The Supply Chain Matters blog provides a further update on the ongoing production quality, corporate reputation and other challenges that collectively surround commercial aircraft producer Boeing. We do so in the lens of supply chain management and manufacturing.

Our prior three reader updates in this series addressed the following:

Our March 12th update addressed both the opening of a formal criminal investigation concerning the blowout that left a hole in the side of an Alaska Airlines 737 Max 9 aircraft in January, along with the notions of traveled work process challenges that continue to dog aircraft assembly processes.

Our March 4th update provided perspectives regarding the financial and operational challenges if the plane maker moves ahead with in efforts for internal re-integration of fuselage major components supplier Spirit AeroSystems.

In our February 12th update we shared perspectives relative to the fixing of the company’s operational management culture as being systemic.

With the latest developments there is a growing sense that the ongoing crisis now has major implications for Boeing along with dependent industry supply networks.

 

FAA Audit Results

At the conclusion of the Federal Aviation Administration’s six week audit regarding both Boeing’s internal, and major aircraft structures supplier Spirit AeroSystems, the notions of ongoing production quality process lapses has become clearer.

The FAA conducted a total of 89 termed product audits of the plane maker’s internal production operations. Reportedly, 33 failures were recorded by auditors. There were a reported 97 instances of alleged process noncompliance.

The FAA audit of supplier Sprit AeroSystems internal production processes involved a total of 13 product audits , seven of which were determined to be in noncompliance.

According to a published report by The New York Times, the FAA’s audit: “explored how well Boeing’s employees understood the company’s quality control processes.” Interviews reportedly conducted with six engineers and scored by auditors yielded a score of 58 percent. That alone is significant.

Spirit production technicians were observed applying Dawn liquid detergent “as a lubricant in the fit-up process.” While such an application might have been effective, and Procter and Gamble might have been pleased, it is not in conformance with the approved manufacturing process instruction specification for the aircraft. In another cited instance, technicians reportedly utilized a hotel key card in the checking of an aircraft door seal.  On its part, Spirit management has indicated that the supplier with work with Boeing to address the identified audit issues.

Spirit AeroSystems Talks

The latest reports relative to the acknowledgement that Boeing has initiated talks to acquire major supplier Spirit AeroSystems are pointing to the implication to rival Airbus.

According to a report by Reuters, 19 percent of Spirit’s 2023 revenues were derived from aircraft structure needs of Airbus. That was up from a reported 10 percent in 2013.

Supply contracts involve the wing structures for the Airbus A220 aircraft family that are produced in a facility in Belfast, Ireland. The center fuselage and other structural components for the wide body Airbus 350 are produced at Spirit’s facilities in North Carolina and in Prestwick, Scotland.

The Reuters report indicates that Boeing would possibly have to buy out these Airbus supply contracts since neither manufacturer would want a direct supply relationship with the other. What complicates the negotiations further is that reportedly, the Belfast facility has been losing money.

A further separately reported issue relates to how Boeing will possibly finance a Sprint acquisition. Boeing’s CFO has hinted that a deal might involve cash and debt as opposed to stock. The reported concern is that Boeing’s current credit rating is just above junk status.

Speaking at a recent investor event, Boeing CFO Brian West indicated that for the quarter that ends at the end of March, the plane maker expects to consume a higher level of cash than what was reported in January, reportedly between $4 billion to $4.5 billion.

Airbus CEO Weighs In

This week, Reuters and other media outlets reported comments made by Airbus CEO Guillaume Faury regarding these series of Boeing related developments.

At the Europe 2024 conference in Berlin, asked by reporters about the ongoing developments surrounding Boeing, he specifically indicated: “I am not happy with the problems of my competitor. They are not good for the industry as a whole. They damage the image of the entire aerospace industry.” He further added: “We are in an industry where quality and safety is top priority.”

Comments aside, financial investment and aerospace industry observers are each expressing concerns for the implications of these events that continue to surround Boeing, along with the observation that Airbus can not help but to benefit from such events.

Major Airline Customer Weigh In

Likely one of the most significant developments since our last update are multiple reports indicating that the CEO’s of plane maker’s largest U.S. and internationally based airline customers are seeking a meeting directly with the company’s board of directors.

Published reports from Bloomberg and The Wall Street Journal indicate that airline leaders are seeking a definitive plan as to how Boeing is going to address its ongoing production quality and other challenges.

According to the WSJ, board chairperson Larry Kellner and a selection of two other Boeing board members will participate in these meetings as soon as next week. Reportedly, there are additional plans being made to meet with the heads of international based airline customers in the subsequent weeks. Kellner has characterized these meetings as being listening and feedback sessions. In its reporting, Bloomberg indicated that Kellner, a former airline CEO, initiated this outreach effort at preliminary conversations at a recent trade group conference.

Both reports indicated that CEO David Calhoun is not expected to be attending.

Representatives for Boeing, American, United, Alaska have reportedly either had no comment or have not immediately responded to press inquiries.

Separate reports further indicate that air travel booking sites are indicating that  flyers are paying added attention to the aircraft associated with individual flights. As an example, Kayak now supports the ability for users searching for flights to exclude certain types of aircraft in their searches.

Concluding Thoughts

It is likely that by the magnitude of the above outlined subsequent developments, many of our readers have also garnered significance. There are many direct, blunt and succinct expressions that can be attributed to these events into which we will not delve.

Two concluding thoughts:

The impacts involve not only Boeing and its airline customers, but also the supply and services stakeholders among commercial aircraft industry supply networks.

While all of this unfolds, the industry must concurrently deal with aircraft orders that extend to 2030 delivery windows. Further there are ongoing implications for premature wear associated with Pratt and Whitney GTF engines. These engines require taking aircraft out of operational service to inspect and replace engine parts, after the discovery of microscopic cracks in high-pressure turbine disks. There are also unplanned maintenance issues related to the CFM International engines.

Readers, airline customers and individual businesses will be experiencing the impacts of all of these events in the months to come in flight schedule availability, higher airline fares and air freight costs.

 

Bob Ferrari

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