More than 60 Boeing 737s per month: Can suppliers keep up?

By Dominic Gates / Seattle Times

LYNNWOOD — Airplane production at Boeing’s Renton plant, already scheduled to soar next year to a sky-high rate of 57 jets per month, looks set to climb even higher.

A gathering of aerospace-industry suppliers this week was abuzz with talk of Boeing ramping up 737 production as high as 64 jets per month and perhaps beyond.

Presentations at the annual Pacific Northwest Aerospace Alliance conference in Lynnwood also projected that Boeing will continue a trend of taking some strategic work away from suppliers to bring it in-house.

And despite the excitement about higher production rates, there was also plenty of grumbling from suppliers about Boeing’s relentless squeeze on their pricing.

In a keynote address Wednesday, Richard Aboulafia, who last week was commissioned by the state of Washington to assess this region’s chances of building Boeing’s next all-new jet, said the soaring demand for single-aisle jets is blowing away the traditional boom-and-bust cycle in the business.

“It’s an unprecedented break with the history of the jetliner market,” Aboulafia said. “There’s a miracle taking place in single-aisles. They literally cannot build them fast enough.”

In the last three years, the world’s airlines have made more combined profit than they did in the previous three decades. At the same time, the price of jet fuel is still relatively low, as are interest rates, which means the cost of capital to buy aircraft is also low.

Aboulafia said he is unfazed by talk of the production rates of the Boeing 737 and the rival Airbus A320 each going higher than 60 jets per month. But talk of both manufacturers going as high as 70 jets per month struck him as a step too far, straining the supply chain too much, he said.

Ken Herbert, a financial analyst with Canadian investment bank Canaccord Genuity, who attended the conference, wrote in a note to clients Thursday that production rate increases “to over 60/month for both the 737 and the A320 are imminent.”

Boeing’s 737 plant in Renton will ratchet up production from 47 jets per month to 52 per month later this year, ahead of the already announced hike to 57 per month in 2019.

Herbert said 737 production could go to 60 jets per month in 2020 and up to 63 per month the following year. That would be exactly triple the production rate of 20 years ago.

Another person at the conference, who asked not to named because Boeing considers the production rate highly sensitive information, said he expects Boeing will announce before the Farnborough Air Show in July that the rate will go to 63 or 64 jets per month.

Conference attendees said Boeing’s main concern in planning the production ramp-up is to make sure the suppliers can keep up with the pace.

On Thursday, Simon Pickup, director of marketing at Airbus Americas, said the backlog for that jetmaker’s single-aisle A320 family is now more than 6,000 airplanes, representing nine years of production at current rates.

Boeing’s 737 backlog is smaller, just over 4,600 airplanes or more than seven years of production, but that’s still an all-time record backlog.

Boeing 737 spokesman Doug Alder wouldn’t comment on the speculation of a higher rate except to say that because of airline demand, “we continue to see upward pressure.”

Another theme at the conference was Boeing’s continued push to take more component work in-house, sometimes by acquiring suppliers or through joint ventures.

Boeing recently began pursuing this strategy to harvest more revenue from aftermarket sales of spare parts.

That’s why it’s now building the nacelles — the pods around the engines — of the 737 MAX in South Carolina; has set up a new in-house electronics division; is building actuators that control movable surfaces on an airplane’s wings and tail at new facilities in Sheffield, England, and Portland; and has just announced a new joint venture with Adient to make coach seats.

Aviation consultant Kevin Michaels of AeroDynamic Advisory predicted that Boeing could expand its nacelle work to making engine pylons, fan cowls and thrust reversers and may move into other areas such as flight-control computers.

Such “vertical integration” is a complete reversal of Boeing’s strategy from the early 2000s, when it actively shed as much parts work as possible and sold facilities including its huge parts plant in Wichita, Kansas, which is now Spirit AeroSystems.

Michaels warned that this new industrial strategy risks a backlash from suppliers who, already suffering from Boeing’s demand for lower pricing, now see the manufacturer competing with them or actively taking their business away.

For example, Boeing’s seat-manufacturing partner EnCore in Huntington Beach, California, cannot be thrilled at the recent Boeing announcement of a joint venture with Adient to make seats.

Michaels said that while doing more work in-house reaps great rewards in boom times, it can become a liability in lean times, when the fixed costs can begin to weigh down the company.

Several suppliers complained privately about the stress from Boeing’s ongoing program called “Partnering for Success,” which demands step-down pricing on parts every year and is mocked by some as “Partnering for Less.”

In her talk about the supply chain, Boeing Senior Vice President Jenette Ramos omitted the name of this much-reviled program from her slides and adopted a gentle tone before the suppliers.

Partnering for Success is “not front and center here,” Ramos said. “It’s really about how do we work together” to reduce costs.

The head of strategic procurement for Airbus Americas, Giuseppe “Joe” Marcheschi, was much more direct, telling the assembled suppliers that 100 percent on-time delivery and quality was just the baseline expectation and that they must do more than that to impress Airbus.

“We’re getting a lot of pressure to deliver more and more aircraft every year,” he said. “We strive every single day to reduce cost.”