Short Term Plans and Long Term
projections are two different worlds in any business. The short term period is
executed with high confidence as it brings resources together with an immediacy
of implementation. The long term period is predicated on the success of the
short term execution and the stability of any long term projections going
forward as planned. However, the confidence level in the long term is subject
to more risk factors than the short term.
It sounds
like Mumble Jumbo. It does have a sense that planning as a mover and shaker is
pretty crazy stuff. Boeing's CFO and planner has this to say about the airline
industry.
Aviation
Today: [Avionics Today 08-13-2015]
“Despite
a lot of movement going on in the global marketplace — and we’re watching it —
we’re not seeing a slowdown in demand,” said Greg Smith, chief financial
officer and executive vice president of business development and strategy at
Boeing, speaking at the Jefferies Industrials Conference in New York yesterday.
“There’s a lot of volatility in the market … but, despite that, there’s pretty
robust demand in the market around products and services.”
The trickledown
effect on airlines become a hit and miss order barrage from Smith's statement.
Indicating a robust market remains if selected by an active airline, while
executing its own plans regardless of current world market
conditions. An active airline is one who has reached
its pinnacle within its five year plan and places the order out
of the same sure momentum from planning and execution.
There
may be less players in this mode than last year, but the orders are significant
for those who are ready to place an order. It may be the last rush before the
market takes a pause before the next surge. A twelve month pause would be the
expectation. The year 2016 may go sub 800 for Boeing in total. It is acclimated
for over 1,000 orders each year for some time. An order dip is coming for all
makers in 2016. In the year 2018, the market should become normalized again
with plus 1,000 orders a year. I am just saying this for the reasons quoted
above from Greg Smith. He has let it slip, the market change is coming.
Don't
panic, this is inside of Boeing's 20 year forecast for market demand. In spite
of Boeing's outlook for aircraft numbers of abundance. Nothing has changed, if
a market dip is experienced. Its how a manufacturer uses a "market
dip" as an opportunity.
Boeing
has long since become a proponent of increased production capacity no matter
the backlog issue. However, even though it adjust the 747 production downward,
it is feathering its capacity for the next big orders for that type. It also,
is successfully switching 767 capacity to the military function. Boeing also
has another 50 Fedex 767 on the backlog. Its waning production stance
on these models will not affect Boeing's over-all productivity efficiency.
Boeing has at least five years of robust 787 production and not yet started
producing the Max. It also has just begun plant expansion in Everett for the
777X wing plant. An order dip gives Boeing pause for optimization for backlog
reduction and plant expansion at the same time. The world will need those
aircraft in the next 20 years, no doubt.
Boeing
is already taking the opportunity to step up its efforts for maximizing the
"order pause". The post order pause period is already on the
presentation boards in meetings. Boeing would hope to shape the order backlog
by giving Boeing more flexibility in the innovation scope. A reduced
backlog will give Boeing's market immediacy to the market place.
As
discussed before, a customer will look at delivery time before ordering
aircraft. The optimal leverage point in a sale is a customer's timing
opportunity. Airlines have its five year plans too. Ordering an A-350 or a 787
is based on when it can have finances in order, and when the opportune arrives
for inserting new aircraft. The manufacturer that can meet the production slot
with a customer’s optimal opportunity for new aircraft wins the sale. Boeing
wants that high ground. The former 787 backlog was too big to meet a customer's
buying constraints on time.
A
market pause shapes a manufacturer's backlog portfolio with
optimization in the market place. Actually Boeing needs an order pause for the
purpose of aligning it Max effort for balancing Both Market Inputs (MI) and
Production Outputs (PO).
The MI
have long outpaced the PO, where Boeing cannot keep up production balancing
with sales. This is a complex balance. Production is more efficient with
greater output. Boeing won't expand production capacity unless Marketing bring
home the orders. Production can't become more efficient unless it has the
backlog in place to make production enhancement decisions. Market can't sell
units if the backlog is too far out and so forth. The Dog chases its tail until
exhaustion.
The
solution is an MI pause balancing the backlog. No "right minded"
Market guru can refuse any viable sale. If some airline
today offered Boeing an order for 1,000 Max over the next three
years, Boeing would say yes, sign here and here.
The PO
people would have to go just dump in the portable latrine in Renton Wa.
Then on another day, the PO people are told to slow down production to 25 units
a months on the 737 Max. Back they go to the portable latrine to pay homage to
the work slowdown.
The
only control for Boeing is found in the flexibility of market demand and fall,
which forces all airplane makers to build flexible production facilities where
work numbers can be accommodated and machinery can move in out under
a facility reconfiguration work order.
The 767
line is the new MI model as it wrestles with its new found market for its type
(s). The 777X is also employing a plant change-over in Everett, Wa. The 737
Renton Plant is going to build 52, 737 NG and Max at the same time in several
years. Boeing has opted its 787 for a two plant model in both Everett
and Charleston, SC. It hints at expanding the SC plant with more
production options as the Market place flexes. Therefore the rule goes as
follows:
MI * Backlog
(f) - PO= optimal Efficiency (OE) for both the customer and
manufacturer. Boeing's goal is to move its backlog at an optimal five year
buffer. Any longer of a backlog, it losses sales opportunity. Any shorter than
three years, Marketing has adjust prices lower to move product. Optimal Backlog
time is about 42 months.
The
real variable is Plant flexibility affecting production efficiency.
