RevisedOctober14,2008

Boeing787:TheDreamliner(B)
In April 2008, Boeing confirmed a delay in the 787airplane and announced a 14month delayindeliveringBoeingsmostanticipatedairplane.TheBoeing787airplane,tobeput in service in 2008 initially, has become Boeings bestselling new plane ever; as of September 2008, the Boeing company had orders for 895 airplanes from 58 customers worldwidewithanestimatedbacklogvalueof$151billion(see Exhibit1forthedifferent 787airplaneconfigurationsthatBoeingoffers). Although not a fullblown crisis such as the one faced by Airbus with its A380airplane delays,theannouncementwasnonethelessapotentiallyserioussetbackforBoeing.Notes the Wall Street Journal: Some analysts believe Boeing could be liable for as much as $4 billion of concessions and penalty payments to airlines for missed deadlines. Boeing . . . plans to book the first 25 deliveries at zeroprofit margin to cover penalties.1 Analyst estimatesindicatethatthedelaycouldcostBoeingover$2billiondollarsinpenaltiesalone, plusadditionalR&Dexpensesoverthenextfewyears(seeExhibit2). AccordingtoBoeingsrevisedschedule,thefirsttestflightofthe787airplanewasexpected to be carried out in late 2008, and the first deliveries in the 3rd quarter of 2009. The companyalsoplannedadramaticallyslowerrampupinproduction;Boeingsgoalnowisto produce 10 787s a month starting in 2012, a figure significantly lower than originally planned (see Exhibit 3). Notes Boeings 787 spokesperson, Yvonne Leach, the average delayforall58787customersisexpectedtobeabout20months.2 ReasonsandResponsetotheDelays ReasonsfortheDelay Boeingattributeditsfirstdelay,announcedinOctober2007,toanunexpectedshortageof fastenersthenutsandboltsthatholdanairplanetogether.Thejobofgettingfasteners becamemorecomplicatedandresultedinfurtherdelaysbecausethesupplierswhorushed tomakethemdidnotproperlydocumenttheirworkasrequiredbyfederalauthorities.

ProfessorsSureshKotha,Olesen/BattelleChairedProfessor,UniversityofWashington,FosterSchoolofBusiness,andRichard Nolan, William Harding Professor of Business Administration (Emeritus), Harvard Business School, and Philip M. Condit ProfessorofBusinessAdministration,UniversityofWashington,FosterSchoolofBusinesspreparedthiscase.Thecasewas developedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,or illustrationsofeffectiveorineffectivemanagement.

1J.L.Lunsford,BoeingCEOFightsHeadwindDespiteProfitGrowth,787DreamlinerAndTanker

ContractLossTestMcNerney.TheWallStreetJournal,25April2008,B1. 2Accordingto TheSeattleTimes(May9,2008)InternationalLeaseFinanceCorp.(ILFC),thelargest customerforthe787airplanes,wastoldthatitfacedanaveragedelayofover27months.


