Boeing makes gains in year of turbulence

It was the best of times, it was the worst of times. It was a year of fundamental shifts within Boeing.

In 2004, the leaden skies above the company's local operations at last began to brighten.

• A spectacular Navy contract worth potentially $40 billion secured the future of the 737 and the Renton plant.

• The 7E7's successful launch boosted morale in Everett. More than 3,600 people are now working directly on the program, according to internal documents obtained by The Seattle Times.

• The aviation industry worldwide slowly turned around, orders rose and Boeing prepared to ramp up production rates.

Internal documents show Boeing plans to increase by 25 percent and more production rates on its 737, 777 and 747 lines in 2005, with further increases in 2006.

• After three years of massive layoffs, Boeing began hiring again in the Puget Sound area.

"It's been a positive year," said Mark Blondin, Machinists union district president, who has seen 1,200 members recalled to work.

And yet, threatening clouds still appeared.

• Continued revelations of scandal on the military side of the business blackened Boeing's corporate reputation. That may prove costly in lost government business and already threatens the continued viability of Everett's 767 production line.

• Airbus delivered more airplanes and won more orders, maintaining its dominance of the commercial-jetliner business.

Airbus' steep ascent spurred Boeing to initiate an inconclusive diplomatic trade war between the U.S. and Europe over jet-industry subsidies.

"The thing that is still a burr under our saddle is that Boeing Commercial Airplanes is No. 2 in the world," said Charles Bofferding, executive director of the Society of Professional Engineering Employees in Aerospace. "It doesn't look like that's going to be changing."

Against that competitive backdrop, a dramatic transformation inside Boeing's commercial division proceeded.

• In Wichita, Kan., Boeing's huge fabrication plant is for sale.

• In Seattle, Boeing began prototyping the new 7E7 snap-together assembly process.

• In Everett, it took initial steps toward a moving assembly line for the 777.

• In Renton, it expanded the moving line for the 737, now billed as the "fastest-assembled large commercial jet in history."

Changing the way it makes airplanes, Boeing is rapidly approaching a longtime goal: to focus only on design, streamlined final assembly and marketing of planes, with detailed fabrication work done by supplier partners.

Can Boeing ever be No. 1 again or will its slide accelerate? The year ahead looks crucial.

Good news

In June, Boeing won a stunning victory over Lockheed Martin and gave Renton a new lease on life.

The U.S. Navy awarded Boeing a contract to develop an anti-submarine ocean prowler based on the 737 airframe.

On other military programs, commercial jets are typically modified at defense-oriented plants outside Washington state. But the Navy's 737s will be modified on a new, dedicated assembly line in Renton.

Boeing will produce seven test aircraft under the initial development contract, worth $3.9 billion. If that's successful, the program is potentially worth more than $40 billion in sales to U.S. and overseas military.

The upshot: The Boeing plant at the southern edge of Lake Washington, previously scheduled to wind down perhaps as early as 2012, will be pumping out 737s for perhaps another 25 years.

In addition to securing the 737 production jobs, already the Navy program has added almost 450 high-tech engineering jobs in Renton.

On the commercial side, even though U.S. jet sales remain badly depressed — with several carriers including Delta, United and US Airways in serious financial trouble — the worldwide market has finally recovered.

For the first time in four years, Boeing's orders are up over the previous year.

Internal documents show Boeing plans to increase the monthly 737 production rate from 17 to 21, the 777 rate from three to four and the 747 rate from one to 1-½.

By 2006, as many as 28 of the 737s could be rolling out per month. Boeing declined to comment on the internal numbers.

The possibilities are even brighter as the forthcoming 7E7 jet enters the picture.

Yesterday, John Feren, 7E7 vice president of sales and marketing, didn't back off an earlier projection of 200 orders by year-end, even though Boeing has announced only 112 orders to date.

"There's four shopping days to go," Feren said. "We might as well stick with our plan. Is it going to happen? Stay tuned."

Whether Boeing meets the 200 target by Friday, analysts already see the 7E7 as a winner.

"The 7E7 is a success," said Adam Pilarski, an industry analyst with Avitas. "It's probably the bright point in (Boeing's) year."

Bad news

And yet, though 2004 has been a year of recovery, Boeing still badly lags its nemesis Airbus.

Attempting to spoil the 7E7 success story, Airbus this month formally offered to airlines a rival in that size category, the A350, an A330 derivative.

And next month, it will roll out the superjumbo A380, set to supersede the 747 as the biggest airliner flying.

Boeing delivered 285 airplanes in 2004. Airbus is set to deliver as many as 320.

As of yesterday, Boeing had 246 firm orders in 2004. That excludes many all-but-finalized orders, like last week's order from Japan Airlines for 30 7E7s. Even if Feren comes through with new 7E7 announcements this week, the firm-order total may not rise.

Airbus' year-end total of firm orders is expected to top 300.

This month, anxious about the growing sales gap, Boeing replaced chief salesman Toby Bright.

"(Boeing was) again outsold and outproduced by Airbus," said Pilarski. "They removed their chief sales guy; that's generally not a good sign."

And then there is Boeing's other nemesis: Sen. John McCain.

Early in the new year, the Arizona Republican will become chairman of the key Senate subcommittee that oversees the Air Force. If he succeeds in his publicly expressed intention to stop an Air Force tanker deal, Boeing will be forced to close down its 767 line in Everett.

That outcome came closer in 2004. The testimony of former Air Force chief acquisitions officer Darleen Druyun undermined Boeing CEO Harry Stonecipher's effort to portray the tanker-procurement problems as isolated.

On being sentenced to prison in October, Druyun said she illegally favored Boeing in several other major contracts.

One consolation: If the 767 line closes, layoffs are unlikely.

According to internal documents, fewer than 600 people now work directly on the slowed-down production line.

"I'd never say never; but I'd anticipate that most of the people would move (if the line shut)," said Jeff Peace, 747 and 767 derivatives-program manager. "They'll go work on something else."

Prospects ahead

As this year closes, the shape of a transformed Boeing manufacturing organization is apparent.

Boeing is getting out of the parts business. The large Wichita factory that supplies Puget Sound operations with massive subassemblies may soon be in new hands. A decision on a sale is expected early in 2005.

If that deal goes through, the first Boeing touch on a 737 will come only after a complete nose-to-tail fuselage arrives in Renton.

From that point, the target is to cut final assembly, already honed to 12 days, down to eight days.

That's the way of the future in Boeing manufacturing: large pieces arriving from other companies to be finished rapidly around Puget Sound.

That's the future for the 777. And it's the plan for the 7E7.

At the company's research-and-development plant in Seattle, engineers have this year been perfecting the 7E7's composite fuselage-manufacturing processes.

And Boeing has acquired the first of three 747-400s that will be modified into bulge-topped air-cargo freighters for transporting partially built 7E7 assemblies to Everett from all over the world.

Executives believe that if they can successfully put these new systems into place, Boeing can aspire to be No. 1 again.

There's still a way to go.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com