The agreement between Leonardo and Boeing is ready to close the discussions on the 787 aircraft, the most important industrial program in aerostructures for the Italian group.
The two groups, according to what we have learned from authoritative sources, are very close to signing the agreement. Negotiations have been intense in recent weeks, following the meeting in the United States on 4 September between the new CEO of the former Finmeccanica, Alessandro Profumo, and the CEO. of Boeing, Dennis Muilenburg.
Sources familiar with the operation confirmed to Poteri Deboli that it is the "Global settlement" on the 787, ie a "grave" agreement with which the two industrial groups intend to end discussions on quality, prices and production-related problems. We had already referred to it in an article dated September 20 (“Leonardo-Boeing, negotiation for discounts on 787 and “grave” agreement).
The plastic plane
The 787 Dreamliner (in the opening photo) is the aircraft with a capacity of up to approximately 300 seats for long-haul flights. A streamlined aircraft, suitable - according to Boeing - to also connect cities where there is no heavy traffic. The fuselage is made largely of carbon fiber, the aircraft is lighter than previous models and therefore has lower fuel consumption. This is why it is nicknamed "the plastic plane". However, the technology employed and the wider involvement of suppliers compared to previous aeronautical programs have created some problems and delays. Boeing intervened by bringing part of the activities back internally and increasing controls on suppliers all over the world, the most important being in Italy and Japan (for the wings).
Boeing's complaints
As Poteri Deboli already recounted on 20 September, the discussion between Leonardo and Boeing originated from the American manufacturer's complaints about the "non-compliant" quality of the fuselage components produced by the former Alenia, now Leonardo's aerostructures division, in the Grottaglie, in Puglia. The complaints were formalized last year, when the aerospace group was still led by Mauro Moretti.
After an initial letter with reliefs, in the middle of summer 2016 Boeing sent a formal letter putting Leonardo aerostructures under "probation", with explosive disputes. The "probation" is a serious act, a sort of receivership of the supplier made by the customer, the controls on production and quality are strengthened. Product acceptance must be done by the customer (ie by Boeing) in the same manufacturing plant, with its own engineers and technicians, as inspectors. All higher costs of this procedure are charged to the supplier.
The exit from probation
The former Finmeccanica came out of probation on the 787 after four and a half months, in the last weeks of 2016. At that point the group said it had complied with the quality and production rates requested by Boeing. In the first half of this year, Leonardo states in the report on the accounts for the first half of 2017, "deliveries equal to 69 fuselage sections and 40 stabilizers were made for the B787 program (in the first half of 2016, 60 fuselages and 43 stabilizers were delivered)" .
Boeing and Italy
With the 787 program, Boeing has invested heavily in Italy, but has never shown complete satisfaction with this industrial collaboration. From what transpires, with the "Global settlement" the question of the quality of the fuselage sections produced in Grottaglie for the 787 has been resolved. This is a reason for satisfaction for the Italian group, which is strengthening relations with an important industrial partner.
We do not know the economic details of the agreement. As we already reported on September 20, Boeing asked for a discount on the prices of the supplies, also relying on the promises made between April and May by the head of the aerostructures division, Alessio Facondo. We don't know how it ended. But if Muilenberg agrees to sign the deal, he's likely to get the price cut, at least for a number of years.
In the 2011 financial statements, the CEO of Finmeccanica Giuseppe Orsi made heavy write-downs for the charges of the B787 contract. Subsequently, in 2012, the contract on the 787 was renegotiated with a "repricing" by the then CEO of Alenia Giuseppe Giordo, who obtained important price improvements in favor of the Italian group.
The extension of the contract for Grottaglie
Profumo also asked for counterparts. Leonardo has requested the extension of the contract on the 787 up to 2.700 fuselage sections, the current one provides for the supply of 1.250 carbon fiber fuselage sections. As it transpires, the extension would have been obtained under this global agreement with Boeing. This will allow Leonardo to have work in Grottaglie until at least 2030, compared to the current horizon of 2021. Of course everything will depend on the actual sales of the 787 on the market.
The impact on Leonardo
The extension of the contract will allow Leonardo to spread the fixed costs of the program over a longer period of time, therefore there will also be a reduction in depreciation. From what transpires, overall for Leonardo the agreement should have positive economic effects and allow a significant improvement in the profitability of the entire 787 program, which is currently at a loss. The economic benefits are not necessarily immediate. This will depend on the price clauses that we do not know and any provisions that may be necessary to close the dispute.
Increased production
The agreement will confirm the commitments to increase production, now on 12 fuselage sections per month. The goal is to reach 14 fuselages by the end of 2018 or the beginning of 2019, in parallel with the production rhythms envisaged by Boeing on the 787. Obviously, the now defined agreements presuppose that Leonardo is able to maintain the quality levels and rhythms over time of production required by Boeing.
Click here to see the original and complete version of the article, extracted from Gianni Dragoni's blog, “Poteri Deboli”.
(the article was published on November 9)