In addition to lack of fasteners, reports The Wall Street Journal: Honeywell International Inc.[was]scramblingtocompletehundredsofthousandsoflinesofcomputercodethatwill run the airplanes flight controls, a task . . . that both Honeywell and Boeing [had] underestimated.3 In January 2008, Scott Carson, CEO Boeings Commercial Airplanes division, announced the second delay by noting the following: [W]e continue to be challengedbystartupissuesinourfactoryandinourextendedglobalsupplychain.4He assured Wall Street analysts and airline customers that Boeing intended to conduct a comprehensive assessment of its supply chain and production system capabilities to determinethedetailsofthe787sflighttestprogramandinitialdeliveryprofile.However, at this time, he refrained from providing details about when customers could expect airplane deliveries. In April 2008, Boeing officials announced the third delay and revised thescheduleforthe787airplanedeliveries.Inannouncingthisdelay,Carsonnoted: Ourrevisedscheduleisbuiltuponanachievable,highconfidenceplanforgettingusto ourpoweron[inJuly2008]andfirstflightmilestones[inNovember2008].Also,while the fundamental technologies and design of the 787 remain sound, we have inserted some additional schedule margin for dealing with other issues we may uncover in testingpriortofirstflightandintheflighttestprogram.5 FromBleedingEdgetoLeadingEdge.InalettertoBoeingemployeesdiscussingthe thirddelayfacingthe787dreamliner,JamesMcNerney,BoeingsCEO,inanopenletterto employeeshadthefollowingtosay: Tome,twothemeshaveemergedfromthe787atthisearlystageinitslife.Onecenters on innovation, the other is on execution. . . . Fundamental, gamechanging innovation likethatwerepursuingonthe787usuallyhasableedingedgequalitytoitmeaning it goes beyond leading edge into a realm where both the risks and the potential returnsarehigh....However,ourstruggletoexecutehascomeataprice,nottheleast ofwhichistheimpacttoourcustomerrelations.6 Asanexampleofthebleedingedgeinnovation,publishedreportspointtothechallenges Boeing has faced with composites the carbonfiber technology used for the majority of structuralsectionsoftheairplane(seeExhibit4).NotesBusinessWeek: ThecarbonfibertechnologyhaspresentedadauntingchallengeforBoeingengineers.If componentsoftheplanearetooheavy,theplanelosesitsenergyefficiency.Butifthey are too light, the parts and even the entire plane might not be structurally sound. That wasthecasewiththecenterwingbox,thecriticalsectionoftheplanewherethewings areattached.Itwasfoundtobetoolightandneeded[strengthening].Engineersdevised a patch for the first six aircraft; the seventh will have the redesigned wing box incorporatedfromthestart.7 Designingthepatchcostthe787programamonthindelays,andredesigningthewingbox, primarily the responsibility of Boeings partner, was now Boeings concern. One analyst

3J.L.Lunsford,Boeing787FacesLessRoomforError.TheWallStreetJournal,September6,2007. 4BoeingPressRelease,BoeingShiftsSchedulefor787FirstFlight.January16,2008. 6BoeingPressRelease,TimetoDeliveronthe787.April21,2008. 7J.Crown&C.Matlack,BoeingDelaysDreamlinerAgain.BusinessWeek,April9,2008. 5BoeingPressRelease,BoeingRevises787FirstFlightandDeliveryPlans.April09,2008.


noted that is a kind of biggie and poses residual risk until the airplane flights tests are completed.8 Blaming Boeings Business Strategy. Many blamed Boeings business strategy for the delays. Boeing has outsourced an unprecedented share of responsibility for the 787 manufacturingtooverseasrisksharingpartnersinItaly,Spain,andJapan(seeExhibit5). Accordingto BusinessWeek:[M]anyofthesepartnercompanies[firsttiersuppliers]have struggled,eitherinbuildingthecomponentsthemselvesorgettingthepartstheyneedfrom others [secondtier suppliers], in time to meet Boeing's rigorous construction schedule.9 FurtherareportinTheWallStreetJournalnoted: BoeingextolledthebusinessvirtuesofhavingsuppliersfromasfarawayasJapanand Italy build much of the fuelefficient new jetliner, with Boeing performing final assembly. . . . But the plan backfired when suppliers fell behind in getting their jobs done,...[and]Boeingwasforcedtoturntoitsownunionworkforcetopiecetogether thefirstfewairplanesaftertheyarrivedatthecompany'sfactoryinEverett,Wash.,with thousandsofmissingparts.Thatfueledbothangerandanxietyamongunionworkers.10 Published reports pinpoint to the botched assembly of the first 787fuselages at two factories in Charleston, S.C. as a major reason for the delay. At Charleston, S.C., Vought AircraftIndustriesmanagesonefactory,andGlobalAeronautica(GA),analliancebetween Vought and Italy's Alenia, manages the other. GA is responsible for integrating the large fuselagesectionsfromItalyandJapanwithBoeingfurnishedparts.Accordingtopublished reports: The two factories planted here to build big Boeing 787 Dreamliner fuselage sectionsbeganasadisastrousexperienceinoutsourcing.Theirincompleteworkplayeda largepartinthesnafusthatsnarledthefinalassemblylineinEverettthathasdelayedthe 787sfirstflightby14months.11 ElmerDoty,CEOofVought,hadthefollowingtosayaboutsuchreports: Voughts role in the venture became problematic when the supply chain broke down and work that was to be completed by other major suppliers arrived in Charleston unfinished....TheproblemwasVoughthadnocontrolovertheprocurementofthose largepieces.Boeing,astheprimecontractorwasresponsibleformanagingthosemajor partners....Tomanagethetraveledworkefficiently,youneedthatresponsibility.... Thatisbestdonebytheprime[contractorBoeing]. For instance, Vought points out that while Israel Aircraft Industries was contracted to supplythe787planesfloorgridasasinglestructure,insteadVoughtreceivedpieceparts. ReportsinthemediaalsonotethattheworkforceinSouthCarolinalackedstrongaerospace experience such as that found in Everett, Washington, home of Boeings commercial airplane division and this lack of experience of the workforce is responsible for some the

