The Wall Street Journal is reporting (paid subscription or free metered view) that Boeing and a key supplier, Mitsubishi Heavy Industries, are inspecting the wing assemblies of 43 yet to be delivered 787 Dreamliner aircraft after discovering hairline cracks caused by a manufacturing process.
According to the report, the supplier informed Boeing that a change in its manufacturing process may have caused the cracks. Inspections are being carried out at Boeing assembly facilities near Seattle and Charleston South Carolina. Boeing indicated to the WSJ that none of the 123 Dreamliners delivered to-date are affected by this wing issue.
The WSJ quotes sources as indicating that the latest problem stems from fasteners use to connect shear ties to the carbon composite wing panel. Boeing indicates that it will take 1-2 weeks to inspect and correct this situation on the impacted production aircraft. Boeing further indicated to the WSJ that it fully expects to maintain its schedule for customer delivery of 110 787’s this year although Q1 shipments could slip beyond March.
The saga of the 787 supply chain glitches continues.
Four weeks ago, Supply Chain Matters called attention to the good news – bad news world of today’s aerospace focused supply chains. We cited a Bloomberg Businessweek report that posed a fundamental question- with over 10,600 firm orders for new commercial aircraft among Airbus and Boeing, when is order backlog too big?
Many of these new and technology laden fuel efficient aircraft orders are destined to support expected explosive Asia focused air travel growth. But, what happens when the CEO of Asia’s fastest-growing discount airline and other airline executives begin to communicate an air of caution. A more recent Bloomberg published report now indicates that Asian aviation guru Tony Fernandes, CEO of AirAsia has cautioned that the jet buying frenzy among Asian based carriers may give way to a more sober approach that reflects the current airline challenges of intense competition, pilot shortages and inadequate infrastructure. That is significant since AirAsia has reportedly 350 in unfilled aircraft orders. The report further quotes senior executives of prominent aircraft lessor firms indicating that there may well be a thinning of order volumes.
Carriers operating across Asia are responding to pressures to sustain 30 to 40 percent growth rates while having to deploy new aircraft on newer routes. Intense competition has raised concerns for overcapacity, especially if marginal airlines start to succumb to faster growing operators. Terminals, runways and air traffic control systems are reportedly not keeping pace with current demands for airline expansion across Asia. Euphoria has made way to the realities of hyper-growth.
The question posed by the January Bloomberg report was that elongated aircraft deployment plans can be impacted by ever changing business conditions motivating some aircraft owners to consider alternative aircraft deployment or deferred procurement strategies. When senior executives of the most influential customer stakeholders for new aircraft orders begin communicating such caution, than supply chains need to be cautious and diligent. Suppliers have a special take since OEM’s continue to practice financial compensation when aircraft are shipped.
We again echo our prior advisory, namely that an enviable industry position awash with order backlog does not condone a business-as-usual focus on product introduction and supply chain management. Rather, dynamic and responsive capacity management, end-to-end value chain intelligence, enhanced supplier collaboration and goal-sharing will all come into play as aerospace supply chains continue to adjust to extraordinary and constantly changing industry dynamics.
In our aerospace supply chain focused commentaries, Supply Chain Matters has featured ongoing commentary regarding the upcoming certification of the Airbus A350 wide-body commercial airliner. Last week we noted how Airbus has increased the visibility to the current certification testing phase for this aircraft.
This blog pays special attention to commercial aerospace supply chains for two specific reasons. In today’s world of aerospace, the large OEM’s have far more overall reliance on the product and process innovation capabilities of their supplier eco-systems. Secondly, this industry is rather unique in its scope and complexity of global supply chain challenges, including having upwards of 5-8 years of current customer order backlog. Aerospace OEM’s, each have unique styles in their focus on engineering, supplier management and collaboration.
Last night, this author was reading the latest edition of Bloomberg Businessweek, which includes the article: How Airbus is Debugging the A350. I am always fascinated on how a complex, engineering-driven supply chain ultimately designs, tests and produces today’s complex commercial aircraft loaded with incredible levels of product and process technology. If you have such an interest, than I encourage you to read this article. Airbus has a lot riding on the success of the A350, which could represent 40 percent of this OEM’s revenue stream in the next 20 years.
The author, Jeff Wise, does a great job of profiling how Airbus is maturing its engineering development processes based on important learnings derived from one of the largest and most complex commercial aircraft, the A380. Noted is that there are 7000 engineers working on the A350, with roughly half of these engineers not employees of Airbus, but rather of its key suppliers. Airbus specifically wants to avoid the kinds of problems that have been associated rival Boeing’s 787 Dreamliner.
