Sept. 6, 2018, © Leeham News: As incomplete Boeing 737s fill the ramps, taxiways and other available space at Renton Airport and Boeing Field, company officials sought to assure aerospace analysts there is a recovery plan that will see a full complement of deliveries by year-end.
At least two analysts were unconvinced following the annual Boeing Investors Day yesterday.
In notes issued by Canaccord Genuity and JP Morgan analysts late Wednesday night Seattle time, Kenneth Herbert and Seth Seifman respectively expressed doubt Boeing will meet its 737 delivery target.
Herbert gave Boeing a 50% chance of meeting its recovery target.
“Through August, Boeing has delivered 342 737s YTD, but just 137 in Q2/18 and then just 73 in the quarter to date in Q3/18,” Herbert wrote. “Boeing management continued to focus on delays from Spirit AeroSystems with the fuselage, and CFM with the engines, and highlighted that it views issues with other areas (APUs, PSUs, composite panels) as less of a concern.
“The company sees another light Q3/18 for 737 deliveries but anticipates to hit its full year target with a strong Q4/18. The level of traveling work is expected to peak in October, and to be largely resolved by the end of the year,” Herbert wrote.
“However, we believe there is more near-term risk associated with the 737,” he continued. “We estimate that there are ~115 737s at Boeing, compared to a more normal level of ~50. BA currently has ~50 737s parked around its Renton facility, with another ~30 in the facility, each roughly 2x normal levels. We believe there is also another ~30 at Boeing Field (flown over from Renton than with engines trucked back to Renton) and a few others at Moses Lake. We put the odds at 50% that BA will succeed with its recovery plan by the end of 2018, with some suppliers indicating that the delays could spill into 2019. Note that more recently the delays are with other systems, such as APUs, PSU and select composite tail panels.”
Seifman wrote that 737 problems are “real and not yet resolved.”
He wrote that Boeing underestimated the magnitude of the problem early this year.
“Late fuselage deliveries from Spirit have been disruptive because the fuselage is necessary to start the production flow but Boeing sees improvement from Spirit,” Seifman wrote, quoting Boeing. (Spirit says it has caught up.)
“Engines have always been the most challenging element of the 737 ramp and delays here have been apparent all year,” Seifman wrote. “However, CFM is making progress and there is more flexibility regarding when to attach the engines to the aircraft. We believe CFM’s main challenges still come from casting and forging suppliers like Arconic (Alcoa before being renamed in a spin-off) and Precision Castparts and, in our view, this part of the supply chain remains a threat to the ramp to 57/month next year.”
Seifman, like Canaccord’s Herbert, cites Boeing’s confidence that it will successfully execute the 737 recovery plan and deliver all aircraft per guidance by year end.
“Getting back on track operationally presents two challenges,” Seifman wrote. “First, suppliers must consistently deliver on time and on quality. Consistency is especially important because the current high rate of 52 aircraft/month leaves little margin for error as delays quickly ripple through the production flow. While Boeing did not quantify exactly when it expects its factory inputs to be running smoothly, our sense is that it is soon. What should take longer is burning down out of sequence work on dozens of aircraft that have come out of the factory unfinished in recent months. Accomplishing this in Q4 to reach the delivery target for the year will not be easy.”
These are the first two of nearly a dozen research notes LNC receives. More notes should be issued today. LNC will follow up with more commentary from analysts when a collection of notes is received.