FINAL TRANSCRIPT
BA - The Boeing Company Conference Call to Discuss Postponement
of 787 First Flight
Event Date/Time: Jun. 23. 2009 / 2:00PM GMT
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
CORPORATE PARTICIPANTS
Yvonne Leach
The Boeing Company - 787 Communications Director
Scott Carson
The Boeing Company - President and CEO
Pat Shanahan
The Boeing Company - Airplane Programs VP and General Manager
Scott Fancher
The Boeing Company - 787 Vice President and General Manager
CONFERENCE CALL PARTICIPANTS
Troy Lahr
Stifel Nicolaus - Analyst
Phil LeBeau
CNBC - Media
Joe Nadol
JPMorgan - Analyst
Jon Ostrower
Flight - Media
Heidi Wood
Morgan Stanley - Analyst
Mike Meacham
Aviation Week - Media
Doug Harned
Sanford Bernstein - Analyst
Glenn Farley
King TV - Media
Joseph Campbell
Baclays Capital - Analyst
Paul Merrion
Crain's Capital Business - Media
Howard Rubel
Jefferies & Co. - Analyst
Daniel Michaels
The Wall Street Journal - Media
Robert Springarn
Credit Suisse - Analyst
Lester Holt
NBC News - Media
Ron Epstein
BAS-ML - Analyst
Steve Wilhelm
Puget Sound Business Journal - Media
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
David Strauss
UBS - Analyst
PRESENTATION
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Boeing telecom conference call. At this time, all participants
are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time.
(Operator Instructions). As a reminder, today's conference is being recorded.
I would now like to turn the conference over to Yvonne Leach. Please go ahead.
Yvonne Leach - The Boeing Company - 787 Communications Director
Thank you. Hello and thank you for joining us for our call on the 787 program. I am Yvonne Leach, 787 Communications Director,
and with me here today are Scott Carson, President and CEO of Boeing Commercial Airplanes; Pat Shanahan, Vice President
and General Manager of Airplane Programs; and Scott Fancher, 787 Vice President and General Manager.
After brief comments by the three of them, we will take your questions and in the interest of time, we ask that you limit them
to one please. If analysts have any follow-ups after this call, you should call the investor relations number on 312-544-2140.
Again 312-544-2140 and ask for Diana Sands or Rob Young. Media calls can come to me on 206-854-5027; again 206-854-5027.
Before we begin, I need to remind you that any projections and goals we may include in our discussions this morning are likely
to involve risks which are detailed in our various SEC filings that are available at www.boeing.com.
Now I will turn the meeting over to Scott Carson.
Scott Carson - The Boeing Company - President and CEO
Thank you, Yvonne. Good morning and good afternoon to those of you in Europe. Pat Shanahan, Scott Fancher, and I are here
this morning to discuss the announcement we made earlier today concerning the 787 program. We will leave plenty of time
for your questions, but we would like to start with a few comments.
As our release stated this morning, based on our analysis of results from tests on the static test airplane, we have determined
that we need to make a modification to reinforce a limited area of structure at the side-of-body section of the airplane before
we begin our flight test program. Following detailed analysis which was completed late last week, we decided to postpone first
flight until the modification is made and our team is satisfied that we are ready for fully productive flight testing.
I am convinced that this was, while difficult, the prudent step for us to take. I want to emphasize that the 787 team has made
tremendous progress in recent months. While this development is a disappointment, the limited and localized structural
reinforcement we expect to make is quite manageable. We are already working toward a solution and we are also focused on
continuing our progress on other aspects of the 787 development program.
I am now going to turn this over to Pat Shanahan, who will share with you some more details about the tests and analysis that
led us to take this step and then Scott Fancher, who will talk about our path forward. Pat?
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Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Pat Shanahan - The Boeing Company - Airplane Programs VP and General Manager
Thank you, Scott. Good morning and good afternoon. I will now discuss the testing that was performed and how we arrived at
our decision to postpone first flight.
Late last month during planned 787 static testing, our team was conducting a series of tests that involved bending the wings
of our full-scale test airplane. These tests are part of the normal test process on the path to achieve certification. During one
test, the team identified stress in an area of the side-of-body structure that was in excess of expectations. Our preliminary analysis
of these results indicated that we could proceed with first flight.
