Boeing Looking At Cost Of 787 Titanium Use

Boeing, which loses about USD$23 million on every 787 Dreamliner that leaves the factory, is trying to stem the losses by cutting the use of one of its signature ingredients - titanium.

The strong, lightweight alloy used extensively on the 787 costs seven times more than aluminium and accounts for about USD$17 million of the cost of the USD$260 million plane, according to industry insiders.

The push to reduce titanium costs is part of a broader, long-running effort by Boeing to make the 787 profitable that includes pressing suppliers for price cuts and adjusting assembly lines to improve efficiency, said Bob Noble, vice president of Boeing's Partnering for Success.

Boeing's other commercial aircraft are profitable, and on Wednesday, Boeing repeated its pledge to break even on the 787 this year on a cash basis. With titanium making up 15 percent of the weight of an empty 787, far more than other Boeing airliners, the material is under special scrutiny.

Boeing hasn't disclosed how much it cost to develop the 787, which was introduced in 2011, but it has spent more than USD$30 billion on production, tooling and one-time costs. And it has curbed its ambitions for future planes. Former chief executive Jim McNerney said last year Boeing didn't plan any more "moonshots" like the 787.

787 COSTS RISE

The 787 represents Boeing's bid to reinvent the civilian airliner, using lightweight materials and new engines to allow it to fly farther and burn 20 percent less fuel than current aircraft.

Commercial airliners typically lose money in the early years of production until the heavy upfront investments in engineering and production are repaid. Boeing's accounting spreads those costs over a large block of planes the company expects to deliver.

Investors expressed concern in April when the 787's deferred production cost balance reached USD$26.9 billion, about USD$2 billion more than earlier targets. The tally is a gauge of the losses Boeing has built up making 787s so far.

Boeing said the 787 deferred cost balance will keep rising until 2016, when the company plans to begin producing 12 a month, up from 10 currently. At that point, Boeing expects the balance will start decreasing.

Overall, Boeing said it earns an operating profit margin of 10.5 per cent in its commercial aircraft business, including sales of planes and related services.

But the 787 now faces dual competition from Airbus: its own carbon-composite plane, the A350, and a low-cost alternative, the A330neo, based on an older design updated with new, fuel-efficient engines.

Those are likely to keep price pressure on both plane makers, "especially in a low oil price environment," said Russell Solomon, aerospace analyst at Moody's Investor Service.

While the rising level of deferred costs affects the 787's ultimate profitability, Solomon said, "it's the ongoing cost that we're really paying attention to."

SUPPLY CHAIN SAVINGS

Boeing is looking for even greater savings in its supply chain and production methods. The changes are not likely to affect raw metal prices, but could reduce the sales of some suppliers, and stem concern about supply constraints from Russia.

One large 787 piece, used to join the wings to the body, shows the potential for saving. The piece, known as the double plus chord, requires Boeing to buy about 40 pounds (18kg) of titanium for every pound that ends up flying on the aircraft, said Bill Bihlman, president of metal consultancy Aerolytics.

After the piece is forged, a large amount of the outside must be ground off, leaving interior metal with intact grain and strength. Add in the high cost of machining hard metals like titanium, and the value of these pieces soars.

"You can see why there's so much emphasis on titanium," Bihlman said.

Noble, the Boeing official, declined to discuss specific parts, but said pieces with high "buy-to-fly" ratios are a focus.

"There are a whole lot of strategies we can use to reduce the buy-to-fly," he said.

But substituting other metals won't be easy, Bihlman said. Steel weighs 65 percent more than titanium and aluminium lacks titanium's strength.

But even though the titanium savings may ultimately be modest, Bihlman said, Boeing will wring them out "because they have to."