Supply Chain Matters highlights both Airbus and Boeing’s latest quarterly financial and operational performance and added signs of a widening competitive gap.

 

It has been a few weeks since Supply Chain Matters has provided a commentary on commercial aircraft product demand and supply networks. With the duopoly of Airbus and Boeing reporting their latest Q3-2022 quarterly financial performance, a pattern continues to come to the forefront.

 

Airbus

Financial Performance

Late last week, Airbus reported both third quarter and nine month year-to-date financial and operational performance. CEO Guillaume Faury indicated the aerospace manufacturer delivered a solid nine-month performance in a complex environment that included an ongoing “fragile supply chain.”

The Q3-2022 results was headlined by a 65 percent increase in total company net income of € 667 million euros while total revenues in the most recent quarter grew 27 percent to € 13.2 billion.  For the commercial aircraft sector, total quarterly revenues were € 9.2 billion, and increase of 34 percent. EBIT for the commercial aircraft unit increased 37 percent to € 973 million euros.

For the nine months year-to-date, total company revenues have increased 8 percent to € 38.2 billion euros. In the commercial aircraft unit, the nine months year-to-date performance includes € 26.5 billion euros of total revenue, and increase of 8 percent, and a reported EBIT of € 3.2 billion euros. This performance has been helped by a steady stream of aircraft deliveries this year, sometimes with a nudge to respective global airlines to take contracted delivery.

The company’s outlook for this year remains the goal to deliver 700 commercial aircraft deliveries and around € 5.5 million euros of adjusted EBIT.

Operational Performance

Regarding ongoing operational performance, the company noted (in part):

On the A320 Family programme, production is progressing towards a monthly rate of 65 aircraft in early 2024 and 75 in 2025. The groundwork continues throughout all sites to secure rate 75 and adapt to the higher proportion of A321s in the backlog, ensuring all A320 Family Final Assembly Lines become A321 capable.”

In a published Supply Chain Matters posting in April, we highlighted a report from Bloomberg Business indicating that Airbus was able to secure 18-month extensions to key engine supply contracts involving Safran SA and General Electric, along with MTU Aero Engines, a supplier of a rival Pratt & Whitney geared turbofan engine also utilized to power the A320/A321 single aisle aircraft.

Reports at the time indicated that this aircraft manufacturer’s goal was to maintain its existing industry dominance over rival Boeing in single-aisle commercial aircraft. With an existing healthy backlog of airline industry orders, the feeling was such that increased output would boost revenue, cut waiting times and perhaps spur added new orders from airlines. In July, the company elected to pause the 65 aircraft per month goal, pending assessments and feedback from key suppliers.

In the latest report of financial performance, Airbus indicates that net aircraft orders amount to 647 aircraft and the overall order book backlog now stands at 7,294 commercial aircraft as of the end of September.

In its reporting of Airbus’s latest financial and operational update, The Wall Street Journal noted that indeed, the gap in leadership of the single-aisle category is widening, and as the European manufacturer widens this lead, it is pushing for better pricing from suppliers to boost profitability as well as monthly production output.

The report also notes, as Supply Chain Matters has previously observed, that at the beginning of the pandemic, Airbus elected to reduce monthly production output of A320 family aircraft from the then existing level of 63, to a level of 40 per month, higher than airline customers were seeking at the time in terms of taking deliveries. That decision is reportedly now paying off as airline market demand is improving as customer return to air travel.

 

Boeing

Financial Performance

Boeing’s third quarter financial performance was headlined by a reported loss of $3.3 billion, principally weighed down by $2.8 billion in additional charges related to military and space aircraft fixed price development programs.  These programs remain challenged with design and inflationary cost challenges.

In the earnings release, CEO David Calhoun indicated in-part: “We continue to make important strides in our turnaround and remain focused on our performance.”

Total revenues in the quarter increased 4 percent to $16 billion. Revenues for the commercial aircraft sector reportedly rose 40 percent to $6.3 billion in the quarter. The ability to resume airline customer deliveries of the Boeing 787 Dreamliner wide body aircraft in August after upwards of two years of manufacturing and regulatory challenges reportedly helped in revenue performance in the latest quarter.

On a positive note, this U.S. based aircraft manufacturer generated $2.9 billion in free cash in the latest quarter and according to reporting, is on track to have a very long-awaited positive cash year.

Total order backlog and the end of Q3 was reported as $381 billion, including over 4,300 commercial aircraft.

 

Operational Performance

Unlike rival Airbus, the company remains hampered in the ability to accelerate monthly aircraft deliveries to generate added cash infusion, especially with the single-aisle 737 MAX aircraft family. The company disclosed last week that rather than the previously stated goal to deliver 500 commercial aircraft at the start of this year, revising that estimate to upwards of 400 in July, the number is now upwards of 375 aircraft by the end of this year.

According to reporting by both Bloomberg and The Wall Street Journal,  supply chain driven inflation, parts and labor shortages have all contributed to aircraft delivery delays. Once more, Boeing CFO Brian West indicated that this company expects 737 Max monthly production levels to remain in the upwards of 30 per month rate through much of 2023, but possibly increase dramatically at the tail end of 2023.

Unlike Airbus, this aircraft manufacturer has indicated that it remains challenged with key suppliers to adhere to an uptick in aircraft monthly deliveries, especially aircraft engines.

Compounding ongoing challenges are ongoing regulatory hurdles for certification of the latest versions of the 737 MAX family to include the MAX7 and the MAX10 models, particularly around cockpit design and operation.  Boeing has booked some customers orders contingent on securing regulatory approval this year. The company is reportedly relying on the U.S. Congress to extend the end-of-year deadline for certification.

 

Closing Thoughts

In a Supply Chain Matters bog published in February of 2021, we highlighted our view of the essence of Boeing’s challenges, perceptions that the company had lost its engineering roots, manufacturing quality and supply network management chops. The two-year 737 MAX global aircraft grounding took a noticeable toll on the fabric of the company, hobbling budget and resources in developing newer or revised designs.

Seventeen months later, there are some signs of improvement but clearly not enough to impact the widening market share gap that Airbus has amassed in the single-aisle aircraft segment.

The company remains challenged to repair its relationships with airline customers as well as suppliers. As noted above, an added perception is that Airbus’s timely moves to maintain monthly production over and above customer delivery demand is paying added dividends, especially in supplier relationships and buying influence.

The industry itself faces added challenges with the ongoing threat of regional or global economic recession, global energy supply shortages or other effects of the geo-political landscape.

However, one reader takeaway remains and that is the banner of this blog- Supply Chains Do Matter in business, operational, people and technological dimensions.

 

Bob Ferrari

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