Three days ago I noted Boeing Will Suspend 737 Max Production: Thousands of Jobs at Risk.
On the surface the story does not seem to add up.
There were only a few hundred cancellations. And the backlog is over 4,500. To top it off, Boeing insists the 737 certification is on schedule.
Boeing 737 Max Order Backlog and Deliveries
Boeing makes at most 50 planes a month. In December it was down to 42. Thus, there is over a year’s worth of backlogs.
Lead Times
The lead times on orders at Boeing and Airbus stretch out for for years. It’s not as if an airline can cancel a Max and pick up the phone and get an Airbus a month later.
What’s Going On?
Several industry insiders and analysts privately emailed me in response to the article.
It a combination of new certification rules and a shortage of skilled workers on top of storage issues and foreign uncertainty.
1: Shortage of Skilled Labour
The Seattle labor market, especially for aircraft skills, is very tight. The skills needed to fix and deliver the 400 already stored aircraft is not there.
This work requires special FAA licences. Boeing just hired over 200 mechanics and has called back retirees.
What is unusual is that they did so in early December before a 2 week paid holiday. Typically Boeing hires in January. We have not seen December hiring like this this in 50 years. Thus, Boeing is locking down skilled labor.
Boeing’s production worker demographics is such that there is a very high number of older workers who could retire anytime.
2: FAA Certification Delayed
Boeing expected FAA certification of the fix in December. It now looks like April.
3: Individual Certification
The FAA announced it will certify each plane individually.
This takes a huge amount of time compared to mass certification of whatever fix the FAA ultimately accepts. Prior to the crashes, Boeing self-certified and the FAA blessed the process.
4: Storage Issues
Most of the new planes are at Plaine Field, Renton airport, Boeing Field and Moses Lake, WA. All are Boeing facilities. The key is to have aircraft stored as close as possible to Boeing facilities because that is where the skilled labor is. They could store the aircraft in Arizona and elsewhere, but remote storage is already an issue.
Besides the 400 aircraft produced since the crash, there are about 380 MAX aircraft owned by various airlines and stored all over the world. Those aircraft will be fixed on location. Boeing will send mechanics to each remote location when Boeing is already short of skilled labor.
5: Europe
Trump is in a huge tariff dispute with the EU. The WTO ruled against Airbus, but in a separate ruling the WTO is expected to rule against Boeing.
The EU will be in no rush to certify planes if and when the FAA does. And the EU will no longer accept Boeing’s or the FAA certification process. This adds to the uncertainty and the delays.
Ripple Through Impact
The Wall Street Journal reports GE’s 737 MAX Problem Just Got Bigger.
General Electric Co. will likely take a significant hit to its cash flow from Boeing Co. decision to halt production of the 737 MAX jetliner, which has already dented the conglomerate’s finances.
GE makes all of the MAX’s engines through a joint venture with France’s Safran SA . When Boeing in April cut monthly production of the plane to 42 from 52, it reduced GE’s quarterly cash flow by $400 million. The suspension of production Boeing announced Monday, if prolonged, could reduce cash flow by much more as analysts warn that GE won’t receive payments made as the planes are being built.
“It is going to create a significant cash drag for GE,” said John Inch, an analyst at Gordon Haskett. He added, though, that “one engine program cannot make or break the fortunes of this company.”
Southwest Airlines Co. earlier Tuesday said it was removing the 737 MAX from its flight schedule through April 13 as the airline sees uncertainty around the timing of the aircraft’s return to service.
The extended grounding has already strained GE finances, cutting cash flow by as much as $1.4 billion this year as factories produce fewer engines and GE can’t get fully paid for them. The LEAP engine is a major growth driver for the company’s aviation unit, which accounted for $4.8 billion of GE’s roughly $7 billion in industrial profits in the first nine months of 2019. GE has more than 17,000 orders for the engine.
That engine is also used on the Airbus . That is one heck of a lot of orders.
Industrial Production Rebounds after GM Strike Ends
On December 17, I commented Industrial Production Rebounds after GM Strike Ends
Looking Ahead
The current rebound is artificial, but so is the strike that preceded it. Looking ahead, Boeing is going to have a significant impact in the first quarter.
Thousands of jobs and possibly as much as 1/3 of a point of GDP as Boeing Will Suspend 737 Max Production in January.
Mike “Mish” Shedlock
Well, today the CEO of Boeing was fired. Some say resigned but make no mistake about it, his resignation was demanded. And there are now stories that NOBODY wanted to work with the guy, least of all regulators at the FAA who he had “tense” meetings with (call them shouting matches complete with threats). The failure of the Starliner space taxi seems to have been the last straw. He was fired the day after it failed.