After further testing and analysis which we finished late last week, our team concluded that a productive flight test program
could not take place without structural reinforcement in limited areas within the side-of-body join. We decided at that point
that we should postpone first flight and make the needed modifications before beginning the flight test program.
I want to be very clear here, this is a structural reinforcement issue, not an issue with materials or workmanship. Composites
are the right choice for airplane structure. As Scott Carson stated, the modification we expect will be required is manageable
and confined to a limited area. We have a strong and capable team. We will correct this situation and do so with both care and
urgency.
I would like to ask Scott Fancher to provide you with some information about the steps the team is taking to address this situation
and our path forward.
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Thanks, Pat. Let me assure all of you that the 787 team is progressing in a disciplined manner to ensure we take the steps
necessary to develop the right solution and implement it effectively. Our work to date has largely focused on understanding
the issue. We have reviewed our findings with company experts and they have confirmed that we are doing the right work and
finding the answers that we need.
While work continues to finish out the analysis phase of this effort, we are already moving toward a solution. Our technical
experts have developed several potential modifications to strengthen the specific area of structure within the side-of-body join.
They are now looking in each proposal to determine which solution best achieves the requirements.
Next we will complete detailed design, fabricate the necessary parts, install them, and verify their performance through a series
of component and full-scale tests. We will then proceed with the flight test program. We have to give the team time to do -time necessary to do this job. While we will proceed with urgency, we will not compromise the process for the sake of schedule.
I expect to be able to share a new first flight date and a high-level program schedule in the next several weeks. I have every
confidence in the team working this issue and that the right resources are in place to find the right solution in a thorough and
efficient manner.
We continue to make important progress on Airplane 1, the other flight test airplanes, and the production airplanes as we work
our way through this issue. Just 10 days ago, we completed a very successful intermediate gauntlet test on Airplane 1. This nine
days of continuous operation validated our confidence in the aircraft systems. We will continue to test the system's functionality
of Airplane 1 and expect to proceed with final gauntlet and taxi testing in the days ahead.
After that, we will continue to put the airplane through its paces to mature its systems. Similar work will continue on Airplane
2, which recently moved to the flight line and is ready to run its engines. All flight test airplanes will be kept in flight ready
condition as a complete assembly and are moved to the flight line. Work will continue on assembly of the production airplanes
as well.
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
On that note, I would like to turn it back to Scott and then we will get to your questions.
Scott Carson - The Boeing Company - President and CEO
Thanks, Pat, and thank you, Scott. In closing this segment, I want to emphasize a few important points about this program. First,
the fundamental technology advances developed for the 787 are absolutely sound. The integrated systems are behaving as
designed and are maturing as planned. We remain very confident the 787 will be a wonderful airplane for our customers and
their passengers.
With that, now I would like to turn it back over to Yvonne for a Q&A segment.
QUESTIONS AND ANSWERS
Yvonne Leach - The Boeing Company - 787 Communications Director
Okay. Just a reminder, we would like you to just limit your questions to one and we will begin. First question, please.
Operator
(Operator Instructions) Troy Lahr, Stifel Nicolaus.
Troy Lahr - Stifel Nicolaus - Analyst
Thanks. I was just wondering if you can again talk about how invasive this fix is going to be and then what are some of the
options? You said you are looking at some modifications but I guess I am not really sure what some of the options are. And
could this potentially add more weight to the aircraft?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Sure thing, this is Scott Fancher. The area in question is a series of relatively small areas in the side-of-body join and the various
modification options that we are looking at are really quite simple. A few handful of parts at each one of the locations that can
be installed on aircraft that are already assembled or aircraft that are currently in production within the production system. So
a modification that can readily be installed.
As far as airplane performance goes, we don't see very much weight being added to the aircraft for this modification. So while
there will be a small amount of weight, we expect negligible impact to airplane performance. There will be also no impact to
the outer mold line of the airplane, so there will be no aerodynamic impact either.
Troy Lahr - Stifel Nicolaus - Analyst
Okay, thanks.
Operator
Phil LeBeau, CNBC.
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Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Phil LeBeau - CNBC - Media
Hi, Scott, Scott Carson. Quick question and maybe you addressed this and I missed it, how does this delay impact the delivery
schedule and are you still on track for delivery in the first quarter of next year?
