Boeing – The OM Blog by Heizer, Render, & Munson

OM in the News: What are Boeing’s “Shadow Factories”?

Boeing is promising this year to get its jet production to precrisis levels and chip away at a growing backlog of orders. First, the manufacturer needs to clear out the dozens of planes in its shadow factories, reports The Wall Street Journal (Feb. 15-16, 2025). A shadow factory is what Boeing executives call a production line where engineers and mechanics work on fixing, maintaining or updating aircraft instead of building new ones. They exist for the company’s two-bestselling models, the 737 MAX and 787 Dreamliner.

As Boeing is struggling to hire and train enough machinists, the shadow factories can occupy some of the company’s most experienced workers. In some cases, Boeing spends more hours inspecting and reworking planes than it did to produce them in the first place. “It seems like 30% of everybody’s job is fixing something that’s bad quality or late product or something that shouldn’t have happened,” said the CEO.

It isn’t the first time Boeing has pledged to solve its shadow-factory problem. The company had initially vowed to be rid of it by the end of 2024, but clearing out the planes has proven vexing. The biggest chunk are MAXs parked at a facility in Moses Lake, Wash. They are mainly remnants of a global grounding of MAX jets following a pair of fatal crashes in 2018 and 2019. Boeing continued making the planes even though airlines weren’t taking them, and is still working to deliver them. Another couple of dozen are 787s sitting in Everett, Wash., awaiting checks to ensure parts of the planes are properly pieced together following quality questions raised years ago around the jet’s production process.

A year ago, Boeing estimated it had about 225 jets in the shadow factories. Not only do the planes take up space and tie up billions in much-needed revenue, they require sophisticated care and reworking, which means some of the company’s most skilled machinists are charged with fixing defective jets.

Any time a model requires an update or repair—a common occurrence in machinery as complicated as a jetliner—crews must do the relevant work on every unfinished plane. In 2023, for instance, the company had to repair around 160 737s in the shadow factory after misdrilled holes were found in the fuselage of a completed jet.

Classroom discussion questions:

Why is a shadow factory an unwise operations tool?
What has happened at Boeing in recent years to cause such quality problems?

OM in the News: Boeing Has Trouble Finding a Big Parking Lot

“Boeing has a parking problem,” writes The Wall Street Journal (July 22, 2024). Parts shortages and other issues have left the jet maker with about 200 fully or mostly finished airplanes sitting in airfields, outside plants and in an employee parking lot. Some of the planes are awaiting interiors; others need engines. Dozens more are awaiting delivery to China.

Unable to fly, the planes aren’t delivering much-needed cash as Boeing burns through more than $1 billion a month.

Unable to fly, the planes present a host of logistical challenges. Planes sitting around too long may need software or other updates. Moving unfinished jets is tricky, especially if the part they are missing is the engine, as is the case with a handful of 777 freighters.

The predicament comes as the jet maker grapples with production slowdowns and regulatory scrutiny in the wake of January’s near catastrophe on an Alaska Airlines flight. Boeing has delivered 175 planes through June of this year, compared with 266 through the first half of 2023.

This isn’t the most dire parking predicament Boeing has faced in recent years. Following the grounding of Boeing’s bestselling 737 MAX due to crashes in 2018 and 2019, the company had about 450 of those planes stashed in its facilities. At another point, it had more than 100 787s parked, which presents a space conundrum given the planes’ size. Currently, there are 10-15 787s awaiting inspections to ensure the planes are built to specification. The company added that step several years ago after employees raised concerns about potential production issues.

“This creates constraints,” one industry expert said. “There is a cost and an operational penalty. It’s something you really want to avoid as much as possible.” Today, more than half of the parked planes are single-aisle 737 MAX’s still awaiting delivery, some of which are now several years old.

The company says it hasn’t become so tight on space that it has to stop or slow production—what is referred to in the aerospace industry as being “jiglocked.” Supplier shortages, lingering from the supply-chain crisis born amid the pandemic, have saddled the company with planes short of parts. Shipments of the 787 model have slowed as Boeing grapples with a shortage of cabin seating. Seat suppliers industrywide haven’t been able to keep up with demand for cabin premium offerings, amid material shortages and certification delays.

Classroom discussion questions:

What are the main OM issues facing Boeing today?
Boeing has faced quality issues with its fuselages. What has it recently done to solve this problem?

