The Boeing Company: The Grounding of the 787 Dreamliner

Aircraft maintenance outsourcing and offshoring is now prevalent in the airline industry. In the USA, the safety implications of this shift in work organisation have aroused serious concernsconcerns magnified by six serious incidents between 1995 and 2009. Subsequent investigations, audits and reviews of outsourced maintenance activities identified significant failures in regulatory oversight. However, the air safety enforcement agency -the Federal Aviation Administration -was slow to respond to these shortcomings, despite sustained criticism from other US government agencies responsible for transport safety and governance. This paper provides a case study of regulatory failure and the difficulty of reshaping regulatory regimes in the context of rapid changes to work organisation. It highlights challenges in regulating outsourcing and subcontracting -challenges not confined to the USA -as well as problems in reshaping enforcement regimes.

Introduction The goal of this dissertation is to describe the main economic and political factors underlying the post-1970 decline of the US as a manufacturer of large commercial passenger jets (i.e. aircraft with 100 seats or more). A further goal is to identify the likely sources of future foreign competition in this industry. The main thesis of the dissertation is that foreign producers have acquired a competitive advantage over the US as a result of supportive public policies (e.g. production subsidies), industrial offset agreements (compensatory trade), investment in new manufacturing procedures (e.g. automation), and lower costs. From an industrial futures perspective, the dissertation argues that the US is moving toward a systems integration mode of production (i.e. buy parts from abroad, and assemble at home). This trend implies continued employment losses among US aerospace suppliers, as well as among US aircraft manufacturers. Data for the study come from two main sources. The first source consists of secondary data from corporate reports, industry websites, trade journals, and Federal agencies (e.g. the US Department of Commerce). The second source comes from personal interviews with US and foreign industry representatives, as well as from visits to several aircraft factories in the European Union, Russia, China and the US. The dissertation is organized around three interconnected propositions. First, US aircraft manufacturers must offer industrial offset packages to compete internationally (Offsets are typically organized as production-sharing agreements where the seller transfers part of the manufacturing work to the buyer). Secondly, offset packages deliver aircraft production capability (technology and skills) to potential competitors. Third, Russia, China, and several other newly emerging markets (NEMs) are likely to become serious players in the global aircraft market over the next 10 years or so. Taken together, these three propositions serve as the thematic basis for the dissertation. While the dissertation does not seek to test any particular theory with regard to international business and/or industrial location, some of the empirical findings suggest that certain aspects of Vernon’s (1969) product-life-cycle (PLC) hypothesis are relevant to the US commercial aircraft industry. In particular, the emergence of global subcontracting linkages has in some cases entailed a geographic dispersal of production from high-cost US locations to lower-cost foreign sites (these cases are examined later). In other cases, however, the international decentralization of US production has also included high-cost foreign sites (e.g. Canada, Britain and Japan). This renders the PLC model less pertinent. Some of the dissertation’s findings are also relevant to recent theoretical developments in the field of strategic trade policy (Krugman, 1986). Specifically, the US commercial aircraft industry satisfies all of the current theoretical criteria that define a “strategic industry”. These theoretical considerations, among others, are discussed in the concluding chapter of the dissertation.