Scott Carson - The Boeing Company - President and CEO
Good morning, Phil. At this point, we don't have a reset on the schedule. We're going to let Scott Fancher and his team work
through the analysis and the modifications required and at the time we understand that, we will release new schedule data
both on the flight test program and on any impact for deliveries.
Phil LeBeau - CNBC - Media
Is it your expectation there will be a change in the schedule?
Scott Carson - The Boeing Company - President and CEO
I think as we delay the flight test program, obviously it delays the completion of the flight test program as well and so there will
be some impact. But at this point, we don't have an assessment of the magnitude.
Phil LeBeau - CNBC - Media
Thank you.
Operator
Joe Nadol, JPMorgan Chase.
Joe Nadol - JPMorgan - Analyst
Thanks, good morning. My question is on the computer design model of the structure of the aircraft. We had a year and change
ago an issue with the wing box and now we have this. And I guess I'm wondering as you look at your model, obviously the
model didn't replicate the stresses that are on the aircraft when you actually get it into the machine and move the wings around
and such. Do you have any conclusions at this point as to how good your model is and whether there might be other structural
issues beyond this?
Pat Shanahan - The Boeing Company - Airplane Programs VP and General Manager
Joe, this is Pat. Let me put some color on that then I'll ask Scott to fill in the rest. So let's maybe start with the models. Our models
are predictive and demonstrated to be very accurate. As you know, we validate all of the modeling with static testing, fatigue
testing, and the flight test program. And to date in fact, I think this is the characterization I've used in the past, it's exceeded our
expectations in ability to predict the material and structural performance.
Obviously we test to validate the airplane performance. We will go back and look at where the model failed to predict this
situation and tune them up. That's really where we will be spending our time here in the next few weeks is evaluating the
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Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
deficiency there and then how we will make them more robust, proceed with some additional testing and then go forward.
Scott Fancher, any additional thoughts?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
No, Pat did great job of capturing the essence of the situation. Just maybe a little more color, depending upon any [IU caps]
they are well in excess of 25,000 component through large-scale test opportunities to anchor our models, so as we proceed,
they get anchored and anchored repeatedly. However, we do testing for a reason and that testing is because models aren't
perfect. So it's not uncommon for us to see test observations depart from model predictions, and that is in essence what we've
got going on here. And when that occurs, our process says stand back, understand why, re-anchor the models, and determine
if a modification is required. That is where we find ourselves today.
Joe Nadol - JPMorgan - Analyst
Is it fair to say that though, since we're right on the doorstep of or were on the doorstep of first flight that you completed static
tests and that there really shouldn't be any other structural issues beyond this one? Would you have that knowledge at this
point?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Actually just a little bit on how we do concurrent design and testing. In airplane development it is in fact very common for static
testing to occur while you are in flight test in parallel. So a high degree of parallelism of testing and modeling. So while the
timing of this finding is certainly unfortunate, there is nothing about the fact that we were testing this now immediately prior
to flight test that indicates to us at least from a process and design standpoint that we have uncovered something that is
uncharacteristic of that modeling anchoring strategy.
Operator
Jon Ostrower, Flight.
Jon Ostrower - Flight - Media
Just a question on the supply chain and deliveries to Everett. You are looking at -- traveled work has always been an issue. Are
you planning on doing these modifications on parts coming to Everett, Global Aeronautica kind of holding parts at suppliers
further on in the supply chain? How does that also affect your production ramp up and are you still hopeful on meeting the ten
per month buyout mid-2012?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
This is Scott Fancher. Let me take that one on. As I alluded to earlier, we are talking about a relatively small number of parts and
a relatively simple modification here. And we are designing it to ensure that the parts can be installed in fully assembled aircraft
all the way upstream through the production system. So this will be a modification made to equipment that is inflow, in the
production system regardless of where that equipment is.
Now we are going to look at the timing, decide what to do with the production system going forward, but our initial assessment
is that we will continue to flow the production system, incorporate these modifications, and keep the process flowing.
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Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Operator
Heidi Wood, Morgan Stanley.
Heidi Wood - Morgan Stanley - Analyst
Yes, good morning. I just want to go back on a question, make sure I understood it. Where do you stand on the static test and
what's the risk of further static tests identify additional unexpected areas of stress?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Heidi, this is Scott Fancher again. As I mentioned earlier, it's typical for us to do concurrent testing during the development
process, so we'll be continuing to static test the full-scale article all the way through ultimate eventually. So certainly as we
continue testing, there's an opportunity for a disconnect between our predictions. Certainly possible. Do we consider it likely?