OM in the News: Boeing’s Vertical Reintegration

Witchita-based Spirit AeroSystems builds the fuselages for Boeing planes

Spirit AeroSystems is going full circle, from part of Boeing to independent supplier and now back to part of Boeing, reports The Wall Street Journal (July 3, 2024). It is the perfect example of a realization dawning on corporate America: Outsourcing isn’t all it was once cracked up to be.

The deal’s logic of vertical reintegration makes sense in light of recent history, with air-travel safety likely benefiting from centralized supervision and a simpler workflow between plants. Yet it is also an indictment of what executives in most industries have been doing for three decades. When Boeing sold its Spirit fuselage operations in 2005, consultants and business schools had made outsourcing fashionable. Before the late 1980s it was unusual: Even 7-Eleven was vertically integrated with its own milk-producing cows and candy manufacturing.

Then, in 1989, Eastman Kodak pointed the way by tasking IBM with managing its data center. In 1996, GE showed how offshoring support jobs to low-wage countries such as India could help cut costs. Supply chains spread across the world.

At the core of the outsourcing trend, however, was the idea that an “asset-light” firm focused on intellectual property and its “core” expertise would be better run. With this mindset, jettisoning fuselage operations seemed like a no-brainer. It is a capital-intensive, competitive business that faces a lot of production pressure. It wasn’t just fuselages as we note in Chapter 2’s Global Company Profile: In the 2000s, Boeing outsourced more than 70% of the 787 Dreamliner program. But the problems with becoming an assembler of planes, as opposed to a true manufacturer, gradually became apparent. The company lost control of supply, resulting in years of delays, quality problems, and cost overruns.

Aerospace isn’t the only industry to revive vertical integration. Intel is beefing up chip manufacturing in the U.S., GM is building battery plants and Sweden’s IKEA is acquiring containerships.

One general flaw of the asset-light model is that, over time, firms can lose their innovative edge because a lot of “learning by doing” happens when production processes interact. Another is that low-margin bits of the supply chain get worn down to just a few sources. These may not have the financial muscle to make big investments in times of turmoil, or they may be geopolitically sensitive.

Classroom discussion questions:

Why did Boeing outsource fuselage production in 2005?
Why is it vertically reintegrating Spirit in 2024?

OM in the News: How Boeing’s Troubles are Affecting its Suppliers

Boeing’s troubles are bleeding out to its supply chain, where uncertainty over production rates has suppliers guessing at how many parts to make to avoid the cost of holding too much inventory, reports Financial Times (May 29, 2024) . It has slowed manufacturing of its workhorse jet, the 737 Max, as it tries to improve production quality following a recent door panel blowout on a flight. And it is facing an FAA deadline to deliver a plan that addresses a “flawed safety culture”.

The production slowdown is testing the resilience of a brittle aerospace supply chain that already has faced years of price cuts and choppy production thanks to Covid-19 and two fatal crashes that grounded the Max worldwide. Without a well-oiled supply chain, Boeing will struggle to deliver jets to airlines clamoring for them, and could destabilize labor in an industry that employs hundreds of thousands of workers.

The FAA has capped Boeing’s production of the Max at 38 per month. (The company is currently building even less). That affects the operations and finances for suppliers. The ones that do a lot of business with Boeing were “feeling the pain at the moment. Everybody was expecting a ramp-up in the production of the 737 and 787. They may have invested in people or capacity to meet that ramp- up, and when they get pushed back, it’s a problem,” said one industry consultant.

Spirit Aerospace, which produces the 737 fuselages, has had its own struggles with quality and has been the most high-profile casualty of the slowdown on the Max. Boeing stopped accepting those fuselages that do not meet specifications in an effort to reduce rework at its own Washington state factory, where rework performed increases the likelihood of manufacturing errors.

Spirit is far from alone. Howmet Aerospace, Triumph Group, Hexcel, Senior and ATI all have been affected by the slowdown on the 737. Triumph, for example, supplies $300,000 worth of equipment on each 737 Max and $1 million worth on each 787. It has slowed ordering materials from its own suppliers. Howmet is now assuming Boeing will produce 20 Maxes a month for the rest of the year, down from a previous assumption of 34. It is planning to deliver lower volumes “to prevent the case where we get caught with a lot of inventory.”

Classroom discussion questions:

What are Boeing’s OM options?
What can its suppliers do?

