The Supply Chain Matters blog continues today’s theme of supply network updates on some important industry sectors amid the ongoing backdrop of the COVID-19 coronavirus pandemic’s implications for industry supply chains.
This particular commentary focuses on commercial aerospace customer demand and supply networks.
Phased-In Return of Aircraft Production
This week, upwards of 27,000 Boeing production and logistics workers in the Puget Sound area of Washington State began to physically return to work after a previously announced company three-work furlough.
The North Charleston South Carolina complex remains closed pending business resumption decisions from state authorities.
As noted in our prior Supply Chain Matters commercial aircraft industry advisory, a decision was communicated on April 6 to suspend all commercial aircraft manufacturing operations because of growing concerns for virus outbreak within these facilities. Boeing indicated that its decision was based on an ongoing assessment of the health and safety of employees, an ongoing assessment of the spread of the virus with the state of Washington, and additional recommendations from respective health authorities.
According to published reports, workers returned to their factory floor workstations with new safeguards in-place to protect them from community spread of the virus.
Factory areas have reportedly been deep-cleaned with added washing stations and social-distancing practices now in-place, along with individual checks of a worker’s body temperature.
According to a published report by The Washington Post, not all workers returned on the first day. In a letter to all employees, Boeing CEO David Calhoun indicated that many new measures were taken to enhance individual worker safety measures including staggered working shift times, an expansion of work areas and visual controls. Reportedly, workers now have the ability to flash or turn-in a red card to alert supervisors to an unsafe working condition. Workers themselves reportedly questioned whether work assignments could be performed with six feet of distancing among linked work teams.
While Boeing was included in the first major COVID-19 stimulus plan passed by the U.S. Congress, Boeing CEO Dan Calhoun seems to have rejected the stimulus based on the stipulated U.S. government equity provisions and is instead seeking a means to tap financial markets for additional capital. In our prior update, we noted a prior report by The Wall Street Journal estimating that the aircraft manufacturer will need to raise an additional $20 billion this year to cover debt service, customer and supplier support needs as well as to complete a previously announced joint aircraft development and sale venture with Embraer. The U.S. government stimulus includes provisions that employers retain existing workers thru September 30.
In his letter to employees, CEO Calhoun was rather blunt in describing the current industry situation relative to COVID-19. Noted was that the industry is in “uncharted waters” and that the virus would change industry dynamics for years to come.
Seattle Times columnist and Boeing reporter Domenic Gates reported this week that the company has reduced the size of its top management team by consolidation of responsibilities and leadership. Warning that the size of the commercial jet market is likely to shrink, CEO Calhoun set the stage for production cuts amid expected reductions in aircraft demand and likely added cancellation of existing orders.
Under that umbrella, Boeing’s CFO and Executive Vice President reportedly will take on added responsibilities, including leadership of the company’s global supply chain. Smith’s existing operational leadership included all manufacturing operations. According to this report, a new business unit titled Enterprise Operations, Finance and Strategy will umbrella Smith’s broader leadership responsibilities, with a charter to: “restore production and supply chain health as Boeing and the aerospace industry recover from the COVID-19 pandemic.”
Reportedly, Janette Ramos, the Senior Vice President leading supply chain will depart the company’s Executive Council, taking on a transition role and expecting to retire from the company.
A further restructuring move involves combining the company’s legal and regulatory compliance units into a singular organization led by Chief Legal Officer Brett Gerry.
Airbus Challenged As-Well
With the virus outbreak across Europe slightly ahead of that in the United States, rival manufacturer Airbus has had its own challenges in attempting to resume production and supply chain operations.
Resumptions among production facilities in France and Spain had to be halted amid growing worker concerns related to workstation safety and needs for further social distancing. Other facilities are struggling as-well, some with added temporary suspensions.
While not in the severe financial situation as Boeing is currently challenged with, Airbus management has been guarded but optimistic regarding the manufacturer’s ability to navigate this new industry-wide challenge. Senior leaders have communicated that given the current condition of many global airlines; monthly production levels will have to be adjusted downward until some form of industry stabilization is reached.
With Boeing mired in the ongoing 737 MAX global grounding crisis, along with hemorrhaging cash prior to the pandemic, Airbus was able to take some advantage of key market opportunities with attractive new aircraft designs such as the Airbus A321-XR announcement, along with hastening some new aircraft deliveries.
Airbus senior management moved swiftly to boost liquidity while communicating no plans in asking any European government for added financial help. The company has indicated that governments should be considering any needed financial support for airlines and supply chain partners if indications warrant.
Obviously, with thousands of commercial aircraft now idled and parked, and with global airlines suffering financial losses in then tens if not hundreds of billions, the industry picture is not good, and indeed it will be many months to come before a post COVID-19 normal becomes evident.
How the situation cascades, and to what degree subsequent production and aircraft delivery suspension unfold among this industry’s aircraft demand and supply networks is further yet to be determined and likely to be even more far reaching in terms of economic, supplier and worker impacts.
The industry’s supply chain ecosystem likely desires both global players to be able to navigate this crisis, but the warning alerts are flashing more for Boeing.
From our lens, the Boeing leadership restructuring smacks more toward which executive would likely succeed CEO Calhoun, if it were to be a company executive insider. Prior to COVID-19, and with the removal of former CEO Dennis Muilenburg, some compelling arguments were made as to whether Boeing needed an outsider to drive more sweeping change and a different corporate culture. Boeing’s resistance to accept U.S. stimulus monies is, by our view, was a reflection of similar insider thinking.
In September of last year, Boeing established a permanent Board Level Safety Committee, charged with overseeing the safe design, production and delivery of the company’s aircraft and services. The Board additionally recommended significant business practice changes, including the establishment of a product and services safety organization tasked with reviewing all aspects of safety, and reporting directly to senior leaders of the company. Engineers across the company would reportedly directly report to a Chief Engineer, whom in-turn, would be a direct report to Boeing’s CEO. How this latest senior management restructuring translates to such needs is yet to be communicated.
Regarding new leadership for supply chain operations, candidly, CFO’s generally do not tend to make for a visionary supply chain transformation, one driven by customer needs for industry-leading product design, engineering performance and operational safety, as contrasted by cost margins and short-term investor returns. One should always keep an open mind, but experienced and proven supply chain management leadership in times of crisis is a given. Clearly there are engineering, production and supply chain technology transformational challenges needing to be prioritized and addressed.
For Boeing, successfully navigating this industry disruption requires the dedication and innovation of its airline customers, internal engineering, product management, supply chain and external supplier and global services teams. The stakeholders and the challenges are broader, along with the overall economic and workforce implications.
It is little secret that the aerospace industry remains the economic and innovation engine of the global economy. We all need the industry to transition thru this challenging period.
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