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Boeing Transmits a Supply Chain Shock Wave

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Last week, commercial aircraft provider Boeing transmitted a supply chain shock wave by forecasting that the manufacturer would deliver less commercial aircraft in 2016 than actual deliveries in 2015. The news itself triggered a sell-off in aerospace related stock and raised somewhat more uncertainty across aerospace industry supply chains.

Whereas Boeing delivered a total of 762 aircraft in 2015 while declaring a year of outstanding operational performance, the current forecast is a range from 740-745 commercial aircraft produced in 2016.

Boeing executives indicated that the change involves a revised focus on the provider’s most profitable aircraft as well as the effects of the transition to new aircraft programs such as the 737 MAX program where deliveries begin to occur in 2017.

The revised forecast surprised equity analysts and literally rippled across the industry sending shares of major suppliers also tumbling.

As Supply Chain Matters has noted in our specific aerospace industry commentaries, building multi-year backlogs among both Boeing as well as Airbus are both good news, not-so-good news scenarios.  Programs such as Boeing’s 787 Dreamliner need to considerably ramp-up deliveries in order to meet breakeven program profitability milestones, while newer, more fuel efficient aircraft such as the 737 MAX and the Airbus A320neo were marketed to airlines during a time of much higher jet fuel prices. Meanwhile, various global airline carriers particularly those in the Middle East and Asia want to rapidly expand service routes to take advantage of perceived increases in air travelers.  Today’s cycle of economic uncertainty brought upon by lower oil and plunging commodity prices, coupled with increasing global tensions have possibly changed near-term demand for air travel.

Only time will determine how industry dynamics shakeout. In the meantime, commercial aerospace supply chain suppliers must now perform a balancing act of adjusting to changing and concerning signals from at least one dominant OEM.

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