Supply Chain Matters has featured a number of previous commentaries related to Bombardier and its global supply chain challenges in development and launch of its new C-Series single aisle aircraft. The commercial aircraft provider has placed a huge strategic bet on the market success of the C-Series in filling an under served need within the single-aisle aircraft market. The effects of cumulative delays concerning the C-Series program have had recognized financial and market implications for Canada’s commercial aerospace producer and its supply chain ecosystem. This week provides news involving a broader implication.
Bombardier indicated yesterday that it will spin off a portion of its rail business, Bombardier Transportation in in independent offering of stock. According to business media reports, the IPO is being planned for the latter part of this year and the shares will be listed in Germany to attract transportation existing industry investor interest where rail equipment providers Siemens and Alstom are listed. According to a published report by The Wall Street Journal, other strategic moves remain on the table for the rail unit.
Of added interest is a previous published report indicating that China state-owned locomotive and rail equipment producers CSR Corp. and CNR Corp., who are in the process of merging their businesses, are possibly eyeing a controlling stake in Bombardier Transportation after completion of their merger. If that were to occur, it would have significant implications for the global wide passenger rail industry including high-speed rail equipment.
Bombardier CEO Alain Bellemare further indicated to the company’s annual meeting that the company was keeping all possible options open for its aerospace operations in the light of continued profitability challenges.
Bombardier’s business strategy has been designed to have its commercial aerospace and rail business’s serve as a cyclical balance, namely those in good economic times, commercial aircraft sales thrive, but struggle during broad economic slowdowns. Rail equipment, on the other hand, tends to sustain itself during hard economic times. With the increasing financial challenges brought about by the C-Series and other commercial aircraft program delays, the company is navigating a tightrope to raise additional capital while sustaining its prior business strategy. What has obviously changed are the global wide industry dynamics among both of these industries. Both Airbus and Boeing have managed to attract the bulk of airline buyer interest in new, technologically advanced single-aisle aircraft while China’s state rail players are making their thrust towards broader global market penetration to compete with Siemens, Alstom as a lower-cost producer.
This will be an important multi industry dynamic for Bombardier’s supply chain ecosystem to monitor in the coming months.
In prior Supply Chain Matters commentaries related to today’s aerospace supply chains challenges, we and business media have identified the sensitive dynamics concerning multi-year backlogged customer orders, with the voices of customers growing ever louder. One would optimistically believe that having upwards of 7-10 years of booked orders would be an enviable position, and perhaps it may in certain other industries. But such a situation provides added dynamics for managing and fulfilling customer demand as well as insuring long-term supply and capacity in strategic supply areas.
Last week, news concerning Boeing provided added evidence of the ongoing dynamics. In the course of a week, two major U.S. airlines exercised changes in existing orders. American Airlines announced that it would delay delivery of five previously ordered 787 Dreamliner aircraft in response to slower growth in international routes. Earlier in the week, United Airlines engineered a deal with Boeing that swapped 10 existing orders for 787’s for larger 777-300ER aircraft. In the case of United, it managed to leverage an opportunity that resulted in Boeing needing to fill open product capacity slots in the 2017 time period, before the next generation 777X begins its market entry. Thus in just a week, orders for 15 new 787’s experienced changes.
As noted in our prior commentaries, both the business and economic climate can change dramatically over a 10 year horizon. United apparently elected to take advantage of current dramatically lower fuel prices to expand its capacity for international routes. Some industry observers have noted that over time, the technological leap of 787 can become minimized by other factors, including competing models that are more discounted by sales teams. Global airlines themselves are examples of savvy customers who constantly monitor industry dynamics and are not shy to exercise customer influence.
Certainly, events in one week do not make a long-term trend. However, they are yet another reminder to commercial aerospace supply chains that even with a cushion of multiple years of order backlog, change is a constant. It is a far different business climate.
In a mid-December posting, Supply Chain Matters called attention to a media report indicating that a component shortage within the commercial aerospace sector that was suspected of causing delayed shipments of brand new Airbus and Boeing airplanes. According to this Bloomberg report, France based Zodiac Aerospace, a supplier of upscale lie-flat airline seats was struggling to meet its delivery requirements for such premium aircraft seats. A month-long labor stoppage within a Texas production facility that ended in late October coupled with backlogged engineering teams working with airlines for final seat design approvals have led up to these late deliveries.
