Pontifications: Some customers face 3 month delays in current 737 MAX delivery stream

By Scott Hamilton

Sept. 5, 2022, © Leeham News: Boeing has been delivering 737s from its stored inventory and its new production line more slowly than desired. Some customers face a three-month delay, even as Boeing tries to return to normalcy following the 21-month grounding of the MAX and the impact of the two-year pandemic.

The supply chain is a key culprit. Reconfiguring stored airplanes for lessees or buys after a change from the original operator is another. Engine shortages are still another.

BOC Aviation, a lessor headquartered in Singapore, faces three months delays, Robert Martin, the CEO, said in an interview with LNA.

What’s behind the delays

“It’s a mixture of things. The first thing is the engines,” Martin said. “There’s been a delay in engines, and this is not just a Boeing problem, let’s be clear. Airbus has the same problem. Basically, the numbers of engines that they have available to put on the aircraft that are being built are not sufficient. There are different reasons for that.”

Martin said some are due to issues at the engine manufacturer and their own supply chain behind them. Some issues even go back as far as the forging of the shafts for the engines.

“It’s all the way down the supply chain. The second thing is we’ve seen a lot of supply chain problems. People didn’t realize how quickly things were going to gear back up. [The industry] laid off a lot of labor during the downturn. Attracting that labor to come back has been more difficult. This has caused supply chain disruption, and of course, spare parts as well. Parts to go on the engines and further down the supply chain have also had some problems.”

Return to Service from Storage

Martin affirmed previous LNA reporting that it takes time to bring the 737s out of storage. Depending on whether they’re going to the original customer or whether they’re going to a different customer, work may need to be done on the aircraft. There’s just not enough labor to do that additional work, he said.

“When Boeing’s working normally, you probably have sufficient capacity to be able to do that with the strains they’re under at the moment. If you ask them to do something additional, it just takes longer, as opposed to the paperwork, and to do the physical work itself.

“We’ve tried to absolutely minimize the customization because we know it will take a long time to get the work done. I think of the situations we’ve been in where we’ve taken a plane that was destined for one customer and getting to another customer. “But the main things generally we’re looking for is changes in maximum takeoff weight, maybe engine thrust. We’ve tried to limit it after that because we’re aware that it does take paperwork changes,” Martin said.

Another lessor told LNA that it’s sometimes seen Boeing take as long as nine months to process the paperwork on its airplanes for changes.

Martin said that sometimes BOC Aviation saw delays from Boeing Global Services (BGS). “But that’s tended to be for us more to used aircraft than aircraft in production.”

Redirecting aircraft from China

BOC Aviation is owned by the Bank of China but is a Singapore company. Accordingly, it doesn’t face the same import restrictions Chinese lessors do. Nevertheless, some of its aircraft originally destined for China have been redirected to other lessees. It’s also helped Boeing redirect aircraft that became surplus to the original buyer.

“We’ve worked with Boeing when they’ve got excesses of aircraft,” Martin said. “We’ve been doing this over the last two years, picking up aircraft that may have been surplus to airline’s requirements.” The aircraft were placed outside China. There’s no reason why BOC Aviation couldn’t do so with China as well, placing the aircraft with other carriers.

787 inventory

Boeing had about 120 787s that were accumulated during the delivery pause. (Deliveries resumed in August, with about a half-dozen tendered to buyers so far.) John Plueger, the CEO of Air Lease Corp, had said publicly that he wouldn’t be surprised if up to 50% of those airplanes wound up being canceled by customers. Martin couldn’t affirm this observation, but clearly, the delays give the customers the right to do so. BOC Aviation canceled three orders during the nearly two-year pause in deliveries.

More from our interview with Robert Martin will be published soon.

 

17 Comments on “Pontifications: Some customers face 3 month delays in current 737 MAX delivery stream

  1. “John Plueger, the CEO of Air Lease Corp, had said publicly that he wouldn’t be surprised if up to 50% of those airplanes wound up being canceled by customers.”
    If half of the customers cancel and the other half only threatens to do so and takes them with a considerable discount, that makes a
    7-8 bn cash flow missing.
    Additionally, prices for widebodies get ruined for years.

    • That is why the manufacturer no longer publish their retail price. That way there is no black and white on the actual price of the aircraft sold. Boeing can claim that a max8 is sold at 40m/unit 10 yrs later but we all know that is not true but we have no evidence to prove it. (unless someone saved boeing’s earnings report throughout the years to make comparison.)
      In any case it’ll be interesting to see how the max prices goes once its 2nd hand market kicked off 5 yrs later. We will only know then if the prices has been ruined…

      • There are indirect ways of finding out what prices OEMs are getting for aircraft, e.g. from SEC filings by airlines. That’s how we learned that Southwest got its 737-7s for about $36M per unit — which corresponds to a discount of about 65% from the list price. Interestingly, JP Morgan has previously estimated that BA typically makes about $10-12M on a 737 “at standard discounts” (which are generally about 50%); hence, one can deduce that BA made essentially no margin on the more heavily discounted Southwest MAXs.

    • With reason. E.g:

      Boeing sold China Airlines 16 787 aircraft valued at 4.68 Billion, according to list prices.

      https://www.boeing.com/company/about-bca/

      That’s what you get, impressive sales figures and numbers. For the general public, share & stake holders.

      Total fluff news, but we love to hear it.

      • Bloomberg: The actual sale price was estimated to be $2.1B — which represents a 55% discount.

        • May be LH can help to take delivery of 50% or so 787 in inventory that customers no longer want!
          And EK may be able to have its 787 delivery on time – as long as it doesn’t mind to take a mishmash fleet of configurations!

  2. If what one hears on financial markets is true, airplane and auto manufacturers can’t blame computer chip companies anymore. They say they’re all flushed with inventory.

    • Think it is engine castings and forgings that is the main problem, hard to qualify new suppliers and force the old ones to boost production as they also are dependent on raw materials of the right quality. As prices increase the volume will pick up eventually as profit hungry owners including Warren Buffet of PCC will pour money if profits are assured over time. Lots of airlines wants the economy and payload/range of the latest narrowbodies.

      • Reshoring (moving away from low/lower cost region(s) ) and new investments would only push cost higher IMO.

        • As the quality requirements increase and stresses on parts increase due to weight reductions and temperature increases on engine hot section parts the suppliers must invest to meet new spec’s and it becomes harder for new entrants to qualify. Try source single crystal turbine blades per spec from China/India..

          • Boeing looks to double the amount of component sourcing from India after it quadrupled in less than two years.

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