Boeing expected to lay out new contract terms for suppliers

By Dan Catchpole

Danieljcatchpole[at]gmail[dot]com

Oct. 16, 2018, © Leeham News: Puget Sound-area Boeing suppliers are anxiously awaiting an Oct. 30th meeting at the Lynnwood Convention Center. The aerospace giant has invited dozens of suppliers to the meeting.

Attendees have been required to sign non-disclosure forms in advance, though Boeing has been tight-lipped about what exactly it plans to discuss with them. Each company has been limited to sending only two representatives, according to several suppliers attending the meeting.

“It doesn’t matter if you’re a machine shop or a big (tier one supplier), you can only send two people,” said an executive at a Puget Sound-area supplier. The supplier spoke on condition of not being named for fear of losing business with Boeing.

Boeing has indicated that the conference is to discuss sweeping changes to how the terms and structure of its supply chain contracts. But it has revealed few details, according to executives at two suppliers.

“You know it’s bad if they won’t tell you what it’s about,” one of the executives said.

Streamlining bidding process

The invitation states that Boeing Commercial Airplanes “is looking to streamline its bidding process to increase supply chain efficiencies for all future work, all programs,” the Puget Sound Business Journal’s Andrew McIntosh reported.

“To that end we are looking at doing business differently which includes a new set of terms and conditions with the product life cycle and production system focus,” the invite continues. “Our suppliers are critical to our success and the intent of this conference is to share our request for proposal (RFP) and terms and conditions expectations for new work along with Q and A dialogue.”

McIntosh reports that the meeting is only for interiors work.

Growing concerns

The invitation seems to confirm growing concerns among suppliers that Boeing is gearing up to push for another round of price concessions.

Plenty of suppliers are still bitter over Partnering for Success 1.0 and 2.0, when Boeing squeezed substantial cost cuts from its supply chain. However, most suppliers lack the leverage to push back against Boeing’s demands.

Boeing executives made clear the company’s strategic shift into aftermarket work, and the new terms Boeing wants to discuss on Oct. 30 likely will include AM work on serial production contracts, among other topics.

New contract terms for NMA?

The company’s shifting business strategy is expected to most significantly affect supplier contracts for its New Midsize Aircraft (NMA).

Boeing is taking a different approach with the 757-ish replacement aircraft’s business plan, as LNC analyzed earlier this month. The aerospace giant is not evaluating the program as a stand-alone aircraft program, but rather as an enterprise program that will deliver profits based on services, parts and other revenue streams that come after the airplane has left the factory.

Taking such a new approach will require Boeing to make significant changes to its supplier contracts.

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23 Comments on “Boeing expected to lay out new contract terms for suppliers

  1. Is the limit of 2 people per business a simple and necessary logistical issue for venue size? Or is it (as seems more likely from behind this keyboard) Boeing throwing it’s weight around to restrict the likelihood of any larger supplier being able to field people who will spot the key issues, know the right questions to ask etc on the day?

  2. Unfortunately I can read components of Bullying and Blackmail into this meeting. Either the suppliers participate in the NMA project on Boeing’s terms, or……..?

  3. Boeing’s intention with the NMA is creating profit with revenue services. What’s in it for the airlines, short time gain long-term pain?

    Could be good business for Leasing companies, buy cheap and dump the services costs on the airline leasing the aircraft.

    • “What’s in it for the airlines, short time gain long-term pain?”

      An aircraft that hopefully makes them money?

      Airlines currently pay to keep their aircraft maintained and to get parts. Don’t think for a second that the suppliers don’t squeeze the airlines to try and get as much money out of them. Suppliers are not innocent little companies who never bully anyone around. Boeing just wants that money for themselves, not for the suppliers.

      • So the suppliers must go bust to feed those with fat share option packages at BA?

        Wonder when BA’s spin doctors will come up with that the NMA is in the National interest as future tanker, freighter, creating job opportunities and all that BS to get tax breaks?

        • I never said the suppliers have to go bust, or they should just sign up for whatever Boeing is selling. I was just telling you how it is with the airlines.

          You act like airlines get parts from suppliers for free, and get free maintenance, and that Boeing is trying to take that away by chasing more aftermarket service. No, airlines currently pay for that. And you know how Boeing is putting the squeeze on the suppliers causing all of them to complain? Well suppliers have traditionally put that exact same squeeze on airlines causing them to complain.

          How shifting more service options to Boeing will effect airlines will depend on the airline. It might be worse than current for some airlines (especially those with large MRO divisions), for some the same as now, and for some (especially smaller airlines with less leverage) it could be better than current.

          Remember to not get lost in PR narratives. Suppliers are complaining because they are getting squeezed by Boeing and to a lesser extent Airbus. That doesn’t mean they are poor innocent little companies. They, like most large corporations, are not your friends.

          In the end suppliers and Boeing/Airbus will come to agreements. It will probably not be as great as Boeing/Airbus wish, but suppliers are going to have to give a little.

          • Why would an airline with MRO facility order a fleet of planes they won’t be able/allowed to service?