This week brings a new and even more noteworthy development. According to a published Reuters report, the head of Airbus’s passenger jet business called attention to suppliers of cabin equipment, indicating their failure to get to grips with chronic production delays was “unacceptable”.
Here is the quote to a group of industry journalists:
“I think the cabin equipment suppliers would do well to have an equivalent level of industrial maturity to that of aircraft manufacturers. They are big industrial companies now, they are not small companies, so they must put in place measures to meet their obligations. It is becoming unacceptable”
While Fabrice Bregier, the CEO of Airbus’s passenger jet division reportedly did not single out any one supplier, he was apparently responding to a question about French seat maker Zodiac, according to Reuters. Further noted is that both Airbus and Boeing have now positioned more people in Zodiac factories to help overcome the delays, and are insisting on vetting Zodiac seat sales as an ‘exception’ to their catalogs, according to industry sources.
As our supply chain community well knows, when frustration levels regarding the reliability of a supplier reaches the CEO level in a public lambasting, the crap has hit the fan and frustration levels have probably reached the boiling point.
Perhaps we can speculate that the CEO of a certain supplier, or multiple suppliers have been on the phone and in the air attempting to perform damage control and make assurances that all outstanding and future commitments will be performed to expectations.
Not a pleasant situation to be in, particularly in an industry with multiple years of backlogged customer orders for completed airplanes. It’s a slippery slope when a preferred vendor effects actions that are deemed “not acceptable to a level of industrial maturity.”
This week featured a significant announcement from General Electric, namely that the U.S. Federal Aviation Administration (FAA) certified a 3D-printed manufactured part to operate within certain GE commercial jet engines.
A blog commentary featured on the GE Reports site indicates that a fist-sized piece of silver metal that houses the compressor inlet temperature sensor inside a jet engine, known as T25, is becoming a symbol of one of the biggest changes sweeping jet engine design. GE Aviation is currently working with Boeing to retrofit more than 400 GE90-94B jet engines with the 3D printed part. This family of engines power Boeing’s 777 commercial aircraft. High resolution photos of these parts are featured in the commentary.
The report further indicates that GE Aircraft has already initiated flight tests for the next-generation LEAP jet engine, produced in a 50-50 consortium with CFM International, which will include 19 3D-printed fuel nozzles. The LEAP engine will power Airbus’s newly designed A320neo and Boeing’s 737MAX aircraft models.
The planned GE9X engine will further be developed with 3D-printed fuel nozzles and other parts.
GE was one of the early adopter manufacturer’s that has embraced additive manufacturing methods for nearly a decade. According to GE, additive manufacturing allows design engineers to replace complex assemblies with single parts that are lighter. The use of 3D-printing methods accelerates design development and new product introduction times. Once more, GE is printing parts from materials such a cobalt-chrome alloy. In the case of the GE90 printed nozzle housing, the process from final design to FAA certification and service introduction spans what is described as six months.
In digesting this report, Supply Chain Matters further envisioned that the introduction of such 3D-printed aircraft engine components can significantly benefit both ongoing production as well as operational service parts needs. Instead of stocking global-wide manufacturing or service parts depot inventories, replenishment orders can trigger the printing of an additional part, with considerable inventory cost savings. In some cases, we would envision the part being printed directly at a regional repair and maintenance depot.
Next-generation additive manufacturing methods are indeed beginning to make a presence and the benefits described by global manufacturers such as GE, are indeed described as breakthrough technology.
About a month ago, Supply Chain Matters called reader attention to reports that the largest labor union at Boeing had filed a petition with the U.S. National Labor Relations Board (NLRB) for a labor union organizing vote within the commercial aerospace producer’s North Charleston South Carolina production and final assembly facility. The move came after a number of workers at this facility signed authorization cards indicating interest in such an election.
At the heart of this development are differing wage compensation systems among Boeing’s production facility in Renton Washington, which is union organized, and the South Carolina facility. There has further been a long-standing contention that Boeing elected to source its second U.S. commercial final assembly facility in South Carolina because it was a right-to-work state that resisted unionization.
Boeing recently called for mandated weekend overtime for workers in South Carolina in order to maintain customer delivery requirements for the Boeing 787 aircraft.
This week, an exclusive syndicated published report by Reuters indicates that labor union officials are hinting that the vote to organize upwards of 3000 workers might be postponed.