Important learnings have included the need for a singular Product Lifecycle Management (PLM) software system, creating a single electronic rendering of an aircraft that every program engineer can reference or modify when needed. Today’s modern commercial aircraft come with a host of sophisticated sub-systems, with many more potential failure modes. Testing and production are conducted on a global basis and highly coordinated. Simulation systems are used extensively. Decision-making has been de-centralized and Airbus believes in transparency with suppliers.
As noted in our previous commentary, Airbus test engineers report that the A350 testing program to-date has uncovered half as many problems as previous programs, leading to a heightened sense of optimism. Yet, current test teams know to always expect the unexpected.
The Bloomberg article provides a great snapshot of how engineering and design development are much more integrated with global supply chain management for aerospace environments. And make no mistake, Airbus has learned a lot from what has occurred with the Boeing 787 program.
It is a good read.
In late 2011, Airbus was forced to make a painful decision regarding the A350, announcing a second delay in the overall development program. The reported reasons were supplier issues, pushing first customer acceptance to this year. Suppliers were late in meeting key milestones because of financial issues brought about by the severe Eurozone-wide severe financial crisis. At the time, Airbus was forced to acquire a key German supplier, PFW Aerospace.
The A350 completed a major milestone in June 2013 with completion of first flight. Since that time, Airbus teams have been conducting 2500 hours of rigorous flight testing involving two separate test aircraft to prepare for this aircraft’s next major milestone, final certification and commercial service with designated launch customer, Qatar Airways.
This week, Airbus decided on a brief suspension of its A350 flight testing program in order to make an important gesture to its soon to be most influential potential customer base, namely airlines located in the Middle East and in Asia.
The aircraft first stopped over at Doha, the home of Qatar Airways to not only demonstrate the aircraft, but also allow two select Qatar pilots to fly the aircraft after a brief training session. It was then off to the Singapore Air Show to perform on the ground and in the air demonstrations for show attendees.
Singapore is also the home on another A350 customer, Singapore Airlines.
This latest reprieve from certification testing was obviously very important for Airbus. So much so, that it produced a 24 minute You Tube video. The video not only provides highlights of this week’s events but also provides rather important updates to the program which is worth a view to its conclusion.
The first and most important is that the two A350 test aircraft have now performed 1000 test hours of the total 2500 hours of required certification testing. In the video, the aircraft’s chief engineer and test pilot indicate a high level of confidence in the aircraft’s performance thus far.
Airbus also provides images of severe altitude and cold weather testing conducted in both Bolivia and Northern Canada that is often required for certification. We were fascinated in viewing the interior of a test aircraft that is loaded with testing equipment but also provide seating for 50 technical and support personnel required on each test flight. It is fascinating to actually view the sophistication of testing that goes into today’s next generation of commercial aircraft.
In its reporting of this week’s events regarding the A350, Bloomberg makes an important and insightful observation. The authors note that Airbus’s original goal was to secure in industry parlance, what is known as Extended-twin-operation (ETOPS) level of such certification, which allows airlines to be able fly the aircraft without any restrictions to land or emergency airports. According to Bloomberg, when the Boeing 787 suffered its difficulties with lithium battery and electrical related fires, the U.S. Federal Aviation Agency (FAA) reconsidered the Airbus application, and imposed stricter tests before allowing the A350 full ETOPS. The Boeing 787 remains restricted from ETOPS status which has become a reported annoyance for some of Boeing’s 787 customers. Since FAA ETOPS certification only applies to U.S. based airlines, European, Middle East and Asia based airlines may have an advantage in terms of operational scheduling as they receive new aircraft.
Our view is that Airbus has chosen a high visibility approach to A350 for a specific intent, namely to prove to the commercial aircraft industry’s most influential future customers that quality, reliability and operational reliability at shipment acceptance, will perform to stated performance objectives. It is yet another reminder of the importance of having integrated product lifecycle management (PLM) capability. That has important meaning for today’s aerospace supply chains where risk is shared across the entire value-chain.
Aerospace supply chain readers have obviously been following our ongoing commentaries related to the financial stress being placed on certain major suppliers when a major aircraft program, such as the Boeing 787 Dreamliner, falls behind original customer shipping milestones by years. Under the umbrella of its Partnership for Success program, Boeing has been pressuring suppliers for greater cost savings to offset its increased program costs, even though customer deliveries of completed aircraft continue at a reduced rate.
Spirit AeroSystems a spin-off from Boeing in 2005, is one of the largest suppliers of aircraft sub-structures for both Airbus and Boeing. This week, the company caught Wall Street in surprise by reporting significant pretax charges for the final three months of 2013, including $385 million directly related to work performed on the Boeing 787. That announcement, coupled with a reported fourth-quarter loss of nearly $587 million, compared to a year earlier profit of $60 million, wiped out one-fifth of the supplier’s market value.
