Boeing’s (BA, Financial) stocks trended down following a report of increasing anxiety regarding one of its key component makers. However, Boeing executives have tried to play down such concerns by showing confidence that the plane maker is on track to achieve its production targets set for the 737, commonly referred to as its bread and butter jetliner. Let’s take a closer look at the situation and analysis its impact.
What is the concern?
Boeing has been tussling with GKN PLCĂ‚ (GKN, Financial) for the production of a critical component part for the next iteration of the 737. The single-aisle commercial airplane entered service in 1968 and has been the most popular plane for the company. The 737 Max has already bagged orders for more than 2,800 units. However, the supplier may not be able to manufacture the component part for the re-engineered version of the workhorse at the rate Boeing is demanding.
Industry experts think that if GKN PLC does not ramp up its production rate, the slow output may cause delays in the production and delivery of the company’s popular narrow body aircraft, thereby preventing Boeing from meeting its planned production increase.
On the right track
Industry officials say that Boeing has earlier identified the engine thrust reverser production as one of the biggest challenges of its commercial unit. The engine thrust reverser enables aircraft to slow down while landing. Though Boeing executives have tried to lighten the matter, engineers and experts that have knowledge of the issue believe that this could pose problem. If GKN PLC is not able to keep pace with Boeing’s production requirement, the transition and integration process to the 737 Max could take significant time.
The American plane maker is confident to roll out the first 737 MAX by end of this year, as planned. Boeing spokesperson Doug Alder said the new plane is scheduled for its first flight in early 2016 and will finally enter commercial service with the first deliver to its customer in the third quarter of 2017.
Spirit AeroSystems Inc. (SPR, Financial) manufactures around 70% of the 737 component parts, including the Max version. It has already rolled out the first fuselage for the 737 Max last week. The supplier also works on the reverse thrusters, though part of the work to make the inner wall was passed on to GKN last year.
Increasing the cash cow’s production rate
While Boeing acknowledges the supply challenges, it says that issues pertaining to the supply of the specialized component would not impact the company’s slated time of flying the first 737 MAX early 2016. The aero major is also confident that it would also be able to ramp up the production rates as planned.
When asked about the matter, a GKN spokesperson declined to comment.
Boeing is endeavoring to reach record 737 production level, which happens to be the company’s cash cow plane. The Chicago headquartered company aims to roll out 52 737s a month by 2018 compared with 42 a month currently. Boeing’s unprecedented ramp-up plan is being closely monitored by investors. Evidently, any problem that could weigh down the production target and threat Boeing’s cash-flow projections is bearing an impact on its stock price.
The availability of the inner wall is an essential factor that would determine whether Boeing can achieve its ambitious production ramp up plan. As such, the jet maker is working hard to ensure that the component is sourced timely so that its production target is met and there are no delays in delivery. There’s no doubt that it’s a tough task for GKN to produce sufficient to supply for 50 jets a month in the next three years.
Boeing has worked tremendously to ensure that it’s ready and is able to pursue record production ramp-up. It has poured in billions to strengthen its global supply chain for launching the re-engineered cash cow. The implications of supply chain issues are huge considering that the 737 makes for a major portion of the plane maker’s bottom line. The capacity expansion process is under way. The pressure to deliver is intense, but Boeing seems prepared to rise to the challenge.
