Why 787 Delays Were Inevitable?

Abstract

Boeing 787, the Dreamliner, was the fastest-selling plane ever in the commercial aviation industry. However, its development was a nightmare – the first flight was delayed by 26 months, and the first delivery was delayed by 40 months with a cost overrun of at least $11 billion. By a comprehensive empirical study of the actual events and facts, we find strong evidence to suggest that a majority of the delays were intentional. An economic analysis of incentives and gaming behaviors in joint development projects discovers that the 787’s risk-sharing partnership forced Boeing and its partners to share the “wrong” risk. This led the firms into a Prisoner’s Dilemma, where delays were in the best interests of these firms, although doing so drove them into a disaster. We reconcile the economic analysis with the empirical evidence to reveal the rationale behind many seemingly irrational behaviors that delayed this program. Finally, we suggest a new “fair sharing” partnership to share the “right” risk and greatly alleviate delays for development programs of this kind.