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Stock of the Day
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Boeing Company (BA)
Boeing Acquires Remaining Stake in 787 Plant to Reduce Bottleneck
Boeing Company (BA: Charts, News, Offers), the world's second-largest commercial-aircraft maker, announced that it has acquired the remaining 50% stake in Global Aeronautica, LLC, a joint venture that owns a South Carolina assembly plant used to make the fuselage for its 787 Dreamliner from Alenia North America. Alenia North America is a subsidiary of Italy's Alenia Aeronautica, a Finmeccanica company that founded Global Aeronautica with Vought Aircraft Industries in 2004 to join four sections of the 787 that are then flown in a special aircraft to Boeing's factory in Everett, Washington, for final assembly. The original plan called for the new 787 composite jet to be built in pieces by vendors around the world, however the new production process contributed to delays that have set the 787 program back for more than two years. Boeing already has 840 orders for its Dreamliners valued at about $140 billion, but no money is coming in until it delivers. Could the buyout actually help Boeing get back on track in a cost effective manner?
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The Boeing 787 Dreamliner is the first airliner to have a body and wings made mainly of composite plastics instead of aluminum, which are lighter and help conserve fuel. However, this difference required greater reliance on global suppliers to produce major sections of the Dreamliner. For instance, the Dreamliner's center wing box is built by Fuji Heavy Industries Ltd. in Japan and is shipped to South Carolina to be assembled with the other three sections of the fuselage built by Alenia and Vought before it is flown to Washington for final assembly. But when these suppliers run into financial problem, compounded by the fact that these suppliers generally do not get paid until the planes are delivered, the chain reaction caused the 787 program to experience major delays.
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So what's Boeing to do about the problem? Actually, it has been doing quite a bit. In June 2008, Boeing bought out Vought's' stake in the Global Aeronautica joint venture, adjacent to Vought's 787 production factory in Charleston, South Carolina, for $580 million in its first attempt to rectify the problem. Earlier this year, it bought out Vought's factory, and announced a plan to make Charleston the second final assembly site -- thus eliminating the need to fly the fuselage to Washington. In October 2009, it announced that it will build a new factory adjacent to the Vought and Global Aeronautica plants, to speed up production and counter the delays. Today's announcement completes the process of making Boeing the sole owner of the 787 fuselage assembly site, bringing more of the Dreamliner's operations under its direct control. Jim Albaugh, president and CEO of Boeing Commercial Airplanes, said today in a PR Newswire statement, "The facility near Charleston, South Carolina, is critical to the success of the 787 program. Ultimately, we believe integration of the site will increase productivity for the 787 program and allow us to maintain our long-term competitiveness."
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On the positive note, these changes and acquisitions give Boeing greater control of the assembly process, and would eventually allow Boeing to complete the assembly right in South Carolina without transporting the pre-assembled fuselage to Washington. On the negative side, these spends further drain Boeing's fragile cash reserves, which were partially depleted by a two-month strike by machinists a year ago at the company's manufacturing hub Seattle. Unfortunately, the extra costs associated with the two years delay is a bigger problem that needs to be dealt with. Overall, the buyout appears to be the right move in a series of strategic changes to correct the problem. Now, the question is whether or not Boeing cannot pull the transition off quickly and effectively enough so that it won't find itself in financial hot water in 2010.
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Click here to view a detailed profile of Boeing Company.
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