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Originally published Thursday, June 12, 2008 at 12:00 AM

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Boeing partner Vought gives side of 787's missteps

Vought Chief Executive Elmer Doty said Wednesday his company pulled out of one part of Boeing's 787 Dreamliner program because it didn't...

Seattle Times aerospace reporter

Vought Chief Executive Elmer Doty said Wednesday his company pulled out of one part of Boeing's 787 Dreamliner program because it didn't have direct management control over other suppliers.

And pointing to the progress made this year at the 787 rear-fuselage assembly plant in Charleston, S.C., Doty reiterated Vought's continued commitment to Boeing's crucial new jet.

He compared the complicated supply chain that must deliver parts for a new jet to a relay where each team member must run in sequence.

"A year ago, definitely we were at the back of the pack," Doty said. "We've moved to the middle of the pack and we're moving up. The thing about this race is, it only counts when everyone gets across the finish line."

Vought makes the rear fuselage in its plant in Charleston and will continue to do so.

But Boeing announced Wednesday it has completed buying Vought's half share in Global Aeronautica (GA), which assembles the mid-fuselage of the 787 Dreamliner in a second factory on the Charleston site.

Boeing did not disclose what it paid Vought for the ownership stake, which leaves Boeing and Alenia of Italy as 50-50 partners in the joint venture.

Tuesday in Charleston, Bob Noble, vice president in charge of Boeing's 787 supply chain, insisted to skeptical journalists that Boeing hadn't bought Vought out because GA wasn't working well.

"It was not performance-related," said Noble.

Enzo Caiazzo, GA's chairman and also chief operating officer of Alenia North America, went further and insisted Vought's four-year participation in the venture could not be considered a failure because it had created a state-of-the-art plant on a previously empty site.

"Five years ago, nothing was here," Caiazzo said.

Speaking in a phone interview from Vought headquarters in Dallas, Doty gave his take on why it happened.

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He said Vought's 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.

GA takes in large sections from Alenia as well as from Fuji and Kawasaki in Japan, then integrates them with Boeing-furnished parts.

The problem was Vought had no control over the procurement of those large pieces, Doty said. Boeing, as the prime contractor, was responsible for managing those major partners.

"To manage the traveled work efficiently, you need that responsibility," Doty said.

Though the half share in GA accounted for less than 10 percent of Vought's 787 program revenue, he said, "it was a huge distraction and difficult to execute" because GA lacked that partner oversight role.

"That is best done by the prime," Doty said. After discussions with the 787 leadership team, Boeing agreed.

Yet Doty said Vought's commitment to the program remains firm, despite that pullback and the 787 schedule delays that mean reduced revenue in the near term.

Regular payments to the major suppliers won't start until at least 14 months later than first planned, and after that will come slower than anticipated as Boeing holds down the new jet's delivery rate.

Boeing paid Vought a cash advance of $122 million in March as partial restitution for that loss of cash flow.

Further payments are being discussed.

A person familiar with the negotiations said Doty played hardball with Boeing, insisting his company wouldn't continue to build parts — grinding the whole 787 supply-chain relay to a halt — unless Vought got paid.

Wednesday, Doty would say only: "It's a negotiation. Boeing is my biggest customer."

With sales of the Dreamliner sky high, the program will likely deliver big profits in time. But with revenue flow pushed out, suppliers are hurting as they continue to spend big.

Struggling financially, Vought secured $200 million in loans in the first quarter.

"Of course, it's a good idea to be on the program," Doty said. "You're talking to someone who just arranged to take out additional debt and worked hard to find ways to finance this program."

The money from the GA sale will help, too.

Longer term, The Carlyle Group, a private equity firm that owns Vought, is looking to sell the company.

Possible buyers include Spirit AeroSystems of Wichita, Kan., or conceivably Boeing itself.

Doty said he couldn't comment on prospective buyers.

"We were for sale the day I walked in," said Doty, who became CEO in February 2006. "My job is to continue to build."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Copyright © 2008 The Seattle Times Company

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