Boeing Co’s BA ongoing production issues are causing uncertainty in its supply chain, as suppliers grapple with fluctuating production rates and the cost of excessive inventory.
What Happened: The slowdown in manufacturing the 737 Max is challenging an already strained aerospace supply chain. The industry has been dealing with price cuts and inconsistent production due to the Covid-19 pandemic and two fatal crashes that grounded the Max worldwide, the Financial Times reported on Wednesday.
Boeing is struggling to meet the demand from airlines due to these supply chain issues. The company’s ability to deliver jets is crucial for maintaining stability in an industry that employs hundreds of thousands of workers.
The Federal Aviation Administration has limited Boeing’s production of the Max to 38 per month. The company is currently producing fewer than that but plans to increase output to 38 in the second half of the year.
Suppliers, some of which are publicly listed companies with market capitalizations in the billions, are feeling the impact. The slowdown is particularly affecting those that do a significant amount of business with Boeing.
The CEO of Astronics, Peter Gundermann, voiced concerns about the production rates earlier this month.
"Will they slow down suppliers? They might, it's unclear … What would they reschedule us to? I mean it's kind of a wild guess at this point, nobody really knows,” he said.
Gundermann also noted that while a reduction in shipments would still fall within the company’s guidance, it could result in a revenue loss of $11.5 million.
Kevin Michaels, managing director of Aerodynamic Advisory, criticized that the supply chain issue has been existing for a decade.
"If you've set up rules where your supply chain can't function, you can't get a return on capital, then that means that you're probably going to play Whac-A-Mole when you try to ramp up to a higher rate," he said.
In a statement, Boeing spokesman Paul Lewis told the Financial Times, "We continue to work closely with each of our suppliers as we manage and execute our production rate plans."
Boeing’s production issues have also affected its main rival, Airbus, which is ramping up production to meet demand from airline customers. The supply chain issues are making it difficult for suppliers to keep pace.
Why It Matters: The production slowdown at Boeing comes after a turbulent first quarter for the company. In April, Boeing’s commercial aircraft numbers dropped amid industry turbulence. The current production issues could further exacerbate the situation.
Meanwhile, Boeing’s employees speaking up on safety and quality soared 500% after the 737 MAX incident. The ongoing production issues could potentially impact the company’s efforts to rebuild trust with its employees and customers.
Price Action: Boeing’s stock closed at $175.08 on Tuesday, according to Benzinga Pro.
Read Next: Tesla’s Shadow Looms: Rivian Discounts US, Canada Inventory To Stay Competitive
Photo courtesy: Shutterstock and Wikimedia
This story was generated using Benzinga Neuro and edited by Pooja Rajkumari
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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