OM in the News: Southwest and Boeing’s Problems Collide

Southwest Airlines is pulling out of some airports and cutting costs as it grapples with delays of new Boeing planes dim its prospects for the year, reports The Wall Street Journal (April 26, 2024). Southwest said it now expects to receive just 20 new Boeing planes this year— well below the 79 total 737 MAX deliveries it had expected.

Southwest, which flies only Boeing planes, is exposed to the manufacturer’s struggles.

The delays will thwart Southwest’s growth ambitions this year, damping revenue and leaving it overstaffed and on the hook for higher costs. The firm had already said it would stop bringing on more pilots and flight attendants as it adjusts to the jet delivery setbacks. Hiring is virtually frozen.

Under pressure to get a handle on quality problems, Boeing is building fewer of its 737 MAX jets—something that has complicated plans for several carriers. The slow down comes as it faces increased scrutiny from the FAA and Justice Department. Boeing shipped just 17 MAX jets in February, eight fewer than in January and half as many as it delivered in November and December.

Southwest, which flies only Boeing planes, is one of the hardest-hit airlines. It is closing its operations at four airports: Cozumel in Mexico; Bellingham in Wash.: Syracuse, N.Y.; and Houston’s Bush. Southwest rarely exits airports and hasn’t done so since 2019, when it dropped its struggling operation in Newark, N.J., from its route map during a previous grounding of the MAX. It also plans to “significantly restructure” other markets, including slashing flight numbers at Atlanta and Chicago’s O’Hare Airport.

“I won’t downplay the challenges from the Boeing issues—they’re a big deal,” said Southwest’s CEO. “Redoing schedules and staffing forecasts is a costly effort that pulls people away from their work and creates a significant financial drag.”

United Airlines also lost money in the first part of the year because of the grounding of the 737 MAX after the January Alaska door-plug incident. UAL is pausing pilot hiring for two months and hunting for new planes from Boeing rival Airbus to fill the gap. And Alaska Air said its plans for the year are also in flux as a result of uncertainty on Boeing deliveries.

Classroom discussion questions:

What options do airline operations managers have when delivery of new planes are delayed?
Why doesn’t Southwest spread its supply chain risks by splitting new plane orders? (Refer to Figure 2.8 in your Heizer/Render/Munson text).

OM in the News: Behind Boeing’s Alaska Blowout

Just last week, we posted the story of Boeing’s intended takeover of its troubled fuselage provider, Spirit AeroSystems. Today’s post is a story of quality control at Boeing. You will recall that a door blew off an Alaska Airlines flight in January because a few bolts were not properly installed. Months before the 737 piece blew out midflight, the plane spent nearly three weeks shuffling down an assembly line with faulty rivets.

*Traveled work*—when work is completed out of the production line’s ordinary sequence—is a problem of Boeing’s safety culture.

In turns out that workers had spotted the bad parts almost immediately after the plane’s fuselage arrived at the factory from Spirit, reports The Wall Street Journal (March 12, 2024) . But they didn’t make the fix right away and the 737 continued on to the next workstation. (See the Chapter 9 photo on page 383 illustrating the assembly line process). When crews completed the repair 19 days later, they failed to replace four critical bolts on a plug door they had opened to do the job, leading to the accident.

At Boeing, there is a term for situations when work is completed out of the production line’s ordinary sequence: traveled work. This practice of completing work out of sequence is a liability when it comes to airplane quality. “The folks on the line, they know what it is,” Boeing CEO said. “It creates opportunities for failure.” Yet, four years ago, Boeing laid out 5 values central to improving safety. Number 3 on the list: eliminate traveled work.

Doing work out of order complicates the intricate, taxing process of putting together an airplane. In the 737 factory, each plane moves its way through a series of stations, where crews are tasked with completing certain tasks. Those stations are equipped with tooling, platforms and crews trained to do the jobs designated for the site. Planes advance to the next station every 24 hours. Keeping production lines moving even when certain parts aren’t available for a given job helps avoid costly slowdowns.

When a missing part prevents workers from finishing, the plane still moves ahead and the part gets added or repair is completed somewhere down the line. Sometimes, the work isn’t done until the plane leaves the factory. But the proper tooling may not be on hand there, leaving workers moving back and forth to get the necessary equipment.

Classroom discussion questions:

As the new OM head of the 737 line, what is your recommendation?
Can an assembly line like this be stopped?

