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Boeing Company (The) (NYSE:BA), General Electric Company (NYSE:GE) – Boeing Faces $3.9 Million FAA Penalty For Supply Chain Fumble

The Boeing Co. (NYSE: BA) can’t seem to catch a break.

On Friday (Dec. 6), the Federal Aviation Administration said it intends to issue a $3.9 million fine against the aircraft manufacturer for installing substandard components on about 133 narrowbody 737 jetliners that posed a safety risk.

It’s the latest in a series of embarrassments for the Chicago manufacturer related to production, safety and government contracting.

The FAA alleged Boeing failed to adequately oversee suppliers to ensure they complied with the company’s quality assurance system. The agency contends the failure resulted in the installation of slat tracks that were weakened later during the metal-coating process.

Slat tracks are located on the leading edge of the wings and are used to guide the movement of panels known as slats. The panels provide additional lift during takeoff and landing. The FAA alleges Boeing knowingly submitted aircraft for final FAA airworthiness certification after determining that the parts could not be used after failing a strength test.

The agency stated that the affected slat tracks were processed by Southwest United Industries (SUI), a third-tier supplier to Boeing, in June 2018. SUI subsequently shipped the parts to Spirit AeroSystems, Inc., which then delivered the parts to Boeing.

The FAA also alleged that SUI notified Kencoa Aerospace, LLC, within a week that a batch of the slat tracks had failed a quality test, and likely were brittle. Kencoa subsequently passed that information to Spirit, which notified Boeing in September and proposed that Boeing accept the parts as delivered. 

Boeing rejected the proposal, but still certified 133 aircraft through May 2, 2019, as airworthy..

In June, the FAA ordered the affected aircraft be inspected after Boeing issued a service bulletin. 

The FAA alleged that identification of the defective parts was hindered because SUI did not apply a protective coating over the part identification mark that is required to be displayed on the slat tracks. As a result, those part identification marks became either obscured or invisible, making it difficult to identify the affected parts.

The FAA said Boeing’s quality control system should ensure suppliers adhere to FAA regulations..

Boeing has 30 days to respond to the FAA’s letter proposing the civil penalty.

737 MAX Update

Boeing’s biggest headache at the moment is the 737 MAX.

The grounding of the 737 MAX since March after two deadly crashes has hurt Boeing’s bottom line. Third quarter revenues plunged 41% and operating margin was in the red because of the inability to deliver the next-generation 737 planes. The ongoing production slowdown to cost the Chicago-headquartered company nearly $1 billion, not including hundreds of millions of dollars in potential compensation to airlines for lost MAX availability. Boeing has also settled about half of the lawsuits filed in federal court over the crash of the plane by Indonesia’s Lion Air.

Boeing has been working for almost a year to adjust the MAX’s flight control software, which investigations have blamed for aggressively pushing down the planes’ nose in response to faulty stall signals, causing the crashes. In the fall, it overhauled its organizational structure to prioritize safety at every step and stripped CEO Dennis Muilenburg of his dual role as chairman.

The company has pushed back to January its estimate for when the FAA will approve the MAX for return to commercial service. The aircraft maker still needs to complete a software audit, schedule a key certification flight test and get pilot-training material certified.

Boeing is still producing MAX planes, but at a slower rate and can’t deliver them until the no-fly order is lifted. FAA Administrator Stephen Dickson, who is scheduled to testify about the agency’s review of the MAX before the House Transportation and Infrastructure Committee next week (Dec. 11), said last month that the agency will handle the certification of the roughly 300 MAX jets built since the grounding, rather than letting Boeing self-certify the planes.

“The FAA’s return-to-service decision for the MAX will be based solely on our assessment of the sufficiency of Boeing’s proposed software updates and pilot training that addresses the known issues for grounding the aircraft,” Dickson said in a speech before the Washington Aero Club. “We are not delegating anything. When we finally take the decision to return this aircraft to service, it will be the most scrutinized aircraft in history. It will also be one of the safest machines to ever take to the sky. I am not going to sign off on this aircraft until I fly it myself and am satisfied that I would put my own family on it without a second thought.”

Despite the uncertainty, Boeing on Nov. 22 unveiled the MAX 10, the largest MAX variant with up to 230 seats, at its plant in Renton, Wash. The new version has more than 500 orders and commitments from more than 20 airlines, according to Boeing.

Boeing experienced a long order drought on the MAX, but last month Turkey’s SunExpress announced plans to buy 10 more MAX jets and Kazakhstan flag carrier Air Astana said it would buy 30 of the planes.

The aerospace manufacturer last week lost a big order to Airbus, which will supply United Airlines (NASDAQ: UAL) with 50 A321 extra-long range narrowbody jets. United officials had been considering the 737 MAX and the 787 as replacements for its aging Boeing 757-200s, but the MAX crisis appears to have contributed to the decision to go with the European plane maker.

Meanwhile, Boeing also faces production delays for its new model 777X, primarily due to problems with General Electric Co.‘s (NYSE: GE) engines. Boeing also experienced a structural failure during a ground-based test. GE says it is redesigning a part that was wearing out faster than expected.  

And Boeing is offering fixes for structural cracks found in 38 older 737NG planes in the U.S. this year. 

If that wasn’t enough, NASA’s inspector general recently reported that Boeing took advantage of program delays for a new manned spacecraft to supply the International Space Station to coax $287 million more from the space agency.

Image by Danilo Bueno from Pixabay

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