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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

January 16, 2013 at 10:22 AM

The Dreamliner: Now it’s a crisis

Pop quiz: Your company, one of the foundations of American industrial power and exports, is heading into the Pacific Century. What do you do? In Boeing’s case, it moved its headquarters from Seattle to that Pacific Rim powerhouse, Chicago. I never understood that. But I never understood the radical outsourcing of the 787 Dreamliner, an experiment that proved to be costly, inefficient and now dangerous.

An All Nippon Airways 787 made an emergency landing yesterday (Wednesday in Japan) after alarms indicated smoke and a possible emergency, and a “burn-like smell” wafted into the flight deck and cabin. The incident was eerily reminiscent of earlier electrical system problems, including a severe fire in a battery on an airplane on the ground in Boston. Fortunately, this was a domestic flight. What is this had happened in the middle of the Pacific Ocean or over the North Pole? Now both ANA and Japan Airlines have grounded their fleets of Dreamliners. Later today, the Federal Aviation Administration grounded all 787s.

The Dreamliner involved perhaps the most audacious leap in leading-edge technology ever to be undertaken in a commercial airliner, not just with its carbon composite construction but its electrical system, including lithium-ion batteries that required a special approval from the FAA. The composites and much greater dependence on the electrical system mean less weight, more fuel savings, hence the game-changing potential of the airplane. But, as the Seattle Times’ Dominic Gates reported last week, “Rather than telling systems suppliers exactly what they needed to build, as it had on other planes, Boeing designed the 787’s top-level architecture and asked suppliers to design the details.”

This brings us back to a narrative that, although perhaps oversimplified, continues to mostly fit. McDonnell Douglas used Boeing’s money to take it over, imposed a management indoctrinated by the Jack Welch stick-it-to-American-workers “shareholder value” ideology, turned its back on Boeing’s robust engineering culture — and doing so naturally required the object lesson of moving the headquarters from Boeing’s home of Seattle. That’s the Chicago way.

Ah, there was a reason that companies such as General Motors and Ford pioneered vertical integration a century ago. It gave them tight control over the quality and efficiency of their products (until too many years of good times let apathy set in). That kind of organization is gone with the wind. But the Dreamliner shows the limitations of the opposite model. One can’t successfully build the most advanced airliner in history the way companies make cheap imports from China.

Senior management has never been held to account by the board for the resulting delays in the Dreamliner, which push out the date at which the airliner will make a profit to… Now the Welch clones face a genuine crisis. Last week, when federal regulators launched a sweeping and unusual review of the 787 after the Boston fire, a source said “Nothing suggests there is an imminent safety issue.” The latest incident has changed that. Boeing’s brass needs to have their hair on fire — and if they don’t, the board should make the heads to which aforementioned hair is attached roll. But the bean-counters, Wal-Mart-worshipping outsourcing consultants and tax-avoidance specialists can’t fix things now. Only the engineers can — and the engineering culture that made Boeing great.

The costs of endless war and empire make Boeing’s bet on growing defense business more iffy. Commercial airplanes is where the company will be made or, if the Dreamliner fails, broken. Maybe this reality will finally penetrate inside the Loop and the opulent precincts of the company’s leadership.

And that brings me to the Society of Professional Engineering Employees in Aerospace, which is rightly steamed to be disrespected by the offers made by a flush company with highly-paid leaders. Unfortunately, SPEEA must take one for the team this time and avoid a strike. The alternative is not merely to jeopardize the long-term viability of the Puget Sound as a major Boeing employment center. It is endangering the Dreamliner program. I hope the union leadership is willing to play the long game, so its younger members have a future in increasingly rare good American jobs.

And Don’t Miss: 401(k) dipping endangers retirement security for millions || Washington Post

Today’s Econ Haiku:

Eleven million

That’s all Jamie gets this year

Whale of a pay cut

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