OM in the News: Boeing’s Outsourcing Strategy That Went Too Far

It appears that Boeing is about to acquire Spirit AeroSystems , the troubled jet-fuselage supplier that has been at the center of quality issues affecting 737 MAX jets, reports The Wall Street Journal (March 2, 2024). Spirit, which makes 737 and 787 fuselages and other major components, was created when Boeing decided to outsource and sold some of its factories 2 decades ago. Boeing now accounts for nearly 2/3 of Spirit’s sales, and cannot afford to have Spirit fail.

But Boeing engineers warned back in 2001 that the company risked losing control of its manufacturing processes and hollowing out its internal capabilities. The move to reacquire Spirit comes after a long series of quality problems with the fuselage sections it supplies. Spirit parts frequently arrive at the factory with defects. Those caused repeated delivery pauses at Boeing’s final assembly plants.

The move concedes that the strategy went much too far and has damaged Boeing. Last year, Boeing sent “armies of people,” its CEO stated, to Wichita to help Spirit get its manufacturing processes under control. When asked about Boeing’s outsourcing strategy, he recently told CNBC, “Did it go too far? Yeah, it probably did. But now it’s here and now. And now, I’ve got to deal with it.”

A deal would be a strategic reversal. Boeing sold the Wichita plant in a push to focus on final assembly. Acquiring Spirit would leave Boeing with the task of cleaning up its operations at the same time that Boeing’s own quality-control systems have been questioned by regulators. The FAA has just given Boeing 90 days to come up with a quality-improvement plan.

Boeing in the past few years had done everything short of acquiring Spirit to gain control over the supplier. Spirit has lost an average of more than $1 million per airplane on the nearly 1,200 fuselage sections it built for the 787, a cumulative loss totaling $1.4 billion.

Chapter 2 in your Heizer/Render/Munson text discusses the Theory of Competitive Advantage and the risks of outsourcing on pages 44-47.

Classroom discussion questions:

Describe the risks of outsourcing in general, and then the particular risks Boeing faced.
What are the risks Boeing faces as it reacquires Spirit?

OM in the News: An Inside Look at Boeing’s Outsourcing Mess

The site of this month’s midair door-plug blowout on this Boeing 737 is behind the wing, outlined in red

Long before the harrowing Alaska Airlines blowout this month, there were concerns within Boeing about the way it was building its planes. Like so many other manufacturers, Boeing was outsourcing more and more of the components.

Much modern manufacturing, of course, includes outsourcing, our topic in Chapter 2. From hot tubs to iPhones, machines are built in small pieces by different companies, then delivered to another factory for final assembly. The system has sliced costs from the process by letting production lines maximize output and eliminate waste. But the strategy also stretches oversight and adds risks, since the final product is only as good as the least-good supplier, writes The Wall Street Journal (Jan. 13-14, 2024).

A Boeing engineer distributed a controversial report in 2001 warning of the risks of its subcontracting strategy, especially if Boeing didn’t provide sufficient on-site quality and technical support to its suppliers. “The performance of the prime manufacturer can never exceed the capabilities of the least proficient of the suppliers. These costs do not vanish merely because the work itself is out-of-sight,” he wrote.

But Boeing doubled down on outsourcing in the 2000s with its 787, which was the first jet that was heavily designed by suppliers. To lower costs and risks of a new design, Boeing authorized dozens of suppliers to design and build major sections of the 787 (see text page 30), including mostly completed fuselage sections.

Now, Boeing is reckoning with the fallout from this strategy. Dozens of factories build key pieces of 737 and 787 models to be assembled by Boeing. One of the major subcontractors is Spirit Aerosystems, the sole supplier of the fuselages used in 737s and 787s. Spirit is heavily dependent on Boeing for revenue, and the two companies have often battled over costs and quality issues. The earlier 737 MAX grounding and pandemic sapped Spirit’s finances, and the company slashed thousands of jobs, leaving it short-handed and with inexperienced workers when demand recently bounced back.

Spirit employees said production problems are common and internal complaints about quality are ignored. In a given month, at a production rate of 2 fuselages a day, there are 10 million holes that need to be filled with some combination of bolts, fasteners and rivets. The result: a factory under pressure where workers rush to meet unrealistic quotas and where pointing out problems is discouraged if not punished. Increasingly, Spirit workers say, planes have been leaving the factory with “undetected defects.”

Classroom discussion questions:

What are the advantages and disadvantages of outsourcing?
What are Boeing’s options vis a vis Spirit?

