— This is the script of CNBC's news report for China's CCTV on March 05, 2024.
The Federal Aviation Administration announced on Monday that its audit of the 737 MAX production, conducted on Boeing and its supplier Spirit AeroSystems, uncovered several instances where the companies allegedly did not meet the required manufacturing quality control standards. The FAA pinpointed specific areas of non-compliance in Boeing's operations, including deficiencies in manufacturing process oversight, mishandling and improper storage of components, and lapses in overall product management.
Previously, the FAA had mandated Boeing to devise a comprehensive plan within 90 days to rectify these quality control issues. Moreover, the FAA has made it clear that it will not sanction an increase in Boeing's production rates until these safety concerns are adequately addressed, thereby directly impacting another critical area: on-time delivery.
Ryanair, the budget airline, recently announced that due to delays in receiving aircraft from Boeing, it would have to cut back on the number of flights it operates, leading to a revised downward forecast for passenger numbers. As a result, Ryanair is currently negotiating with Boeing for compensation related to these delivery delays.
Faced with significant challenges regarding production quality and delivery schedules, Boeing confirmed last Friday that it is in talks to acquire its fuselage supplier, Spirit AeroSystems.
Jeffrey Sonnenfeld, a management professor at Yale University, conveyed to CNBC that Boeing's challenges span across production, corporate governance culture, and supply chain issues. The ongoing negotiations for the acquisition are aimed directly at addressing the supply chain challenges. Boeing had initially spun off Spirit AeroSystems in 2005, and Reuters reports that the dispersion of Boeing's aircraft manufacturing processes, coupled with the departure of experienced workers and cost reduction efforts, have adversely affected its quality control.
Analysts have observed that the two companies had a strong vertical integration relationship before the pandemic, with Spirit AeroSystems' sales to Boeing constituting 80% of its business. By acquiring Spirit AeroSystems, Boeing would enhance its control over the manufacturing process, potentially facilitating the resolution of quality issues.
Tony Bancroft
Gabelli Aerospace & Defense ETF portfolio manager
"Some rework that had to go on, obviously, as we know, from the initial NTSB report, and I think if you could integrate those two companies in the long run, you're gonna have a better culture, you're gonna have a better operational efficiency."
Since the announcement last Friday, Spirit AeroSystems' shares have soared by approximately 20%, while Boeing's shares have slightly declined.
The Boeing incident is expected to have lasting effects, with Willie Walsh, Director General of the International Air Transport Association (IATA), stressing in an interview with CNBC that the situation serves as a crucial alert for the entire industry.
Willie Walsh
Director General of the International Air Transport Association (IATA)
"I think it's been a real wake-up call for Boeing and a wake-up call for the industry. We learn from these events."