This year is an important one for Boeing Co.’s presence in South Carolina. As of March, the Palmetto State will be the only place where the company builds its 787 Dreamliner.
When the planemaker announced in October it would make North Charleston its sole home base for the program, it was a shift that planted its footprint more firmly in South Carolina and marked a retreat from its longtime manufacturing stronghold in the Pacific Northwest.
The consolidation comes during a tumultuous time for both Boeing and the 787 program — one that goes beyond the pandemic that has decimated demand for passenger aircraft.
Quality issues are being reviewed, planes are being inspected and not a single 787 has been delivered since October.
Boeing leaders reiterated during their quarterly earnings report Jan. 27 that consolidation of the 787 assembly line in South Carolina would happen in March, several months earlier than initially planned.
But the timeline is still unclear for other key aspects of the Dreamliner program: in the short-term, when deliveries are resuming and, in the long-term, when the sales outlook will recover from the pandemic.
For several months, Boeing has been inspecting all of its completed 787s for a production flaw in the jet’s fuselage. Suppliers were directed to check for the issues, too, and that — along with COVID-19 — has been blamed for a total pause in deliveries.
In the Jan. 27 earnings report, CEO Dave Calhoun confirmed that those delays had continued into the new year.
January was another zero-delivery month, and February will see “few, if any” of the jets handed over to customers, Calhoun said. That means there will have been, at least, a three-month delivery drought for the 787.
Because of that, the jets piled up in inventory — about 80 in total, finance chief Greg Smith said. That means, in order to unload all of them by the end of 2021, as he said the company intends to, Boeing must deliver an average of just over seven of those jets per month starting this month.
Additionally, new airplanes coming off the line will need to be handed over to customers, too.
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 will be pushing out two fewer planes each month on average than it was when the program was at its peak.
When 14 of the 787s were made a month, South Carolina built about half. Now, after several rate reductions announced in 2020, the plant will assemble just five per month. That means at least 60 planes will roll out of the final assembly plant off International Boulevard this year.
In 2019, when the program was unencumbered by the pandemic or a major production issue, Boeing delivered 158 Dreamliners, or an average of about 13 per month, between both 787 sites.
In 2020, just 53 were delivered, and three months came and went with zero deliveries.
Getting more 787s into customers’ hands this year is critical for Boeing. Dreamliner deliveries will be “the largest driver of the improvement in cash flow” in 2021, Smith said in the January meeting.
Some of this year’s deliveries will still take place on the West Coast, despite the impending consolidation next month.
Dreamliners built in Everett, Wash., will still be handed over at that location, Boeing said, and work connected with the quality issues will continue to be done there.
Boeing has also set up what it calls a “join verification site” in Victorville, Calif., where inspections and rework will be done on Everett-made planes.
With output at the North Charleston plant going down to five per month and the inspections of Everett-built jets being handled on the West Coast, the North Charleston site “should be able to handle the flow” of building jets, inspecting them and, eventually, delivering them, said Uresh Sheth, an analyst who tracks 787 production.
Next month’s move
While the official consolidation of the program in March means no more assembly work for Everett, it doesn’t signal major changes for how the plant next to Charleston International Airport will operate day to day.
Production has already slowed to meet the new rate.
Inspections for issues with South Carolina-made jets are underway.
And near-term employment changes aren’t expected, particularly since the company’s South Carolina workforce shrank by 1,163 in 2020, according to an annual employment update released this week.
While some Lowcountry politicians spoke hopefully in 2020 about bringing jobs to the region when Boeing announced South Carolina would maintain its sole 787 assembly site, the company would need to add back hundreds of jobs it shed in the past year just to reach pre-COVID employment levels.
Financial pressure brought on the health crisis led to widespread buyouts and layoffs companywide in 2020, and Lowcountry jobs weren’t immune.
Now, Boeing employs fewer than 5,800 South Carolinians, according to the new headcount, knocking the planemaker down to the second-largest private employer in Charleston County from No. 1, 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 about 130,000 employees worldwide by the end of the year — as of Jan. 1, the count was about 141,000 — but she could not specify if 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 worth of public assistance in the form of tax breaks and other incentives since bringing 787 assembly to South Carolina more than a decade ago.
On Jan. 27, Calhoun told investors he’ll maybe “take a hit on that one,” referring to the monthslong inspection process for the 787.
“But this is a moment where we get to fix some things and do some things the way we would like to do them,” Calhoun said. “And so I have put very little pressure on the production and engineering team to resolve things too quickly.”
Right now, 787s in production are being inspected and reworked if needed, so they won’t require additional reviews after they come off the line.
But whatever the underlying issue is that’s causing some 787 aircraft to not meet engineering specifications hasn’t been solved at this point.
Calhoun said there “won’t be a formal signoff” from the Federal Aviation Administration on the 787 issues, but he stressed that the company will “make sure the FAA is comfortable with every act” they’ve taken.
In a statement to The Post and Courier, the FAA said that it “continuously engages with Boeing through established Continued Operational Safety and manufacturing oversight processes to appropriately address any issues that might arise.”
One of the big questions for the 787 program going forward is how much it will be affected by the shift in the market from twin-aisle to single-aisle jets, said Richard Aboulafia, an aviation analyst with Fairfax, Va.-based Teal Group.
Widebodies like the Dreamliner are favored for long-haul overseas flights, which are expected to take the most time to rebound from the COVID-19 pandemic.
“Certainly, it’s in a better position than bigger jets, but it’s still vulnerable,” Aboulafia said of the 787.
Those “bigger jets” include the Washington-state made 777X, whose debut Boeing just pushed back to 2023. On Feb. 2, Bloomberg reported that the biggest customer for the 777X, Emirates, was considering swapping some of its order for the smaller 787 Dreamliner.
Right now, Aboulafia said, having one production line in North Charleston making 787s at a low single-digit rate is viable. It’s unclear, though, when production could be ramped up again and by how much.
The 787 program could see a “reach-forward loss,” if production has to be reduced again, Smith told investors in the January meeting.
That reference to a “reach-forward loss” has to do with Boeing‘s method of accounting. Boeing adds up what it expects the entire program to cost and expenses portions of the cost against deliveries. The number of deliveries and the pace of production affect profitability over the life of that program.
In 2020, Boeing changed its accounting to be based on an expectation of delivering 1,500 of its 787 jets over the life of production. That’s adjusted down from 1,600 pre-pandemic.
That’s not a major difference, though, said Bjorn Fehrm, an analyst with aviation-focused Leeham News.
“The program is not in real trouble,” Fehrm said.
Yes, the market has changed because of the pandemic, and quality issues must be fixed. But, he said, the 787 “is a good aircraft,” and, he argued, Boeing should go on to deliver hundreds more.