OM in the News: The Challenges of Mass Customization in Manufacturing

Today’s consumers are not content with standard products but are looking for differentiated and personalized goods or services. Thanks to the new information technologies and innovative manufacturing processes, mass customization (see our discussion in Chapter 7) has become widely available. This combination of mass production and customization aims to provide unique products or services on a large scale and at a relatively low cost. It can improve profitability, just as it can help boost customer satisfaction and win brand loyalty.

One in five consumers are willing to pay a 20% premium for customization service, reports New Equipment Digest (Sept. 15, 2021). For instance, in the fashion industry, more people are now looking for personalized clothes, handbags, and shoes.

Although customers might be willing to pay more for a customized product, there might be neither time nor budget for full product inspection. Therefore, manufacturers must work with suppliers who can deliver high-quality materials on time to minimize production costs and shorten lead times.

The supply chain also needs to be adaptable, with every node able to communicate effectively to others so that they are all aware of any changes in demand. Supply chain visibility software can help manufacturers be aware of what’s happening across an extended supply chain so that they can react quickly when unexpected circumstances affect the delivery of goods.

Customer involvement in product configuration is inherent in the process, meaning that sales, marketing, distribution, and manufacturing all need to have great understandings of customer requirements. Customers who visit Dell’s website, for example, can directly talk to the staff about their personal requirements. After choosing suitable products, customers can order them with a simple click. From inventory and manufacturing to marketing and logistics, all the departments can process the transaction at the same time..

Since manufacturers are producing goods based on customers’ unique requirements, a highly flexible manufacturing process is important. Companies that are able to organize their modular product design properly tend to have a more agile manufacturing system. For instance, Boeing classifies a huge number of parts for its planes into 3 types: standardized, configured to a fixed set of options, or customized. This modular product design streamlines the process of ordering, engineering, and manufacturing, leading to a more cost-effective and time-saving customization process.

Classroom discussion questions:

What are the advantages and disadvantages of mass customization?
Provide examples of products/services (beside Dell and shoes) that you have ordered that have been mass customized.

OM in the News: Boeing’s Operations Management Problems

Some 787s are even being stored in the desert.

How would you like to be in charge of operations at Boeing? There are forecasting problems, capacity issues, quality failures, and supply chain snarls. The result: Boeing’s commercial airplanes unit delivered an operating loss of $472 million in the quarter, says The Wall Street Journal (July 28, 2021).

This follows two all-consuming crises. Its MAX jets had been grounded for nearly two years after two fatal crashes that took 346 lives, and the pandemic had sapped demand for new airplanes as passengers stayed home and airlines retrenched. The company has also grappled with production-quality problems on its 787 Dreamliner. Global airline capacity remains 30% below pre-pandemic levels and industry executives expect it to take until 2024 to catch up.

U.S. aerospace companies last year announced plans to shed more than 100,000 jobs, including many at Boeing’s 12,000 suppliers. Boeing itself has plans to cut its own workforce by almost 1/5 to around 140,000 by the end of this year. While the return of the 737 MAX has bolstered sales and cash, Boeing has recently slowed Dreamliner production while it addresses new issues with the planes. The company has delayed deliveries to fix defects that emerged about a year ago and is awaiting regulatory approval for a plan to inspect aircraft. With customers unwilling or unable to receive deliveries of their new 787s, Boeing has 50 undelivered widebodies scattered around its facilities and is running out of space to park them.

The new 787 problem surfaced on the forward pressure bulkhead at the front of the plane. It involves the skin of the aircraft and is similar to a previously disclosed Dreamliner issue found elsewhere on the planes. Engineers at Boeing and the FAA are trying to understand the defect’s potential to cause premature fatigue on a key part of the aircraft’s structure.

Further, the firm needs orders from China to participate fully in a stronger-than-expected recovery in air travel. Boeing hasn’t secured a direct new jetliner order from China in almost 4 years, and has been pushing for improved trade relations with the U.S. Boeing’s payroll depends on U.S.-China trade relations, says its CEO.

Classroom discussion questions:

How can Boeing forecast jet sales in the coming years? What techniques in Chapter 4 of your Heizer/Render/Munson text are applicable?
Why is Boeing facing continuing quality problems?

