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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.


First Airbus A320neo Delivered to Revised Launch Customer

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Earlier this month, Supply Chain Matters noted that Airbus would not be able to meet a major program milestone, namely delivery of the first A320neo model aircraft by the end of 2015.  According to published reports, initial airline delivery customer Lufthansa elected to postpone the delivery due to added technical acceptance and documentation needs required from engine manufacturer Pratt & Whitney as well as Airbus.  A320neo_Lufthansa_Delivery_1

What made this development even more noteworthy is that earlier in December, Lufthansa stepped-up at the last minute to serve as first delivery customer after former designated launch customer Qatar Airways refused to take delivery because of last-minute operating limitations of Pratt’s new geared turbofan, PW1100G Pure Power aircraft engine.

A recent published Bloomberg report comes with the headline that Airbus has now delivered the initial aircraft to Lufthansa but almost no one noticed. The aircraft was delivered on January 20 to a Lufthansa receiving facility in Hamburg but without what Bloomberg describes as: “..a horde of Airbus employees, music, or overstuffed buffet.” Instead, Airbus updated its A320neo web page and media gallery with photos of executives standing in front of the brand new aircraft. (included in our commentary) An Airbus spokesperson indicated to Bloomberg that there will be a big celebration party in the next few weeks when the airline takes delivery of its second new aircraft.

Further noted as odd to aviation enthusiasts on social media was that Lufthansa and Airbus apparently neglected to utilize the “neo” emblem on the brand new aircraft. (just over the heads of the pictured executives)

According to Bloomberg, no one is indicating why the lack of distinction.

Readers can, of course, speculate on their own regarding what may be behind this unusual set of events associated with a major aircraft development program.  However, as our aerospace industry readers can well attest, commercial aircraft is a highly regulated industry with many specification and certification requirements attached to major component parts, engines and structural air frames. Lufthansa and other airline customers such as Qatar must be assured that all new aircraft have proper certification documentation including aircraft engines.


Airbus and Boeing Both Declare Another Year of Outstanding Performance

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Both Airbus and Boeing declared that they each exceeded operational targets for 2015,  however, the supply chain ecosystems for each of these aerospace manufacturers again have continual challenges to perform even better and with more agility in the months to come.

Airbus was designated by business media as the winner in order performance while Boeing claimed leadership in delivery performance.

Airbus announced the delivery of 635 completed aircraft for 85 customers in 2015, declaring new record delivery performance. Deliveries consisted of 491 A320 family aircraft, 103 A330 aircraft, 27 of the jumbo A330 aircraft and 14 of the A350 extra wide-body (AWB) aircraft. The latter A350 delivery performance is from our lens, troublesome.  First customer delivery was early in 2015, and with only 14 delivered since, four being in December alone, one can speculate that there may be supply chain challenges related to this aircraft. The 2015 delivery performance compares to 629 aircraft deliveries in 2014, thus a roughly one percent performance improvement.

Other notable operational highlights for Airbus were the September opening of the Airbus factory in Mobile Alabama where upwards of 50 A320 aircraft will be annually produced by 2018, as well as an indication that component parts are now in volume production for the first A330neo aircraft.

Airbus claimed sales performance leadership with the booking of 1036 aircraft orders in 2015. The manufacturer recorded a year-end order backlog of 6787 aircraft representing a combined value of $996 billion according to Airbus. Much of the order volume was driven by the A320neo family of aircraft. The current backlog represents the equivalent of ten years of production at current manufacturing volumes.

Boeing indicated that it delivered its own new record of 762 completed aircraft in 2015, compared to 723 aircraft delivered in 2014. The breakdown of deliveries include 495 737 aircraft, 135 787 Dreamliner aircraft, 98 777, 16 767, and 18 747 aircraft. Delivery performance uptick of the 787 Dreamliner is a positive indication of Boeing’s two factory production and assembly strategy. Other operational accomplishments were noted as the opening of an expanded Seattle Delivery Center to pave the way for increased deliveries of 737 aircraft and the first production model of the 737 MAX model aircraft.

Boeing booked 768 net orders valued at $112.4 billion at current list prices thus winning on value but short on volume order leadership. The again, use of list prices could be questionable. Year-end backlog was 5795 aircraft orders which would represent the equivalent of 7.6 years at 2015 production rates.

As Supply Chain Matters has annually observed in our overall performance commentaries related to both global aircraft manufacturers. supply chain and product management teams and ecosystems of both firms undoubtedly went the extra mile in successfully achieving each of the 2015 operational milestones.

We again extend our Supply Chain Matters Tip of the Hat recognition for their efforts.  Supply Chain Matters Tip of the Hat Award

Moving into 2016, global economic conditions are changing rapidly. Today, the price of U.S. crude oil dropped below $30 per barrel, the lowest mark since 2003. Economic growth within emerging economies has stalled and there is a lot of uncertainty concerning global economic growth.  The demand for modern, more fuel efficient aircraft deliveries obviously exists under changed conditions and a lot can happen in the coming months. Cheaper oil and rising interest rates adds more credence to the cyclical nature of capital equipment, and in the interpretation of multi-year backlogs.