No, we don't consider it likely. We have seen nothing about the issue we are dealing with here that would indicate further
increased risk in other portions of the aircraft.
Heidi Wood - Morgan Stanley - Analyst
You saw stress on the plane, but did you see delamination?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Yes, the area that we are talking about has got multiple materials in that region. We've got titanium. We've got aluminum. We've
got composites. So when we saw the strain gauges on the aircraft during the test not meet our predictions, we went in and did
some inspections and saw a number of things indicative of what the strain gauges were saying.
Heidi Wood - Morgan Stanley - Analyst
Okay, thanks very much.
Operator
Mike Meacham, Aviation Week
Mike Meacham - Aviation Week - Media
Good morning. Can you give us --? I need a clarification. ZA001 is -- I'm not quite sure. I presume it goes back in to be modified,
but you indicated that you were going to continue with final gauntlet. Can you clarify exactly what the schedule is of that aircraft
now?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Let's see, I can give you a sense -- this is Scott Fancher again -- for our plans over the next several days. As Scott mentioned, we
are going through the long-term process on the modification and we will have to get back with you on resetting the schedule.
But in the near future, there is absolutely nothing about this issue that prevents us from continuing into final gauntlet testing.
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Final gauntlet will be several days worth of testing, regression testing against intermediate gauntlet in which we will be operating
the engines, verifying that modifications we made after intermediate gauntlet to software and hardware are doing what we
expected them to do.
From there we will proceed into taxi testing. There is absolutely nothing about this issue that prevents us from doing taxi testing
on the aircraft either.
Mike Meacham - Aviation Week - Media
And then you would -- in other words because none of those tests have anything to do actually with the structure issue that
you are concerned about here, then after that's done you pull the aircraft back and have it strengthened and then proceed to
first flight. Is that the schedule?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
That would be the general approach. Once we have the modification identified and we are ready to install it first on this whole
scale static test article to validate the fix or the modification, and then in parallel we will be modifying the flight test aircraft and
any production aircraft in flow and proceeding on with the flight test program. In the interim of course it gives us the opportunity
to continue to mature systems on the ground, which is the sort of thing we would be doing in flight test with systems anyway.
Mike Meacham - Aviation Week - Media
And you could proceed then with number two and actually get it out -- well, it's out of the barn now but proceed to actually
have it almost ready to fly other than the mods?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
That's correct. There's absolutely nothing about this modification that would prevent us from modifying multiple airplanes
simultaneously.
Mike Meacham - Aviation Week - Media
Okay, and can you give some description of how much of an area are we talking about? I mean a side-of-body join is fairly long.
You are talking about the full length of the wing or what?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
No, no. The area that we saw the increased -- or the stresses, which were inconsistent with the model predictions are one or
two square inches in multiple locations, a very localized phenomenon. Think about it as a concentration of stress that was
inconsistent with the prediction. So we need to go in and make some modifications to move those stresses where we need
them to be.
Operator
Doug Harned, Sanford Bernstein.
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Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Doug Harned - Sanford Bernstein - Analyst
Yes, good morning. You said that structural modifications are common. Certainly minor structural modifications are common
on development programs. But this one happening so close to first flight, has this concerned you that it is so late that you are
discovering this issue? Is that something that you have seen before in programs at this late stage?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
It is concerning to us? No, not particularly. I mean the timing is certainly unfortunate, but we have seen nothing about what led
us to the discovery that would lead us to broader concerns with the test or flight program, if that's what you mean. It's not
uncommon though for test programs, either ground test programs or flight test programs, to find issues that cause the test
team or the design team to take pause and to make sure they fully understand and correct the issue before proceeding. That's
what -- where we find ourselves today.
If we had found this issue a couple of months ago, we probably wouldn't be having this phone call. We would have found a
way to do it concurrently with other work going on in the aircraft and had proceeded. The timing is certainly unfortunate, but
there's nothing about it that causes us broader concern.