Good analysis of the manufacturing issues but it seems ot me that there are larger, perhaps more serious, issues. The problems with the MAX are short-term, fixable, and surmountable, the more serious problems are systemic. For example: 1) a major change to the Boeing business model back in the ’90s; 2) hiring practices that created a demographic ‘hole’ in the workforce; and 3) the dissolution of in-house training divisions that both passed on accumulated knowledge and provided certifications and classifications.
It doesn’t make for very exciting reading, but it’s a disservice to the problem to lay this all at the feet of manufacturing without at least a wink and a nod to the implementation of business models that directly contributed. Boeing cannot manufacture it’s way out of these kinds of problems. Boeing is not an innovator, it’s a problem solver. Maybe it should take a big step (gasp…) backward.
You have done a great job of articulating some of the real underling problems at Boeing and root cause.
10 years of the Dreamliner — why pilots love flying the 787 link to thepointsguy.com
MCAS was/is a further step in the direction of fly-by-wire, which was necessary for fighters and bombers with HUGE flight envelopes (very wide range of air-speeds speeds that caused flight control characteristics to radically change). It’s a hard sell to the public and regulators that fly-by-wire makes sense for people haulers, so Boeing executives can enjoy more wealth. The only way to win the public over is to offer a discount and term life insurance for passengers who agree to fly on the 737 Max … at least for a while.
Boeing may be ramping production to a plane similar to the MAX to keep customers. Manufacturers try to have as many common parts across their product lines so some long lead items may still be available in the pipeline.
Mish,
While I enjoy your analysis it doesn’t make any pennies.
Boeing has 7.5 years worth of orders to fill. Why would they shut down production?
Reasons to shut down production on a product with this much lead time.
The whole process screams “protecting stock prices”. Hiring workers out of season may be more of a moral booster than anything. Hiring means “we”are not getting laid off. I am sure moral at Boeing production plants is very low at this point. Hiring adds a positive.
This plane shouldn’t be certified with its current CG. The EU might never.
Re. #1, that could happen. But Boeing often uses passenger design for military aircraft, so those parked 737 MAXs could be might be reworked for the military.
Re. #2, the news is that Boeing has a fix for the MCAS problem, but the regulators are being hard-assed and going over every problem report ever filed against the 737 (including non-MAX versions) and insisting that those problems get fixed as well.
Everything screams don’t kill our stock.
BTW have you look at Boeing’s weight in the Dow lately?
7.96%
Skille labor my ass lol,the only reason they’re shutting it down …they don’t trust those offshored parts and the offshored software.Those Chinese parts are junk,and the Indian/Chinese engineers aren’t qualified,but they are cheap at $7an hour.
I work in mfg and personally I think the whole skilled labor thing is funnier than hell. And for those that commented thinking this isn’t an issue I assure you, it is. We can’t hardly find help. The younger generation are total slackers and you know what? I can’t blame them. After seeing what happened to their parents in ’08 and losing their asses who could take any of this stupid crap seriously? When my friends dad was a mechanic for the airlines decades ago it was one layoff after another. Now you have companies bring in robots and automation. They cry for help on one hand and can’t figure out how to get rid of you fast enough on the other. We just had our quarterly profit meeting and, of course, no bonuses for like the 4th year in a row, with a guest appearance by our VP with his 100k vehicle in the parking lot, telling us all how things have changed and how a good chunk could get automated in the future for even bigger profits with no bonuses and you think people are going to want to train for this garbage? I won’t advise anyone to even think about it. Being fair you’re always at risk working for someone else but the majority can’t work for themselves. I suggest finding something easier on the body. Perhaps sitting at a desk sending worthless digital 1’s and 0’s for $50 hr back and forth all day.
Don’t forget the soul-crushing joys of dealing with the corporate HR departments – sexual harassment training, racial sensitivity training, white privilege training, “team building” exercises, bullshit reviews etc.
And the racket of higher education. Every high school is college prep now, no vocational schools.
Yeah they like getting people in debt as soon as possible.
Nothing ruins worker morale faster than a slacker. Glad I’m done with that sh*t and moved on to other problems in life.
You made some good points.
I got out of a geology job because I was sick of beating up my body in the field and reinvented myself as a computer security need making, eventually, $50/hr, or more. I was the only guy doing “vulnerability analysis” & PCI-DSS compliance in a Fortune something company. It wasn’t actually the money, I was underpaid, as much of the regular, very intense analytical work.
