subscribe: Posts | Comments | Email

This Week’s Paris Air Show- More About Product Development and Supplier Tensions

0 comments

The Paris Air Show is being held this week representing an important sales and marketing event for aerospace and commercial aircraft manufacturers and supply chain participants. Thus far, two dominant themes appear; one being efforts by Boeing to premiere or hint of new aircraft as well as added services, the other by aircraft engine producers and key suppliers, exercising influence as the critical link in commercial aircraft supply chains.

Boeing has focused this week’s event as the formal market launch of the newest version of the 737-aircraft family, that being the 737 Max 10. This latest model of the 737 can seat upwards of 230 passengers and has a reported list price of upwards of $125 million, but customers more than often acquire aircraft at discounted price levels. Industry watchers position the 737-10 as a market response to Airbus’s rather popular A320 neo series Boeing began the week by announcing 135 new orders for the aircraft, and thus far, visibility to individual airline or aircraft leasing companies have come forth, including a United Airlines order for 100 of the aircraft. The aircraft manufacturer expects to book orders of upwards of 240-250 aircraft. The 737-10 is expected to enter operational service in the 2020 timeframe.  Boeing 737Max Tail 300x200 This Weeks Paris Air Show  More About Product Development and Supplier Tensions

The president of Boeing Commercial Airplanes indicated to attending press that customers wanted the aircraft producer to build the single-aisle 737 bigger, and with more operating range.  From our lens, that is reflection of airlines being primarily-driven by financial metrics vs. customer comfort factors.  Anyone who has had to endure a 5-6-hour flight on a packed 737 with few amenities including lavatories likely know what we mean by customer comfort.  Welcome to the new world of airline travel, where efficiency trumps any sense of overall customer experience. But, we digress.

From a product development perspective, because of existing iterations of the 737, incremental product development and manufacturing costs for the larger model are relatively modest by comparison, boosting product margins for Boeing.  The supply chain is already in-place and ramping-up production of all models of the 737 family.

Industry media including Aviation Week report that airlines in general have a mixed view of the 737-10, mostly because of market timing and overall claimed capabilities. Boeing is therefore taking the opportunity to leverage this week’s event as a sounding board for the development of a new, smaller twin-aisle “middle-of-the-market’ aircraft with the designated name of the 797 series.

The conceptual 797 would by some accounts, be positioned between the 737, and the 787 Dreamliner, providing airlines more options in operating U.S. coast-to-coast or transatlantic flights airlines. Many in the industry view this model as a successor to the very popular 757 series.

For Boeing, the 797 series would be a test of quicker-time-to-market since by some accounts, airlines have expressed enthusiastic response to initial paper designs. A further critical design decision would be the selection of the aircraft’s available engines. Thus far, we have read indications that existing 737 MAX and A320 neo engine providers CFM International and Pratt & Whitney would be potential suppliers as well as Rolls Royce, which has up to this point, concentrated its product strategy on the larger twin-aisle segment. However, we read one show report indicating that executives from General Electric and CFM International have no interest in sharing a supplier arrangement with Boeing’s 797 series. Instead that are bidding to be the sole engine provider to assure a timely market introduction.

On the subject of aircraft engines, this week’s event has manufacturers in this segment touting their new engine orders. As an example, GE and CFM expect to book $15 billion in new business, both in hardware and services. GE Aviation indicated that its engine order backlog now exceeds $150 billion.

Beyond the marketing, as we have noted in our most recent Supply Chain Matters commentaries focused on commercial aircraft supply chains, engine manufacturers are currently the critical weak-link in the supply chains for both the A320 neo and the 787-MAX.  Pratt continues to deal with initial engine component design and manufacturing deficiencies related to its new geared turbo-fan (GTF) engines requiring the planning of whole engine spares to keep existing operational aircraft flying to schedule.  Engine supplier CFM International, the joint venture of GE Aerospace and Safran, producers of the new LEAP series engines experienced an initial quality problem in a turbine disc within operating engines of the first 737-MAX. At this week’s event, CFM International management indicated confidence in discovering root cause of the turbine disc flaw and expressed further confidence in meeting the targeted delivery of 500 LEAP engines by the end of this year.

