delivery.
Stern sections are built for 787 jets in production at Boeing on January 7, 2021, in North Charleston. Grace Beahm Alford / Staff
Putting more 787s in the hands of customers this year is critical for Boeing. Dreamliner deliveries will be “the biggest driver of improved cash flow” in 2021, Smith said at the January meeting.
Some of this year’s deliveries will still take place on the West Coast, despite imminent consolidation next month.
Dreamliners built in Everett, Wash., Will still be delivered there, Boeing said, and work related to quality issues will continue to be done there.
Boeing also set up what it calls a “junction verification site” in Victorville, California, where inspections and rework will be done on planes made in Everett.
With production at the North Charleston plant dropping to five per month and inspections of jets built in Everett being carried out on the west coast, the North Charleston unit “must be able to handle the flow” of jets by inspecting them. and eventually handing them over, said Uresh Sheth, an analyst who tracks the production of the 787.
Next month change
Although the official consolidation of the program in March will mean the end of the assembly work for Everett, it does not signal any major changes in the way the plant near Charleston International Airport will operate on a day-to-day basis.
Production has already slowed to meet the new rate.
Inspections for jet problems made in South Carolina are ongoing.
And short-term job changes are not expected, especially since the company’s South Carolina workforce shrank by 1,163 in 2020, according to an annual job update released this week.
While some Lowcountry politicians spoke hopefully in 2020 about bringing jobs to the region when Boeing announced that South Carolina would retain its only 787 assembly site, the company would need to add back hundreds of jobs it eliminated last year just to achieve pre-COVID jobs levels.
Financial pressure from the health crisis led to widespread acquisitions and layoffs across the company in 2020, and jobs in Lowcountry were not immune.
Boeing now employs less than 5,800 South Carolinians, according to the new headcount, reducing the aircraft maker to Charleston County’s second-largest private employer first, behind Roper St. Francis Healthcare.
More job cuts are planned this year. Boeing South Carolina spokeswoman Libba Holland said this week that the company still expects its workforce to drop to around 130,000 employees worldwide by the end of the year – on January 1, the count it was about 141,000 – but she could not specify whether the North Charleston sites would be affected.
Adding jobs has been the key bargaining chip the manufacturer has used to secure hundreds of millions of dollars in public assistance in the form of tax breaks and other incentives since it brought the 787 assembly to South Carolina more than a decade ago.
Boeing’s South Carolina plant, January 7, 2021, in North Charleston. Starting in March, Palmetto State will be the only place where the company will build its 787 Dreamliner. Grace Beahm Alford / Staff
Perspective 787
On January 27, Calhoun told investors that he might “get that one right,” referring to the month-long inspection process for 787.
“But this is a time when we have to fix some things and do some of the things that we would like to do,” said Calhoun. “So I put very little pressure on the production and engineering team to get things done very quickly.”
At the moment, the 787s in production are being inspected and reworked, if necessary, so they will not need any additional revisions after they leave the line.
But whatever the underlying problem that is causing some 787 aircraft to fail to meet engineering specifications, it has not been resolved at this time.
Calhoun said that there will be “no formal approval” from the Federal Aviation Administration on the 787 issues, but emphasized that the company “will ensure that the FAA feels comfortable with every action” they take.
In a statement to The Post and Courier, the FAA said that “it is continuously involved with Boeing through established processes for Continuous Operational Safety and manufacturing oversight to properly address any problems that may arise.”
One of the big questions for the future 787 program is how much it will be affected by the shift in the market from double aisle to single aisle jets, said Richard Aboulafia, aviation analyst at Teal Group, based in Fairfax, Va.
Widebodies like the Dreamliner are preferred for international long-haul flights, which should take longer to recover from the pandemic COVID-19.
“It is certainly in a better position than the larger jets, but it is still vulnerable,” said Aboulafia of the 787.
These “larger jets” include the 777X made in the state of Washington, whose debut Boeing delayed until 2023. On February 2, Bloomberg reported that the largest customer for the 777X, Emirates, was considering exchanging part of its order for a 787 smaller Dreamliner.
Now, Aboulafia said, having a production line in North Charleston making 787s at a low single-digit rate is feasible. It is not clear, however, when production could be increased again and by how much.
The 787 program could present a “loss of reach” if production needs to be reduced again, Smith told investors at the January meeting.
This reference to a “loss of reach” has to do with Boeing’s accounting method. Boeing adds what it expects from the entire program to defray and part of the cost against deliveries. The number of deliveries and the pace of production affect the profitability over the life of this program.
In 2020, Boeing changed its accounting to be based on the expectation of delivering 1,500 of its 787 jets during production. This was adjusted from 1,600 pre-pandemic.
That’s not a big difference, though, said Bjorn Fehrm, an analyst at Leeham News, with a focus on aviation.
“The program is not in real trouble,” said Fehrm.
Yes, the market has changed because of the pandemic and quality problems must be corrected. But, he said, the 787 “is a good aircraft” and, he argued, Boeing should deliver hundreds more.