Boeing officials reaffirmed the company’s drive for Partnership for Success, or PFS, during two appearances at conferences this month, adding that its supply chain was mostly on board, though some companies are now on a “no-fly list.”
.CEO James McNerney spoke at a Cowen Co. conference and in subsequent interviews, noting that some suppliers have greater margins than Boeing, which he termed “out of kilter.”
.Stan Deal, VP and GM for Supply Chain Management and Operations for Boeing Commercial Airplanes, told the Pacific Northwest Aerospace Alliance conference in Seattle last week that PFS is proceeding well, with cooperation of most suppliers.
.We were at the PNAA conference, and there isn’t one supplier we talked to who was happy with Boeing’s PFS program. To a supplier-none of whom would consent to be identified, for fear of offending the Big Momma-each complained that Boeing is being unreasonable in its asks: 15% to 25% cost reductions.
.Those suppliers who are on the 787 program are especially unhappy. Under the original 787 contracts, suppliers weren’t to be paid until the airplane was certified. Given a delay of nearly four years, and many parts or systems redesigns necessary, suppliers faced severe cash flow shortages and in some cases, nearly went bankrupt. Even major, well-heeled suppliers faced millions upon millions of dollars of cash-carrying costs, yet were and are asked by Boeing to give up margins.
.”Behind closed doors, they will tell you this is entirely about margin,” one supplier tells us.
.In response to our question at the PNAA conference, Boeing’s Deal said the company takes into account the pain inflicted by the 787 program on those suppliers it today asks for re-pricing. Later, suppliers in the audience expressed disbelief at Deal’s expressions of considerations for the struggling 787 suppliers.
.United Technologies, recently acquired Goodrich unit (since renamed) lost the landing gear contract for the 777X, and the 777 Classic (at a transition date in 2017), to Canadian company Héroux-Devtek, a move Teal Group analyst Richard Aboulafia criticized as unnecessarily risky. UTC’s relationship with Boeing, also a 787 supplier and one that was hard hit by the costly delays, is described as highly strained.
.Aboulafia also criticized Boeing’s hard-line approach, which he characterized as one that can harm its relationship with the supply chain in a manner similar to the toxic one with its International Association of Machinists District 751 touch labor membership.
.We certainly understand Boeing’s desire to shave costs in its supply chain, just as we understood the desire to control pension fund and medical costs with IAM 751. However, the rosy picture painted by Boeing officials is very much at odds with those suppliers we’ve talked with.
.The danger to Boeing is being penny wise and pound foolish, just as Aboulafia expressed at the PNAA conference. We also see the prospect of Boeing’s suppliers seeking to diversify with Airbus. This is a good thing for the supplier-having all your eggs in one basket is never a good thing-but Boeing’s penny-pinching ways has the potential of sending talent to its fiercest rival.