Finally, industry and business press is highlighting the July start-up of Boeing’s newly announced Global Services Business Unit.  This week, Boeing management indicated expectations to garner much more of the estimated 8 percent of business services existing Boeing operational aircraft representing billions of dollars in potential added revenues and profits. The goal is to double annual services revenues to $50 billion in five years. Boeing management acknowledged the potential of a “healthy tension” with major suppliers, including engine producers, since many key suppliers rely on services revenues to boost their financial performance. Some engine producers are currently threatening to invest less in product innovation if Boeing insists on taking more market-share in services. That threat includes the currently contemplated 797 aircraft.  For Boeing to accomplish its business goals for services growth, it will need to convince major suppliers to give-up intellectual property as well as spare parts distribution rights. That is a tall order that is bound to lead to added supplier tensions. A further battleground will be the area of Internet-of-Things enabled service models where both aircraft manufacturers and suppliers are expected to clash on whom owns and controls customer-focused operational and services data. This is an area that bears quite a lot of observation in the months to come.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Profile of the Airbus U.S. Commercial Aircraft Assembly Facility

0 comments

The New York Times Money Issue recently featured a profile of the Airbus factory in Mobile Alabama, complete with some stunning photo and video images produced with Samsung technology.

This profile provides evidence of Airbus’s extended global value-chain along with the overall logistics and transportation required to supply the relatively new U.S. aircraft assembly plant. As an example, completed major Airbus A321 aircraft components are loaded on a ship for transit to the Port of Mobile.

The profile provides other important observations, namely:

  • Airbus saves little money by assembling commercial aircraft in the U.S.- the move is more about competing in large markets where the planes are sold and in the notion of demonstrating to the U.S. government a commitment to the economy.
  • Lower wage rates across the Southern U.S. helped in the decision to source the plant in Alabama.
  • Airbus reportedly secured $158 million in state and local incentive benefits regarding the U.S. commercial aircraft facility including publicly funded training of factory workers.
  • Upwards of 20 Airbus suppliers have reportedly opened offices near the Alabama facility.

We highlight this interesting profile for the benefit and enjoyment of our Supply Chain Matters readers.

 


Boeing Grounds Newly Designed 737 MAX Aircraft Over Engine Component Manufacturing Flaw

1 comment

Just days before the scheduled first customer delivery of the new Boeing 737 MAX aircraft, the commercial aircraft manufacturer has had to suspend ongoing flight testing after being notified by the engine supplier of what is believed to be an engine component manufacturing problem.

According to various published reports, Boeing was notified by aircraft engine provider CFM International about a “quality concern” related to the low-pressure turbine (LPT) discs installed within the new CFM LEAP-1B engines. A collection of five LPT discs with attached blades sit at the rear of this new, more fuel-efficient engine.  CFM LEAP1B 300x200 Boeing Grounds Newly Designed 737 MAX Aircraft Over Engine Component Manufacturing Flaw

Boeing spokespersons have indicated that the test flight suspension was ordered “out an abundance of caution.” Boeing further indicates that no operational problems were detected during the ongoing series of test flights. Affected LEAP 1B engines have been dispatched to CFM’s facilities for further inspection.

Reports are quick to point out that the engine problem is not engine design related but initial news of the suspension caused Boeing stock to initially drop nearly 2 percent.

As our Supply Chain Matters and aerospace supply chain industry readers may be all too aware, the industry remains sensitized to ongoing engine design issues. Specifically, design issues related to Pratt and Whitney’s new geared-turbo fan (GTF) engines which have impacted Airbus A320 neo customer delivery schedules and are still be addressed. CFM supplies an alternative engine, the LEAP 1A, as an option to the A320-neo, and those engines remain operational with some airlines. Initial indications are that the problem related to the 1B version are not affecting the 1A model.

A published report by the Seattle Times indicates that CFM informed Boeing late last week of a potential quality issue with the LPT disks within prior-delivered engines. CFM quality inspectors discovered an anomaly in the manufacturing process related to forging the discs.  As is often the case, LPT discs are provided by multiple suppliers, and the problem may rest with a single supplier’s discs. Thus, the likely steps underway are determining which specific engines included the suspect discs and assuring that all other discs meet manufacturing and performance specifications.

