Rework Boeing 737/MAX pressure bulkhead will take longer to fix

UPDATE - Boeing expects the rework on the aft pressure bulkhead of the 737 and MAX to take longer. Deliveries in August were 22 and are guided and about seventy aircraft for Q3. The airframer reiterates its guidance of 400 to 450 deliveries this year, but they will be at the lower end, Chief Financial Officer Brian West said on Thursday during the Jefferies Industrials Conference. West said that 75 percent of the 220 aircraft in inventory at the end of Q2, or 165 aircraft, will need rework on the pressure bulkhead after non-conforming, elongated fastener holes were found on produced aircraft. This rework is more extensive and takes more time than that of the tailfin fitting issue that became public in April. “It is early in the rework process and the rework hours will likely be higher and the cycle time longer than the vertical fin we had earlier. This is different, it is more complicated, there is more involved. There are hundreds of holes that get inspected, there is an X-ray inspection that is required, and it is a very critical part of the airplane. So we have to make sure we do this right and we will,” said West. Both the tailfin fittings and aft pressure bulkhead are part of the fuselage work package of Tier-1 supplier Spirit AeroSystems. West said that the full focus is on sorting out the quality issues that Spirit has been suffering from for some time, not just with the 737/MAX but earlier with the 787. “Our focus is 100 percent the most important thing we are working on right now. We have literally got armies of people of Boeing and the supplier working on this issue to drive stability in their factory. These are frustrating moments for our customers, our investors, and our teams, but it does reflect the transparent culture we are driving. Someone raised their hand, and that’s important.” Bulkhead details In a separate presentation at Jefferies on Thursday, Spirit CEO Tom Gentile shared more details about the rework that’s required on the bulkhead. “We are using an automated drilling process that, if not done perfectly, could create an oblong hole. (…) There are about a 1.000 holes in the aft pressure bulkhead, 500 of them are machine-enabled and could be suspect. We X-rayed all of those to see if they are suspect. If they are, we drill out the fastener, and drill out the hole. If there is no issue with the hole, we often put in the same-sized fastener. If there is an oblong hole, we oversize it and put in a larger fastener.” Gentile said that Spirit AeroSystems has 39 units of finished MAX fuselages and 60 units in inventory in Wichita that need inspection, of which 15 have been done. The remaining frames should be complete by the end of November. Inspections and rework are done on eight repair lines in Wichita. The bulkhead issue will have some effects on labor, so full-year deliveries to Boeing will be at the lower end of the 370 to 390 shipsets that Spirit has guided for 2023. For Boeing, the rework might take longer, as it in many cases has completed aircraft. Gentile mentioned about 250 units that are in storage with Boeing, of which 65 to 70 percent could require inspection. Those are different numbers than those mentioned by Brian West. No change of the master schedule plan Although 2023 deliveries will likely end up at the lower end of the guidance, West said that Boeing has no intention to change the master schedule plan for the MAX production. Market demand for the MAX remains high, as has been confirmed with recent orders. Boeing said during its HY1 earnings call in July that production would be ramped up from 31 to 38 aircraft per month from August and stay at that level in early 2024. The rate will go to 50/52 aircraft per month in 2025-2026, which is unchanged from what Boeing said last November during its Investor’s Day. Spirit is currently producing 42 fuselages per month. "We are now about aligned with Boeing in terms of production rates," said Gentile. West said that Boeing Commercial Airplanes (BCA) will produce negative margins in Q3, similar to the Q1 margins of this year. Back then, the operating margin was -9.2 percent. This is caused by the lower volumes and higher period costs, including R&D. But higher rate ramps and the dismantling of the two 737/MAX and 787 rework lines will result in improved cash margins within the next two years. “Margins today on both programs are positive, but lower than they were in 2018 as production rates are lower and we have two dual production lines. We have 787 customer delay concessionary impacts and an unfavorable mix, all that is pressuring margins. But when I look forward to post-recovery, all of that is behind us and we will see a 737 cash margin in line with 2018 and a 787 margin that will be higher, largely thanks to the -10 model mix.” The Dreamliner is on track to get to five aircraft per month by the end of the year. Joint verification rework on the aircraft in inventory is going as expected, “which gives us confidence that we will be in the seventy to eighty airplane deliveries this year.” Rate ten per month is still planned for 2025-2026, with rate breaks in between. Boeing Defense, Space & Security (BDS) will also produce negative margins in Q3, similar to the -8.5 percent in Q2, caused by persistent supply chain, labor issues, and higher costs on fixed-contract programs. Free cash flow for Boeing consolidated will be slightly negative for the quarter, but the full-year guidance of $3 to $5 billion should be reached, said West.

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