Two-thirds of Boeing’s $6Billion Cost Cutting Will Come from Its Supply Chain

The head of Boeing Co’s defense, space and security business said on Monday that nearly two-thirds of the $6 billion in cost cutting the unit is undertaking will come from savings found in its network of suppliers.

“Out of the $6 billion, probably 66 percent of that will come out of the supply chain, maybe more,” Chris Chadwick, chief executive of Boeing Defense, Space and Security, said in response to Reuters following a speech sponsored by the Seattle Metropolitan Chamber of Commerce.

Boeing already has cut $4 billion in costs from the defense unit, which has annual sales of $33 billion. The company has said it plans to cut an additional $2 billion.

“There continues to be tremendous opportunity in the supply chain for efficiency, cost reduction,” Chadwick said. There are also opportunities for growth with suppliers.

“What we’ve found is those supplier who lean forward from a cost perspective, we do partner with them for the long term.”

Boeing’s defense business, like competitors such as Lockheed Martin Corp., General Dynamics Corp. and Raytheon Co., has been under pressure to cut costs as U.S. defense spending has fallen in recent years due to budget cutting.

787 Dreamliner Structure Supply Chain Suppliers
Selected components and system suppliers

Source: Boeing, Reuters (Diagram not to scale)

Chadwick said the U.S. budget has fallen by about 24 percent due to sequestration, or automatic spending cuts. Chadwick said Boeing is not alone in expecting the budget to continue to decline. And he said the company has an advantage over competitors by using successful commercial airplane models to produce military products, such as the P-8 Poseidon plane, based on the 737, and the KC-46 aerial tanker, based on the 767.

Chadwick said among the opportunities in the U.S. defense sector, where U.S. spending is equal to about the 10 next-largest national defense budgets combined, are military customers still using equipment based on the Boeing 707 jetliner, that are old and will need to be replaced. Boeing is investing in research and development to meet those needs, he said.

787 Dreamliner Engine Fails Over the Atlantic
The pilot of a 787 Dreamliner was forced to shut down one of the plane’s two engines about one and a half hours into a scheduled nine-and-a-half hour flight from the Dominican Republic to Manchester, England. The plane, one of six 787-800s owned by Thomson Airways, made a safe emergency landing in the Azores about four hours after the engine was shut down.

No explanation has been offered yet for the sudden engine failure, but this is a first for the aircraft since The Boeing Co. delivered its first 787 in the fall of 2011. The plane entered production about four years late and cost the company about five-times the original $6 billion estimate. Thomson Airways was Boeing’s U.K. launch customer and received its first 787 in June of 2013.

The first major issue with the plane was a delamination of the composite skin on the plane’s fuselage. A more spectacular problem arose when a battery pack in a parked 787-800 ignited. The problems with the lithium-ion batteries appears to have been sorted out, but it caused a three-month ban on all 787 flights in early 2013.

The General Electric Co. built the GEnx-1B engines that are used on the Thomson 787-800 fleet. A different version of the engine, the GEnx-2B, is also used on Boeing’s latest version of its 747-8 jumbo jet. A series of incidents involving both engines caused the National Transportation Safety Board to have all the engines inspected in October of 2012.

While the engine loss gave the passengers a fright — one little girl asked her parents, “What if we don’t make it?” — modern airplane engines installed on two-engine planes like the 787 are designed to be able to complete their full flight from any point on the flight plan with just one operating engine. We’re sure that doesn’t make a passenger’s experience any less terrifying.

Related: What Does Your Global Supply Chain Look Like From 30,000 Feet? Map It