Boeing CFO Greg Smith says the planemaker will deliver fewer 737 jets in the third quarter than its nominal production rate, as it struggles with a logjam of unfinished planes parked around its Renton plant.
Boeing’s Chief Financial Officer Greg Smith said Wednesday the planemaker will deliver fewer 737 jets in the third quarter than its nominal production rate, as it struggles with a logjam of unfinished planes parked around its Renton plant.
In remarks at a Jefferies Industrials Conference, Smith said that late deliveries of fuselages from Spirit AeroSystems in Wichita, Kan., and jet engines from the U.S./France joint venture CFM International had already reduced the number of 737 deliveries last quarter and would do so again in the next three months.
Although both those suppliers are “getting more on track,” with the production rate tempo now increased to 52 jets per month, which means five jets rolling out every two work days, there is a cascading impact when work falls behind and jobs are unfinished, he said.
“You don’t have a lot of margin for error there,” Smith said. “When you’re at 52 a month, the day matters.”
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Boeing raised the production rate to 52 from 47 per month in June. However, the average number of deliveries in the first half of the year was just 45 per month.
The Seattle Times reported last week that more than 40 unfinished 737s are parked all around the Renton assembly plant, along the edges of the adjacent airport and even out on the taxiway, which is restricting the use of the airport.
In addition, because of the engine shortage, Boeing has been putting engines on some planes that are otherwise complete just to fly them to Boeing Field and get them out of the way, then taking the engines off and trucking them back to Renton.
Employees at the Renton plant told The Seattle Times that a shortage of experienced workers, following a wave of retirements last year when the company offered buyouts, is contributing to the production issues.
Boeing said last week that it has redeployed “several hundred” mechanics to Renton from facilities around the Puget Sound area to help complete the unfinished jobs on the airplanes parked outside.
“We’re working with (the suppliers), putting resources … particularly into Spirit, (and putting) additional resources into our factory and out in our ramp to really burn off the open jobs that are left on those aircraft,” Smith said Wednesday.
Anticipating that this effort will gradually clear the backlog, he added that 737 deliveries for the year will be heavily weighted toward the final three months of the year.
The 737 is Boeing’s major cash cow, providing about half the revenue for the Commercial Airplanes division.
“It’s obviously a big watch item for us, very important program to us,” Smith said. “It really gets down to a certain amount of jobs open that got to get closed in a certain amount of time. … So we’re surging in some resources to be able to burn that down.”
Financial analysts are paying close attention to the Renton production crunch.
Ron Epstein, an analyst with Bank of America Merrill Lynch, said in a report to investors Monday that provided Boeing can work through the current problems, its cash flow for the year may be relatively unaffected.
“The problem may likely get worse for Boeing before it gets better,” Epstein wrote. “That said, Boeing is building inventory until it receives engines and other components; however, once the parts arrive and deliveries are made, Boeing will have large cash inflows from airline customers and working capital.”
Boeing has already announced it plans to increase the production rate again next year to 57 jets per month and has said it may go even higher. Asked about the prospect of that, Smith said the current supplier issues must first be addressed.
“The demand is there. There’s no question,” he said. “But if your supply chain or yourself can’t meet that demand, there’s no upside.”