8D.Gates,TheLatestDelayofBoeing787PushesBackFirstDeliverytoThirdQuarterof2009. The

SeattleTimes,April10,2008. 9J.Crown&C.Matlack,BoeingDelaysDreamlinerAgain.BusinessWeek,April9,2008. 10J.L.Lunsford,OutsourcingatCruxofBoeingStrike.TheWallStreetJournal,September8,2008. 11D.Gates.BoeingExpertiseSpeedingup787partners.TheSeattleTimes,June11,2008.


delays.12 Reports also have pinpointed issues at the Spirit Aerosystems Plant, formerly BoeingWichita,forthedelays.Spiritisresponsiblefortheforwardfuselageoftheairplane includingtheplanescockpitinstallation(seeExhibit5). RespondingtotheDelays Boeinghasrespondedquicklytoaddresssuchdelays.Withindaysofannouncingthefirst delayinOctober2007,thevicepresidentandgeneralmanager,whowasresponsibleforall aspectsofthe787programsinceitsinceptionin2004,wasreassigned.PatShanahanwas namedthevicepresidentandgeneralmanagerofthe787program.Shanahan,whojoined Boeingin1986,ismostrecentlycreditedwithturningaroundtheChinookhelicopter,theV 22 Osprey tiltrotor airplane, and groundbased missiledefense programs at Boeings Defense division. Responding to the Wall Street analysts questions, Shanahan noted: WheredoIthinktheinherentriskis?Ithinkitsinthecapabilitiesofthesupplychaintodo thingsthatweneedtohavedone....Thatistheuntestedpartofthisproductionmodel.... Thatswhereourenergyandattentionis. Shanahanquicklyrevampedthe787executiveteamandreorganizedtheresponsibilitiesof Boeingexecutivesinthreeareas:(1)airplanedevelopment,(2)theglobalsupplychain,and (3)thefinalassemblyanddeliveryareas.HealsotookactiontocomplywithMcNerneys insistencethatthe787teambemoreaggressivewithsuppliersbystickingtheirnosesinto suppliers operations, including stationing Boeing employees in every major suppliers factory.13 For example, he appointed Scott Strode to oversee all development activities withVoughtAircraftIndustriesinanefforttostrengthenmanagementofthesupplychain (seeExhibit6foralistofmanagementchangesunderPatShanahan). To solve the problems in Charleston factories, for example, Boeing bought out Voughts interest in the joint venture and followed it up with changes to speed things along. Now Boeing and exBoeing managers run the Charleston plants; Joy Romero, a former Boeing employee with 25 years of Boeing managerial experience manages Voughts plant, and MarioCapitelli,aBoeingexecutivewithsignificantoperationsexperience,runsGAsplant. Two retired Boeingplant managers initially brought in as consultants to solve problems nowassistCapitelli.14 NotedRomero,Voughtsplantmanager: VoughtsCharlestonoperationshasfixedtheproblemsthatmarredearlydeliveriesand isnowapproachingBoeingsoriginalconcept....Theproofisthis:DreamlinerNo.1s rearfuselagelefttheCharlestonplantinMay2007withonly16percentofitsstructure completedandnoneofthesystemsinstalled.ButwhentherearfuselageofDreamliner No.4wasdeliveredtoEverettlastweek(June2008),ithad98percentofthestructure finishedand87percentofthesystemsinstalled.15 Also,VoughtIndustriesisnowresponsiblefortheassemblyoftheairplanefloorgrid,while IsraelAircraftIndustriesrolewillbelimitedtosupplyingthefloorpieces.Changessuchas

