Boeing helps some suppliers, but squeezes others

By Scott Hamilton

Feb 19, 2020, © Leeham News: Boeing says it is helping some suppliers with liquidity while the 737 MAX is grounded.

Other suppliers complain that Boeing is dunning them for alleged bad workmanship, squeezing cash. Still others say Boeing proposes not paying them for MAX parts until every regulator in the world recertifies the airplane. There are some 80 regulators who have to approve restoring the MAX to service.

And one Tier 1 supplier, Leonardo, sued Boeing Dec. 23 for withholding $20m in payments for 767 slats. Boeing alleges faulty workmanship. Leonardo says Boeing won’t provide documentation of this claim.

(US District Court for Western Washington, 2:19-cv-02082-JLR.)

Boeing’s tactic of withholding payments for claims against future invoicing was echoed by some of the suppliers attending the annual conference of Pacific Northwest Aerospace Alliance Feb. 4-6. Some complained Boeing is using them for its “bank.” It’s a complaint of long-standing even if for different reasons.

Leonardo’s lawsuit

The Leonardo lawsuit outlines in detail the broad process suppliers at the PNAA conference expressed to LNA.

In its lawsuit, Leonardo claims that Boeing is unilaterally alleging defects in parts Leonardo produces. As a result, Boeing is unilaterally subtracting the monetary damages Boeing asserts from future Leonardo invoices.

The Italian company, which has been a supplier to Boeing for 40 years, claims Boeing refuses to document its claims about shoddy workmanship and the costs to bring the parts into conformance. Leonardo counters that any defects for the 767 parts are due to flaws in Boeing’s own materials.

Boeing invoiced Leonardo in August, charging the company more than $26m for “slat cost recovery”. The invoice was for a two week period ending Aug. 20. Boeing demanded Leonardo pay the invoice within 30 days or Boeing would apply this amount against Leonardo’s next invoice.

Boeing’s account payables typically have a 90-120 pay period to its suppliers.

A second claim for $33m was sent a month later by Boeing and were applied against every part Leonardo makes for the 767, over and above the disputed slats.

Leonardo said Boeing never complained about product quality, in violation of notices required under contracts.

Boeing’s response, filed Feb. 10, denies Leonardo’s allegations in the underlying claims. It denies that it never alerted Leonardo to its concerns.

Leonardo’s lawsuit is here: 440969494-Leonardo-vs-Boeing

Boeing’s answer is here: Boeing Answer

21 Comments on “Boeing helps some suppliers, but squeezes others

  1. Elsewhere in Leeham News “The US Air Force halted deliveries of the KC-46A tanker twice because FOD was discovered on the newly produced airplanes at the Everett (WA) wide-body factory” – did the USAF sue Boeing, by any chance?

    • Different circumstances. Boeing (as supplier) agreed and was able to provide remediation of the FOD problems for USAF (as customer). Boeing incurred the cost for that, not the USAF.

      In this case Boeing (as customer) incurred the cost for the non-conforming slat tracks from Leonardo (as supplier). And it is Leonardo suing Boeing, which is the reverse circumstance.

      Boeing charged Leonardo for those costs. Leonardo refused to pay, claiming variously that the non-conformance didn’t exist, that if it did exist it was Boeing’s fault, and that their efforts at repair did not succeed due to Boeing’s lack of cooperation.

      The court will have to decide, they will probably settle.

  2. Even if Boeing has a point, which may be debatable, this is once again the kind of press that Boeing does not need.
    -Bullying of suppliers
    -Making up their own rules (unilateral actions)
    -Allowing it to be known that Boeing is theoretically using “inferior” quality suppliers

    Some people at Boeing seem to need to understand that their image has been badly damaged and stories like this are not doing anything to improve said image.

    I wonder if Leonardo will still be a Boeing supplier in a couple of years time.

  3. Do we recognise this company named Boeing anymore?
    What on earth are they thinking?

  4. Build invested massive in keeping the line goinng by ordering, keep producing for 9 months full swing, reaching a value that must $B15,- in inventory today. They can do this for ever. Specially if the inventory is devaluating.

  5. Any indication of why some are being helped while others are being strong armed? For instance, is help being directed solely to those that are sole source critical? Is it some form of cronyism or nepotism? Is it political? Is it only suppliers that have sufficient alternative products/customers to be able to tell BCA where to… etc etc.

    Also seems frankly inept to gain a reputation (I’m assuming) as an undesirable customer when the pace of change likely means Boeing will need to contract with at least some new tech suppliers in order to thrive.

    • The supplier groups of “no help” and “Boeing would like to own” do we see an intersection? 🙂

  6. Isn’t not having documented the delivery of faulty part another QA system failure? Like yesterday’s FOD news, in a way.

