In a likely effort to reset investor, customer and supply network expectations, Boeing announced this week that the commercial aircraft manufacturer has pushed back its milestone for returning the 737 MAX aircraft to commercial operational service. This new target is now reportedly expected to be either June or July 2020, at the earliest.

Boeing attributed the revised forecast to two developments.   Grounded Boeing 737 MAX's

One was the discovery of a newly disclosed software issue related to the aircraft’s MCAS flight control system. The newest glitch reportedly involves prior software modifications that now prevent the aircraft’s flight control system from successfully powering-up and verifying ready for flight. Industry reports indicate that Boeing engineers had previously performed software testing with simulators, only to discover this new problem when the testing was performed on an actual test aircraft.

The other development is the new need for existing 737 MAX pilots to undergo simulator-based testing prior to being able to pilot the modified aircraft, which is further anticipated to take added time. Supply Chain Matters has previously highlighted industry reports indicating since the original MAX plans called for only computer-based training, there were limited provisions for the need for a broader number of actual flight simulator pods globally.

This latest development is positive in one sense in that newly appointed company CEO David Calhoun is making good on a commitment for the manufacturer to be more open with customers and global regulators. Extending expectations for return to service likely eases some of the built-up tensions among various stakeholders, affording the manufacturer more time to address what needs to be addressed.

The U.S. Federal Aviation Administration (FAA) remains non-committal to any firm timeline for the aircraft’s return-to-service.

What remains concerning is that the company’s board has established a significant performance cash bonus for Calhoun in returning the aircraft to service on a timely basis.

 

Implications

The implications of this new development are obviously significant. Thus far this week, investors have driven the company’s stock price down an additional 5 percent. Similar spillover is occurring among select supplier stock prices.

For global airlines with operational 737 MAX aircraft that remain grounded since March 2019, operational scheduling for the 2020 summer flying period will once again likely have to be modified to include non-availability of the aircraft. United Airlines has already indicated that it will not factor availability of the aircraft in its summer operational scheduling. This will add to existing customer frustrations and calls for added compensation related to ongoing business impacts.

For airline customers, news of the added delay can either be more comforting in the sense that Boeing is leaving no stone unturned to assure that this aircraft will indeed be safe to fly, or even more concerned as to what else will be discovered relative to design flaws.

The additional delay looms especially significant as to when the temporary suspension of 737 MAX monthly production volumes actually resumes. Depending on the actual timetable, especially if suspension extends beyond one quarter, will determine the scope of added financial and workforce impacts among Boeing’s production workforce along with various aircraft program suppliers.

Today, broadcast network CNBC indicated that Calhoun indicated that he wants to resume monthly production as soon as possible, presumedly before regulators sign off on aircraft re-certification.

Resumption of monthly production is further dependent not only on when the aircraft is re-certified and returned to global-wide service, but also as to when over the 400 of now completed, but yet to be delivered aircraft, are logistically re-fitted, re-inspected and tested for operational service. That could take a herculean logistics coordination effort that requires added time as-well. With cash drain becoming a more visible challenge, Boeing management is likely to prioritize the delivery of production completed aircraft in order to increase the flow of sorely needed customer payments. With today’s statement from Calhoun favoring a short pause in monthly production, it would appear that there are concerns relative to not further disrupting the program’s supply chain ecosystem.

As noted in these literally streaming commentaries relative to Boeing and its ongoing, unprecedented corporate crisis, developments will continue to be forthcoming, and with each, this industry’s aircraft demand and supply response networks will increasingly be further impacted.

 

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