Doug Harned - Sanford Bernstein - Analyst
Now are the solutions that you are considering, are those things that will be I would say interim solutions for first production
in the test airplanes or are you expecting to do something I would say more broadly in terms of changes to the design farther
down the road to take care of this issue?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
No, our design approach here to the modifications is to have a modification that allows us to fully certify the aircraft and proceed
with production. Certainly as we go downstream, we always are in a continuous improvement mode on the -- within the
production system to improve producability, but we don't see this as being a temporary fix that has to be modified before first
production delivery. We will come up with one fix, one modification, and incorporate it.
Operator
Glenn Farley, King TV.
Glenn Farley - King TV - Media
I am having a hard time still visualizing exactly what this is. I mean you are talking about titanium, aluminum, and composite
parts all here together. So this sounds like an attachment point perhaps between the wing and the rest of the body. Is that
correct?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Yes, it is in that general region of the side-of-body.
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Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Glenn Farley - King TV - Media
Okay, so when you talk about -- so we are probably just talking about a fairly simple reinforcement. I know you still need to go
out there and redesign this, but I take it if we're talking about several square inches in a series along sort of a strip here I am
taking it that you could add more reinforcement there that would not have to be incorporated into for example you would not
have to put something in subsequent airplanes down the road and autoclave that in. This is something you could add in a
reasonably simple fashion.
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
You are exactly right and I think you've got the right envisioning of the issue. As I mentioned earlier, we are talking about a
couple square inches, an inch or two square inch of stress concentration that needs to be addressed. We are talking about a
handful of parts that you can literally hold in your hand that need to be added to the structure for local reinforcement. We've
got multiple design concepts still that we've got to work through to make sure we end up with the best solution. But it's certainly
a simple modification of the type I just described.
Glenn Farley - King TV - Media
Is this something Yvonne could provide a sketch or something on later?
Pat Shanahan - The Boeing Company - Airplane Programs VP and General Manager
We can look into it.
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
So we will look into -- see if that is something we can do.
Glenn Farley - King TV - Media
And when did -- could you -- when did this actually show up or somebody raise their hand and said we have an issue here? How
long ago was that?
Scott Carson - The Boeing Company - President and CEO
Glenn, so if you look at the full chronology of what happened, we discovered in a test condition several weeks ago an anomaly
that we saw. We believed that we had a solution that would allow us to move to the flight test program. We retested and
followed that retest with additional analysis late last week. As we looked at that analysis we concluded that to fly the airplane
would have such a limited envelope on it that it wasn't productive for us to do that. And we chose to delay the flight and
incorporate the change so we have a vigorous flight test envelope to work with.
Glenn Farley - King TV - Media
Okay. Terrific, thanks.
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Operator
Joseph Campbell, Barclays Capital.
Joseph Campbell - Baclays Capital - Analyst
Just again back on the nature of the problem and where it is, can you -- is this problem isolated to a single structure? So like is
it -- I mean is it the Alenia piece? Is it the wing box from Fuji? Or does it involve stresses on several supplier components? Is it
both starboard and port so that this is something that's symmetrical around the aircraft? Or is it a single sided kind of issue?
Pat Shanahan - The Boeing Company - Airplane Programs VP and General Manager
I will jump in first and Scott can provide additional color. So it's multiple structures and it's an integrated design. So it's both
the wing out of Mitsubishi and the side-of-body, which is part of the center section out of Fuji. And the design and the models
are developed concurrently by Boeing, Fuji and Mitsubishi. That is the nature of this integrated structure. So as we work through
the solution, we will involve Fuji, Mitsubishi, and Boeing, in developing a comprehensive long-term answer. Scott?
Joseph Campbell - Baclays Capital - Analyst
And it's both sides, but not the Alenia structure?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Correct, and it is symmetric. As Pat mentioned, every -- all of our partners that have structure in this area and participated in
the design are on the team to determine what the modifications are for this area.
Joseph Campbell - Baclays Capital - Analyst
So just to not -- hopefully this can be the end of this. Somebody asks before it was along the entire wing, so it's -- if you were
to describe from the aft to tail or under the belly or wherever these are located, is it possible to take the multiple several inch
-- one or two square inch places and identify how many of them are there and from the furthest point away, how big is the
section affected?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
This is Scott Fancher. Let me try and take a crack at that. As we mentioned earlier, we are talking on a one or two square inch
area. It is along the side-of-body join between the wing and the side-of-body and particularly -- and specifically limited to the
upper portion of where the wing and side-of-body join. And about 18 locations on either side of the aircraft for a total of 36
locations. The exact number may change a little bit as we analyze it, but that's approximately the number.
