The Supply Chain Matters blog provides an updated news capsule follow-up relative to major supply chain management and industry developments that we have shared previously on this blog. Companies included in this capsule update are Pratt & Whitney, Flexport, and Volkswagen AG.

 

Pratt & Whitney GTF Engine Repairs Profound for the Industry

In our Supply Chain Matters posting last week we once again alerted readers on breaking news related to commercial aircraft engine producer Pratt & Whitney’s geared turbo fan (GTF) aircraft engine related flaws that are now subject to added inspections and repairs.

Raytheon Technologies (RTX Corp.), the parent of Pratt announced that component issues and the potential of engines having more premature component failures is now much broader in scope, involving as much as 3,000 in-service engines, and reportedly all of which now need to be inspected. The issue reportedly involves powdered metal utilized to produce certain engine parts which is leading to premature failures.

Last week, the industry publication Aviation Week published its report, Pratt GTF Repair Plan Jolts Beleaguered Airline Industry. Specifically noted in the report: “The effect on the airline industry will be profound.” The CEO of Lufthansa is cited as indicating that with this expanded engine inspection need, the aircraft supply side now becomes a huge mess and that airlines such as Lufthansa can sell more seats if there were more aircraft available for route scheduling support. Reportedly the news of a far broader inspection program caught most airline providers by surprise.

As to our question as to whether Airbus’s existing 2023 aircraft delivery plans would be impacted by this wide scale inspection program, the report indicates that the global plane maker has insisted that Pratt continue to contractually support the delivery of new PW1000G engines to final assembly lines. Reportedly, that has provided Pratt with “scant room to come to the aid of airlines with large numbers of parked aircraft” There was an initial belief that Pratt would be able to route more completed engines to a pool of engines available to airlines to have available spares when engines are removed.

Further reported was that Pratt had plans to add engine overhaul repair capacity to address durability issues before the severity of the specific HPT disk problem became clearer. There were plans to have 12 GTF engine overhaul shops globally and add an additional seven by 2025. These timelines are reportedly being accelerated where possible.

 

Flexport Focus Turns to Profitability and Cost Reduction

In our supply chain technology breaking news update on September 7th, we highlighted the sudden resignation of Dave Clark from the CEO role of freight technology start-up Flexport. Clark, who assumed the sole CEO role in March after company founder Ryan Petersen handed over the reins. Clark joined the start-up in June 2022 after a long career at Amazon, rising through the operational management ranks to be part of the management committee, as senior executive responsible for all of the online retailer’s retail business.

In his short tenure, Clark proceeded to recruit a number of additional high power executives, including former Amazon managers, to transform this digital start-up to what we perceived as beyond digital freight forwarding to a full services, almost fourth party logistics services provider (4PL).

Last week, a published report by Bloomberg highlighted an interview with founder Ryan Peterson, who indicated that the start-up will now focus on revenue growth and becoming profitable again, despite the ongoing slump in the freight sector. Specifically noted: “We can still be a growth company even in a declining market.” Peterson qualified to Bloomberg that it might takea few years” for profitability to again occur.

The report indicates that while strategies that former CEO Clark initiated for this start-up to be a broader services and logistics execution provider will continue, a renewed emphasis on cost cutting was essential. That includes rescinded job offers, the subleasing of existing office space among several cities as well as other actions to lower the company’s overall cost base.

 

Reported 20 Years Breakeven for Announced Volkswagen Canadian Battery Plant

In late March and in April, Supply Chain Matters highlighted the announcement from global automotive producer Volkswagen AG on plans to construct a reported $7 billion production facility to produce batteries needed to support the company’s North America EV vehicle production needs.  Reports had indicated that that the government of Canada agreed to subsidies of upwards of C$13 billion over a ten year period in order to land this investment.

This facility, which will represent VW’s first battery production facility outside of Europe, is to be located in the city of St. Thomas, Ontario, upwards of a two hour drive from Detroit. Plans reportedly call for the facility to be operational by 2027. The factors that reportedly influenced this automaker were the U.S. Inflation Reduction Act, which fosters consumer incentives to purchase EV vehicles if 50 percent of major battery components are produced in North America. A further consideration was proximity to key raw materials including minerals, lithium, nickel and cobalt which Canada’s mining sectors can provide.

Last week Bloomberg reported that: “It will take 20 years for Canada and its most populus province to break even on the billions of dollars in public money promised to lure Stellantis NV and Volkswagen AG to the country, a spending watch concluded.”

It turns out that Ontario province and the Canadian government have pledged a total of C$28.2 billion to both battery producers in order to subsidize production thru the end of 2032. Reportedly, Canadian Prime Minister Justin Trudeau’s efforts were directed at matching incentives that were provided in the US Inflation Reduction Act in order to lure the facility to Canada. The combined factories would create thousands of jobs and spur added investment, and assumption was that the two factories would spur added production opportunities across the EV vehicle supply network.

The government watchdog group indicated that the provincial and federal tax revenues generated by the joint investments would not equal the subsidy totals until the year 2043, assuming that production started in 2024. Reportedly, the original government estimate of breakeven payback for the VW investment was five years.

As Supply Chain Matters has noted in many other proposed plans to construct large scale production facilities,  governments have gone to great monetary lengths to attract manufacturers to specific regions in the hopes of added employment and associated new tax revenues. This global wide phenomenon has taken on new dimensions as industrial policy turns towards domestic sourcing of key growth industries.

 

 

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