12D.Gates,June11,2008. 13J.L.Lunsford,BoeingCEOFightsHeadwind.TheWallStreetJournal,April25,2008.B1. 14D.Gates,BoeingExpertiseSpeedingup787Partners.TheSeattleTimes,June11,2008. 15D.Gates,June11,2008.


thesewerebeingcarriedoutthroughoutBoeingsglobalsupplychainsysteminaneffortto rationalizetheproductionsystem,andredrawtheareasofresponsibility,actionsneededto speeduptheproductionoftheairplane. ProductiondelaysattheSpiritAerosystemsplant,formerlyBoeingWichita,werealsosaid toberecoveringwell.ManagersattheplantwereconfidentthatSpirit,whichwasworking on Airplane #4 (in June 2008), will deliver the next airplane virtually complete. They attributed its success to Spirits Boeing heritage and the familiarity with tools, processes, andexperiencegainedinpaststintsinEverett,Washington.16 Reflectingonthechangesandprogress,ShanahanremarkedinApril2008: We have addressed the major challenges that slowed our progress while trying to complete the primary structure the parts shortages, engineering changes, and manufacturing changes and we are well into the systems installation that is the precursor to putting power on the airplane for the first time. We have also worked closely with our partners to achieve higher levels of completion of their parts of subsequentairplanes,andwewillcontinuetodriveimprovementsinthesupplychain andproductionsystemperformance.17 Following the revised schedule announced in April, the 787team, under Shanahan, has successfully completed the power on sequence for the first 787airplane in June 2008. Thepoweronsequenceisacomplexsetoftasksandteststhatbringelectricalpoweronto the airplane and begin to exercise the use of the electrical systems.18 It represented a major milestone paving the way for the first flight test of the 787airplane to be done in November 2008. However, not all things were going according to plan. A new wrinkle appearedonthehorizonastrikecalledbyBoeingsmachinistsunion. ChallengesMovingForward ALaborStrikeThreatensProgress On September 6, 2008 the 27,000 Boeing membersof the International Association of the Machinists(IAM)walkedofftheirjobsafternegotiationsbetweenunionleadersandBoeing managers failed to reach an agreement on a proposed threeyear contract. This was the fourthtimeinBoeingshistorythatmembersofthisunionhavewalkedofftheirjobs.The firststrikethattookplacein1948lastedfor140days.Morerecently,however,astrikein 1995lastedfor69days,andonein2005lastedfor24days.Analystspredictthatthestrike willlastbetween30to60days.TheyestimatethatthestrikeiscostingBoeingabout$100 millionadayinlostrevenues. BoeingsoffertotheIAMworkerswasa11%wageincreaseoverthelifeofthethreeyear contract,aswellasacostoflivingadjustment.Italsoagreedtoincreaseworkersmonthly pensionby$10amonthto$80(a14%increase)foreachyearofservice.Duringthefirst

16 D. Gates, Boeing Dreamliners Front End Gets Finishing Touches at Spirit AeroSystems. The

SeattleTimes,June13,2008. 17BoeingPressRelease,April09,2008. 18BoeingPressRelease,BoeingAchieves787Poweron.June20,2008.


