By Alwyn Scott
SANTA MARIA, California (Reuters) - At a Zodiac Aerospace (PA:ZODC) seat factory in the small town of Santa Maria north of Los Angeles, workers on the assembly line frequently sit idle, waiting for parts to arrive.
The factory's output has more than doubled in recent years, and much of the factory is working overtime shifts and weekends, workers say.
But it still cannot keep pace with surging demand for fancy first- and business-class airline seats. Some products are almost a year behind schedule, according to people familiar with the operation.
The parts supply and other problems at the California factory offer explanations for Zodiac's warning to shareholders on Thursday that it likely would fail to meet its target of generating operating income close to last year's in the financial year ending on Aug. 31.
Production delays at this and another Zodiac plant that makes cabin interiors also highlight the ongoing challenges the big aerospace supplier faces as it tries to keep pace with the ambitious production schedules at aircraft makers seeking to capitalize on a surge in global airlines' demand for new jets.
Zodiac said it is building 700 seats a day but is still 1,700 behind schedule, down from 6,000 in March. The delays have already slowed some jet deliveries, and they put at risk production plans at plane makers Boeing Co (N:BA), Airbus Group SE (PA:AIR), Bombardier Inc (TO:BBDb) and Embraer (SA:EMBR3).
Zodiac held to a promise to get the seat production problems ironed out by the end of August.
"The fact that we have been able to reduce quite a lot of the delays on the most complicated seats gives us confidence in our capacity to reduce the (overall) delay," Zodiac Chief Executive Olivier Zarrouati said on a conference call on Thursday.
WAITING FOR PARTS
In Santa Maria, Zodiac is in the process of expanding operations into a nearby building, with a new warehouse and assembly lines. Boeing has sent dozens of people to help, and installed two office trailers outside the factory.
Zodiac also is using computer stations and white boards to track production, according to people at the factory.
"Missing parts were one of the principal causes of the delays," Zodiac said in response to questions from Reuters. "Prevention of this type of problem is one of the pillars of the Focus plan that we are implementing."
Some work is being done in walkways, obstructing movement of fork lifts. In other areas, workers are so close together they bump into each other. And in some places, empty boxes and debris clutter the shop floor, people familiar with the operation say.
Zodiac executives said Thursday that the costs to fix the seating business are running high. That's apparent at the Santa Maria plant, where the workforce has more than tripled in size to about 1,800 people from 500 several years ago. Hundreds of workers are employed sanding, painting and assembling seat shells.
Despite Zodiac's efforts, Santa Maria production still frequently stops because workers run out of supplies, according to workers and others familiar with the situation.
"People are standing around waiting for parts," an assembly worker said in an interview.
FIGHTING FIRES
The Santa Maria factory makes seat "shells," fiberglass enclosures that wrap around premium seats, holding video screens and foot rests and creating personal space. Many airlines want customized shells, which require a lengthy certification process with regulators.
Similar problems are affecting cabin interior parts such as lavatories and galleys. "The problem we have is variability," said a worker at Zodiac's interiors factory in La Palma, California. "It is difficult to run an assembly line when each one is so different. It makes us a firefighting department."
Customer demands also are stringent. Seat shells must be cosmetically flawless when delivered. Any slip of a screwdriver - the assembly is done with hand tools - can scratch a finish and send the shell back for repainting or new veneer. New workers typically slip a few times as they learn.
That points to another issue: Zodiac has hired contractors from around the country because the Santa Maria workforce of farm and construction workers lack manufacturing skills. Now some are leaving to take other work, adding to factory turnover.
Zodiac customers say it has struggled to keep pace with the flood of orders. Deliveries of Boeing 787 jetliners to American Airlines (O:AAL), for example, were delayed from November 2014 to January 2015 awaiting shells from Zodiac, the airline said.
Delays also affected American Airlines' retrofit of Boeing 777-200s. The shells were highly customized and took longer to produce than Zodiac estimated, people familiar with the program say. That was not uncommon with other airlines that ordered customized shells, these people said.
Zodiac said the 777-200 deliveries now "are almost in line with a revised schedule."
Boeing and Airbus have publicly chastised Zodiac for the delays. They also have restricted the work Zodiac can bid on until its operations improve.
Zodiac said that move is "understandable," but noted that airlines, not plane makers, choose seat suppliers.
At the plane makers, frustrations remain. "It is difficult," Airbus Chief Operating Officer Tom Williams said in a recent interview. "It is probably not as bad as it was in October or November, but it is still challenging."
Boeing has said the costs of managing the problems are high.
"The reason we invest so much money in paying attention to the supply base is because it can have a significant impact on our production system," said Kent Fisher, who manages Boeing's supply chain. "Including delaying (aircraft) deliveries."