And I really want to emphasize we are talking about a one or two square inch area along that upper wing join area in multiple
locations. This is not a problem that extends out the wings or down into -- it is into the aircraft. It's a very limited area that needs
structural reinforcement. The modifications, again to emphasize, we are talking about a handful of parts at each location and
each one of those parts you could literally hold in your hand. They will be about the size of your hand or smaller. So not
complicated by any means.
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Joseph Campbell - Baclays Capital - Analyst
Thanks very much.
Operator
Paul Merrion, Crain's Chicago Business.
Paul Merrion - Crain's Capital Business - Media
Hi. I just wanted to go to the issue of the credibility in the company's schedule and predictions of schedule. You knew about
this as of late last month, you said. Why wait until now to say anything at all about it? Including when the world's attention was
on Boeing last week at the Paris Air Show.
Scott Carson - The Boeing Company - President and CEO
Paul, this is Scott Carson. When we were at Paris last week we had been through the preliminary analysis of the data and were
of a mind that the airplane could enter flight test with a credible flight test envelope as we worked relatively minor modifications.
The work done by the team through the week last week narrowed the envelope to the point where on Friday we determined
that to fly would be such a small envelope for us that it would be an interesting exercise in having the airplane in the air but
not particularly useful in terms of preparing the airplane for certification.
So at that point is when we made the call to delay the process, identify the fix, test the fix, install the fix, and then enter a flight
test program that is fully robust.
Paul Merrion - Crain's Capital Business - Media
So what would have been the worst case if you had flown? Are we talking about cracks in the fuselage or the wings falling off
or what -- if you hadn't made this fix before flying?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
The answer is our assessment is likely nothing would have happened. This is an issue where stress concentrations departed
from the model. Absent being able to anchor those two pieces of data together with confidence based upon our design process,
we would have had to reduce the flight envelope we were willing to fly and that gets you into the line of logic that Scott just
outlined for you.
So it really isn't a matter of yes and no. It is gee, because we've seen this departure and haven't been able to anchor the data
back to the model with sufficient confidence, we need to narrow our margins and that led us down the path that Scott described.
Pat Shanahan - The Boeing Company - Airplane Programs VP and General Manager
And we are always staying in process. And when the process says stop, we stop.
Scott Carson - The Boeing Company - President and CEO
Absolutely, absolutely.
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Operator
Howard Rubel, Jefferies & Co.
Howard Rubel - Jefferies & Co. - Analyst
Thank you very much. I mean you are talking about a number of parts that sound like you could put them in a grocery bag but
maybe 50 pounds, 60 pounds. But can you talk a little bit about the dollar outcome, Scott, that we are seeing here? Are we
talking hundreds of millions of dollars or are we talking just a few million to get this started and fixed?
Scott Carson - The Boeing Company - President and CEO
Howard, I think it is premature to forecast where we are in dollars. We understand the nature of the fix and I would say the
nature, not the specifics of the fix yet, because we have to complete the models, run those models, and then test the solution.
As we get through those steps, I think we will be in a better place to talk about the magnitude of the dollars. The fix itself does
not appear to be a big dollar item. Obviously we need to understand the implications of the flight test program and first deliveries
to assess that.
Howard Rubel - Jefferies & Co. - Analyst
Are we going to see though a day-for-day delay with this and the whole schedule or are there some other items that you might
want to also incorporate to increase the margin for discovering additional unknowns?
Scott Carson - The Boeing Company - President and CEO
We are going to continue to exercise the test program as Scott Fancher described in his comments. So whether it is day-for-day,
I think again hard for us to call at this moment. We do believe we will be using the time productively however.
Howard Rubel - Jefferies & Co. - Analyst
So I just want to go back though the dollar amount. The fix itself just the titanium parts that you are talking about, is immaterial
to the price of the airplane.
Scott Carson - The Boeing Company - President and CEO
Correct.
Howard Rubel - Jefferies & Co. - Analyst
Thank you.
Operator
Daniel Michaels, The Wall Street Journal.
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Daniel Michaels - The Wall Street Journal - Media
Scott Carson, I'm curious, have you talked to any customers yet and what is their reaction so far?