year of the contract, Boeing offered to pay a bonus of at least $2,500 or 6% of a workers salary,whicheverwasgreater.19Theunion,however,wantsapayraiseofatleast13%and agreaterincreaseinpensionbenefits. Althoughwagesandbenefitswereimportantissues,jobsecurityemergedas theissuefor unionmembers.NotesareportinTheWallStreetJournal: Attheheartoftheunionmachinists'strikeagainstBoeingCo.isahighstakesshowdown oversomethingtheaerospacegiantoncetoutedasamanufacturinginnovation:Itseffort tooutsourcekeyrolesinproducingitsnew787Dreamlinerjet....Boeingsaysitneeds flexibility in its manufacturing to avoid the problems that have befallen other big industrial companies, while the union is fighting to keep as many jobs as possible. The flashpoint in that debate is Boeing's troubled 787Dreamliner program, which striking workerspointtoasExhibitNo.1intheircaseagainstoutsourcing.20 In 2002, during the last contract negotiations with the union, Boeing inserted a contract provisionthatisattheheartofthecurrentlabordispute.NotesTheEconomist: The union is worried about a more insidious form of outsourcing, closer to home. A previousagreementallowedBoeingssupplierstodeliverpartsstraightontothefactory floor at its Seattle sites. The next step, the union fears, is for contractors to start fitting partsontoplanesontheline,displacingwellpaidworkers.Itwantsjobsecurity,withthe payrollheadcountlinkedtothenumberofordersandproductionrates.Itwantsachance tocompeteformallywithoutsourcingcontractsinabidtokeepholdofthework.Butits aggressivepaydemandsandstrikeactionwouldseemtoworkintheoppositedirection.21 Althoughtheunionleadersobjectedtothisprovisionin2002,theywereunabletomuster the required twothirds support from their members to call a strike. According to Tom Buffenbarger,IAMPresident,Theunionjustwantstobeabletohaveashotatmakingthe casethatourworkerscandothosejobscompetitivelybeforeBoeingshipsthemout.22 While a prolonged strike could negatively impact the delivery of the 787airplane, some analystsseeasilverlininginthestrikeandresultingworkstoppage.Pointsoutanarticlein TheWallStreetJournal: Intheshortterm,somesuppliersaretakingadvantageofthestriketocatchupwiththe backlog that has piled up as they raced to keep Boeing supplied in recent months. . . . It's nice to actually get caught up a bit, but it will be a different story if this thing stretchesmorethanamonth,saidasupplierwhoaskedthathisnamenotbeusedfor

19Underthenewproposedcontract,theaverageunionmemberisexpectedtoearnabout$65,000a

yearbeforeovertimewages.Withovertimeworkerscouldtakehomeanother$10,00ayearormore inadditionalwages.Underthecontractthatexpired,theaveragewageforaBoeingmachinistwas about$27anhouror$56,000ayearbeforeovertimewageswereincluded. 20J.L.Lunsford,OutsourcingatCruxofBoeingStrike.TheWallStreetJournal,September8,2008. 21StrikingDifferences.TheEconomist.September11,2008,printedition. 22QuotedinLunsford,September8,2008.


fearofviolatingconfidentialityagreementswithBoeing.23 Theprogressbeingmadebythe787teamisclearlythreatenedbythecontinuationofthe laborstrike.Publishedreportsnotethattheworkersareangryenoughtostayoutuntilthe endof2008.24 Despite the concerns being raised by workers, Boeings senior management is confident thatitsbusinessstrategyofoutsourcingisindeedsound.WhileMcNerney,BoeingsCEO, admitted that Boeing has had problems executing its new strategy he sees no reason for change.McNerneyreiteratedhiscommitmenttoBoeingscurrentapproach: The global partnership model of the 787 remains a fundamentally sound strategy. It makessensetoutilizetechnologyandtechnicaltalentfromaroundtheworld.Itmakes sensetobeinvolvedwiththeindustrialbasesofcountiesthatalsosupportbigcustomers of ours. But we may have gone little too far, too fast in a couple of areas. I expect well modify our approach somewhat on future programs possibly drawing the lines differentlyinplaceswithregardtowhatweaskourpartnerstodo,butalsosharpening ourtoolsforoverseeingoverallsupplychainactivities.25 PotentialStrikebyEngineers In September 10, 2008, Boeing engineers union, The Society of Profession Engineering Employees in Aerospace (SPEEA), representing 21,000 workers presented a proposal to Boeing for a new threeyear labor contract since their existing contract is scheduled to expireonDecember1,2008.Inadditiontoseekingwageincreasesandchangestopension and healthcare plans, the proposal was proposing limits to Boeings use of contract labor.26 In the past, Ray Goforth, SPEEAs executive director, has called Boeing management to correct its flawed reliance on global partners and bring the work back [insideBoeing].Sendingengineersaroundtheworldtohelpsupplierssimplytransfersall of the aerospace knowledge to other companies in other countries.27 Stan Sorscher, SPEEAs director of research, has noted while outsourcing design for say sneakers may work, outsourcing an airplane design cannot because it requires a tight community of experienced mechanics and engineers working together to overcome the inevitable challenges.Henoted:Wethoughtthe787wouldbethetestcaseforthis....Theresults are in.28 In this judgment, Boeings current approach with the 787airplance was flawed andneededreexamination. Inamomentofintrospection,theformerheadof787program,MikeBair,notedthatBoeing might axe the globalspanning supply chain that has caused its recent problems. He was candidinnotingthatsomeengineeringdesignworkwaspulledbackinsideBoeingbecause

