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787 Dreamliner teaches Boeing costly lesson on outsourcing

The airliner is billions of dollars over budget and about three years late. Much of the blame belongs to the company's farming out work to suppliers around the nation and in foreign countries.

February 15, 2011|Michael Hiltzik

"I didn't dream all this up," Hart-Smith, who is retired, told me from his home in his native Australia. "I'd lived it at Douglas Aircraft."

As an engineer at McDonnell-Douglas' Long Beach plant, he said, he saw how extensive outsourcing of the DC-10 airliner allowed the suppliers to make all the profits but impoverished the prime manufacturer.

"I warned Boeing not to make the same mistake. Everybody there seemed to get the message, except top management."

The company's unions have also kept singing an anti-outsourcing chorale. "We've been raising these questions for five years," says Tom McCarty, the president of the Boeing engineers' union. "How do you control the project, and how do you justify giving these major pieces of work to relatively inexperienced suppliers? There's no track record of being able to do this."

It would be easier to dismiss these concerns as those of unions trying to hold on to their jobs if they hadn't been validated by the words of Boeing executives themselves. A company spokeswoman told me that it's not giving up on outsourcing — "we're a global company," she says — but is hoping for a "continued refinement of that business model." Yet Albaugh and other executives acknowledge that they've blundered.

"We didn't want to make the investment that needed to be made, and we asked our partners to make that investment," Albaugh told his Seattle University audience. The company now recognizes that "we need to know how to do every major system on the airplane better than our suppliers do."

One would have thought that the management of the world's leading aircraft manufacturer would know that going in, before handing over millions of dollars of work to companies that couldn't turn out a Tab A that fit reliably into Slot A. On-the-job training for senior executives, it seems, can be very expensive.

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.

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