Boeing is not saying much publicly about shifts to production rates on its 737 MAX line these days, deferring to regulators on when rates might increase again. And it seems suppliers are similarly in the dark as to what’s next for the line. In its earnings call this week Astronics CEO Peter Gundermann shared that the company “has no indication of anything” with respect to changes in the production levels, either up or down, for the foreseeable future.
Astronics supplies about $95,000 worth of hardware for each MAX produced. Today the company is still delivering to Boeing at a rate of 35 ship sets per month, in line with the pre-door blowout rate. But the company recognizes that Boeing is not building the planes nearly that quickly. “The max production rate is down in the first quarter, pretty well documented by all accounts,” Gundermann explained. “Boeing has expressed that they want to increase it as quickly as possible, [but] they have not been clear with the world or certainly with us as to what that ramp is going to look like. So lacking any other information we are currently planning on about 35 shipsets a month for the MAX. Will they slow down suppliers? They might, it’s unclear, we have not heard anything at this point.”
Similarly, Astronics sees significant upside potential on the 787 (and A350) line “if [Boeing] ever gets to where they want to go” on build rates. That comment, however, was made before the wing join inspection incident came to light.
Separately, Astronics does not see too much impact on the Buyer Furnished Equipment (BFE) that it sells to airlines for installation on the planes, over and above the $95,000 of core kit on board. At least not yet. As Gundermann explained, eventually if the build rate stays low for a while airlines will scale back on their positions, but initially some of that kit gets shifted to retrofits of existing planes. Additionally, airlines will hold the components in inventory so they’re ready when Boeing does start final assembly of a specific aircraft. No one wants to jeopardize a build by not having the BFE ready when Boeing asks for it.
Consumer demand driving airlines to upgrade
That airlines typically lag the consumer electronics industry in terms of product generations is no secret. In some ways that can be bad news for Astronics, as the airlines are not keen to invest in hardware that is out of date as it is installed on board. But Gundermann see the up side in that challenge as well, “We’ve always looked at new markets and new customers and new penetration [for growth], but we’re increasingly going to have the opportunity to replace ourselves or obsolete ourselves. And that’s a that’s a good place to be.”
Gundermann specifically calls out the company’s power product line, often seen as a commodity technology, as an example. What started as a 110 volt system on board may have morphed to USB-A power. That is now transitioning to USB-C as the devices passengers carry all shift to that common charging port. Similarly, wireless access points installed on board may work fine. But airlines may choose (or be forced) to replace those that don’t meet the latest Wi-Fi standards with the new radio configurations as consumers being more modern devices on board with more significant expectations.
In the past, perhaps, some airlines might have had decision paralysis and simply not committed to a solution, waiting for the next generation of technology to become available. More and more, however, that’s not an option so airlines are buying and then upgrading perhaps more often than they’d like. That’s good for suppliers like Astronics.
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