23

J. L. Lunsford and D. Michaels, Boeing Strike Rattle Key Suppliers. The Wall Street Journal, September12,2008. 24J.L.LunsfordandD.Michaels,September12,2008. 25BoeingPressRelease,TimetoDeliveronthe787.April21,2008. 26 S. Ray. SPEEA demands return of outsourced work. The Seattle PostIntelligencer, Thursday, September11,2008. 27 QuotedinD.Gates,LatestdealofBoeing787pushesbackfirstdeliverytothirdquarterof2009. TheSeattleTimes,Thursday,April10,2008. 28D.Gates,IAM:Contracttalksintrouble.TheSeattleTimes,July30,2008.


someofthepartnerscouldntdeliver.HecommentedthatBoeingfoundthatsomefirsttier contractors promptly turned around and outsourced their design engineering work to secondtier contractors, which exacerbated the problems. He said, There are a couple of [the supplier partners] where I could see us going back to a buildtoprint solution [as apposed to buildtodesign followed by the 787program]. . . . The right way to do this wouldbetohaveallthosepartnersacrossthestreet[akindofsupersite]soyoucouldjust roll them in. . . . Well see on the next airplane programs whether we can accomplish somethinglikethat.29 BoeingengineersbelongingtoSPEEAhavegoneonstriketwotimesintherecentpast:once in 1993 for a day, and again in 2000 for 40 days. Notes Harley Shaiken, a laborrelations professoratUniversityofCaliforniaBerkeley:Thewholeunderlyingissueofjobsecurityis proving to be pivotal to whats taking place at the bargaining table, and it reflects the success that Boeing is having. . . . Both the Machinists and the engineers want to see that continue,buttheywantasuccessfulBoeingtomeanmorejobs,notasmallermanufacturing presence.30 The crux of the problem for both labor unions is Boeings business strategy employedinthe787airplaneprogramanditsuseinfutureprograms. ThreeStrikesandYouAreOut... Notes Richard Aboulafia, a respected analyst with the consulting firm Teal Group:I think theres an awful lot riding on this [the 787airplane]. It is one of those threestrikesand youreout scenarios from the standpoint of management, from the standpoint of a lot of people who are needed to keep the faith.31 On the brighter side, the 787airplane is the onlynewmidsizeplaneavailableinthemarketplace;theAirbusA350airplane,beingbuilt withagoalofslowingthe787smarketpenetrationwontbedeliveredearlierthan2013,at best. Thus, airline customers have little choice other than to wait for the 787airplane. However,itisclearfromanalystsreportsandcustomersgrowingconcernsthatBoeingcan illafford another delay, for a prolonged delay had the potential to turn into a fullblown crisissimilartotheonefacedbyAirbuswithA380airplane.AndasMcNerneynotedinhis openlettertoemployeesinApril,thereispricetobepaid,theleastofwhichistheimpact on Boeings customer relations. Is it time, as the two labor unions asserted, to fundamentallymodifyBoeingsbusinessstrategyfornewplanedevelopment?

29D.Gates,Boeingmayjunkworldwideassemblefornextjet.TheSeattleTimes,November7,2007.
30QuotedinS.Ray,2008.

31QuotedinD.Carpenter,Boeing787LaunchtoBeDelayedAgain.TheAssociatedPress,Thursday,

April10,2008.

