Boeing confident of 737 recovery by year-end; some analysts express doubt

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.

Boeing 737 MAX awaiting engines, one of dozens of unfinished airplanes at the Boeing Renton plant. Photo via WoodysAeroImages.

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.

Canaccord

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.”

JP Morgan

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.”

More notes to come

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.

19 Comments on “Boeing confident of 737 recovery by year-end; some analysts express doubt

  1. The process of attaching engines to frames, flying them to Boeing Field and then taking back the engines for the next one is telling. The FAL at Renton must be stretched to breaking point. I don’t envy whoever is in charge of this mess as presumably they must focus on the line(s) to produce the new fuselages coming in whilst finding somewhere on a very small site to rework the others. With the unprecedented volumes at FAL and the revised working practices there is little room for minor issues and these are not minor.

    • The comments from Canaccord are a load of trash. There are no 737 Max frames being flown to BFI and having their engines removed. Every frame that has flown from RNT has completed its flight tests from BFI as per normal and flown away to the customer. No engines have been removed after first flight and there are no gliders at BFI – fact. Similarly, there are no 737 frames parked/stored at Grant County either. The only 737 frames parked/stored at BFI are a handful of NG frames for various Chinese customers, but this the delay is nothing to do with Boeing.

      Most of the Max frames that are rolling out of the factory NOW already have their engines fitted so I would say that CFM have caught up now in terms of *current* production and they will slowly start clearing the backlog as the engines arrive for them. I do think it is possible they could have the entire backlog cleared before the year is out, but man that is one tall order. The current lack of Max flight activity does not inspire me with confidence though.

      @Keesje the photo you’ve linked to is from 2016 when the Max 8 certification was coming to an end. Those are the first production frames for Southwest pictured.

    • Hello keesje,

      It looks to me like the registration number on the 737 in the foreground in the picture you linked to is N8706W. According to planespotters.net, this aircraft was delivered to Southwest Airlines about a year ago on 9-15-17 and entered service with Southwest on 10-1-17, which was Southwest’s first day of 737 MAX service.

      https://www.planespotters.net/airframe/Boeing/737/N8706W-Southwest-Airlines/6l5Otx6Y

      According to FligthAware, yesterday, on 9-7-18, this aircraft put in a 13 and a half hour day for Southwest flying from Phoenix to Las Vegas to Pittsburgh to Atlanta to Las Vegas.

      07-Sep-2018 B38M Hartsfield-Jackson Intl (KATL) McCarran Intl (KLAS) 09:00PM EDT 09:38PM PDT 3:38

      07-Sep-2018 B38M Pittsburgh Intl (KPIT) Hartsfield-Jackson Intl (KATL) 05:31PM EDT 06:47PM EDT 1:16

      07-Sep-2018 B38M McCarran Intl (KLAS) Pittsburgh Intl (KPIT) 09:46AM PDT 04:21PM EDT 3:35

      07-Sep-2018 B38M Phoenix Sky Harbor Intl (KPHX) McCarran Intl (KLAS) 08:00AM MST 08:44AM PDT 0:44

      https://flightaware.com/live/flight/N8706W/history

      • I can clearly read the first four characters of the registration number of the foreground 737 in keesje’s picture, i.e.”N870″, and the final character, i.e. “W”. I wasn’t absolutely sure about the 5th character being a “6”. Looking through Southwest’s current 737 fleet on planespotters, and various websites of Seattle area plane spotting hobbyists, I came up with the following list of Southwest 737 MAX’s with “N870 something” registration numbers, Only one ends in “W”, i.e. N8706W, so the foreground 737 must be N8706W, which has been in service with Southwest since 10-1-17. The 737-8 test aircraft have slowly been being re-worked for delivery to Southwest. Test aircraft one (N8701Q) was delivered in June 2018, test aircraft #2 (N8702L) and #3 (N8703J) have not yet been delivered to Southwest.

        Registration/Delivery Date or Status
        N8701Q / Delivered June 2018
        N8702L / Paint Hangar – Spokane
        N8703J / Rework – Renton Flightline
        N8704Q / Delivered December 2017
        N8705Q / Delivered September 2017
        N8706W / Delivered September 2017
        N8707P / Delivered September 2017
        N8708Q / Delivered September 2017
        N8709Q / Delivered September 2017

        Current locations of N8702L and N8703J are from several sources, including the following link.

        https://docs.google.com/spreadsheets/d/1xPZP2NmigprVBd5dklYcFOGraAn4C8Z4W0z2TPD-eD0/edit#gid=6

  2. I am having a hard time believing that CFM has enough slack capacity to fully catch up on deliveries to Boeing by year-end… let alone catch up with both Airbus and Boeing.

    Any analysis on that?

  3. Not sure how the realities of weather and social calendar of December and January will impact on test flights, etc.?

    • People will not get vacations, just keep on working.

      That is what happens when mgt messes up.

      • That’s what happens all around the world, and who get the fat bonuses and don’t work between Xmas and new year?

    • Weather is not a huge factor as these are not original test aircraft.

      They are production and full system that can fly blind.

      Worst case they take off and go over to Western Washington.

      They can and do operate a lot out of Mosses Lake.

      • Sure plans can be made but feel sorry for the guys at the bottom of the feeding chain.

        There were a couple of articles lately on the retirements coming to Boeing. One unfortunate fact is that the new generation hasn’t got the loyalty and commitment such as the old school guys in times like this?

    • Anton – in the absence of John and Fabrice, perhaps Tom can tell us how Airbus has been managing its back-loaded year-end deliveries (and related test flights) during recent festive seasons…?

    • Hello Anton and TransWorld,

      Regarding Holidays for 737 production workers, see below for what the 9-6-18 Seattle Times article at the link below reported. As for 737 production management at any level, I doubt that those not fired, suddenly retiring, or suddenly re-assigned to the Boeing Siberia office, will be taking much time off until production is back on schedule.

      “Employees are working constant overtime. Many volunteered to work all through the Labor Day holiday weekend and a few have worked as many as nine weekends in a row without a break.

      “They have opened the checkbook, letting people work as many hours as they want,” said one Renton inspector.

      A high-grade factory mechanic, who like the inspector asked not to be identified because he spoke without management permission, said some employees are burned out, calling in sick just to get days off.

      “The general sense is that we are so far behind,” he said. “It’s going to be the end of the year before anything is remotely on track.”

      “The mechanic said managers seem to be banking on doing a great deal of delivery catch-up by working full tilt through the Thanksgiving and Christmas breaks.”

      https://www.seattletimes.com/business/boeing-aerospace/737-problems-have-grown-in-renton-despite-boeings-reassurances/

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