The irony of this news is that the 737 MAX program had repeatedly been reported as being ahead of schedule with very few issues. There have been upwards of 2000 hours of flight tests with first customer delivery to launch airline customer and Malaysia based Malindo Air, a subsidiary of Lion Air scheduled for later this month. Boeing indicates that the delivery will go ahead as planned, along with scheduled May delivery to Norwegian Air.

Boeing further indicates that production plans for the 737 MAX remain as planned, obviously with an expectation that the engine issue is temporary in nature.

Product management, procurement and supply chain teams are acutely aware that despite rigorous planning and testing, a supply or manufacturing glitch can occur at any time during a product lifecycle.  The challenge is often in the timely detection, the response, and the mitigation plans. This week, commercial aircraft supply chains have yet another current reminder that even the best planned programs are subject to unplanned events.

Always be prepared.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Supply Chain Matters Shares Our Top Ten Blog Postings in 2016

Comments Off on Supply Chain Matters Shares Our Top Ten Blog Postings in 2016

An annual tradition for the Supply Chain Matters blog has been to look back to the prior year’s readership uptake and share with our readers the top ten blog postings of the prior year.

Admittedly, we are a bit late in compilating all of our 2016 readership data but we did want to publish this for readers, clients and sponsors.

The list provides a sense of what particular topics were of the most interest in our over 300 blog postings published in 2016.  SCM 250 76 Supply Chain Matters Shares Our Top Ten Blog Postings in 2016

In the Dave Letterman style, we start with number ten and work our way down to the number one topic of readership uptake.

Number 10:

Observations on the Rankings for Supply Chain Planning Technology (February 5, 2016)

After industry analyst firm Gartner published its Magic Quadrant Rankings for Supply Chain Planning System of Record applications in mid-January, this commentary shared observations regarding the rankings of vendors. Our takeaway was that the current landscape of supply chain planning, sales and operations planning (SO&P) and B2B supply chain network planning technology was far more influenced by line-of-business and supply chain leadership input needs and requirements. Hence many other sources of information support the buying decision beyond industry analyst rankings.

Number 9:

The Value Proposition for Cloud Computing is Broader in Scope and in Business Implications (January 22, 2016)

This Supply Chain Matters commentary explored the implications of a full Cloud-based technology suite in supporting broad supply chain business process needs after industry analyst Bob Ferrari completed nearly two days of briefings and conference presentations related to Oracle’s Cloud based technology offerings. One takeaway provided was to view Cloud from the perspective of a broader focus on an engineered suite of pre-integrated software applications that are continually updated to reflect changing business needs. Why settle for business application innovation every 1-2 years when every 6 months is an option, and with lower capital and overhead costs.

Number 8:

Sports Authority- A Disturbing Twist to Consignment Inventory Management Practices (March 17, 2016)

Characterized as one of the largest sporting-goods retailers, Sports Authority was weighted down with debt from a prior leveraged buyout a decade ago. We called attention to a disturbing development in the ongoing bankruptcy process, as the retail chain filed lawsuits with more than 160 suppliers challenging supplier claims to consigned inventories. We opined that this development had significant ramifications for supplier collaboration practices within retail as well as other consumer goods focused supply chains.

Number 7:

A Disruptor is About to Enter the Heavy Truck Equipment Market (June 20, 2016)

Supply Chain Matters has continuously provided our readers visibility to emerging industry disruptors who are leveraging advanced technology and platforms directed at supply chain related business process and asset needs.  Such visibility included the entry of Uber and Lyft and their potential to move beyond people transportation. In this posting we provided visibility to start-up Nikola Motor Company and its ongoing development of a Class 8, 2000 horsepower electric powered semi-tractor truck that will be named the Nicola One.  The actual unveiling occurred in early December.

Number 6:

Chipotle’s Consumer Trust Crisis Enters a New Critical Phase (February 9, 2016)

One of our early blogs in a series of ongoing commentaries we outlined from a supply chain lens regarding the business, brand and supply chain crisis that impacted Chipotle Mexican Grill after hundreds of consumers were sickened by a series of varying incidents ranging from E-coli outbreaks to norovirus that date back to the summer of 2015. We opined that too much attention was being applied to corporate marketing vs. supply chain and restaurant risk mitigation efforts. It is now April 2017 and the challenges to restore brand trust remain.

