Following a terrible month for aircraft deliveries, boss of the 737 programme has announced he will step down. Scott Campbell will take retirement following 30 years of service after failed Boeing 737 deliveries threaten to damage the company’s reputation.
The Boeing 737 shortfall has never been worse. In July, they delivered just 39 commercial jets, of which 29 were single aisle aircraft. Is it a coincidence that the Boeing 737 boss steps down at the end of such a disastrous month? We think not.
Announced on Thursday, Boeing’s head of the 373 programme, Scott Campbell, confirmed he will retire at the end of the year. The position of heading the programme and site managing the Renton factory will go to Eric Lindblad, current overseer of the 777X development.
Delays earlier in the year saw Boeing ramp up production, from its usual 47 to 52 per month, in order to keep up with demand. However, problems in the supply chain have seen deliveries tumble, reaching a record low last month, which has seen the plane maker’s shares drop 0.8%. So far.
As the workhorse of the budget carrier worldwide, the 737 family is by far the biggest selling model in the Boeing fleet. According to Chief Financial Officer, Greg Smith, things are getting back on track, but it’s tough to make up lost ground. He said,
“…days matter, when you’re at 52 a month, a day matters. And you don’t have a lot of margin for error there.”
Smith predicts that Boeing 737 deliveries will continue to be delayed throughout the third quarter of the year, but that we would see a rebound in the final quarter. However, Bank of American Merrill Lynch analyst, Ron Epstein, thinks the problem may ‘get worse for Boeing before it gets better’.
What’s happening with Boeing 737 deliveries?
The main issue here appears to be constraints on the supply chain. However, this was an issue which Boeing was well aware was coming, and they they’ve failed to take steps to mitigate the impact.
At the manufacturers factory in Seattle, a glide of aircraft stand motionless on the tarmac. The true collective noun for aircraft would be a ‘flight’, but it would seem ironic to use this term, as these craft can fly about as well as penguins right now.
All 50 aircraft gleam in the sun, freshly minted bodies ready to be liveried up and to take to the sky. But there’s one problem. Not one of these multi million-dollar vehicles has an engine. They might as well be gigantic, over-engineered hood ornaments.
The reason for this appears to be down to delayed delivery of CFM engines, as well as a lack of capacity of skilled mechanics to fit them. A joint venture between General Electric and Safran, CFM International were contracted to deliver 1,100 LEAP engines to Boeing in 2018. Delays in deliveries peaked at seven weeks earlier in the year, although CFM now claim it’s only four to five weeks, and that the gap is closing.
This comes after the Boeing 737 shortfall took a hit in April, when Spirit was late delivering fuselages to the manufacturer, admitting that they ‘missed a load’. Despite a spokesman claiming that ‘customer deliveries remain on track’, it’s clear that other factors have come into play resulting in a very bad year for Boeing.
And it’s not just Boeing feeling the pinch either. Airbus have parked up around 80 of it’s A320neo craft outside their factory too, as they await delayed engine deliveries from Pratt & Whitney. Parts arriving late and out of sequence is a logistical nightmare for the aircraft engineers, sure to lead to inefficiencies in the manufacturing process.
What does the 737 shortfall mean for Boeing?
Aside from issues caused when the Boeing 737 boss steps down, which will have obvious impacts from a management perspective, how bad will these delays hit Boeing as a company?
In terms of cost, Boeing’s falling share price is likely to become an issue, although how much will depend on how investors are feeling about the future of the company. It’s still up around 66% compared to this time last year and, regardless of delays, demand for the 737 has never been higher. In fact, their order books are currently full until at least 2024.
Airbus are experiencing a similar demand for their A320neo craft and have mooted ramping up production to 70 or even 75 jets per month. Boeing remain cautious over any further increases, painfully aware that the supply chain issues need to be ironed out before any promises can be made.
Thanks to lack of competition, the delays may not have the most severe of consequences for Boeing. However, the impact on carriers could be significant.
In April this year, CEO of Norwegian, Bjorn Kjos, said that his airline would be postponing its launch in Canada until 2018 due to delays in deliveries of the 737s. The carrier currently has six Max planes in its fleet and was due to get another 12 over the course of 2018, none of which have yet been delivered.
Right now, Boeing have around $1.8bn of 737 assets parked at Renton, which is a huge amount of cash to have tied up, even for a behemoth like Boeing. When the 787 was delayed, financial analysts predicted it would ‘cost Boeing billions’, but they aren’t saying that now. Perhaps, with the rising cost of jet fuel creating cashflow challenges for carriers, late delivery is somehow becoming more acceptable.