  7. Wonder when we’ll start hearing about Boeing delivery issues because some sole-source supplier of a key but minor component who feels hard done by stops delivering for a while to protest.

    Boeing increasingly reminds me of GM’s tactics in the late 1990’s to force pricing concessions on their supplier base. Look how well that turned out for GM shareholders.

  8. As to the actual FOD issue, it would seem that Leonardo’s claim is pretty weak.

    ‘Oh, we never expected you to use bore-scopes and actually find our FOD’.

    As to the timeliness of inspection, Boeing does not do receiving inspections. Everybody, and everything is required to be source inspected under ANSI/ISO standards. Everyone in the supply chain, as a condition of doing business, is obligated to be in conformance. Quality via secondary inspection left the station 20 years ago. Further, parts no longer remain in inventory long enough for pre inspection. Mechanics on the assembly line will typically reject parts with defects immediately on discovery (if they are noticed) because they are the ones that will take the blame if defects are discovered later.

    As to the legality of withholding payment for the slats, Boeing might have a leg up, but withholding on entire ship-sets seems abusive.

    • “.. but withholding on entire ship-sets seems abusive.”

      you have to stay in character. 🙂

      Do the slats as delivered conform to drawings?
      If yes (Leonardo seems to say so) the items were fixed in house to fit the “slightly different” reality.
      The proper path would have been to fix the specs and give Leonardo notice.
      But that would have loaded ‘Boeing with all cost ( fixing and fixing.) We can’t have that. Dogma that others have to carry the blame stands.

    • What I noticed:
      FOD was in the tanks ( and a result of Boeing/FAL lenience )

      Leonardo was “slats or similar not fitting as required”

      contention exists where the interface issue sits: Leonardo not meeting design goals or the attachment area not meeting design specs or the interface definition being incomplete/mismatched

  9. Imagine You’re a suplier, Boeing launches the NMA or NSA and you can bid on work for the new program.

    Some of the options:
    A: Make an aggressive bid with low margins based on the assumption/hope you’ll be able to cut cost enough to make a profit and hope Boeing will be a most stable and reliable partner.

    B: Take Boeing’s treatment of supliers into account and make a bid with high margins assuming you need to build up a war chest for when Boeing decides to pay you less or late, and the assumption most suppliers will insist on high margins (there’s no point in wasting time and effort on a bid when it’s obvious others will offer significantly lower prices).

    C: Take Boeing’s treatment of supliers into account, and sit out on the program, not making a bid on the assumption there will be other suppliers that will make bids with with low margins (don’t waste time and effort on a bid you could only get at a price that isn’t interesting to you).

    • Option D: Deny payments to your sub tiers, forcing them to get loans from banks to survive and then force them to take you to court and constantly move SOWs around as you burn through every machine shop in the country – The Leonardo/Finmeccanica/Alenia Aeronautica way

      Option E: Take the loss, but offer to develop vital components and then use that as R&D to develop superior competing aircraft – The Mitsubishi way

        • Leonardo/Finmeccanica/Alenia Aeronautica has a long history of burning their subs – most of which have to take loans from banks in order to survive until they receive payment and are cycled through pretty regularly when they “fail”.

          This is one of the reasons why, from my understanding, Alenia changes their name every other year – to distance themselves from their own bad reputation.

          • To be fair though, this is a pretty common practice amongst Boeing’s 1st Tiers who are the true SOW owners vs the subs who get piecemeal work from companies like Alenia, PCC, and Spirit.

          • To be fair though, burning sub tiers by short flowing orders and not giving them ability to adequately plan their production or financials is a long standing practice and prerogative of Tier 1s within Boeing’s supply chain.

  10. Years ago some electrical services for buildings declined work from Boeing despite the industry being slow at that time, because Boeing was difficult to deal with.

    Decades ago the accounts payable person of Okanagan/Canadian Helicopters for would not even start thinking about paying an invoice until the usual 30 days grace period expired. Witch Marie finally got straightened out by a new manager getting the parent company’s CEO of the problem. (I had to get involved because I had arranged fabrication of an item and the supplier asked me to help.)

    Earlier a key supplier to Pacific Western Airlines called me to help get paid, it said they know PW has the money but the delay was ridiculous. I found the accounting supervisor to be incompetent, as I had in confusion earlier.

    Just examples of troubled companies.

    Certainly action should be taken with suppliers who repeatedly have quality problems, withholding payment is one way to get attention.

    OTOH some suppliers on the 787 program were playing games with Boeing.

    I recommend the ‘culture’ document of bbandt.com for advice on principles.

    • “OTOH some suppliers on the 787 program were playing games with Boeing.”

      some valid examples?

      A customers of mine was transferred from French to US ownership. Next day their accounting came up with “adjust payment deadline to 90 days” demands for work in scope of “very short notice fixing” for a product with safety issues. Bad style. Mutual fairness a fully foreign concept.

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