The Supply Chain Matters blog provides an update on the ongoing production, quality reputation and corporate cultural challenges that surround commercial aircraft producer Boeing.

Major Developments

Since our last blog commentary which we titled Boeing’s Corporate Culture Fix Is A Systemic Challenge, there have been a number of significant developments including what could be the reversal of a strategic outsourcing decision made in 2005.

FAA Ruling

Last week the Federal Aviation Administration (FAA) requested Boeing to develop within no later than 90 days, what is being described as a comprehensive action plan that will address the continuous quality control issues that have surrounded the production of this plane maker’s commercial aircraft.

FAA Administrator Mike Whitaker reportedly met with  Boeing CEO Dave Calhoun and other key executives and succinctly indicated: “Boeing must commit to real and profound improvements,” and he further added that: “the FAA would hold the company accountable every step of the way, with mutually understood milestones and expectations.

As our readers stemming from aircraft industry would likely surmise, such a statement more than implies that Boeing is definitely under the looking glass to undertake significant quality and operational management changes before any notion of being able to ramp-up 737 MAX model production from current levels.

Senior Leadership Changes

As noted in an attached comment to our prior update, Vice President and General Manager Ed Clarke, an 18-year veteran leading the 737 program including leadership of production operations in Renton, Washington, is stepping down immediately. He will reportedly be succeeded by Katie Ringgold who has been leading 737 aircraft deliveries.

The plane maker further announced the creation of a new senior leadership role for overseeing commercial aircraft quality control. Elizabeth Lund, who had previously oversaw production of commercial aircraft and reportedly a long-time engineering and operations executive, will assume this new leadership role.

Reports of Talks to Acquire Spirit AeroSystems

Likely the most significant added development occurred late last week with reporting by The Wall Street Journal  (Paid subscription) and other financial media that Boeing is in talks to acquire major aircraft fuselage component supplier Spirit AeroSystems. Reportedly, Spirit, whose CEO is a former Boeing senior executive, has hired bankers to explore strategic options, including the plane maker. Boeing spun out this supplier, which was once a part of this plane maker’s internal production in 2005 in a major strategic sourcing move.

Further reported is that Spirit is separately exploring the divesting of aircraft structures production located in Ireland, specifically for supporting aircraft producer Airbus.

Regarding this development, Boeing issued a statement that indicated: “We believe that the reintegration of Boeing and Spirit AeroSystems’ manufacturing operations would further strengthen aviation safety, improve quality and serve the interests of our customers, employees, and shareholders.”

Needless to state, if this termed reintegration occurs, it will represent a reversal  of strategic sourcing strategy and a likely acknowledgement that outsourcing of production with such value-added and quality significance did not occur according to plan.

Such an acknowledgement came last week when Boeing’s CEO, in an interview with business broadcasting network CNBC, succinctly indicated: “Did it go too far? Yeah, it probably did. But now it’s here and now. And now, I’ve got to deal with it.

 

Financial vs. Operational Decision Making and Change Management

In our prior update, we highlighted a Bloomberg published report titled: Boeing’s Legacy Vanished Into Thin Air, Saving it Will Take Years. (Paid Subscription)

This report noted in-part:

Together, these point to a common problem: the company’s once-vaunted system for building its prized 737s has been badly damaged by worker turnover, supplier distress and the shortcomings lingering from the breakneck production last decade before the Max tragedies and the Covid freeze.”

Other industry reports along with our Supply Chain Matters commentaries have further stressed that this plane maker’s ongoing shadow factory efforts addressing the constant rework required to fix quality control and production shortcoming’s point to addressing management cultural challenges. We might surmise that the FAA’s 90 day mandate to address such root causes is a part of this mandate but there is likely other organizational and employee empowerment actions that need to follow in the coming months.

Within The Wall Street Journal’s report there is a statement: “Acquiring Spirit would leave Boeing’s brass with the task of cleaning up its operations at the same time that Boeing’s own quality-control systems have been questioned by regulators.”

 

The Motivations for Reintegrating Spirit

We highlight for our readers a published report by CNN Business which points to the motivations for wanting to reintegrate Spirit, which resonated with this editor and analyst.

The CNN report observes that Boeing paid Spirit upwards of $3.9 billion in 2023 for delivered structural aircraft components, which accounted for 64 percent of this supplier’s overall revenue. In addition, The plane maker provided an incremental $60 million in added payments to Spirit in 2023, and has committed an additional $395 million in subsequent incremental payments in 2024 and 2025 to help the supplier fix both its quality and production ramp up challenges. This is contrasted to the supplier’s reported market cap at the close of trading Friday being $3.7 billion.

This report in essence concludes on the motivation of reintegration: “These payments are an indication that Boeing’s motivation for a deal for Spirit. It can’t return to profitability itself unless problems at Spirit are also fixed. And it’s going to cost Boeing money to fix those problems, whether it is the largest customer (to Spirit), or the owner of those operations.

The implication is that this may well be a financially motivated decision, one that is often expected from Boeing management.

While that may be in the plane maker’s best strategic financial interest, the remaining component if this deal occurs, remains the operational leadership, discipline and change management actions necessitated to accomplish the systemic operational management and worker empowerment process changes implied.

Broader Implications and Concerns

From our lens, which is an area remaining to be addressed and one that Boeing’s extended supply network stakeholders will have the most concern for as these continuing developments unfold.

For Boeing to address its systemic engineering and quality process shortcomings, financially motivated decisions need to either be preceded or augmented by operational leadership and accountability actions.  The open question is whether this can be accomplished from within the company.

That is why the 90 day action plan, along with subsequent management and operational process actions are the most crucial part of these developments.  The ramifications include all stakeholders including aircraft customers, Boeing production workers, extended suppliers, as well as the company’s investors.

 

Bob Ferrari

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