By Molly Parker
mparker@scbiznews.com
Published July 22, 2009

The Boeing Co. posted a strong profit in the second quarter, up 17%, though the airplane maker’s executive team offered no details about when it plans to fly the first Dreamliner, or when the company would pick a site to establish a second assembly line for its 787 program.

Boeing President and CEO Jim McNerney said Wednesday that the company’s July 7 announced that it would be purchasing the Vought Aircraft Industries facility in North Charleston was driven by a desire to “better drive performance.” It does not mean Boeing has plans to build a full-scale assembly plant, he said, on the campus near the Charleston International Airport where Vought and another supplier, Global Aeronautica — in which Boeing owns a 50% stake – is also located.

“It doesn’t assume that at all,” McNerney said in a conference call with reporters and financial analysts to discuss Boeing’s second-quarter earnings’ report released this morning. Besting expectations, Boeing posted income of $998 million, up from $852 million a year ago. The company attributed this to new government business and productivity improvements on the commercial aircraft side.

McNerney said Boeing is “going through an evaluation” related to the second line, which some aviation analysts believe is needed sooner rather than later as Boeing has an unprecedented backlog of orders for the 787.

The program has enjoyed strong demand, but the scheduled delivery of the aircraft has been a moving target because of delays caused by labor strife — the Machinists union in Seattle walked out for two months late last year — supply-chain issues and a failed stress test that ultimately caused Boeing to cancel its test flight scheduled for June.

For the second line, McNerney said Boeing will look at Everett, Wash., where the current assembly line is located “as well as other places and come up with a best answer for the company.” He did not give a timeline for when the Chicago-headquartered company would select a site.

“We will continue a balanced operation there,” he said. Seattle-area newspapers have reported that Washington state politicians, including the governor, have said that Boeing is attempting to negotiate a no-strike clause with the Machinists union, indicating that talk of Boeing building its second line in North Charleston or elsewhere is largely meant to convince the union to forfeit walk-out rights.

McNerney said that the company is in discussion with Machinists union officials in Seattle about how to heal acrimonious relationships that have cost the company billions and cost its reputation with customers.

“We’re not issuing ultimatums,” he said. “We’re trying to figure out a better way to work with our represented employees.”

Vought’s North Charleston employees also are members of the Machinists union, having voted to organize last November. Boeing expects to complete its $580 million purchase of the Vought facility sometime in the third quarter, and plans to recognize the local union, though it will have to renegotiate the contract.

Together, Vought and Global Aeronautica are responsible for joining and integrating about 60% of the plane’s aft fuselage from sections produced by Vought and other Boeing partners around the globe. Last year, Boeing acquired Vought’s 50% stake in Global Aeronautica — initially a joint venture between Vought and Italy-based Alenia Aeronautica — for $55 million.

With the 787 program, Vought has outsourced the production of parts to global partners more than with any other aircraft. Though the supply-chain experiment has faced hiccups that ultimately led to Boeing investments — including one takeover — in two of its larger suppliers, McNerney stressed it was not a futile effort. The issues were related to Vought’s ability to financially handle the demands of the 787, both Vought and Boeing executives have said, and not caused by deficiencies in the local work force.

“The initial plan outran our ability to execute it,” he said. “I think we got the balance wrong at the beginning of this program.”

Moving forward, he said, “We are drawing the line in a somewhat different place with the 787,” but, “We’re not going to go back to the days where we do everything in-house.”

Analysts are also closely eyeing Boeing’s cash flow as it faces growing demands related to the 787 program, including the $580 million the company will hand over to Vought shortly to close that transaction. McNerney said Boeing has the ability to raise cash, and is aware that it needs to have operational liquidity to “deal with the challenges ahead.”

McNerney said a revised test flight schedule will be released in the coming months. The company’s plans to fly the plane by June 30 evaporated after tests indicated an area of weakness in the plane where the wings bolt to the fuselage. There were no errors committed in North Charleston that caused the failure, said Scott Fancher, who manages the 787 program for Boeing.

During the conference call, Boeing executives were peppered with questions by financial analysts about why the company waited so long to inform the public that the 787 would not go airborne by the date anticipated. The company has been roundly criticized in recent weeks for failing to share this critical information, though McNerney said Boeing did not intend to mislead the public.

“The story here is a tough program, not that news doesn’t travel around our company. I do recognize, though, where your question comes from, because we all sounded confident we would be flying in June.”

Reach Molly Parker at 843-849-3144.