Number 5:

Look to the Cloud to Support the Modern B2B Network (September 1, 2016)

This blog commentary addressed an organization’s journey toward mature B2B information integration and how this is made possible by today’s advanced cloud-based platforms, applications and infrastructure. We opined that there is no question that analytics and broader, more predictive business insight capabilities are opportunities to transform B2B business and supply chain business networks. The opportunity — and indeed the necessity — is to leverage an end-to-end business network to synchronize planning, execution, customer fulfillment and more predictive decision-making needs.

Number 4:

Gartner 2016 Top 25 Supply Chain Rankings- Supply Chain Matters Initial Impressions (May 19, 2016)

Our annual commentary related to analyst firm Gartner’s Top 25 Supply Chain Rankings.  Our annual commentaries reflect our beliefs that ranking criteria can be misconstrued, especially when it tends to favor supply chains that avoid major ownership of assets and inventory, or tend to weight other criteria lower, such as sustainability and social responsibility practices.

Number 3:

A Tour of Healthcare Supply Chain Innovation in Action (February 4, 2016)

Executive Editor Bob Ferrari shared impressions and insights regarding a November 2015 visit to the Cardinal Health Healthcare Supply Chain Innovation Lab located in Concord Massachusetts.  The lab served as a hub to explore innovative technology approaches such as smart sensors and near-field communications (NFC) in addressing healthcare supply chain product demand and supply inefficiencies.

Number 2:

What are Specific Skill Needs and Gaps in Supply Chain Management? (February 26, 2016)

Supply Chain Matters highlights results and an infographic from a supply chain skills survey conducted by Canadian based Argentus Supply Chain Recruiting outlining what specific hard and soft skills are organizations looking for in their hiring and recruiting efforts. Supply chain skills and talent development content has consistently drawn reader interest.

 

And now, a drum-roll for our most read 2016 blog:

 

Airbus and Boeing Continue to Experience Supply Chain Scale-Up Challenges (May 2, 2016)

After announcing Q1 financial and operational performance results, both Airbus and Boeing addressed ongoing challenges related to their supply chains and expected performance for 2016 total aircraft delivery commitments. We shared candid comments from Airbus’s CEO as to the global producer’s most critical new product introductions and clear signs of concerns related to various supply chain challenges. We also called attention to comments from United Technologies regarding the new Pratt and Whitney geared turbofan engine, which turned out to be the weakest link in the Airbus supply chain. Finally we concluded that for the two dominant manufacturers of commercial aircraft, supply chain challenges have once again come back as concerns amid an environment of robust order backlogs. Each has different manifestations and supplier challenges, and each reflects on internal operational scale-up as well. We opined our belief that challenging product design among the most critical supply components, including aircraft engines would continue to be the linchpin towards achieving required production scale-up milestones.

 

Thanks again to all globally located Supply Chain Matters readers for your continued readership and frequent visits.

Thanks as well to our sponsors, clients, and network contacts for their continued support. We will no doubt, have yet another set of different topics of reader interest throughout 2017.

A final thought, why not consider having your company’s brand appearing as a designated sponsor or advertiser on this blog. Send us an email at info <at> supply-chain-matters <dot> com and we will respond with all of the information.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Airbus and Boeing Report Q1-2017 Delivery and Order Booking Performance

Comments Off on Airbus and Boeing Report Q1-2017 Delivery and Order Booking Performance

One of our more popular blog postings tends to be our updates on either the quarterly or annual operational performance numbers for the two dominant commercial aerospace manufacturers, Airbus, and Boeing. The interest levels extend not only from supply chain participants in each of these manufacturers but across their global supply chain ecosystems.  Boeing 787 Production Line 300x200 Airbus and Boeing Report Q1 2017 Delivery and Order Booking Performance

Thus, this posting updates on the latest Q1-2017 operational data.

Overall, the operational numbers would indicate that Boeing had a relative excellent Q1 while Airbus experienced an unusual slower than expected start to 2017.

