This is a weekly Supply Chain Matters update on our ongoing coverage of the latest crisis involving Boeing’s 787 Dreamliner program, that being the grounding of all operational aircraft.
In our previous Commentary Four posting on February 4th, we noted that the U.S. National Transportation Safety Board (NTSB) had reached out to experts within Naval Surface Warfare Center and a battery expert from the U.S. Department of Energy in conducting ongoing tests of the lithium-ion battery and its related electrical systems. The NTSB was further made aware by Boeing of the prior battery replacement history of the aircraft and will use these data to determine any relevance. After formally reporting quarterly earnings, Boeing’s CEO Jim McNerney indicated confidence that a root cause will be determined and further played down reports that the aircraft had a succession of battery problems that led up to the grounding. He is also quoted as indicating that “we have no idea yet’ what caused the batteries to burn.
In its weekly update last week, NTSB chairwoman Deborah Hersman confirmed that that agency has concluded that the battery involved in the 787 fire that occurred on a Japan Airways aircraft in Boston was involved in a “thermal runaway”, causing that battery to reach an internal temperature of 500 degrees Fahrenheit. The NTSB however continues to not know what caused a short-circuit in the battery to prompt the reaction. Chairwoman Hersman indicated that the NTSB was weeks away from being able to conclude as to what caused the battery “thermal runaway” and what corrective measures will need to be taken. The Japan Transport Safety Board investigating the separate in-flight fire involving an All Nippon Airways 787, after conducting CAT scans of the damaged batteries in the ANA incident concurred with the ‘thermal runaway” condition. Their analysis found damage to all eight cells of the battery. However, both agencies appear to be pursuing different paths as to root cause. Investigators are now reported to be diving into additional parts of the aircraft’s electrical system.
Meanwhile, The Wall Street Journal reported a significant new twist last week, with indications that Boeing is pursuing possible design changes. These include increasing the separation between cells in the lithium-ion batteries, design changes to keep the cells more rigid and an enhanced containment box to house the battery and contain chemicals or fire escaping from the battery. According to the WSJ, Boeing indicated that hundreds of engineering and technical resources are working around the clock to resolve the battery issue. The U.S. Federal Aviation Agency (FAA) granted Boeing’s request to conduct a special test flight which was completed on Friday of last week. (See Boeing photo which was tweeted) If Boeing were to come-up with an interim design change involving the battery system, it would have to be approved by regulators and verified in flight testing, all of which will take-up additional time. The WSJ speculated that: “Barring a breakthrough, some pessimists predict that designing and installing a new battery system could take as long as a year.”
The WSJ indicates that carriers around the globe with grounded 787’s are receiving regular update briefing, which is a credit to Boeing. However, given these pessimistic indications of coming up with an approved fix, Boeing current 787 customers and Boeing’s 787 supply chain has some difficult challenges in the weeks and months to come. With last week’s statement from Boeing indicating its intent to stick with the production schedule of 5 Deamliners per month, this OEM is positioning lots of staging space to inventory some expensive semi-finished airplanes while investigations continue.
One other interesting development stemming from the ongoing 787 crisis comes from rival Airbus. This weekend, the Financial Times reported that Airbus has confirmed that it was re-considering its use of lithium ion batteries on its new A350 aircraft, opting instead for use of traditional nickel cadmium batteries.
In light of the current renaissance occurring in U.S. based manufacturing and their associated supply chains, we were taken back a recent article which describes an important component to increased momentum. The February 2nd edition of the Economist magazine featured an article; Crying Out for Dollars, (paid subscription or free metered view) which drove home the fact that underinvestment in U.S. ports and inland waterways imperils U.S. competitiveness.
The number and size of ships calling on U.S. ports is on the increase. After the widening of the Panama Canal is competed in 2014, larger ships will be able to call upon U.S. Gulf and east coast ports. Yet, just seven U.S. container ports can accommodate larger ships, with only one in the southern portion of the U.S. The boom in new sources of crude and natural gas within the interior U.S. regions of Montana and the Dakota’s increase the dependency on inland waterways to transport bulk crude to Gulf ports. In a prior commentary, Supply Chain Matters noted how Warren Buffet’s acquisition of the Burlington Northern Santa Fe (BNSF) railroad has paid handsome rewards in the ability to take advantage of increased needs for U.S. transportation related to crude oil and other bulk manufacturing.
The Economist article describes how critical U.S. ports and facilities require much overdue investment to sustain broader and more reliable water transport. The Industrial Canal Lock in New Orleans which connects two of largest tonnage waterways: The Mississippi River and the Gulf Intracoastal Waterway, originally built in 1921 is only 600 feet long, half the length of today’s modern lock. Because of its small length, cargo must be divided among a number of small barges to transverse the lock. Its replacement was authorized in 1956, with construction authorized in 1998, only to be stalled by lawsuits. The most opportunistic estimates according to the Economist estimate the completion of construction in 2030.
Last year, President Barack Obama approved plans for deepening ports in Charlestown, Jacksonville, Miami, New York and Savannah but another lengthy approval process is reported, along with requests for funding. By one estimate, a five year funding shortfall for inland waterways, the primary mode of transport for many U.S. commodities, has a shortfall of $20 billion. The article note that of the 257 locks in operation in 2009, more than a tenth were built in the 19th century, with the average lock being 60 years in age. By 2020, 80 percent of American locks will be functionally obsolete. The severe drought that impacted the U.S. Midwest region in 2012 also caused navigational problems on the Mississippi River as a result of low water levels, also disrupting traffic.
In our view, the U.S. Congress remains mired in partisan bickering and inaction, while the renaissance of U.S. based manufacturing and increased supply chain activity remain at the doorstep. Congressional leaders play local favoritism in the approval of port and waterway projects, without a comprehensive investment and long-term funding plan. Federal and state agencies do not seem to be able to practice sound program management practices in existing projects. The Economist makes mention of the Olmsted Lock, a notorious white elephant on the Ohio River which was originally authorized in 1998 for $775 million, and thus far has cost over $2 billion. That type of track record certainly cannot continue.
U.S. Secretary of Transportation Ray LaHood has indicated his intent to not serve a second term in the current administration. Secretary LaHood has served well in his post among a litany of U.S. transportation needs and issues. His successor must, in our view, have a bold vision and strategic perspective on the renewed and prioritized investments in critical U.S. transportation infrastructure. There is a need for a comprehensive plan and strong oversight.
The climate in Washington seems obsessed with the role of government, the debate of big vs. small government presence. In our view, one clear role of government is in insuring modern, world-class transportation infrastructure that supports a vibrant economy. More importantly, there is a need for the U.S. Congress to act responsibly on a multi-year, bi-partisan comprehensive investment plan in U.S. transportation infrastructure that includes both water and multi-modal surface transportation needs.
It would be a shame if a U.S. economic renaissance is stymied by narrow minded thinking and a transportation induced crisis. Now is the time for bold leadership and oversight.
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