Once again, congratulations to all Airbus and Boeing teams and their supply chain ecosystem and supplier teams for 2015 operational performance.

Bob Ferrari

 


Alcoa Secures Another Strategic Supply Agreement in Commercial Aerospace

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Alcoa’s Aerospace components unit has secured yet another long-term strategic supply agreement, this time with a major aircraft engine supplier. Today the company announced that it had signed a long-term agreement with General Electric’s Aviation business unit valued at more than $1.5 billion over the contract period. Under this agreement, Alcoa will supply advanced nickel-based superalloy, titanium and aluminum components supporting a broad range of GE Aviation engine programs.  Boeing_787_SC

Alcoa previously announced the split-out of a new Value-Add Company in the second-half of this year. This split new company was formed to take advantage of such long-term supply agreements within the commercial aerospace industry. After financially struggling with its traditional aluminum based metals businesses, the company has aggressively turned towards innovation and acquisitions to position itself as an innovate metals supplier in key growth industries.

In 2015, Alcoa announced nearly $9 billion in strategic supply agreements. This included a $1 billion deal to supply aircraft components such as bolts, rivets and other specialty fasteners with Airbus in October of 2015, and a $1 billion deal to supply wing skins and aluminum plate products used in wing ribs, among other components, to Boeing in September of 2014.

In March of 2015, Alcoa acquired RTI International Metals, described as one of the world’s largest producers of fabricated titanium products in a stock-for-stock transaction valued at approximately $1.5 billion. The RTI acquisition followed the 2014 acquisition of Germany based titanium and aluminum castings producer Tital, and U.K. jet-engine parts maker Firth-Rixson. RTI’s business was centered on long-term supply of titanium fabricated parts that make-up landing gears engines and airframes for both Airbus and Boeing aircraft.

With current huge multi-year order backlogs, Alcoa’s strategic moves into key strategic commodity areas of commercial aircraft production assure a faster and perhaps more profitable growth prospect. The metals producer is also positioning itself to be a more strategic supplier to the global automotive industry, helping to pave the way for use of lighter metals in automobile product design and functionality.

As the pressure mounts on various commercial aerospace supply chains to step up delivery volumes for the vast backlogs of newly designed commercial aircraft, strategic suppliers of key commodities and advanced components will ultimately be the linchpins for successful customer fulfillment.

Thus Alcoa’s strategies and fortunes are pinned toward being a strategic supplier within this industry as well as other industries leveraging lighter and more innovative metals and forgings. The company has also worked with Ford Motor Company as a supplier of more structural aluminum based assemblies. Ford will begin using Alcoa’s Micromill material in the 2016 Ford F-150 and plans to increase its use over the next several years on a range of vehicle components and future platforms. It is projected Ford’s use of Micromill material on its vehicles will more than double from 2016 to 2017.

Production innovation as become far more dependent on supplier innovation, and such innovation increasingly results in longer-term strategic supply agreements to assure supply and differentiation in products. When explosive industry growth is fueled by product design innovation, such as what has occurred in commercial aerospace and now automotive, partnerships with strategic suppliers become even more important.


Delay Encountered in Initial Delivery of A320neo

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Last week, commercial aerospace manufacturer Airbus indicated that it would not be able to meet a program milestone, namely customer delivery of the first A320neo aircraft by the end of 2015.  Airbus A320neo test aircraft

According to published reports, initial delivery customer Lufthansa elected to postpone the delivery due to added technical acceptance and documentation needs required from engine manufacturer Pratt & Whitney as well as Airbus. A spokesperson for Lufthansa indicated to Aviation Week (Complimentary sign-up account required) that final documents were missing for both the engine and for the aircraft. According to a statement from Airbus, the new aircraft model will be delivered “within the next weeks.”

What makes this development more interesting is that earlier in December, Lufthansa stepped-up to serve as first delivery customer after Qatar Airways refused to take first delivery because of last-minute operating limitations of Pratt’s new geared turbofan, PW1100G Pure Power aircraft engine. According to Aviation Week, the risk of minimal bending of the engine shaft under certain conditions requires a hardware and software fix, expected by February.  According to the Aviation Week report, Airbus elected to delay delivery of the A320neo so that it could offer a “service-ready aircraft from Day 1.”

Airbus itself invested over 300 hours of operational testing to certify the Pratt powered version of the A320neo.

This development is somewhat of a black-eye for Airbus and its prime supplier partner, Pratt & Whitney. The missing of a major program delivery milestone because of proper documentation seems to be more about insuring that the revolutionary new geared turbo-fan engine meets all service requirements. Documentation and certification is an important requirement in a highly regulated industry environment such as commercial aircraft.

With over booked orders for 5500 single-aisle aircraft, Airbus and its supply chain partners need to insure that all product and manufacturing milestones are met as expected, especially with the highly populated A320neo model.


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