It seems quite evident that August and September have featured quite a lot of significant developments involving multi-industry supply chains and Supply Chain Matters continues in the following subsequent postings to highlight those with significance or either short or longer-term implications.
We have previously alerted our readers to percolating supply chain related challenges concerning Pratt & Whitney, and specifically the aerospace engine provider’s newly released geared turbofan engines. In our July commentary related to mid-year operational performance results for both Airbus and Boeing, we highlighted that Airbus’s first-half shipping performance related to the new A320 neo aircraft were noticeably impacted by delayed delivery of Pratt’s new engine. Airbus had delivered just 5 A320neos in Q1 and 3 in Q2 while nearly a dozen of completed of the new model A320 were reported at the time as lined-up on factory adjacent runways and parking areas awaiting Pratt to deliver completed engines. The July delay was associated with fixing the engine’s cooling design through a combination of software and component modifications.
This week featured an announcement from Bombardier, designer and manufacturer of the new C-Series single aisle aircraft targeted to compete with Airbus and Boeing. The Canadian based aerospace provider was forced to cut its 2016 delivery guidance down to 7, from a prior planned 15 completed aircraft, specifically citing delays in engine deliveries from Pratt. In its formal operational update, the president of the firm’s commercial aircraft operations indicates that Bombardier is working very closely with Pratt to address “supplier ramp-up” issues. In its reporting of the Bombardier development, The Wall Street Journal includes a statement from a Pratt spokesperson acknowledging that while there are some pressures on new engine deliveries, some progress is being made on delivery commitments.
The C Series delivery adjustment announced this week will result in lower revenues for Bombardier Commercial Aircraft for the year and the manufacturer is indicating the cutback will not materially affect operational earnings. None the less, Bombardier has much at-stake since the new Pratt geared turbo-fan engine is currently the sole engine specified for the C-Series. Obviously, Pratt is also trying to balance the needs of Airbus, with far higher short and longer-term order commitments with that of competing Bombardier. Once again, in times of delivery shortfalls, a de-facto balancing of prioritization in deliveries comes to the forefront.
In a related development and reinforcement, a Reuters published report this week features the head of the world’s largest independent aircraft leasing company, AerCap Holdings NV, which currently has outstanding orders for over 100 Pratt powered Airbus A320 neo’s, voiced concern that a delay in delivery of the Pratt engines could ripple out and affect AerCap’s ability to receive a new Airbus jetliner due in the next few days. A Pratt spokesperson subsequently indicated to Reuters: “”To meet what has been incredible demand for the GTF engine, we are working collaboratively across our entire manufacturing process to ensure maximum performance, and we are keeping our customers apprised throughout the process.”
In June, executives from Pratt indicated to The Wall Street Journal that roughly half of the company’s suppliers for its new geared turbofan engines were not delivering parts and materials at expected levels as seamlessly as the company expected. United Technologies Chief Executive Gregory Hayes further indicated to the WSJ that at the time, 44 percent of the company’s 1,600 suppliers—including the 500 to 600 who supply parts and materials for the engines themselves—weren’t meeting the company’s on-time delivery and quality control targets. The WSJ further observed that unlike previous generations of engines, 80 percent of parts for the geared turbofan are produced by entities other than Pratt itself, then shipped and assembled in the company’s engine manufacturing centers in Connecticut, Florida, Canada and Germany. This is a similar supply chain sourcing strategy as practiced by today’s leading aircraft manufacturers themselves.
Pratt has reportedly invested upwards of $10 billion in development of its revolutionary geared turbo-fan engine. Yet, with the June report indicating 44 percent of suppliers not meeting on-time delivery commitments during the engine’s initial production ramp-up phase, it brings into question how much was invested in overall supplier production process needs. Pratt’s engine component supplier base is also shared with rivals such as General Electric and CFM International, providing yet another dynamic as to which engine manufacturer features the more aspects of design for manufacturability and design for volume.
United Technologies, the parent of Pratt, also provides a recent history of investing heavily in lean process, overall cost and production methodologies. That, by our lens, provides a further looking glass as to whether such methodologies or organizational approaches impacted needs to adequately plan for the ramp-up and the production volume requirements for the new engine.
Obviously, Pratt will remain under an intense industry and media looking glass for some time to come as it attempts to deal with its ongoing challenges in meeting engine delivery needs.
The open question will be how long will airline customers and certain manufacturers tolerate such delays without taking other actions. Since the cost of aviation fuel remains historically low, Pratt may have some leeway in addressing its ongoing engine delivery challenges. Pratt’s goal is the ability to ramp-up production levels of the geared turbo fan model to upwards of 1200 engines annually by 2020 in order to address its current overall order backlog of upwards of 7000 engines. As some supply chain leaders would opine- it is better to flush-out and adequately address overall supply chain issues during the initial ramp-up than to have to experience such challenges on a continual basis. There indeed is the current challenge for Pratt’s sales and operations planning teams and its supply chain ecosystem and we trust that teams will rise to such challenges.
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