Stumbling Blocks for Boeing’s Ambitions
Rosemary and Larry Brester, owners of Hobart Machined Products, have been providing aircraft components to Boeing since 1978. Located in Washington state, Hobart is just one of the numerous suppliers in the region. To meet Boeing’s increased production needs for their popular 737 jets, the Bresters planned to expand their workforce. However, these plans have been disrupted after U.S. regulators restricted Boeing’s production due to a mid-air jet panel blowout. This setback not only threatens trust but also places financial strain on vulnerable suppliers, potentially forcing some to close.
Pandemic Impact and Inventory Build-Up
The incident adds to the challenges already faced by suppliers, who suffered from decreased demand during the pandemic and a 20-month grounding of Boeing’s 737 MAX 8. Despite hopes of recovery and increased aircraft orders stemming from the recent travel boom, the Jan. 5 incident dampens optimism for many suppliers. Moreover, the disruption results in an accumulation of inventory, which depletes cash reserves.
Concerns Over Boeing’s Supply Chain
Consultancy firm AlixPartners warns that the production rate restriction will have a negative ripple effect on Boeing’s entire supply chain, which was already struggling to scale up operations. The Federal Aviation Administration’s (FAA) order permits Boeing to continue producing MAX jets but restricts any monthly rate increase until the agency is satisfied that quality-control issues have been resolved. Although the FAA did not specify how long the limitation would last, the lack of clarity exacerbates uncertainties among suppliers.
Implications for Small Suppliers
The authorization raises concerns for small suppliers that invest in working capital for anticipated production increases that may not materialize. Glenn McDonald, a supply chain specialist at AeroDynamic Advisory, highlights that trust in Boeing’s rate announcements has diminished in recent years. Spirit AeroSystems, heavily reliant on the MAX program, is already facing financial pressures, while other suppliers like TNT Aerospace are reevaluating their involvement due to Boeing’s ongoing challenges. The future remains uncertain for these suppliers, who were counting on rate increases in the coming years.