Flake News

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Fake news, very fake news or in many cases it is just flake news. Flake news? The lack of context and perspective and trying to draw parallels with irrelevance. Take this piece from Robert Reich taking a trademark swipe at Trump rationalizing it with a very poor understanding of the industry he seeks to convince his audience he is an expert in:

“I just watched Trump give a speech at South Carolina’s Boeing facility where the new 787 “Dreamliner” is being unveiled. Trump said it was “built right here” in South Carolina, and that “our goal as a nation must be to rely less on imports and more on products made here in the U.S.A.” He also called for “a very substantial penalty to be paid when they fire their people and move to another country, make the product, and think that they are going to sell it back.” And said he’ll lower taxes and get rid of regulations that send our jobs to those other countries. “We want products made by our workers in our factories stamped by those four magnificent words, ‘Made in the U.S.A.'”

All fantasy. In fact, almost a third of Boeing’s Dreamliner comes from abroad — from countries with high taxes and high regulations, good wages, strong unions, excellent schools including technical education, and universally-available health care.

1.The Italian firm Alenia Aeronautica makes the center fuselage.

2. French firm Messier-Dowty makes the aircraft’s landing-gear system.

3. German firm Diehl Luftfahrt Elektronik supplies the main cabin lighting.

4. Swedish firm Saab Aerostructures manufactures the access doors.

5. Japanese company Jamco makes parts for the lavatories, flight deck interiors and galleys.

6. French firm Thales makes its electrical power conversion system.

7. Thales selected GS Yuasa, a Japanese firm, in 2005 to supply it with the system’s lithium-ion batteries.

Oh, and the first delivery of the Dreamliner is scheduled to take place next year – to Singapore Airlines. Currently there are 149 orders for it from worldwide customers including British Airways and Air France.

In other words, contrary to Trump, the Boeing Dreamliner is made all over the world and will be sold all over the world.

His “America First” economics is total demagoguery. We get a first-class workforce by investing in their education, training, infrastructure, and healthcare — not xenophobic grandstanding.

What do you think?

Well Mr Reich. Here is what I think.

The Boeing 787 Dreamliner has been one of the biggest program failures in the company’s history. While a technical marvel it was three years late, largely exposed by Boeing’s disintermediated supply chain, a break with decades of practice.

Aircraft production is a precise business. It requires that all parts arrive on time and to achieve that all suppliers must be on board. The 3-month delay of a $1 plastic fastener can mean a plane can’t be fully completed let alone delivered. So multi million dollar wing set production gets impacted. So do landing gears, engines and stabilizers. Everything is affected. Boeing’s delays sent many suppliers into financial distress. In some cases it was so bad Boeing had to step in to buy out suppliers (e.g. Spirit) to prevent further delays and cost overruns.

The second big flaw in Mr Reich’s article is that Boeing is a multi-nation aircraft for a reason. It is what is known as risk and revenue sharing partnerships (RRSPs). Companies bid to be on the project and pay a part share in it. It is an investment. They are shareholders to all intents and purposes. Companies like Mitsubishi Heavy and Kawasaki Heavy bought a stake in the project. Boeing was the project manager and designer. In short international companies bought themselves a ticket to be on the 787 with the hope if it was a success they’d be higher up the technology curve when 777 or 737-Max went to similar production materials and processes.

Boeing enthusiastically embraced this outsourcing, both locally and internationally, as a way of lowering costs and accelerating development. The approach was intended to cut the 787’s development time by 30% and with it, development cost from $10 to $6 billion. Estimates show that cost ended up being $20bn and 3 years late and is expected to break even in its 10th year. It is far from the success it was meant to be.

Another thing with aircraft suppliers is their scarcity. Aircraft manufacture comes at huge fixed costs and low lot volume. Around 120 Dreamliners are made a year and the reason the supply chain is like it is makes perfect sense. Suppliers need guarantees to ensure production levels meet their financial objectives. Parts certification is a tricky business.

Boeing needs to be sure suppliers meet certification requirements. If people think pharmaceutical companies going through the FDA process to sell a new drug is a nightmare, they should try to get a new aircraft past FAA regulations. While a drug might have minor side effects like drowsiness, a plane has to fly safely every time in almost any condition. Therefore the quality, durability and safety aspects for a plane that flies for up to 40 years is second to none. There are no short cuts.

The Boeing 787 was also made with all new production processes and materials not used before on this scale. The wings were carbon fibre composite. Mitsubishi Heavy not only agreed to be a RRSP but was willing to invest to meet Boeing’s production goals. Toray, the maker of the composite material was seen as the most reliable and stable supplier. These were cold hard facts and when building a new aircraft, airline customers want to minimize risk. Boeing needs to guarantee risk minimization and made rational decisions based on that. Had those suppliers been all in the USA you can be assured US suppliers would have been picked. Sadly many have lost competitiveness. An unknown fact is that Lockheed Martin called in Toyota to help it finesse its production processes for its disastrous F-35 programme.

So while Reich points to the ‘social’ qualities (education, healthcare, strong unions and good wages) of what goes to make an airliner they are generalizations to say the least. Japanese unions are far from strong and definitely not militant. Mitsubishi Heavy wing workers would be paid the same as their elevator assembly brothers across the hall. They wouldn’t necessarily be on high wages. I would imagine that many of Boeing’s designers have Ivy League or similar pedigrees. Assemblers would also possess serious qualifications.

In any event the point Trump was making was the same jawboning at election time. Make America First and keep jobs at home. Ideally he would be saying to Boeing that following Airbus’ example of assembling a portion of A320s in China is not his wish. In fact Boeing now has a joint venture with a Chinese entity that installs interiors and paint exteriors on 737 airliners. Is he a criminal for requesting companies stay at home?

Yes Mr Reich, President Trump is not perfect but he is doing his level best to turn around the fortunes of a country sold out by the establishment over many decades. Indeed if he cuts corporate taxes and incentivizes companies to stay at home because of a rational reason to do so that will be key. Instead of sticking it to him Mr Reich, try look beyond your prejudice to see why 64mn Americans put him in charge of their future. He may well fail but voters took that risk when they put him in office. They care not for the petty issues you raise in your articles.

This article seeks to take pot shots without assessing the full facts of an industry. What you wrote wasn’t fake news but flake news.

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