This has been an up and mostly down week for Boeing as the manufacturer continues to find ways to navigate its largest and most significant corporate crisis in the company’s history.

Maiden Flight of the 777X

Earlier in the week, after some weather delays, the first maiden flight of the redesigned Boeing 777X wide body jetliner was conducted just outside the company’s production facilities near Seattle. The aircraft reportedly flew a four-hour flight, and Boeing made extra strides to provide wide coverage among traditional and social media to the significance of the event and the engineering prowess of the company.

Thus far this aircraft has garnered 309 firm orders with designated launch customer being Dubai based Emirates Airline. Boeing 777X Maiden Flight

The aircraft program is roughly one-year late after incurring a noteworthy delay primarily because of technical challenges related to the new General Electric produced GE9X engine. Certification and initial production is not expected until sometime in 2021.

Somewhat similar to the history of the 737 MAX, the 777X is a derivative design, in this case, from the highly successful 777 aircraft program.  In addition to larger engines, the aircraft features a larger fuselage to accommodate upwards of 400 passengers, wider redesigned wing structures with folding tips and other changes.

The company’s newly appointed CEO, David Calhoun is already resetting expectations relative to aircraft certification, indicating a more thorough regulatory certification process is expected given the history and ongoing process learning being derived from the 737 MAX process. One can presume that this is stating the obvious, given that Boeing needs to rebuild creditability among global-wide regulators.

The event was scheduled to prelude today’s designated day for the announcement of the manufacturer’s Q4 quarterly and full year 2019 financial performance.

 

Latest Financial Performance

The primary business media headline for today’s financial release was the company’s report of its first full-year loss in more than two decades.

Included was a $636 million full year loss, a 37 percent drop in quarterly revenue and thus far, accumulated costs associated to the 737 MAX groundings now surpassing $18 billion.

In addition, the company’s cash burn in the latest quarter amounted to  $2.2 billion, along with the booking of another $9.2 billion in charges associated to potential added compensation to 737 MAX customers along with expenses related to halting 737 monthly production this month.

As recently highlighted on Supply Chain Matters, the company also incurred its worst inbound order and operational performance in decades.

Today’s financial performance release further included the announcement of a production cutback for the 787 Dreamliner program.

In October, the manufacturer indicated plans to downward adjust monthly production of 787 from 14 to 12 per month, scheduled to take effect later this year. That number is now likely to be reduced to 10 per month by the end of this year. The manufacturer attributed the slowdown decision to declining market demand. We speculate the decision likely has something to do with other needs, specifically ex-employee and whistleblower  reports of declining quality lapses in production due to  a culture that often weighted production speed over quality.

 

Supply Network Financial and Workforce Implications

As key Boeing 737 MAX suppliers also announce their latest financial performance, there are mixed indications related to either financial of workforce reduction implications as a result of Boeing’s decision to temporarily halt monthly MAX production effective this month.

United Technologies, the parent of Collins Aerospace and Pratt and Whitney posted higher overall fourth-quarter revenues and profits but warned that the troubled MAX program will likely impact results of the Collins Aerospace business unit. The impact to operating profit reportedly could be upwards of $375 million. UTC CEO Greg Hayes indicated to equity analysts that his company has been in constant contact with Boeing and has made the assumption that the monthly production halt will be roughly 90 days. With the assumption of a short disruption, and the concern to retain highly skilled workers, the CEO indicated no job cuts are anticipated at this point.

Aerospace aluminum forgings and components supplier Arconic on the other hand indicated this week that the company expected a $400 million shortfall in revenues and anticipates job cuts as a result of the MAX grounding. This manufacturer is in the midst of splitting into two separate business units, one as a supplier of aerospace components and the other on aluminum rolling. CEO John Platt indicated to investors that the Boeing situation adds more uncertainty as to the planned split.

As we have noted in prior commentary, Boeing’s largest supplier, Spirit AeroSystems plans to shed 2800 workers, most on a voluntary or early retirement basis.

With today’s announcement of additional production cutbacks related to the 787 Dreamliner, the implications to Boeing’s supplier network will likely expand, especially for smaller suppliers.

The one silver bullet is whether suppliers can make-up shortfalls by supplying other aircraft manufacturers, most notably, Airbus.

 

Thus, are the ups and downs of events related to Boeing, with the majority becoming more weighted to the downs.

 

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