Airbus

We begin with Airbus, which reported a total of 136 commercial aircraft deliveries in the March-ending quarter. That compares with 125 total deliveries in Q1-2016. The Q1-2017 breakout includes:

107 single aisle aircraft (A320ceo, A320neo, A321ceo)

13- A330

13- A350

3- A380

In an operational review conducted in February 2015, Airbus made supply-chain wide plans to target a production rate of 50 A320’s per month by early 2017.  Thus, among the closely-watched numbers are the deliveries of the A320ceo and A320neo (new engine option). At the close of Q1, the single aisle grouping has a rather significant 5547 of backlog orders from airlines with high expectations related to improved and more fuel-efficient performance.  The Q1 report indicates that a total of 36 A320ceo and 26 A320neos were delivered in Q1. Our sense is that Airbus would have preferred these numbers to be reversed.

The new engine option (neo) features an airline choice of two available, new fuel efficient aircraft engines, either the Pratt & Whitney geared turbofan (GTF) engines or the CFM International alliance of General Electric and Safran LEAP engines. The Pratt engine was added to production in Q3-2016 while the CFM International engine has been incorporated in the recently completed quarter.

During 2016, Supply Chain Matters highlighted some significant challenges related to delayed deliveries of the new Pratt GTF engine featured on the neo model, which both significantly impacted Q3-2016 and to a lesser extent, Q4-2016 deliveries to airline customers. The GTF became a rather visible broken-link in the A320 supply chain because of ongoing issues related to operational performance in high heat or humid climatic conditions such as that reflected in certain Asia or Middle East environments. Qatar Airways has been especially vocal regarding the performance of the GTF powered A320neo. Both Bloomberg and Aviation Week have recently reported that while the new Pratt GTF engines are meeting promised 15-20 percent fuel savings, combustion chamber and bearing distress glitches continue with engines operating in certain climates. Bloomberg reported that as of the end of February, as many as 42 GTF engines had to be taken off-wing prematurely, most in environments in India, which currently has the largest fleet of operational A320neo’s.  Pratt has been responsive to operating airlines, but the new engine spares are likely coming from engines destined to support new production.  Modifications to the combustor and additional upgrades are due by the end of the third quarter.  For Airbus, the fallback is concentrating A320neo production on allocated Pratt CFM engines or the new CFM International engine which thus far is showing no signs of glitches.

Turning to new orders, Airbus reported a rather lackluster total of 6 net aircraft orders in Q1, after experiencing several cancellations during the quarter including 8 A320neo’s and 2 A380 jumbo aircraft. Total gross orders were 26 aircraft in the quarter. None the less, the traditional rule of thumb in commercial aerospace is to book more orders than actual deliveries.  As we have noted in this year’s predictions, that period may be ending.

 

Boeing

Boeing reported a total of 169 aircraft delivered in the quarter. Late last year, Boeing announced to its investors that is was going to scale-down deliveries in 2017. Boeing’s Q1-2016 deliveries were a total of 176 aircraft. The breakout for Q1-2017 included:

113-single-aisle 737’s

32-787

21-777

2-767

1-747

 

Boeing’s most critical delivery number also relates to its single-aisle 737. The more fuel efficient 737 MAX is still in the final stages of flight certification and is thus not reflected in Q1 deliveries. There are, from our lens, two positive notes from this latest quarterly report of deliveries. The first is the 32 reported deliveries of the 787 Dreamliner, an indication that prior production glitches and consequent shortfalls are likely resolved.  The 787 is produced by two separate Boeing final assembly production facilities. The other is 777 family- with the newer more fuel-efficient and technically advanced 777X family announced to the market, Boeing has done a good job of filling production slots for the now legacy 777 model.

For new orders, Boeing reported a total of 198 net new orders in Q1, a rather stunning performance considering Airbus’s Q1 order performance. This number was far ahead of the 121 net orders logged in the first quarter of 2016. The breakdown included:

167- 737’s

11- 787’s

15- 767

9-777

As our commercial aerospace readers are aware, net order performance can vary in any given quarter, with announcements tied to specific events such as major air shows or investor conferences. That stated, Airbus has several challenges to address in the coming months, both on the inbound orders flow and in addressing A320neo production glitches. Regarding the latter, we surmise that Airbus’s patience for added glitches or supply shortfalls may be on the edge.

 

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


« Previous Entries