OM in the News: Boeing’s Supply Chain Takes a Hit

Boeing sits atop a chain of more than 16,000 suppliers. These companies, making parts for Boeing jets, are shrinking rapidly in the wake of the travel downturn, writes The Wall Street Journal (Aug. 13, 2020). U.S. aerospace manufacturers have already shed more than 100,000 jobs since the start of the year, with the pandemic adding to existing pressures from the sharply reduced production of the still-grounded 737 MAX jet. The biggest supplier on the MAX program, Spirit AeroSystems (which makes fuselages), is cutting 8,000 jobs, around 40% of its commercial aerospace workforce. GE is shedding 13,000 from its aviation unit.

In addition to the MAX, the Boeing supply chain is taking other hits. The overall production of new jets has declined, and the big drop in flying—a 1/3 of the global fleet remains grounded—has reduced demand for spares and improvements such as new seats. The reduced workload comes as companies had invested in new equipment and hiring to support higher jet production and the steady rise in airline passengers, only for the pandemic to render their business plans irrelevant.

Boeing forecast that it would produce 240 planes this year, 2/3 lower than in 2019, and has had to twice reduce that forecast downward. It delivered just 4 jets in July and is producing only a dozen MAX a month, down 36 from a year ago. Before the pandemic, Boeing was supporting suppliers by ordering more parts than it needed and stockpiling them ahead of a planned increase in MAX production. That acceleration has failed to materialize so it has slowed orders.

Raytheon won’t start shipping parts for new MAX jets until the second half of next year. Safran, which also makes Boeing engines, said its commercial sales fell 66% last quarter. “We have a concern regarding the future of some of our suppliers and subcontractors because they are in crisis, too,” Safran’s CEO stated.

Classroom discussion questions:

What supply chain dangers is Boeing facing?
What can it do at this point?

OM in the News: The End of the Jumbo Jet Era

The final convoy of A380 fuselages in France

As we point out in Chapter 5 (and in Figure 2.5) every product has a life cycle, an important issue for operations managers, especially in this time of pandemic flux. And so it appears that The Queen of the Skies-the iconic Boeing 747– is approaching her abdication. British Airway (the 747’s biggest operator) just announced that its 31 747s will never fly again. Its immediate retirement of its 747s marks the demise of the jumbo plane’s 50-year reign, with similar decisions by Delta, United and Air France, reports Financial Times (July 27, 2020). The last 747 in the Qantas fleet recently flew to its final resting place in the Mojave Desert.

The A380 superjumbo jet’s life cycle was much briefer. Just 13 years after the first A380 flight by Singapore Airlines, Airbus is ceasing production. Flying, as it slowly recovers after Covid-19, looks like being smaller, nimbler and point-to-point, rather than in huge aircraft collecting passengers at hub airports. The long-haul planes of the future are the 248-336 seat Boeing 787 and the 350-410 seat Airbus A350.

It was also a Chapter 4 forecasting issue, as Airbus got flying’s economics wrong. In 1999, Boeing and Airbus sparred over how many super-large aircraft the market could support. Boeing said fewer than 400 would be needed by 2019. Airbus said nearly 1,500–but sold only 242. Boeing’s 747 prospered through the decades of explosive growth in airline travel, from 310 million passengers in 1970 to 4.5 billion last year. The 747’s best years are now gone, though it has timed its retirement perfectly.

To make matters worse for Boeing and Airbus, they are still making the smaller planes that airlines aren’t collecting, straining their finances, adds The Wall Street Journal (July 27, 2020). Airlines don’t want the aircraft for now, because they are unable to fill them profitably during a historic plunge in demand for flying. The result: finished airplanes with nowhere to fly, and less cash for Boeing, Airbus and their suppliers as they slash production and payrolls. “Clearly, we’re in a situation where we don’t need any aircraft,” said Delta’s CEO.

Classroom discussion questions:

What should Boeing’s OM strategy be at this point?
Why was Airbus’ A380 forecast so inaccurate?

OM in the News: Boeing 737 Max Production Freeze Risks ‘Supply Chain Fallout’

With 13,500 workers, Spirit is the largest employer in Kansas’ biggest city. It gets half of its revenue from making fuselages for the 737.

Boeing just announced it would suspend production of its 737 MAX jetliner. This is an escalation of the crisis facing the giant plane maker that will ripple through the global aerospace industry. Boeing plans to halt production in January at its Seattle plant. The MAX was grounded globally in March following two fatal crashes of the aircraft within five months. Boeing employs around 12,000 workers at that 737 assembly plant. But production of the 737 MAX also supports thousands of jobs across a network of over 600 suppliers and hundreds of other smaller firms in the global MAX supply chain, reports Supply Management (Dec. 17, 2019).

