30 May Boeing output slowdown tests supply chain resilience
Boeing’s troubles are bleeding out to its supply chain, wehre uncertainty over production rates has supppliers guessing at how many parts to make to avoid the cost of holding too much stock.
The aircraft maker has slowed manufacturing of its workhorse jet, the 737 Max, as it tries to improve production quality following a door panel blowout on a flight in January. It is facing a deadline today from federal regulators to deliver a plan that addresses what a panel of aviation exeprts described as a flawed safety culture.
The production slowdown is tsting the resilience of a brittle supply chain that has already faced years of price cuts and choppy production because of covid-19 and two fatal crashes that grounded the Max worldwide.
Without a well-oiled supply chain, Boeing will struggle to deliver jets to airlines clamouring for them, and could unsettle labour in a sector that employes hundreds of thousands of workers.
The Federal Aviation Administration has capped Boeing’s production of the MAx at 38 per month. Boeing is building fewer than that but plans to raise output to 38 in the second half of the year.
CFO Brain West has siad the compnay is adjusting the schedules that govern the pace and volumen at which it buys parts, from landing gear to lavatories.
That affects the operations and finances for suppliers, sme of which are public companies with market cpiltaisations in the billions. THe ones that do a lot of business with Boeing were “feeling the pain at the moment”. “Everybody was expecting a ramp-up in the production of the 737 and 787, They may have invested in peopel or capacity to meet that ramp-up and when they get pushed back, it’s a problem.”
The supply chain had already been “severely weakened” over the past decade.
Former Boeing chief executive Jim McNerney began an initiative in 2012 that continued under Dennis Muilenburg under which the manufacturer insisted on price cuts and extending payment terms.
Spirit, the Kansas manufacturer that has had its own struggles with quality, has been the most high-profile casualty of the slowdown on the Max.
Boeing stopped accepting its Max fuselgaes that did not meet specifications in an effort to redue “travelled work” at its own factory in Renton, Washington, where work performend out of sequence increases the likelihood of manufacuring errors.
Though the two companies reach a deal in April for Boeing to pay Spirit $425mn, the supplier still reported a first-quarter operating cash outflow of $416mn, a $617mn net loss and increased inventory.
But Spirit is far from alone. Howmet Aerospace, Triumph Group, Hexcel, Senior and ATI all have been affected by the slowdown on the 737. though some have offset it with other work, such as overhauling geared turbofan engines or securing more defence work where demand is booming.
Triumph chief executive Crowley said last week that for fiscal year 2025, eding March 31, the company assumed its rate to deliver products to Boeing would slow 20 to 30 percent, depending on the programme and component. Triumph expects $1.2bn in sales for the fiscal year 0 about $70mn less than its earlier internal assumption.
At Howmet, the slowdown at Boeing caused the company to “completely replan” tis year. It is now assuming Boeing will prroduce 20 Maxes a month for the rest of the year, down from a previous assumption of 34. With its fastener business, Howmet is planning to deliver lower volumens to “prevent the case where we get caught with a lot of … inventory”
The strains in the supply chain have rippled through to Boeing’s main rival, Airbus, which is boosting production to meet surging demand from airline customers and needs its suppliers to keep pace. But suppliers often service Boeing and Airbus, making it difficult to assume additional fixed costs, such as more staff, when the aircraft makers’ production rates diverge. High interest rates have only increased the cost pressures.
The supply chain was stressed, Airbus CEO Guillaume Faury told investors in April, and “we see this knock-on effect.”
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