It is again time for another Supply Chain Matters update to the Boeing supply chain challenges related to the ongoing grounding of all operational 787 Dreamliner aircraft because of thermal runaway conditions related to this aircraft’s installed lithium ion batteries.

In our previous Commentary Six, published just over two weeks ago, we noted the public presence of Boeing CEO Jim McNerney in acknowledging that an expeditious resolution of the lithium ion battery issue was critical to restoring the brand image of Boeing. 787_Battery_undamagedAnd indeed, Boeing continues to communicate to government investigators that it has an internal plan developed to address battery issues with hopes to have grounded airplanes operational by perhaps the April time period. However, Boeing battery supplier GS Yuasa elected to take a slightly different public posture regarding proposed fixes to the battery issues.

The CEO of Boeing’s Commercial Airplanes unit has communicated that once U.S, regulatory agencies decide to approve Boeing’s proposed fixes, the aircraft maker is prepared to move “really fast” in final testing and modification to each of the 50 grounded Dreamliners.

However, the regulatory investigative process investigating the two previous battery fire incidents continues to drag on.  On Thursday of last week, the National Transportation Safety Review Board (NTSB) issued its interim investigative report that drew no conclusions as to the root cause of the battery fire problems. The NTSB report noted that in the Boston based incident, the JAL787_APU_Battery2 440_293batteries experienced dramatic power fluctuations and other failures that battery designers considered practically impossible. The report further indicated that the various electronic components connected to the battery did not exhibit any failures or defects, thus adding more inconclusiveness to a potential root cause of the battery fires. The NTSB called for forum to be held in mid-April to “better understand the risks and benefits associated with lithium ion batteries, and illuminate how manufacturers and regulators evaluate the safety of new technology.” Indeed the regulative investigative process may well conflict with Boeing’s need for an expeditious resolution.

Also on Thursday, U.S. Transportation Secretary Ray LaHood was quoted in The Wall Street Journal and other business media that he wanted a thorough review of the Boeing plan and that he was going “to ask a lot of questions” regarding the plan.  According to other reporting from WSJ coverage, Secretary LaHood has privately raised questions about Boeing’s proposal and has urged a go-slow regulatory approach “to get to the bottom of what happened, why it happened. And what we can do to prevent it.

Thus, there really is no conclusive timetable as yet to address when the 787 can be returned to normal operating status.  If U.S. FAA authorities give the go-ahead to Boeing to make the new engineering changes, it is reported that such changes would take a minimum of 4-5 weeks to complete if everything were to go according to plan.

Meanwhile, Tom Enders, the CEO of EADS, parent of rival aircraft OEM Airbus, in a report published by The Financial Times on Friday, called on the entire aerospace industry to learn the lessons from development problems of the Airbus A380 and Boeing 787. In his visit to the U.S. last week, Mr. Enders acknowledged that both companies got “carried away” in introducing new technologies that turned out not to be “as mature as they should be”. In the FT report, Mr. Enders was noted as expressing relief that the A350, the rival to the 787 “in terms of utilizing more breakthrough materials, was two years behind Boeing and was able to learn from the (Boeing) experience.”  Airbus has already elected to drop its original plans to utilize lithium ion batteries as backup power on the A350. Mr. Enders hastened to wish Boeing good progress in resolving the lithium ion battery issues.

Thus, Boeing’s supply chain continues to face continued uncertainties as the regulatory and Boeing’s internal technical investigative processes remain at odds as to a definitive timetable for resolution.  Existing production levels of 5 Dreamliner aircraft per month remain in place while finished planes are moved to idle storage awaiting return to operational status.  Airline customers and suppliers are increasingly seeking financial compensation while plans to ramp-pup 787 production to ten per month by the end of the current year remain jeopardized by potential design retro fitting. The comment from EADS CEO Anders is added fodder to the debate on balancing innovative technology with what OEM’s may define as proven technology.

The most interesting counter-intuitive aspect of this ongoing 787 grounding crisis has been the resiliency of Boeing’s stock price. There have been validated academic studies indicating that in the past, when a public company encounters a highly visible supply chain snafu, the results are often reflected later in erosion of stockholder equity. Boeing stock closed today at $83.94 per share, roughly 10 percent above the $77 level at the initiation of the 787 grounding. Obviously, a majority of Boeing investors have confidence that the ongoing challenges will result in a positive outcome.

Bob Ferrari