The Supply Chain Matters blog provides an update to our previously published commercial aircraft industry supply chain blog published several days ago. With both Boeing and Airbus having now reported their latest financial performance, the overall financial, operational and workforce challenges confronting this industry are becoming clearer.
This week Boeing reported its June-ending financial results and the headlines were characterized as painful challenges in the months to come.
Overall, for the latest quarter, the aerospace manufacturer reported a $2.5 billion loss. Total revenue declined 25 percent, reported as $11.8 billion but analyst consensus forecasts were in the $13 billion range. The manufacturer booked $2.5 billion in charges related to customer airline compensation, employee severance payments, asset write-offs and abnormal production costs. The manufacturer’s cash burn rate was $5.6 billion in the latest quarter and the company had over $64 billion in debt at the close of the quarter.
Speaking to analysts and investors, CEO David Calhoun re-iterated that the company expects the commercial airline industry to begin to experience some recovery sometime in 2021, but it will be an additional two years before pre-COVID global-wide airline operating levels can be expected.
Operational wise, Boeing delivered a total of 20 commercial jets in the latest quarter. Dwell on that number for a moment. In its reporting, production indicated that as of June, there are reportedly 470 commercial aircraft parked at various airfields, waiting to be delivered to airline customers. That is over and above the ongoing grounding of the 737 Max operational fleet.
Calhoun further indicated that the manufacturer would have to reduce its headcount beyond the previous announced 19,000 cuts.
Regarding monthly production, 787 Dreamliner, which remains the only bright spot for Boeing, monthly production is being scaled back to six monthly by 2021 vs. 15 monthly last year. Further, the company is now studying plans on the potential consolidation of 787 production from the current two production facilities, that being Everett Washington and North Charleston South Carolina. That will present added challenges since the Everett production facility is unionized while the Charleston facility is not. Calhoun indicated it was still too soon to determine.
Boeing’s 737 MAX monthly production is now being planned as a gradual increase to a level of 31 aircraft per month by the beginning of 2022, while release of the new generation 777X aircraft is delayed until 2022.
In its reporting today, The Wall Street Journal warned in the Heard on the Street editorial column that monthly production levels could go even lower depending on the added cost burdens, and: “will cause irreparable damage to the myriad small suppliers spread across the globe.” Regarding larger suppliers, fuselage supplier Spirit Aerosystems is reportedly seeking more flexible credit terms on some of its outstanding debt, while aircraft engine provider General Electric posted a $2 billion operating loss in the company’s recent quarter, but indicated the company burned less cash than previously warned. GE’s Aviation business reportedly swung to an operating loss, coupled with a 44 percent decrease in quarterly revenues. Order rates from engines were noted as declining 41 percent while engine services revenues declined 67 percent from year-ago levels.
Airbus reported half-year financial performance this week and indicated that the European based manufacturer incurred a €1.3 billion adjusted loss for the half-year, coupled with a total revenue decrease of upwards of 40 percent.
The commercial aircraft manufacturer booked zero aircraft orders among three separate months in the first half. Cash burn in the second quarter was reported as €4.4 billion ($5.2 billion), somewhat similar to Boeing. The company booked €900 million of charges and indicated the future restructuring could lead to other write-downs.
CEO Guillaume Faury indicated that the aerospace manufacturer will likely incur a long and slow recovery. As indicated in our last industry update, Faury recently told reporters that Airbus does not expect recovery to occur in terms of aircraft delivery rates, until sometime in the 2023 to 2025 time period.
In terms of restructuring, Airbus has plans to cut upwards of 15,000 jobs within the commercial aircraft segment in order reduce costs and preserve liquidity.
On the operational and supply chain side, the manufacturer delivered a third of finished commercial aircraft than a year earlier, obviously as a result of a near three-week shutdown among manufacturing facilities along with other COVID-19 related challenges. Reportedly, the virus delayed postponed the handover of upwards of 145 aircraft.
FlightGlobal reported this week that Airbus recorded a near €300 billion charge for impairment of inventories considered at risk, as stored aircraft continue to be a challenge. Overall inventory levels are up €6 billion from that of the end of 2019.
The European manufacturer is now reducing monthly production rates for the market popular single-aisle A320 family to 40 aircraft per month. Monthly production levels for the wide-body A350 family are now adjusting to a reduced rate of 5 aircraft per month, down from a level of 6 per month indicated in April.
Reporting on Airbus’s financial and operational performance, Bloomberg quoted a Jeffries International analyst as indicating that; “Airbus is making a reasonable effort to balance support for its customers, supply chain, and employees while generating an acceptable performance for shareholders.”
Such a statement is likely the best that can be expected.
As we have previously stated in prior industry specific commentary, this industry, both the good years, and now the most challenging years, will be the basis for many future academic case study. Among many industries, this is the one that has driven global trade and global-wide innovation.
Respective suppliers and partners aligned with each or both of these aircraft manufacturers must now address their own challenges, more likely, individually.
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