Once again, both Airbus and Boeing declared that they each exceeded operational performance targets in 2016 but the numbers would indicate an industry inflection point is at-hand, one that has implications for the collective industry supply chain ecosystem for the next several years.  Boeing 737 Max Production Line

Airbus

Airbus announced the delivery of 688 completed commercial airliners among 82 customers in 2016 representing an 8 percent increase over 2015 delivery performance. Of the total, upwards of 79 percent of total deliveries originated in the A320 aircraft line-up, including 68 of the new, more fuel-efficient model A320neo (new engine option).

During 2016, Supply Chain Matters highlighted some significant challenges related to delayed deliveries of the innovative new Pratt & Whitney geared turbofan engine featured on the neo model. Pratt had to cut back its original delivery commitment of 200 to 150 because of several supply and production challenges. With announcement of the final delivery number, we can now estimate that customer deliveries of 71 percent of the A320 family aircraft came in the second-half of the year. In the month of December alone, 66 A320 model aircraft were delivered, 45 in the new engine option. That would seem to imply that Pratt made the bulk of its revised engine delivery commitments promised for the end of the year. In its year-end announcement, Airbus indicated that it has now commenced deliveries on both engine variants of A320neo, to include the CFM International LEAP 1A as well as the Pratt PW1100G model engines.

Another noteworthy data point related to deliveries was the 49 A350 XWB aircraft delivered in the year.  This model was dogged with component supply shortages related to interior seating, lavatory, and other interior components throughout the year. The fact that Airbus actually delivered just short of its 2016 goal of 50 A350’s in 2016 is a testament to detailed planning and collaboration with key suppliers.

The European aircraft producer further achieved a total of 731 net orders from 51 customers, eight of which were new. That included a mix of 604 single-aisle and 124 wide-body aircraft.

At the close of 2016, Airbus’s overall order backlog stood at 6874 aircraft valued at $1,018 billion at list prices.

Boeing

U.S. based Boeing announced the delivery of 748 completed commercial aircraft among 100 customers, taking the industry title of highest delivery number. Of that total, 65 percent of deliveries (490) originated in the 737 single-aisle model. The 2016 delivery performance of 748 represented a decrease of 762 aircraft delivered in 2015. Boeing made a management decision earlier in the year to throttle-back the production delivery rate for 2016 to control costs and boost profitability.

A continued challenged program remains that of the 787 Dreamliner, which recorded a total of 137 completed aircraft in 2016, two more than the 135 total delivered aircraft in 2015, despite achieving break-even profitability of this program. Keep in-mind that airline customers pay the bulk of an aircraft’s negotiated price at time of delivery.  The leading-edge designed 787 Dreamliner was first unveiled in 2007 representing the most fuel-efficient aircraft at the time, and a planned more innovative replacement for aging 777 operational aircraft. The aircraft was originally planned to enter service in 2008, but first flight did not occur until late 2009. After a series of highly visible snafu’s related to explosions with its lithium-ion batteries resulting in a several month FAA grounding, the Dreamliner did not enter full operational service until 2011, and today, two separate production facilities produce finished aircraft. Boeing has now elected to shelve plans to increase monthly delivery rates from 12 to 14 monthly.

Chicago based Boeing reported a total of 668 net orders in 2016 worth $94.1 billion at list prices, well below the 768 net orders booked in 2015. This represented the company’s weakest year for new order growth, a sign taken by Wall Street that the prolonged boom in aircraft sales may be waning. Boeing actually secured gross orders for 848 new jetliners but experienced cancellations of 180, the majority of which were from customers switching from wide to narrow aisle aircraft. The company’s new order rate considerably lagged in the second-half of the year, and ultimately led to sudden senior management leadership change for the Commercial Aircraft business arm.

 

Our stream of Supply Chain Matters commentaries related to commercial aircraft supply chains have painted a picture of an industry that is designing and manufacturing new generations of more technology laden, far more fuel efficient new aircraft. This led to the enviable position of having order backlogs of upwards of $1.5 trillion that extend outwards of ten years. At the same time, an industry with a track record of prior challenges in its ability to more rapidly scale-up overall aircraft production levels is clashing with the industry dynamics of both Airbus and Boeing in their desire to deliver higher margins, profitability and more timely shareholder returns.  Smack in the middle of these dynamics are relationships among suppliers, who need to continue to invest in higher capacity and capability, but of-late have had to respond to key customer requirements for larger cost and productivity savings.

All of this is about to change and a declared industry inflection point is at-hand. We will dive deeper into this inflection point when we drill down on 2017 Prediction TenIndustry-Specific Predictions coming at the end of this month.

For the industry’s respective multi-tier supply chain, the implications of this inflection point are sobering in terms of planning windows through the year 2020. The decline of new order flows for higher margin wide aisle aircraft place the major emphasis on narrower margin single-aisle aircraft that must produce higher volumes to meet financial business objectives.

Bob Ferrari

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