Scott Carson - The Boeing Company - President and CEO
Yes, we began that process late last night. We have talked to a substantial number, not all of the customers or at least as we
started this call we hadn't yet talked to all of them. I think all of them respected the process with which we are working and
respected our judgment that we should fix this and make it right as we work through the flight test program. Obviously they
will be monitoring our progress. But most importantly, they are interested in the final delivered product and the integrity of
the product and we are going to can keep them well informed as we walk through this.
Operator
Robert Springarn, Credit Suisse.
Robert Springarn - Credit Suisse - Analyst
Good morning. How should we think about the fix with regard to the partners you mentioned? And to what extent will you
suspend production?
Scott Carson - The Boeing Company - President and CEO
At this point, we are not anticipating suspending production. As Scott indicated in response to an earlier question, Robert, the
design solutions that we have looked at so far can be retrofitted in a complete airplane, can be installed in airplane parts that
are in flow and can be incorporated at point of origin.
Robert Springarn - Credit Suisse - Analyst
So we continue at a rate of two per month at some point here, no effect from this.
Scott Carson - The Boeing Company - President and CEO
At this point, that's our judgment that we will continue with the build up that we had previously anticipated.
Robert Springarn - Credit Suisse - Analyst
So Scott, what I'm having trouble reconciling is you have all called this a relatively small scope issue, but it's going to be several
weeks at the least before we know where we are. Can you walk us specifically through that timeline?
Scott Carson - The Boeing Company - President and CEO
We are -- and I will turn this over to Pat or Scott here in just a moment, but the process we are going through right now is to go
back and look at the data, modify our predictive model so that they match what we saw in the test fixture, and then use that
to validate our design solutions. And from there move to final design of the part, installation of the part in the static test airplane,
retest to verify that the static test results match the models that we built, that match from what we've already seen with the
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
results coming off the static test airplane, conclude our design work, build the production plans to incorporate these parts into
the complete and inflow aircraft, and then move on from there.
Robert Springarn - Credit Suisse - Analyst
So the greatest impact is to Aircraft 1 and 2 and you will catch up? You will make up time on everything else?
Scott Carson - The Boeing Company - President and CEO
Again, until we have been through all this and have the detailed plans, I would be a little hesitant to say that precisely.
Pat Shanahan - The Boeing Company - Airplane Programs VP and General Manager
I think the only thing I would add is just that we will do that with urgency, working the clock 24 hours a day seven days a week.
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Correct. You know, Pat has got a good point. The interesting thing about this program and the distributed production and
design system that we have, we do have the opportunity to work 24/7 around the clock around the world, whether it's with
Boeing assets that are distributed around the world or with our partner. So this will get worked literally 24/7 around the world
with those who are in a position to contribute to the modification design and analysis.
Operator
Lester Holt, NBC News.
Lester Holt - NBC News - Media
Good morning, gentlemen. In trying to assess the overall impact of all of this, I want to clarify that Aircraft 1 and 2 will have to
return to the final assembly floor. The follow-up part of that question is whether you will have to stop or delay any work on the
planes currently on the assembly floor?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Lester, this is Scott Fancher. First question, the modification as I mentioned earlier is relatively simple. We will end up doing it
out on the field. There's no reason it has to go back to the assembly building. And in fact for all of the aircraft in flow, we will be
able to do them in situ whether they are on the field or in the factory. And could you repeat the second half of your question
for me?
Lester Holt - NBC News - Media
Yes, the second half of the question, the planes that are on the assembly line floor right now, will any work on those planes
have to be delayed? Will there be any schedule change in terms of putting those planes together?
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Schedule change? No. We may release sequence some work in order to make the modification easier to implement for airplanes
in flow, but that's resequencing of existing work as opposed to a change of schedule.
Lester Holt - NBC News - Media
Thank you.
Operator
Ron Epstein, Banc of America.
Ron Epstein - BAS-ML - Analyst
Yes, good morning. Just I guess really two things. What impact does this have on the certification process, meaning a lot of this
first certification work that you have already done, does this have any implication on that? Then the follow-up on Rob's question,
I still don't understand why such a small and simple fix will take so long to sort out.
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
So cert and sorting out the design, let me start with certification. I mean, part of our focus on staying in process is to ensure that
we can proceed with the certification process in an efficient manner. We've seen nothing here that compromises our -- we have
seen nothing here that compromises our ability to get the airplane certified either from ground testing or subsequent flight
testing.
