Wednesday, June 8, 2016

UNITED TECHNOLOGIES NEEDS THE NEW SUPPLY CHAIN

United Technologies’ Pratt Struggles With Supply Chain for New Jet Engine

Executives say supplies not arriving at expected levels as seamlessly as the company expected


Executives at Pratt & Whitney say some suppliers aren’t delivering parts and materials for the company’s engines at expected levels as seamlessly as the company expected. ENLARGE
Executives at Pratt & Whitney say some suppliers aren’t delivering parts and materials for the company’s engines at expected levels as seamlessly as the company expected. Photo: Reuters
United Technologies Corp. UTX 0.23 % has bet billions to get back into the commercial jet engine market, but first, it has to get parts delivered on time.
Executives from Pratt & Whitney, the conglomerate’s engine business, say that roughly half of the company’s suppliers for its new “geared turbofan” engines aren’t delivering parts and materials at expected levels as seamlessly as the company expected.
United Technologies Chief Executive Gregory Hayes estimated that 44% of the company’s 1,600 suppliers—including the 500 to 600 who supply parts and materials for the engines themselves—weren’t meeting the company’s on-time delivery and quality control targets. “Forty-four percent is the challenge,” Mr. Hayes said.
It is the latest hiccup in Pratt’s effort to ramp up production of the engine from 15 in 2015 to 200 units this year, and 1,200 a year by 2020. As Pratt tries to coax its supply chain into shape, the company is requiring underperforming suppliers to provide buffers of extra parts as insurance against any interruption in production, Pratt President Robert Leduc said in an interview.
Developing the engine has cost the company $10 billion over a decade and it has allowed Pratt to compete with General Electric Co. GE 0.43 % in the commercial aviation market in a way that it hasn’t for decades. The engine is offered on Airbus EADSY 0.86 % ’ new A320neo single-aisle jet as well as on several smaller planes including Bombardier’s C-Series.
Pratt says that it has more than 7,000 orders for the engine, including options, and that the new design will offer increased fuel efficiency and thrust while lowering engine noise—big enticements to airlines that measure fuel by the drop and cope with takeoff and landing curfews at some major hubs.
Currently, it is flying on seven Airbus A320neo airplanes—including on Deutsche Lufthansa AG DLAKY -1.04 % and India’s InterGlobe Aviation Ltd. 539448 -1.63 %
Unlike previous generations of engines, 80% of parts for the geared turbofan will be made by entities other than Pratt and Whitney itself, then shipped and assembled in the company’s engine manufacturing centers in Connecticut, Florida, Canada and Germany. As a defensive measure against production problems, the company says it has tried to double up its suppliers—signing up duplicate makers for many of the engine parts to avoid interruptions.

“We have all the capacity we need—the challenge is to get all the parts in on time,” said Danny DiPerna, Pratt’s senior vice president for operations and the chief official overseeing the company’s supply chain. “It’s a dogfight every day.”
Pratt’s reliance on suppliers comes at the same time that rival GE is pursuing its own production ramp-up for its single-aisle engine, the LEAP, made in its joint venture with Safran SA That simultaneous spike in demand is squeezing suppliers of everything from machined and cast parts to raw materials like aluminum and alloys.
“We do shop at all the same stores,” Mr. DiPerna said. He is the bearer of bad news to suppliers whose performance is below the company’s expectations, often via what he called “the painful call.”
The supply chain troubles follow other glitches that have come up as the new engine hits the market. Pratt says it has deployed a software patch to eliminate “nuisance messages” that had annoyed pilots in early flying. The company has also tweaked the design of a key engine part to eliminate the need to cool the engine before starting it in some cases.
Last week, Qatar Airways canceled its first A320neo order altogether, citing onerous delays in delivering the planes, criticizing the engine-maker and Airbus and saying it should have 5 of the planes by now, according to its contract. Qatar Airways CEO Akbar Al Baker said he might cancel another 50 planes it had an option to order.
Pratt fired back at Mr. Al Baker last week, saying Mr. Al Baker’s complaint was “completely inaccurate” and defended the engine’s performance.
“We have one customer who is particularly vocal, but the fact of the matter is the engines are doing exactly what we said they’d do,” Mr. Hayes said Monday, referring to Mr. Al Baker.
Write to Ted Mann at ted.mann@wsj.com