While union organizers continue to knock on doors to solidify a case for labor union representation, Boeing has launched an all-out worker outreach campaign, including the leveraged use of both traditional and social-media outlets, to convince workers that unionization is not in their best interests. According to the report, there are overt warnings that unionization could cost workers high-paying jobs as well as benefits. Workers are reportedly being summoned to into company meetings to hear about the risks of unionization. Anti-union messages are further being amplified by local business leaders and political figures, including the Governor of South Carolina.
Like many Southern U.S. states, South Carolina is a right-to-work state implying that a labor union cannot force workers to join a union or pay union dues even if an employer is covered by a negotiated union contract. Attempts at organizing workers among multiple industries, including the high concentration automotive sector, have been met by high profile resistance from local and national elected officials.
U.S. labor laws are such that the labor union could re-schedule the organizing vote after six months. If the election was to occur and the union petition does not prevail, another organizing effort cannot occur until a year later. Thus is the current labor union hedging.
Workers at Volkswagen’s Chattanooga Tennessee production facility have similarly been involved with on and off union organizing votes. The difference has been tactful support by Volkswagen management. Many of Germany’s large and small manufacturing and services enterprises embrace the concept of a “Works Council”, where direct representation from labor at the highest levels of management incorporates labor’s input on policies and practices related to work conditions, employee grievances or other matters related to compensation and benefits. Certain politicians across the South are not that pleased with the concept of a foreign based manufacturer actively supporting a unionization election. After all, that remains one of the prime attractions for foreign as well as domestic based manufacturers. The Volkswagen unionization effort is a continuing back and forth effort.
Another interesting sidelight to these ongoing Boeing South Carolina developments is that competitive rival Airbus announced in 2012 that it would open its first U.S. based manufacturing facility in Mobile Alabama where the state of Alabama had offered what was reported at the time to be upwards of $100 million in incentives. This $600 million dollar facility will soon be assembling A320 aircraft in a right-to-work state as well. Thus, the stakes remain high in terms of unionization efforts.
The promise of jobs or the threats of lost jobs are very powerful forces across industry supply chains. That is indeed a certain reality. However, so are social responsibility practices that include listening to the voice and/or needs of workers. Again from our lens, whether by small work groups, Works Councils or a unionized work force, the voice of workers should be the purview of both management and labor, and without the need for threats and heavy-handed tactics by either side.
Across commercial aerospace supply chains the quarterly shipment and order booking results for both Airbus and Boeing are of high interest. That is because they are a reflection on inbound customer demand and customer preferences, as well as the current supply chain volume output cadence for those suppliers supporting each of these global OEM’s. Among the aircraft OEM’s themselves comes certain bragging rights as to whom has the industry lead. Thus, Supply Chain Matters has been featuring summary commentary information related to quarterly operational performance.
In the quarter ending in March, Airbus delivered a total of 134 aircraft, the majority of which were in the single aisle, A319, A320 model category. There were 4 deliveries of the jumbo A380 and the quarter included the first delivery of the brand new Airbus A350XB-900 XWB model.
Boeing reported the delivery of a total of 184 aircraft, the majority of which were in the single aisle, 737 family category. In addition to delivering 121 737 models, the quarter included delivery of 30 787 Dreamliners. The former is a reflection that the average production rate of 10 787’s per month continues.
Airbus and Boeing both declared that they each exceeded operational shipment targets for 2014. Airbus reported shipping a total of 629 aircraft deliveries last year while Boeing reported shipping 723 aircraft. Reflecting on the Q1 shipment numbers, it appears that Airbus needs to pick-up its pace in order to match or exceed 2014 volume.
In the March ending quarter, Airbus reported net orders booked for 101 aircraft. The new engine option (neo) versions of the A320 and A321 accounted for 73 of the net total while the A330 family accounted for 25 orders. Of interest, 82 of Airbus’s new orders were booked in March. As of the end of March,
Airbus reported a total customer order backlog of 6353 aircraft, the majority of which (6231) were for new single aisle aircraft. Factoring Airbus’s 2014 actual shipment volume, the order backlog represents in in excess of 10 years of customer orders.
Boeing reported a net orders total of 110 aircraft which included 66 737’s and 34 787’s, among other models. The majority of orders came from what was described as unidentified customers. Thus bragging rights for orders in Q1 leans toward Boeing.
Boeing additionally reported a total customer order backlog of 5715 aircraft, the majority of which (4244) were for new single aisle 737 models. Current 787 backlog was reported as 847 aircraft. Factoring Boeing’s 2014 shipment volume, the total order backlog represents nearly 8 years of customer orders.