Even as its Dreamliner passed a testing milestone, Boeing’s acquisition of Vought is creating a firestorm in Washington as varying factions worry about the loss of Boeing in the Pacific Northwest state. Boeing is continuing with tests of the 787, taxiing the new bird for the first time at Paine Field. It was the first time it taxied under its own power and conduced low-speed taxi tests checking steering and braking systems.

First, however, the news. Yesterday, Boeing announced a $580 million deal to acquire 787 subcontractor Vought and assign it more Boeing work. The transaction, giving the manufacturer a production facility outside of Washington – one with lower labor costs and plenty of room to expand – is set to close this quarter pending certain conditions and consent of Vought lenders.

The manufacturer said the acquisition will accelerate productivity and efficiency within the troubled 787 supply chain. It also said it will boost composites structures capability. Dallas-based Vought, which fielded much criticism on the 787 work at its North Charleston, S.C. facility, will now be owned and run by Boeing. The South Carolina facility builds a key structure for Boeing's 787 Dreamliner.

For Vought, whose quality issues created great problems for Boeing and its customers, it spells additional capital for further investment in the 787 program. It has been unable to gain additional financing for the hundreds of millions needed for the program owing to the tight credit market. The company underestimated the money needed for the program and, thus far, has spent twice as much as anticipated.

Boeing will forgive requirements for Vought to repay monies advanced to it and cut a separate agreement for Vought to pick up work on the 737, 777 and 787. Through the agreement, Boeing will acquire, among other things, the facility, assets and inventory as well as assume operation of the site.

Once acquired, the North Charleston facility will be managed by the 787 Program. The Vought facility performs fabrication, and assembly of structures and systems installation of 787 aft-fuselage sections, which are made primarily of composite materials. After the transaction, Vought will continue its work on many Boeing programs including other components of the 787, as well as structures and components on the 737, 747, 767, 777, C-17, and V-22 through operations located elsewhere. Boeing’s 787 orderbook stands at about 850 orders although several have been cancelled since its announcement of a further delay in the first flight.

"We look forward to welcoming the South Carolina team to Boeing and continuing our relationship with Vought to bring the most value to the 787 and our other programs," said Boeing Commercial Airplanes President and CEO Scott Carson. The Vought facility has 500 employees.

"Integrating this facility and its talented employees into Boeing will strengthen the 787 program by enabling us to accelerate productivity and efficiency improvements as we move toward production ramp-up," he continued. "In addition, it will bolster our capability to develop and produce large composite structures that will contribute to the advancement of this critical technology."

"We take great pride knowing that we have been able to satisfy the technological and physical demands of the 787 program alongside much larger companies," said Elmer Doty, president and CEO of Vought Aircraft Industries. "However, the financial demands of this program are clearly growing beyond what a company our size can support. We are pleased that we will continue our 787 involvement at a component manufacturing level, as well as provide on-going technical capabilities that have helped make Charleston a world-class composite facility."

Wither Washington
Analysts suggest Vought acquisition is a clear sign of Boeing’s dissatisfaction with the state. Leeham Analyst Scott Hamilton, who earlier predicted the demise of Boeing work in the region, said, in addition to Vought and Washington, San Antonio is being considered for the second production line. Boeing’s final decision is expected this fall.

Yesterday’s announcement strengthened efforts to retain a strong aerospace industry in the area. Washington officials dispute that Boeing is dissatisfied, citing the fact that Boeing’s wish list presented prior to the legislative was granted en masse. Rather, suggested local officials, Boeing’s top priority is labor peace given the fact that four of the last seven negotiations involved a strike which cost the company over $9 billion in revenue and $2 billion in lost profits. They have also counted as the most work stoppages of any state in which Boeing operates. Government officials are frantically brokering labor peace.

Other priorities include the fact that Washington is one of the highest for worker’s compensation and unemployment insurance. Boeing wants reductions on those two cost fronts as well as the eradication of a worker’s privacy bill supported by the union. Issues cited by other aerospace manufacturers include the inability to hire skilled workers, the need for better worker training and the inability to gain work visas for potential employees from abroad. Indeed, Deloitte recently released a report citing many of these issues in its review of the aerospace competitiveness of Washington.

“You might think of the reaction to the 787 news as the first sign of panic in Washington state,” said Innovation Analysis Group in a post yesterday. “For years unions have kicked Boeing. Organized labor treated the firm as a milk cow to be used and abused. Voters in the state repeatedly elected people who would attempt to protect Boeing, but made sure these elected officials were labor friendly even as Boeing was given tax benefits…Boeing's future is outside the Puget Sound area.”

IAG said business, community leaders, labor and government must unite to retain the 787, and a second production, within the state. It called for the creation of a competitive environment that would enhance the local aerospace industry.

And IAG is not alone, for the powers that be are gathering. The recently formed Aerospace Futures Alliance is seeking additional support, according to a letter sent yesterday by Executive Director Linda Lanham. The partnership, including 70 businesses and other organization, is helping Boeing fight for the Air Force refueling tanker contract.

In her coverage of yesterday’s economic roundtable of state and local officials in Everett, Seattle Post Intelligencer Reporter Andrea James said local officials suggested putting everything on the table including a no-strike clause but union officials are looking for job security as well. One official indicated a 20-year, no-strike clause would be “the single most important thing to guaranteeing a second production line in the state,” according to James.

"We are the home of Boeing," said Governor Chris Gregoire, who hosted Tuesday’s round table. "Chicago ain't building airplanes. Washington state's building airplanes and we're daggone proud of it."

In Pictures: 787 stretches its legs on Paine Field runway
www.komonews.com/news/50145437.html

Good News for Boeing
Meanwhile, the manufacturer announced the identity of one of the unnamed customers with the SunExpress $460 million order for Next-Geneartion 737-800s. The Turkish airline is taking six, having introduced the type to its fleet with a lease in 2000.

Founded in 1989 as a joint venture between Turkish Airlines and Lufthansa, SunExpress is a scheduled and charter carrier serving the Turkish tourist market, currently operating an all-Boeing fleet of 19 airplanes. The new airplanes will be equipped with performance-enhancing blended winglets, which will improve efficiency and reduce fuel consumption and are already installed across the airline's existing 737-800 fleet.

SunExpress operated its first Next-Generation 737, via a leasing company, in 2000. Since then it has grown its Next-Generation 737 fleet to 16 airplanes. "SunExpress has capitalized on the traffic growth to, from and domestically in Turkey with the most reliable and efficient single-aisle airplane in the industry, the Next-Generation 737," said Aldo Basile, vice president Sales, Europe and Russia, Boeing Commercial Airplanes. "Today, SunExpress is one of the leading private carriers in Turkey with ambitious targets for the future." The airline also operates three Boeing 757s.

"We are proud and grateful to our shareholders Turkish Airlines and Lufthansa for supporting us in adding new aircraft to our fleet via direct purchase," said Paul Schwaiger, managing director, SunExpress. "These six new Boeing 737-800s will become great assets for our company while growing in domestic and international markets. The 737's stellar reputation for environmental friendliness and superior efficiency is an excellent fit for our business requirements."

Earlier this year, Boeing announced performance changes to the Next-Generation 737 that will reduce fuel consumption by 2 percent by 2011 through a combination of airframe and engine improvements. Airplane structural improvements will reduce drag on the airplane, reducing fuel use by about 1 percent. Boeing's engine partner, CFM, is contributing the other 1 percent fuel savings through hardware changes to its engine.

Boeing Delivery and Order Numbers: Read 'Em and Weep