Yeah, lots of crap & true stupidity from management, but I wasn’t laid off by the contractors when it rained, with uncertain return to the job, as my dad suffered through every winter of his career as a union “master” electrician.
Pretty good article from the BBC detailing the issues causing the B737-Max accidents
It has to do less with skilled labor imo and more to do with delays in certifying the changes. It is possible the plane design itself is fatally flawed but the FAA will engage in another coverup with Boeing.
I have seen zero serious commentary about the plane being fatally flawed.
Here ya go from someone that knows a thing or two about flying planes.
Watch this You-Tube video of Flight 610. It explains what happened:
link to youtube.com
I’d say the 737 Max is fatally-flawed from the git-go. Mish mentioned, where they gonna park them? Don’t forget, they are “grounded”. My prognostication is that Boeing is toast. The gov won’t let the Chinese buy it, so the government (the taxpayer) will have to bail BA out. The stockholders will be made whole at $341/sh. The debt, used to drive the price of the stock up, will be paid for by the taxpayer. It’s a win-win for Wall St.
I agree, when Airbus was designing and building new jets to the specifications airlines were demanding, more fuel efficiency and far higher passenger capacity they were eating Boeing’s lunch.
Rather than design what the air carriers were demanding they took the old 737 (the Boeing 737 first flew in 1967) and made it longer, installed more seats, some new avionics, with two much larger and yet more fuel efficient engines. The problem was that the new engines were too large to mount entirely under the wings, even with a flattened cowling on the bottom and lifting them higher on nacelles they have inches of ground clearance, so they moved the motors forward and up mounting them to the wing with nacelles. As you can see in the photo plashadpobedy posted the tops of the engine cowling actually project above the leading edge of the wing, so some of the air that used to go over the wing to provide lift was now going into the cowling, that was not a serious issue except for when maximum lift was needed, during take off and climb out of airports. Their answer was MCAS automatic system that they did not disclose and which gave fatally wrong warnings on stalling, and how to handle the results for pilots. It was a grossly fiduciary decision that was grotesque to say the least. And they were WARNED! They ignored the warnings. Those that made that decision should all be in prison with assets lost to their victims estates.
And just to rub salt into these wounds the Boeing Starliner space vehicle designed and given a $5 billion upfront retainer by NASA just yesterday FAILED to obtain an appropriate orbit. Their self driving software and controls misread the stability of the craft and put it in the wrong orbit burning so much fuel in the process that correcting it was not possible.
This craft was supposed to be a crew transport to space, the failed mission yesterday was an unmanned resupply mission to the ISS. Had there been humans aboard their lives would have been in danger, Boeing claims that is not true, but they still have not figured out what to do about it. This is our replacement craft that will save millions per passenger that we currently pay Russia to hitchhike on Soyuz. Good old self driving technology, and thanks for all the billions wasted. This is going to set our space program back years as funds for other projects are diverted to fixing Boeing’s latest attempt at getting things to fly with inadequate design.
Boeing Starliner fails key NASA mission as autonomous flight system malfunctions
By the way, I hope you have better luck on your next Boeing flight.
IMO I reckon they realised FAA may not have the skills to certify aircraft from scratch so it’s going to take much longer! 😆
Would it be justified by saying, Boeing inflicted this onto themselves? Greed over quality, tradewars and economic downturn can take down even a giant such as Boeing.
Boeing doesn’t operate in a vacuum. “Greed” takes precedence over “Quality” because that is what the current environment encourages.
Idiots on Fed welfare, have largely been handed control of all wealth, hence ultimate decision making power, since the halcyon days of the moonshot, the 737, 747, ICs and the rest of American engineering might. And childishly pompous, self promoting “Greed”, over “Quality”, is pretty much the best and only thing one can ever expect from that set.
Developing and building new aircraft from scratch, to 60s era standards, is, just like landing on the moon without the aid of cheap computers, not trivial. A multi decade, persistent policy aimed at nothing but enriching and empowering idiots, simply isn’t compatible with continued ability to accomplish such feats.
When older and experienced engineers are taking design orders from 30 something bean counters and the CFO makes final decisions on design this is going to happen. And your life, your kid’s lives are a DISTANT second to the stock price and bonuses for execs.
You might add “those burdensome regulations” that Industries like Boeing lobbied a group of politicians to get rid of and let the industries regulate themselves. Boeing is a good example of how that works out.