As far as the schedule to get through this, as I mentioned earlier, this is an area where we have got wing, body coming together,
multiple materials, and the observed data from the static test did not match our model. So you've got a relatively complex area
of the airplane, divergence of observables from analysis, and we want to make sure that we are able to anchor those observables
to the analysis and make sure we've got that rock solid before we proceed with cutting chips and getting parts to the airplane.
Now it may take us less time than we had mentioned, however, we want to make sure we do it and do it right and stay in process.
Operator
Steve Wilhelm, Puget Sound Business Journal.
Steve Wilhelm - Puget Sound Business Journal - Media
I just wanted to check the parts in question are they titanium parts and will this have any effect on the suppliers? Can you give
us some type of timeline there?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Sure, this is Scott Fancher again. While the final material selection for the modification isn't finalized, it's likely to be titanium.
It could be aluminum. But again, until we finalize the exact modification option we're going to pursue, we won't make the final
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
material selection. Regardless incidentally, we have staged material in our fabrication division ready to go fabricate the parts
immediately.
And the second question had to do with suppliers and impact on the suppliers?
Steve Wilhelm - Puget Sound Business Journal - Media
Yes, is it going to slow things down for people or --?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
No, I really don't think so. Again, relatively small number of parts relatively easy to install, can be done in flow. Again, we may
resequence a little bit of work just to make access a little easier, but that's not a schedule impact. That's just doing what the
sequence of the build -- adjusting it slightly.
Steve Wilhelm - Puget Sound Business Journal - Media
Okay, thank you.
Operator
David Strauss, UBS.
David Strauss - UBS - Analyst
Good morning, thanks. Could you just give us -- prior to this fix, can you just give us an update as to where Airplane 1, Airplane
2 stands relative to your initial weight target that you promised to the airlines?
Scott Fancher - The Boeing Company - 787 Vice President and General Manager
Let's see, I think it's fairly well known that test aircraft are heavier than the production aircraft. That's not uncommon. I think we
have talked about the fact that this fix is negligible weight, negligible impact to the airplane's performance as well. And
incidentally I think it is known that the production aircraft have incorporated significant weight reduction and this won't impact
our ability to deliver on that commitment either.
Yvonne Leach - The Boeing Company - 787 Communications Director
Okay, we'll take one more question.
Operator
David Strauss. Please go ahead. We will go to the line of Andrea Rothman, Bloomberg News.
Yvonne Leach - The Boeing Company - 787 Communications Director
Do you want to try one more? I don't think Andrea is there.
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FINAL TRANSCRIPT
Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
Operator
Sam Pearlstein, Wachovia.
Yvonne Leach - The Boeing Company - 787 Communications Director
Do we have an issue with the line? Very strange. I think we will just go to our conclusion then. It sounds like -- I will turn it over
to Scott. Do you want to --?
Scott Carson - The Boeing Company - President and CEO
Yes, well first of all, I would like to thank you all for joining us this morning. Obviously we are all anxious to see this airplane fly,
but it's important that it flies when it's ready to fly and when we have high confidence in what we can accomplish with it in
flight test. The tests that we have been running are intended to ensure that any issues are uncovered and solutions are found
earlier rather than later.
In that regard, we are happy that we have identified this issue and that we will have the fixes incorporated when the airplane
flies. That's part of our ongoing commitment to the people on our program here in Seattle, to our customers, and certainly to
the flying public.
Thank you for joining us today and we will follow with additional updates as we have more information to share.
Yvonne Leach - The Boeing Company - 787 Communications Director
Thanks and that concludes our call. Again, for members of the media, please call Yvonne Leach on 206-854-5027 and for analysts
call Diana Sands or Rob Young on 312-544-2140. Thank you.
Operator
Ladies and gentlemen, this conference will be available for replay after 11 a.m. Pacific today through midnight, Friday, June 26,
2009. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701, entering the access code
105526. International participants dial 320-365-3844. Those numbers again are 800-475-6701 and 320-365-3844 with an access
code of 105526.
That does conclude your conference for today. Thank you for your participation and for using AT&T's Executive Teleconference?
You may now disconnect.
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Jun. 23. 2009 / 2:00PM, BA - The Boeing Company Conference Call to Discuss Postponement of 787 First Flight
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