The APQC Blog

Grounded Aircraft Mean Supply Chain Disruptions

AOG is an aviation term meaning Aircraft on Ground. When grounded, commercial aircraft cannot return to service until they’re repaired and inspected. AOGs can happen at any airport for a myriad of reasons every day. But what’s the impact of an intentional temporary grounding of hundreds of aircraft globally at the same time in the wake of several tragic accidents? And on the same day that more than 1,200 flights were already disrupted in the U.S. due to the major #BombCyclone late-winter storm?

This week we heard announcements from multiple countries (including eventually the United States) about proactively temporarily grounding the Boeing 737 Max 8 and 9 planes. In spite of the overwhelming media coverage, the reality is that in the United States, the MAX makes up only 2.9 percent of the mainline fleets for three U.S. carriers, and those carriers are working to re-book passengers on different flights. The actual disruption for passengers from this event may be not catastrophic. However, disruptions like these aircraft on the ground, especially if this situation persists for any length of time, can impact supply chains, companies’ reputations, and more.

Supply Chain Risks

Let’s examine the potential impact of this disruption on supply chains, beyond the airlines themselves. Logistically, we often consider commercial aircraft as people movers, but they transport freight in addition to passengers. The U.S. Postal Service alone leases space on 15,000 of the approximately 25,000 scheduled passenger flights each day. A Boeing 747-400 (one of the larger passenger planes) can hold more than 400 passengers along with 5,330 cubic feet (150 m3) of cargo, roughly equivalent to the amount of cargo that can fit in two semi-truck trailers. So for each flight canceled or plane grounded, there is quite likely freight and mail that will need to be re-routed. Let’s hope your tax return or refund check isn’t impacted.

As part of a comprehensive supply chain risk mitigation plan, the importance of planning ahead for various scenarios is vital. Having alternate delivery options is just one way to hedge supply chain risks. Two weeks ago, APQC hosted Banyan Risk Group’s David Dezso and Alastair Donald on a webinar to discuss Supply Chain Risk: Planning for the Future. They emphasized two important dimensions to consider when seeking to mitigate disruptions in your supply chain: potential financial impact and potential operational impact. The obviously top priority risks to address have high impacts on both dimensions. Risks that have low financial but high operational impact (i.e., an inexpensive commodity item that could bring an entire assembly line to a stop if it’s unavailable) require collaborative contingency plans. Proactive plans preserve your organization’s ability to meet your customers’ delivery requirements.

Categorizing Supply Chain Risks

Generally, significant supply chain risks fall into six major categories, many of which are represented by this current situation:

  1. Cybersecurity: This category of risk is becoming more of an issue as organizations increase their levels of automation and the degree to which they integrate suppliers and other parties into their systems (i.e., to place orders and automatically initiate supply chain movements). An organization is only as secure as its weakest link.
  2. Labor: Labor risk is typically considered an event such as a strike, but often organizations face labor risks in the aftermath of major changes in regulations or incidents. For example, new regulations regarding truck driver electronic logging devices and hours of service have led to an increase in costs and some delivery delays on top of a significant shortage of truck drivers in the U.S. Contingency planning is vital.
  3. Natural disasters: This category of risks includes hurricanes, earthquakes, wildfires, and other natural phenomena that will have some impact on a company’s ability to maintain an efficient and effective supply chain operation. For airlines, mitigating this risk can include scenario planning related to the impact of winter storms.
  4. Supplier health: As organizations develop deeper and more collaborative relationships with key suppliers, if their supplier has financial or other issues, it can very quickly impact an organization’s operations.
  5. Quality or integrity: This category of risks include concerns with the quality of materials or services from suppliers, as well as business ethics and integrity issues.
  6. Geo-political/Security: These risks include tariffs and protectionism, terrorism, organized crime, inter-country political tensions.

Reputational Risk

Coming back to the current situation, the complaints and insults I’ve seen on Twitter being hurled at the airlines today are exceedingly blunt and rather painful. No one likes getting stuck in an airport for whatever reason. Customers are unhappy, and they like to vent on social media. However, the longer-term impact on future business for the airlines and their brands is up in the air at this point. Given that airlines are often in the top five industries most hated by customers, the impact may end up being minimal.

The other major company—and brand—impacted by the current situation is obviously Boeing. The news is still developing, but Boeing has released a statement that it supports the temporary suspension of operations of the entire global fleet of 371 737 MAX aircraft “…out of an abundance of caution and in order to reassure the flying public of the aircraft’s safety…” There is a strong element of quality/integrity risk in this current scenario for Boeing, with intense political pressure. This situation will impact the firm’s revenue, delay deliveries, and cause other disruptions to its internal supply chain. However, the end-result is by no means pre-ordained, and many leading analysts are asserting their continued confidence in the aerospace company’s ability to get to the root cause of this problem and fix it.

Customer Impact

The last point I want to make is that timing of both causes of flight disruptions (the late-winter storm and the intentional temporary grounding) is unfortunate for the airlines’ customers and crews. For many parts of the United States, mid-March is spring break, which means that many students and families are dealing with being stuck out of town or never getting to go on vacation because their flights were, are, or may be cancelled. There are still many unknowns as this situation continues to develop. Beyond the emotional costs of the last-minute scramble, disappointment, and inconvenience, there are the financial costs. Missed work, missed classes, missed events, nonrefundable tickets, additional hotel costs, and more.

Although the current situation is anything but typical, the airlines are faced with at least some planes being out of service or delayed for an unknown amount of time, and there will be a cascading ripple effect on scheduling as things begin to turn around. Supply chains, reputations, and people’s lives are definitely disrupted.

Plan for the Future

To help you plan for the future, I suggest you check out these two webinars from APQC. We provide actionable guidance for steps to take in advance of a risk so you can be prepared.

Want to share your thoughts with me? You can reach me at [email protected], via Twitter @MB_APQC, or on LinkedIn.