As industry supply chain professionals look forward to the Christmas and New Year holidays, some industry supply chains continue to manage tireless efforts toward meeting 2016 end-of-year production milestones. At the same time, industry supply chain senior executives must look to the coming year for business, process and technology investments required to meet line-of-business and functional business objectives.
One industry that Supply Chain Matters has continually brought reader visibility to is that of commercial aircraft industry which finds itself in the current two-fold position of having to make 2016 end-of-year production milestones while having to grapple with other challenges for the upcoming one or two years, all with a current record backlog of booked airline customer orders.
What is more interesting, however, is that both are approaching these challenges from different overall business objectives.
We, along with other business media have noted that Boeing’s ongoing business goal seems to be focused on increased profitability and shorter-term shareholder returns. As an example, this year, the company will repurchase $7 billion worth of its shares to buoy its stock price, and plans to set aside an additional $14 billion to repurchase shares over the next two-plus years.
Boeing has also communicated its belief that there has been a recent decreased interest among airline customers for wide-body aircraft orders. Business media on the other hand points to customers with a more wait-and-see perspective towards the newly announced 777x model aircraft as well as increased price competition from rival Airbus in the wide-body category. When President-Elect Donald Trump took to social media to publicly chastise Boeing for the ballooning replacement cost related to the new Air Force One aircraft, the CEO of American Airlines commented that he was not at all surprised by Boeing’s high wide-body prices.
Last week, the Seattle Times reported that: “The worst-case scenario that Boeing outlined six-weeks ago for cutting production of the large 777 jetliner in Everett has become the reality.”
The aerospace manufacturer has indicated that it does not have enough booked orders for the current model 777 to sustain the 2016 production rate of 8.3 aircraft per month. Readers may recall that a new 777x model is scheduled for market introduction in 2020 and the aircraft manufacturer had previously had an objective to land additional customer orders for the older but highly popular 777 to maintain current levels of production capacity until the new model production build kicks-in.
Boeing had already implemented a reduction to 7 aircraft per month in November, and now plans to cut 777 production to five per month by August 2017, and to 3.5 airplanes per month in 2018, as plans for the first six 777x prototype flight test aircraft commences.
The Times report indicates that such cuts involving the lucrative wide-body aircraft will inevitably mean job cuts among the 777 workforce. Indeed, The Wall Street Journal and other business media have issued reports today indicating Boeing is planning a voluntary layoff program to start in early 2017, with the possibility of compulsory job cuts if voluntary needs do not meet expected headcount reductions. The company has not detailed the full extent of further job cuts its expects to be implemented in 2017.
The timing of such announcements is obviously not the best, coming just before the holidays. Recall that a new CEO for Boeing Commercial Aircraft, Kevin McAllister was recently announced and became effective in late November. We highlighted a Seattle Times commentary noting that former commercial CEO Ray Connor had precipitated a sharply negative turn in Boeing’s relationships with its various labor unions. Much of this animosity came during plans to source manufacturing and supply chain related strategies for the company’s next generation 777X aircraft. It would now appear that another round of animosity may be in the cards with the latest announcement of headcount reductions.
Rival Airbus has its own growing set of production challenges, but driven mostly by supply shortfalls. The Toulouse based manufacturer’s goal in 2016 has been to ramp-up production levels as much as possible and take advantage of what it believes is a competitive time-to-market opportunity in the global market,
The recent Europe edition of The Wall Street Journal reports that the aerospace producer continues to struggle to meet its target to deliver 670 new aircraft this year. To make or surpass that target, the company must deliver a record 94 aircraft this month. Delays continue to be attributed to specific component supply shortfalls.
The most visible has been the ongoing laggard delivery of the new Pratt & Whitney geared-turbo fan aircraft engine used to power the new A320neo aircraft. The latest update from parent United Technologies was that Pratt was making progress in catching-up but there are still what is described as a “handful of parts out there that we’re chasing.” Likewise, the wide-body A350 production schedule has been impacted by reported delays in aircraft seats and toilet doors.
On the new aircraft front, the European aerospace producer’s largest twin-engine long-range aircraft, the A350-1000 will slip its planned November 2017 maiden flight plans until the second-half of 2018.
The President of Portugal’s TAP airline indicated to the WSJ that its order for new A330neo wide-body aircraft has slipped an additional three months. The aircraft was initially promised for the end of 2017, but has now slipped to March 2018. Airbus declined to comment regarding this delay by the WSJ points out that the aircraft will feature new engines made exclusively by Rolls Royce.
Two commercial aircraft focused supply chains driven by different business objectives and plans, each exhibiting operational, tactical and somewhat strategic focused setbacks.
The challenge continues.
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