News of a 4.8 percent increase in revenues and a 7 percent rise in order backlog was overshadowed by that related to charges and write-offs. Spirit’s CEO declined to rule out additional charges.
As a major airframe supplier, Spirit was deep in the crosshairs of OEM’s effort to outsource major component design and production further down the value-chain to share risks and costs. A new CEO assumedleadership of Spirit in early 2013 and immediately initiated a strategic review of existing businesses and subsequently dealt with business aircraft related component programs that ran-up considerable charges. Two production facilities were subsequently put up for sale.
In its reporting of this week’s announcement, the Wall Street Journal (paid subscription required) characterized this development as “raising concerns about the ability of jet maker Boeing Co. to maintain momentum in reducing costs on its flagship 787 program” and further noted that while Spirit’s stock was punished, Boeing’s stock rose by 1 percent. Spirit had previously recorded pretax charge of $184 million related to its work on the 787 program in October of 2012.
Business media continues to point out that Boeing has yet to sign-up the majority of suppliers to its cost control programs. That should not be a surprise to our reading audience. In last week’s commentary, Collaboration According to Boeing, we observed how this same supplier cost reduction program is being influenced on the 777x program, Boeing’s newest twin-aisle aircraft development program.
Is it any wonder that recent research surveys among procurement leaders continue to indicate that while improving cost savings remain among the top strategic objectives for many firms, incremental cost savings are much more difficult to achieve. When major customers insist of increased innovation but singularly shift the burdens of cost overruns down the value-chain, the results are obvious.
Old ways seem to die hard and aerospace supply chains must deal with the consequences.
If you have been a loyal follower of our Supply Chain Matters commentaries and predictions concerning Aerospace supply chains, you would be aware of the difficult position these value-chain ecosystems currently find themselves in. Once more, you would have had awareness to these challenges three year ago.
Thus we were somewhat amused to stumble upon this week’s Bloomberg Businessweek article, With Epic Backlogs at Boeing and Airbus, Can Business Be Too Good?
The article poses a fundamental question. With over 10,600 of firm orders for new aircraft among both Airbus and Boeing- When is order backlog too big?
In a July 2011 commentary, Aerospace Supply Chain Are Now Stressed, we observed that the building multi-year backlog comes amid an industry track record of not so stellar performance in operational consistency, two-way communication and predictability. Over two years later, although some progress has been made, many of the same challenges remain.
The question posed by Bloomberg, and indeed the Wall Street investor community, is indeed the appropriate question. As the article points out, if a wait for a new airplane stretches out over too many years, it can fundamentally impact the business model strategies of airline customers. Some of those dynamics are already occurring surrounding the continued undelivered backlog of Boeing’s new 787 aircraft. It further can motivate these same customers to consider alternative aircraft deployment or procurement strategies.
Another important consideration are the quickly changing economic environments that often drive demand for airline travel. Airlines from emerging markets are estimated to make-up at least a third of the current order backlog. Current concerns surrounding former booming developing markets are becoming evident in global equity markets as foreign currency tensions, devaluation and and other local economic factors impact business growth within these markets. There will certainly be increased airline travel within emerging economies but this demand needs to be balanced with economic up and down cycles.
In a meeting with Wall Street analysts this week, the CEO of Boeing reported strong earnings for the recent fical quarter but raised some warning signs for 2014 regarding earnings growth. Investors responded by driving Boeing stock down by over 5 percent.
Boeing’s 2014 operational plans call for increasing aircraft deliveries by 10 percent, roughly 715-725 aircraft amid a backlog of 5100 aircraft orders. By the end of the year, Boeing expects to be delivering two new 737 aircraft every day, yet only 10 new 787 Dreamliners monthly. Airbus remains operationally upbeat, empowering localized operational decision-making, yet the realities of a near decade of backlog is hauting.
The new reality is that investors are now becoming aware of the flip side of euphoria- you have to deliver the goods according to customer desires and expectations, and you have to be able to assure required operational on-time performance at customer ship time.
In our most recent commentary regarding Aerospace supply chains, we opined that agility and responsiveness are indeed going to be very important industry differentiators along with on-time and consistent performance for new product development milestones.
An enviable industry position awash with order backlog does not condone business-as-usual. Rather dynamic and responsive capacity management, end-to-end value chain visibility, enhanced supplier collaboration and goal-sharing all come into play.
Each of the major aerospace OEM’s can certainly boast of record performance in 2013, but the real challenges remain as each supply chain ecosystem responds to unprecedented requirements for development and execution. They will each put to the test the real meaning for agile and resilient supply chains.