Boeing had 4,545 MAX orders in backlog as of November and had been building the aircraft at a rate of 42 a month since April (down from 52/month). Many suppliers had said they favored Boeing maintaining some production, citing the risk of losing workers in a tight labor market during a halt. They said furloughing staff and stopping machinery would be harder than lowering production, and that restarting assembly lines would be costly.

One industry expert stated: “The decision to suspend production of the 737 Max is a largely unprecedented move and with the highest volume production of any large aircraft, the fallout across the global supply chain is going to be significant. The main problems for suppliers will be under-utilization of labor and machinery. Many suppliers have significant capital investment tied up in production capacity for the 737 Max program and they won’t be able to afford to keep this sitting idle for long.”

Classroom discussion questions:

Do a SWOT analysis on this decision.
Identify the top 5 suppliers that will be impacted.

OM in the News: Capacity Planning and the 737 Max Grounding

Grounded Boeing 737 Max airplanes are stored in an area adjacent to Boeing Field in Seattle

The extended grounding of Boeing Co.’s 737 Max planes forced airlines across the globe to scale back growth plans for next summer, putting the airline industry on notice that the crisis is starting to affect longer-term plans. With a return date for the Max still uncertain after two fatal crashes, one airline, the Irish carrier Ryanair, will receive barely half of the 58 planes it was expecting for the 2020 peak schedule. Ryanair estimates that the reduction will wipe 5 million passengers from its full-year tally.

Although U.S. operators of the Max haven’t yet talked about changing their growth plans beyond this year or readjusted deliveries, it will probably take 15 to 18 months for the carriers to catch up to their original schedules, writes The Los Angeles Times (July 16, 2019). (The timing depends on Boeing resuming its original delivery schedule, after slowing Max production rates to 42 from 57 aircraft a month). American Airlines and United Airlines just pulled the Max off their schedules through early November, in the latest sign the jet may not resume commercial service this year. Carriers will probably limit the expansion of the seat supply until late next year. Capacity growth will likely remain muted until the end of 2020 so that the first ‘normal’ year for capacity growth will be 2021.

Aviation regulators grounded the newest 737 after two crashes killed 346 people. In June, the FAA disclosed a separate software glitch it had found during simulator testing. That issue requires additional work by Boeing and is further delaying the Max’s return to service.

Classroom discussion questions:

How can airlines forecast available capacity in a unique situation like this?
What options do airlines have when planes are not delivered as planned or taken out of service?

OM in the News: Airplane Supply Chains and the Rolls-Royce Constraint

Workers check a Rolls-Royce Trent 7000 engine on the assembly line of the Airbus factory in France.

A supplier that is quite literally an engine of aerospace supply chains is having trouble powering up, writes The Wall Street Journal (Nov. 1, 2018). Rolls-Royce is warning its aircraft-engine production will fall short this year, adding to the pressure plane makers face in delivering new jets to airlines on time. The British manufacturer blamed the setback on production problems with a new engine, the Trent 7000, used to power Airbus A330neo wide-bodies. It said it would ship 500 rather than 550 airliner engines.

Boeing and Airbus have struggled this year to get planes into customer hands because of production problems. Boeing has had 737 single-aisle planes lined up on the ramp at its Seattle production site awaiting engines. Delays to fuselages also hit production. For Airbus, the Rolls-Royce setback comes at a particularly difficult time. The company is already late with deliveries of its popular A320neo single-aisle planes. Both its engine suppliers, Pratt & Whitney and a joint venture of GE and Safran, fell behind this year on producing engines. The jet makers insist they are catching up, but one key customer says supply chains remain “tremendously constrained and under pressure.”

Airlines are increasingly frustrated by the situation. The CEO of British Airways said “these issues have gone on far too long already.” The airline’s Boeing 787 Dreamliners have been beset by repair problems on their Rolls-Royce engines. Norwegian Air Shuttle, which has had to rent alternative planes because of the same engine problem, this week said compensation payments from Rolls-Royce didn’t make up for the financial impact the struggling carrier has felt.

Classroom discussion questions:

Why are engine suppliers unable to meet commitments?
How many engine suppliers are there? Who are they?