Boeing's 787 Dreamliner: A Dream Or A Nightmare?

By Christopher Tang (UCLA), Brian Yeh (PwC Advisory), and Joshua Zimmerman (Amgen)

After a delay of 3.5 years and a budget overrun of 10 billion USD, Boeing delivered its first 787 Dreamliner to All Nippon Airways (ANA) in late 2011. Within about one year of service, this turbulent dream has become a series of nightmares. In January 2013, a lithium ion battery was involved in a fire onboard a Japan Airlines 787 in Boston and an ANA flight made an emergency landing in Japan prompted by a battery alarm alert and presence of smoke. The FAA decided to indefinitely ground all fifty 787s around the world. This event has created a major embarrassment for LOT, the Polish airline and the first European carrier to get the 787, who was banking on the aircraft to build its reputation as an international carrier not only in Poland, but across Eastern Europe.

As Boeing struggles to address the problem and make its fleet of 787 safe to fly again, the public is beginning to realize the enormity of the problem goes far beyond the lithium ion battery issue. Some of the fundamental problems are as follows:

1. Boeing 787's supply chain is complex. To develop the 787 faster and cheaper, Boeing outsourced the design and the development of many critical sections to tier-1 suppliers: fuselage suppliers (Spirit (U.S.) and Alenia (Italy)), electrical systems (Thales (France)), and wings (Mitsubishi (Japan), Kal-ASD (Korea)). However, these tier-1 suppliers regularly subcontract various modules to tier-2 suppliers, who in turn outsource certain components to tier-3 suppliers (Tang and Zimmerman, 2009). For example, Thales was the tier-1 supplier for the electrical system, but it outsourced some of its tasks to tier-2 suppliers: the lithium ion battery to Yuasa (Japan), the charger for the battery to Securaplane (U.S.), and the battery's voltage monitor to Kanto (Japan). This multi-tier supply chain with at least 500 suppliers located in over 10 countries has created major problems for Boeing including a series of major delayed announcements since 2007. With cultural and language differences among Boeing, its suppliers, and their subcontractors, the recurrent major delays and cost overruns should not have surprised anyone.
    
   
2. Boeing's 787 supplier selection is opaque. As the world was tracking down the supplier (Yuasa) who made the lithium ion battery, there were public suspicions about Boeing's supplier selection criteria especially when, unlike another French supplier who made batteries for the Airbus 350, Yuasa had no experience in developing or building lithium batteries for commercial aircraft before (Stewart, 2013). With this kind of opaque supplier selection practice, the public is understandably concerned.
    
   
3. Boeing's 787 approval process is questionable. The public has learned that the FAA allowed Boeing to "self-certify" certain components. For example, the FAA relied on the data generated by Boeing itself to approve the safety of the lithium ion battery. Regarding the battery approval process, there was another concern that Japanese authorities were under pressure from various Japanese airlines to "[relax] safety standards to fast-track the Boeing 787 rollout" (Billones, 2013). By late February 2013, technical experts had identified improper wiring of the battery as the source of the problem. While it is a relief that the root cause of the problem has been identified, the public is now wondering what Boeing is going to do next, especially in light of Airbus' announcement that it will not use lithium batteries on its A350 aircrafts.
    
   
4. Boeing 787's composite technology is unproven. There is an ongoing concern about the safety of the epoxy tape used to connect the wings and the middle-fuselage. Also, technical experts are wondering how the maintenance crew would inspect for stress cracks and fatigue of the composite structure of the 787s when x-ray or ultrasound equipment may be required. Unless there is a workable plan for inspection and maintenance, the public will be undoubtedly concerned.

With so many problems, one may ask: Will Boeing's 787 fly again? You bet. Will Boeing's 787 be problem free? We doubt that. Will the shareholders penalize Boeing for being too "entrepreneurial"? Apparently not. Boeing's stock price has remained relatively stable, reflecting just how much faith the shareholders have in this dream.

Let's hope Boeing's efforts going forward will be sufficient to turn the current nightmare into a sweet dream for everyone, including the passengers.

Sources:

• Billones, C. "Japan relaxed safety standards to fast-track Boeing 787 rollout". The Japan Daily News. January 29, 2013.
• Stewart, J. "Japan's Role in Making Batteries for Boeing". New York Times. January 25, 2013.
• Tang, C.S. "Boeing's missteps". IEEE Spectrum Pod Cast. http://bit.ly/ZGzKNz.
• Tang, C.S., and Zimmerman, J. "Managing New Product Development and Supply Chain Risks: The Boeing 787 Case". Supply Chain Forum: An International Journal. 10: 74-86. 2009.