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.
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.
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
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
US auto workers expand strike as Biden prepares to join picket line – Al Jazeera English
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Manufacturers say American autoworker strike could idle Canadian supplier plants
American autoworkers will strike at 38 more supplier plants as of noon Friday, the union representing workers announced, citing little progress in negotiations with two of the three Detroit automakers.
Shawn Fain, president of the United Auto Workers (UAW), said Ford had made progress on their offer, but that Stellantis and GM hadn’t — prompting him to call strikes at those companies’ supplier plants across 20 states.
Earlier this week, 13,000 workers at three facilities were striking General Motors, Ford and Stellantis. They are now on their eighth day of job action. Those strikes will continue, Fain said.
Progress by Ford included reinstating the cost of living allowance formula the union lost in 2009, an enhanced profit sharing formula and the immediate conversion of temporary employees with 90 days’ service upon ratification
The ongoing strike by autoworkers at automotive plants in the United States will idle manufacturing plants in Canada in a matter of days, according to industry experts.
Flavio Volpe is head of the Automotive Parts Manufacturers’ Association, which represents companies that build components for vehicles being built in North America.
He said companies let out a “sigh of relief” when the tentative deal between Unifor and Ford was announced.
But he said those companies are worried about the United Auto Workers threats to expand job action if General Motors, Ford and Stellantis do not make “serious progress” on the union’s contract demands.
Volpe said that if strike action at a Jeep production plant continues, parts makers in Canada will adjust their production schedules next week.
“Auto part companies, employers that I represent, will idle those plants,” said Volpe.
Timing tough for rebounding manufacturing sector
The North American auto industry operates on a just-in-time production schedule where the Detroit Three automakers buy parts from large tier-one supplier plants that source components for those parts from smaller, tier-two supplier plants.
A string of global crisis level events that includes the disruptive and deadly COVID-19 pandemic, as well as an on-going global microchip shortage, has put those smaller supplier plants in difficult financial positions.
That’s made the timing of the UAW strike difficult for tier-one and tier-two suppliers — “especially given the interruptions over the last three years and how thin everybody’s balance sheets have become,” said Volpe.
Dennis Darby represents thousands of companies responsible for more than 80 per cent of the Canadian manufacturing sector as president of the Canadian Manufacturers and Exporters Association (CME).
“This could not come at worse time,” he told CBC News.
Darby is in Washington, D.C., this week meeting with his North American counterparts and said the strike is top of mind.
He believes manufacturing companies he represents in Canada are bracing for impact, which he believes will hit in a matter of days.
“All the all the big companies obviously are affected, you know the big ones like Magna. But of course so are lots of secondary and tertiary suppliers that make components in the system,” said Darby.
He welcomed the news of a tentative agreement between Unifor and Ford that, if ratified by members, will prevent strike action that would shut down engine and assembly plants in Ontario.
Labour action shows cracks in the system
Automotive and supply chain expert Jan Giffiths believes that it’s the tier-two suppliers that are in a difficult position right now because of the pandemic disruptions, a tight labour market with increasing wages and the global microchip crisis.
“All of these things coming together is putting a tremendous amount of strain on the tier two supply base and now you throw a strike in on top of that? The dominoes are going to start to fall.”
Griffiths, who has decades of experience leading global tier one supply chain organizations and is the founder of Gravitas Detroit, said suppliers in the United States are already issuing layoff notices.
“If your customer stops sending you orders because they’re not building cars, then what what do you do? You have to conserve cash to survive,” said Griffiths, adding that would traditionally mean laying people off.
But there’s a high demand for skilled manufacturers in Canada and the United States, which may see companies look for creative ways to keep employees on the payroll instead of laying them off.
“That would be the last lever that you would pull because trying to bring qualified people back and go through a whole retraining and startup initiative is going to be extremely difficult,” said Griffiths.
Volpe said the companies he represents will also be looking at ways to keep people on staff.
“They will hang on tightly to employees there because of the incredibly tight labour market and the last thing anybody wants to do is lose good people and have to scour the market for new ones.”
Darby, who said the majority of manufacturers supplying the auto industry operate along the Highway 401 corridor in Ontario, believes affected suppliers will reduce hours or try to land other contracts.
“What we saw during COVID in the short run, people found ways to try to retain their folks even if it meant fewer hours because it’s a lot easier than trying to find a replacement.”
Canada Post reviewing use of address data following criticism from privacy watchdog
Canada Post says it is reviewing how it uses data for tailored marketing campaigns after the federal privacy watchdog found the post office was breaking the law by gleaning information from the outsides of envelopes and packages.
Privacy commissioner Philippe Dufresne said in a report released this week that information collected for the post office’s Smartmail Marketing Program includes data about where individuals live and what type of online shopping they do, based on who sends them packages.
The information is then used to help build marketing lists that Canada Post rents to businesses.
The commissioner found Canada Post had not obtained authorization from individuals to indirectly collect such personal information, a violation of Section 5 of the Privacy Act.
In a statement today, Canada Post says it is committed to the privacy law and the protections it places on personal information, and will therefore review its data services program.
The post office says it understands the public might have concerns and that it will live up to the standards that Canadians expect.
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