 Exhibit1:TheThreeProposedModelConfigurationsofthe787Airplanes
Passengers Range(NauticalMiles) Cabinwidth Wingspan Length Height Cruisespeed Maximumtakeoff weight(pounds) Totalcargovolume (cubicfeet) Entryintoservice Price(millions) 7878 210250 7,650to8,200 18feet,10inches 197feet 186feet 56feet Mach0.85 484,000 4,400 2009 $157to$167 Consideredthebase model,thismodelis aimedatreplacing midsizejetssuchasthe 767andAirbusA330. 7879 250290 8,000to8,500 18feet,10inches 208feet 206feet 56feet Mach0.85 545,000 5,400 2012 $189to$200 Thisstretchedversion isaimedatreplacing midsizejetssuchas the767andAirbus A330. 7873 290330* 2,500to3,050 18feet,10inches 170feet 186feet 56feet Mach0.85 364,000 4,400 2010 $146to$151.3 Optimizedforshorter rangeflights,thisplaneis aimedatreplacingthe AirbusA300,Boeing757 300,Boeing767200and 300.

* One-class configuration
Source:BoeingCorporationandTheSeattleTimes

 Exhibit2:PenaltyCostsEstimatesAssociatedwiththe787airplaneDelays
Original Deliveries 2008 37 Revised Deliveries (optimisticcase) 0

Assumesabout5 planesamonth Assumesalittle over6planesa month Assumesalittle over10planesa month Assumesasteady stateto14planesa month Assumesasteady stateto14planesa month $0.5(Monthly Penalty,millions)

Deliveriesstart inOctober Assumesa littleover5 planesamonth Assumesabout 7planesa month Assumesa steadystateto 10planesa month Penaltyforthe first310 planes

2009

75

40

2010

132

65

2011

164

85

2012 5,014(Total Monthof Delays)

164 572 X

120 310 =$2,507 (millions)

Source:Jefferies&Associates,2008.

Exhibit3:Announced787AirplaneCumulativeDelays
Numberofplanesto deliveredby2009 112 109 25

Original Timeline October2007 Revision January2008 Revision April2008 Revision*

FirstFlight Aug07 Mar08 Jun08 OctDec2008

FirstDelivery May08 NovDec2008 NotSpecified JulySept2009

*Boeingalsochangedthetimingoftheintroductionoftwo787derivativesthe7879and787 3.The7879alargervariantoftheairplanewillbethefirstderivativeofthebaseline787with delivery planned for early 2012 while the 7873, a shorterrange model previously slated to deliverin2010,willbecomethesecondderivativeofthisfamily.

10

 Exhibit4:MaterialsEmployedinthe787AirplanesStructure

Source: The Seattle Times

Exhibit5:MajorRiskSharingPartnersInvolvedinthe787Program

Source: The Seattle Times

11

Exhibit 6: List of Leadership Changes under Pat Shanahan

ChangesmadeafterassumingleadersinNovember2007: Scott Strode, a VP formerly in charge of the 787airplane production, is reassigned to oversee all developmentactivitieswithVoughtAircraftIndustries. Mark Jenks, formerly incharge of the 787wing team, is promoted to head the 787 Development and is responsibleforairplanedefinition,certificationanddeliveryofthefirst787airplane. BobNoblewillcontinueasVPresponsiblefortherelationshipwithBoeingsglobalpartnersandwilllead the787SupplyChaingroup. Steve Westby will remain as VP of manufacturing and quality, leading the 787 Final Assembly and Delivery. JeffStone,mostrecently,productionoperationsleaderontheF22Raptorjetfighterprogramwillsupport 787BodyStructuresgroup. KathyMoodiewillleadtheinteriorsinstallationandberesponsibleforpreparingtheairplanesforflight AdditionalchangesmadeinJanuary2008: HowardChambers,formerlyheadofBoeingsSpaceandIntelligenceSystems,wasnamedasdeputytoPat ShanahaninJanuary2008. JohnVanGels,formerVPofoperationsandsuppliermanagementatBoeingsdefensedivisionwasasked tooverseemanagementofthe787supplierpartnersaswellasthefinalassemblyoperationinJ Source:TheSeattleTimesandBoeingPressReleases.

12