How should Boeing do its books?

What companies make, and report as income, depends on how they do their books.  For Boeing, the problem is accounting for the fantastic expenses of new product development.  Take the 787 program.  Originally planned to cost $5 billion to develop, it went ten times that, $50 billion in outgo (expenses) before a single 787 could be sold.  If Boeing had just reported the expenses in the year they were incurred, Boeing would have shown massive losses for five years in a row.  Which would have done awful things to its stock value, its credit, and its image. 
   Boeing used "program accounting" instead.  The horrible expenses of 787 development were held somewhere, off the books, until the 787 started to sell.  Now these massive expenses are divvied up on each 787 sale, after sales begin.  Which makes Boeing's books look a helova lot better during the development time.  The Wall St Journal didn't explain a few crucial details, like how long Boeing can take to write down the 787 expenses.  Clearly forecasting a production run of 50 years drops the expense per aircraft a lot compared to a production run of 10 years.  Boeing could argue that since the old 747 stayed in production for 50 years, the newer and more fuel efficient 787 might last as long.  And just where the expenses are recorded, (on the books, off the books, in the cloud, somewhere) is not mentioned.  The Journal does say that "program accounting" is legal.
   Spending $50 billion on new product development is clearly a good thing.  Without the 787 Airbus would take over the market.  We need a way for companies to make super expensive investments in plant, equipment, and new product development. 
   I'm not an accountant.  In my simplistic view of the world, you do the books every year.  You list expenses, and income, and report the profit or loss every year.  But looking at the Boeing case, maybe we need "program accounting". 

EPA gets airborne

The EPA just claimed jurisdiction over the world's airlines.  They are gonna publish regulations on aircraft emissions.  Not that this will reduce emissions, it will just serve as a tax on air travel. 
   The best engineers in the world have been working flat out for 100 years to make aircraft more efficient.  They have had some success, new airliners with the latest engines are a tad more fuel efficient than ones built 10 years ago.  Boeing and Airbus salesmen claim as much as 20%, most people will allow them 5%.  That's enough for the airlines to order new planes and mothball what they are flying now.  Boeing has a backlog of 900 orders for its latest 787 model.  And nearly as many for its re engined 737 MAX.  Airbus is doing likewise.  In short, the most fuel efficient possible airliners are in full production and going into service as fast as they roll off the production line. 
   With jet fuel at $2.50 a gallon the airlines have all the incentive necessary to conserve fuel as much as possible.  The air frame builders have every incentive to improve fuel burn, namely,  planes that burn less fuel have better range and can haul bigger loads. 
   In a nutshell, market forces have made air travel as fuel efficient as possible.  EPA regulation won't improve anything, it will serve in place of a tax.  In the depths of Great Depression 2.0, we don't need more taxes. 

Some smoke, no fire

Boeing's mods to the 787 battery system are at least partially successful.  On 14 Jan, this year, A JAL 787 started to smoke while standing on the ramp.  A single cell in the eight cell main battery got in trouble, heated up, and vented.  The main part of the 787 mods was a fireproof metal battery box vented overboard.  That part worked fine, the overheated cell did not touch off the rest of the cells in the battery, the ovrheating/fire was contained inside the new battery box.  Not clear is the effects of such a failure in flight.  Depends upon the flight I suppose.  If the engines keep running, the engine driven alternators will supply plenty of juice.  If we have first a battery failure, and then total engine failure, will the batteries ( there are two of them) have enough juice to get the gear and flaps down,  power the radio, and keep the cockpit instrument lights alive?  And keep the fancy fly-by-wire system working? 
   Anyhow, doesn't look like they have licked the battery bursts into fire problem, but the battery box is strong enough to contain the fire.

Airbus wins Japan Airlines Order

Japan Airlines just signed a deal to buy 31 A350 airliners from Airbus.  At $200 million each, this is $12 billon in sales, quite a chunk of change.  The A350 is so new it just made it's first test flight this summer and has a year or two of testing and certification before it can be delivered.  It's carbon fiber (fiberglass) construction, intended to compete with Boeing's 787.   Boeing could have had this sale, if their 787 had not been so late, and if it hadn't had those battery fires.   Up until now, Japanese airlines were all Boeing fleets, Boeing and the Japanese industry had numerous joint ventures and cross sales arrangements.  Now that JAL has bought Airbus, the other Japanese carriers are expected to follow suit.
   Aviation Week credits the Airbus sale to effective work by top Airbus executives, Leahy (no first name given) Head of Sales, and Fabrice Bregier, CEO.  They also mention JAL's new chairman, Kazuo Inamori saying that an airline as big as JAL ought to have more than one supplier.  Which is true.
  Also interesting is the backlog of Airbus A350 and Boeing 787 orders.  Although Boeing has 979 orders for 787's, Airbus is running hard with 725 orders for the A350.  Each backlog represents about $2 trillion dollars worth of business.  Staggering.

Body and fender work, in fiberglass.