      • “Boeing just wants that money for themselves, not for the suppliers.”
        You create the chinese trash conundrum.
        ( quality wise you get what the _manufacturer_ is paid for.)

  4. Shades of the Godfather:

    We have a deal for you, you can’t refuse.

    If I was the big boys I would talk to all the other big boys and each brings a special expert in all fields to the meeting and pool the results of each when done.

  5. Maybe time for a “supplier” union. Pretty much only large subprimes are surviving in current market conditions. Only they have the critical mass to support Boeing’s needs and this gives them much more leverage than they believe – especially if they speak with one voice instead of competing against each other to Boeing’s benefit.

    • “Alan”
      Maybe time for a “supplier” union. Pretty much only large subprimes are surviving in current market conditions. Only they have the critical mass to support Boeing’s needs and this gives them much more leverage than they believe – especially if they speak with one voice instead of competing against each other to Boeing’s benefit.

      That will probably lead to more OEM parts integration (Boeing’s already bringing parts of it in house). At the end, everyone would loose if that were to happen.

      • I wonder if that will work out so great for Boeing.

        I assume they initially got out of designing and manufacturing these parts themselves in order to save costs.

        What has changed that would now make this a money maker? Especially if it takes a few years to build up the resources, facilities, experience and processes for something they haven’t done for a decade or two.

        On top of that, it would mean hiring more people directly. At least I would assume that is what it would mean.

        • Funny that my experience is that with a Union everyone gains!

          Looking at wage strangulation and the loss of the unions, even if not you in them and …….,

      • Boeing is going to continue vertical integration regardless of what the supply does. They also know that much of the profit in aircraft parts and components spares and aftermarket. Suppliers barely make money or payoff tooling and other non recurring costs on initial part sell price knowing they need the aftermarket to eventually make money (and yes Boeing and the airlines bear the brunt of that higher cost). If they don’t keep these initial part costs low they don’t win the work.
        The other issue ready to slam the supply base and Boeing is engineer shortage. Even with recruiting budgets and college hiring fairs, Boeing (and other large OEMs) are unable to fill open positions. So they are hiring engineers away from the supply base. Short term gain, long term pain. This is crippling to the supply base where disruption, lack of redundancy and lack of budget and resources to recruit leaves them floundering for long periods of time to backfill these spots and then train and retain the new hires (beware the SpaceX ‘s, Virgin Galactic’s, and other millennial companies ready to hire them away as well). Soon, only the companies that have the mass and resources to have redundancy in key positons and can recruit and hire will survive-can you say Esterline/Transdigm?

  6. NMA= “767ish”, not “757ish”. (Nearly all recent aviation press claim it’s a 767-200 size twin aisle.) Also, both AB and BA are looking to aftersale a/c care revenues. See yesterday’s WSJ, page B2 re: Delta’s signup with Airbus for Airbus’s Skywise analytics package for their A320s and A330s.

    • What is bogus is your constant claims that new or revised engines arent tested, both on the ground and in the air.

      • Me thinks the track record (reality) speaks for itself.

        Clearly fixes are thrown in and modeled not tested.

        PW and RR both experienced that.

        RR comes out with a program that supposedly models the behavior and says you can go much longer.

        Next week they find they are worse than they thought and for the shorter duration than the authorities knew.

        Computer models are only as good as the testing.,

        A380 failed its wing test. But it failed where they predicted it and quite close to making it (a few percent below)

        Authorities allowed a beef up, no issues with that, clearly they had a very good handle on it and the break section prediction was spot on.

        And a Chip Detector is not the same though you don’t seem to grasp that.

        Its an alarm that says metal is in the engine. Any allowance should be no more than complete a flight.

        You sure as hell should not allow a dispatch of a flight with chip alarm.

        Remember the space shuttle. Went a bit too far with frozen O rings and got away with it, then did it again at lower temp still, boom.

        Called normalizing deviation, bad stuff.

        • So even more of a grab bag of claims. As for the claim that engines arent tested but instead run only as computer models, that is of course ludicrous.
          But since you are so appalled at loose standards how about this request from Boeing for a waiver over a software bug on the latest version of the GEnx which shut down an engine during in flight testing
          “Boeing plans to certificate the GEnx-1B-powered version of the 787-10 in September, but the fix for the software bug won’t be ready until 20 December 2019”
          It seems to be connected to detection of icing on the fan blades
          https://www.flightglobal.com/news/articles/boeing-requests-waiver-to-avoid-787-10-certification-447937/

          Now theres something for you to huff and puff over.

  7. Looks like Boeing are going to make the same mistakes with their suppliers as the US car industry did when the Japanese manufacturers turned up.

    The US manufacturers did the usual thing of screwing their suppliers for everything they could get, whilst the Japanese did the complete opposite. Nowadays there’s plenty of parts makers who refuse to do business with US companies. And Toyota, Honda, Nissan have huge, reliable sales of very reliable and high quality cars.

    All Airbus needs to do is treat US suppliers well, copy the way Toyota engage with suppliers, and Boeing are going to find it hard to buy anything.

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