Sept. 3, 2018, © Leeham News: There is more evidence the aerospace supply chain is in meltdown—and it’s going to get worse, a manufacturer tells LNC.
The OEM requested anonymity to speak frankly.
As aerospace analysts gather this week in Seattle for their annual investors day at Boeing, based on the research notes I see, there’s little indication they recognize the magnitude of the evolving problems with the supply chain.
Although the focus recently has been on Boeing and analysts will visit Boeing Wednesday, the issues affect all the OEMs.
This was followed by a Bloomberg report that Lufthansa Airlines continues to have shortages from Pratt & Whitney for the GTF engines powering the A320neo.
Since then, I’ve had my own additional conversations with the supply chain. The production ramp ups that already have been announced and those being contemplated are in peril and all manufacturers are being affected.
There have been many stories about the airplanes stacking up around Airbus’ Hamburg and Toulouse production sites. The A320neo engine issues are widely known.
The problems over at Boeing also have become known. A flurry of stories about an increasing number of 737s fill just about every space at Renton Airport. A week ago, there were 49 in various states, according to the reliable plane spotter Chris Edwards. There were 35 MAXes, including 17 without engines. There were 14 NGs.
A good number of these were in active pre-flight preparation.
I don’t have an update of the number of 737s at Boeing Field.
The back-up goes beyond the lack of CFM LEAP-1B engines, I’m told. The MAXes and NGs also increasingly are victims of traveled work due to parts shortages on the assembly lines.
One aerospace analyst, Cai Von Rumohr of Cowen & Co., singled out thyssenkrupp’s TMX Aerospace subsidiary in a recent note as contributing to the 737 backup. (thyssenkrupp’s name is with a small “t.”)
The Puget Sound Business Journal first reported these problems last month. TMX exclusively supplies Boeing with parts and raw materials. Cowen believes the problems TMX had are largely resolved. But even before the Farnborough Air Show, I was hearing otherwise. When I interviewed the company at the air show, officials clammed up, referring all questions related to Boeing to Boeing. Boeing historically goes into a bunker on stories like this.
Nor am I convinced that thyssenkrupp isn’t having bigger problems that are trickling down to TMX.
Disgruntled institutional shareholders have moved against the company, causing upheaval in the executive ranks. (Just ask Airbus about this kind of impact.)
The chairman and the CEO both resigned in August. A power struggled is underway, Reuters reports. One shareholder is questioning thyssenkrupp’s underlying strategy. The stock price is off a third since 2011 and the company issued a profit warning for the coming quarter. An investor is seeking a second seat on the board, and news reports refer to a “crisis-ridden” company, a “leadership vacuum” and the need for a “strategic review.”
There’s even talk of breaking up the company, though how serious this is remains unclear. The Krupp foundation rejects talk of a break-up, but at the same time interim officers say nothing is “sacrosanct.”
When aerospace analysts meet with Boeing this week, they need to drill down not just on thyssenkrupp’s own specific turmoil, given its importance to Boeing, including the problems outlined above. They need to drill down on the overall supply chain, materials and the impact on the rest of the 7-Series.
The Puget Sound Business Journal has done some leading edge reporting about the emerging supply chain issue, and LNC has written about this as well. But based on my conversations, these stories and Cowen’s report are only the tip of the iceberg.
The impact of Russian sanctions, notably on titanium, has been on my radar screen for quite some time. Not only does Boeing need titanium for its airplanes (as do Airbus, Bombardier and Embraer for theirs), the engine makers need it as well.
As the 737 becomes the visible photo op for the supply chain issues, overlooked is the impact on the other 7-Series.
I’ve been hearing for months that more traveled work than usual has been occurring with the 777 Classic, as airplanes emerge from the factory with more unfinished work than usual. I’m beginning to pick up indications work may be backing up on 787s are well, though this information is very sketchy.
The blog All Things 787, which is pretty well informed, wrote Aug. 23, “Over the last couple of months the number of 787s delivered from Boeing’s North Charleston facility has shrunk compared to previous months and the effect has been an increasingly crowded flight line.
“I have heard that there are seat supply issues but it may be more than that or engine issues with Rolls Royce Trent 1000 powerplants. Boeing has been having supply chain issues and it’s not just the 787 program but the other major commercial aircraft programs (737 and 777) that are effected,” the blog wrote.
These are all questions for the analysts to pose to Boeing this week.
More to the point, I’m hearing the supply chain issues may be slowing the announced production rate increased on the 737 and 787 lines.
The 737 rate was supposed to go to 52/mo this year. Two weeks ago Boeing green-lighted the increase, LNC is told. This move certainly suggests Boeing is confident the supply chain issues are resolved, or at least are manageable.
The rate is supposed to go to 57/mo next July.
The 787 rate is supposed to go to 14/mo next year. Suppliers are telling me they are doubtful.
Analysts and media who cover Boeing have a saying: Boeing says everything is fine right up until the point that it isn’t. One needs to look no farther than Boeing officials claiming all was well in the 787 program on roll-out and right up until the point the next delay was announced, or the two years it took for officials to acknowledge the production rate on the 777 would have to be reduced or there were “bridge” challenges.
(To be fair, this was mostly a Jim McNerney approach, but there’s still some of this under Dennis Muilenburg.)
Based on my own conversations with suppliers, the problems for Boeing are anything but resolved.
Parts shortages from engines to the proverbial widgets are growing, not shrinking, based on what I’m told.
I stress that this is an issue across the entire production system. The airframe and engine OEMs share many of the same suppliers. If one has trouble, sooner or later all are likely to have trouble.
From what I am hearing from suppliers, the meltdown has yet to hit bottom.