That 787 that caught fire at Heathrow.  The fire started when the emergency locator beacon caught fire.  This gadget transmits distress calls on 121.5, 243, and 406 Mhz in the event of a crash.  It was intended to guide searchers to the crash site, in the rare event that the crash of a big twin aisle jetliner isn't perfectly obvious from the air. Perhaps to guide rescuers to survivors floating around in liferafts after a mid ocean crash.  The ones we had on the C-133 transport would detach from the aircraft and float, so they would not go down with the sinking aircraft.  The C-133 model also had the annoying habit of going off accidentally while parked on the ramp.  When this happened we had a real Chinese fire drill, we had to go out to each and every C-133 to see which one jamming the Guard frequency with beep-beep noises.
  The emergency beacons on the 787 are Honeywell Rescu 406AFN . The cute spelling of the name is a Honeywell marketing idea. The aircraft carries two of them, one above the forward lavatory, and one above the galley.  The one above the galley started the fire. The device was FAA certified  back in 2005 and is in service on a variety of aircraft types.  As might be expected, they are battery powered, and being right up to date, they use lithium batteries.  It was not clear whether a short circuit inside the beacon started the fire or the batteries spontaneously combusted. 
  Which leaves Boeing with a huge burned spot in the carbon fiber fuselage in need of repair.  There was a good deal of discussion in Aviation Week about just how such a repair might be made.  Presumably they lay a big piece of carbon fiber mat over the hole and paint it up with resin.  Like repairing a Corvette's crash damage. 

Poor Boeing

After the notorious lithium battery fires in the 787,  trouble struck again.  A parked 787 at Heathrow started smoking and the fire department was called to put it out.  Nobody was on board at the time.  Nobody has been talking about the cause of the fire.  There is now a scorch mark on the top of the fuselage back toward the tail.   The notorious lithium batteries are located elsewhere in the plane.  This unfortunate accident was largely ignored by the US media in favor of covering the verdict on the Trayvon Martin trial.
   Boeing is surely hoping that it turns out to be human error, such as the crew left the galley stove running after the last flight.  The Brits are cooperating by not making any statements to the media.  Rolls Royce makes the engines.   Clearly everyone wants the 787 to succeed and they are doing the best they can to help the plane along in the face of terrible publicity.

Suits never learn

Aviation Week interviewed Boeing CEO Jim McNerney. 

Aviation Week:  "In retrospect, was the amount of weight you saved with Lithium Ion batteries a case of too much risk for too little reward?"

McNerney:  "It's not as simple as a weight-reduction-gone-awry conclusion because we get added capability from this battery, such as its capacity to quickly charge. In an all electric airplane, its a more capable battery. 

Yeah right.  Added capability is bafflegab.  All a battery can do is supply electricity.  As far "quick charging"  and "all electric airplane", all the battery has to do is get the engines started.  Then the aircraft runs off generator power.  As long as the battery recharges before the engines shut down at the end of the flight, all is well.

   In actual fact, some one at Boeing got carried away with the coolness of lithium batteries and did not bother to consider the fire hazard, which might not have been clear when the 787 was first conceived back in the late 1990's, but was pretty obvious by 2003 or 4.   Everyone else in the industry dropped lithium battery plans after they started catching fire in the 787.

Why have they not discovered a "root cause"?

For the lithium battery problem on the 787?  According to yesterday's Wall St Journal, the National Transportation Safety Board doesn't have anyone who knows anything about batteries or lithium, or even lithium batteries.  They are much more complex than those lead acid car batteries whose chemistry we learned in high school.  At least at my high school.
  Apparently both the Japanese and US safety boards have a single charred battery, taken from a 787, sitting on the bench, looking burnt.  The investigators have no clue as the how they came to catch fire.  And that's where it stands.  They haven't taken the batteries apart, analyzed the charcoal for dendrites, molten lithium, or whatever, 'cause they don't know how.
Gonna be a long time before those 787's fly again.

Lithium Batteries

New Aviation Week came in, and it has stories about the 787 and its battery.  So far it looks like the battery is the culprit, not the charger or 787 wiring.  Boeing is floating the idea of adding a fireproof battery box to contain the fire when the battery decides to burn up.  Silence from FAA and airlines.  I cannot imagine either of them being happy about that solution.  Boeing is wringing its hands over the idea of changing back to ordinary batteries, say nickel cadmium or nickel metal hydride.  The paperwork burden looks awful, it would add a couple of hundred pounds to the empty weight and Boeing is still hoping some magic discovery about the battery will yield a non flammable lithium battery.   The Japanese battery maker has not been heard from. 
   Personally, I think Boeing ought to bite the bullet and get rid of the lithium and get the plane flying again.  They can appeal to their Congressmen to expedite the paperwork thru FAA.  It will cost, but having $200 million airliners piling up around the factory costs too.

Take no small slips

The Boeing 787 Dreamliner program has just announced that the plane is going to be 6 months late. This flagship program, with 710 confirmed orders, is the future of Boeing. No other program can touch the 787 for numbers of aircraft and dollars. These things go for $200 mil or so, which makes 710 of 'em worth about $150 billion dollars. Many of them are exported, which does good things for the US balance of payments. The schedule slip means all that cash flow doesn't start for another 6 months, which has gotta hurt. New airplane programs are incredible money sinks. Years of R&D work, zillions of dollars for parts, huge project team all drawing salaries, and no money coming in until they deliver the product. This slip means Boeing's money is going out for six months longer, which is a whole potful of money.
If the Boeing program managers are good, the slip will be only six months. If you are going to slip a program, better to take one big slip than a lot of small ones. The amount of ill will generated among senior management, customers and other stake holders is about the same for a big slip as a small one. It's tempting to make the program slip as small as you can, thinking you look better that way. "We are only a few weeks late, that's not so bad". But, if a few weeks later you have to admit to another small slip, and then another, and another, your credibility goes down the drain, and all the stakeholders have multiple chances to get mad at you. Better to do a realistic reschedule and take enough time so your team can in fact meet the new schedule even if it means a long slip.