Both Airbus and Boeing have each reported their first-half 2018 and Q2 financial performance numbers respectively. For both, meeting stated year-end commercial aircraft output goals requires overcoming existing supply network challenges in the coming weeks and months.

In a prior Supply Chain Matters commentary, we highlighted the individual Q2 shipping and orders performance of the two prominent global aircraft manufacturers. We once again noted the delayed deliveries of completed aircraft engines forcing Airbus to literally park at one point, upwards of a 100 semi-finished aircraft on factory adjacent runways. Industry focused readers may have noticed that the Q2 order booking numbers were rather light.  That was because the bi-annual Farnborough Air Show occurred in July, and that event has traditionally served as a backdrop for announcing new customer orders.

Airbus First-Half Financial Highlights

Airbus reported was as billed as strong earnings growth even as the aircraft manufacturer was forced to moderate its full-year financial earnings outlook as a result of taking control of the Bombardier C-Series aircraft program, now marketed as the Airbus A220 and A230 model aircraft. Consolidated revenues were reported as stable at a value of € 25.0 billion.

CEO Tom Enders acknowledged “back-loaded” deliveries of single aisle A320neo aircraft due to engine shortages while touting strong improvement in the A350 wide-body program. He further re-iterated that the company’s operational focus for commercial aircraft remains: “squarely on securing the production ramp-up.”  Obviously, that places the Airbus supply chain as critical to business performance outcome.

The aerospace manufacturer reported a total of 303 commercial aircraft delivered in the first-half, including 239 of the popular single-aisle  A320 family. The first-half total commercial aircraft delivery number reflects 38 percent of stated goal for delivering 800 aircraft this year. Airbus reiterated that a recovery plan is in-place to meet this 2018 year-end milestone, but risks continue to remain.

Further reported was a total of 110 A320neo aircraft delivered in the first-half, and as planned, more neo (new engine option) models were shipped than CEO (current engine option) during Q2. Manufacturing planners have been focused on attempting to increase the shipping rate of the neo version aircraft due to prior postponements or manufacturing delays of customer orders for this version.  Some airlines have had to delay planned route expansion or fleet modernization efforts because of the ongoing neo version program delays.

Orders received, or MOU’s signed from the Farnborough event reportedly amounted to over 400 new aircraft commitments. Included was an MOU orchestrated by JetBlue founder and now entrepreneur David Neeleman for 60 of the newly badged A220 aircraft, rumored to be for a new airline start-up to be branded Moxy.  Total order backlog as of 30 June remained at 7168 aircraft, not counting any of the new orders acquired at Farnborough.

 

Boeing’s Q2 Financial Performance

Boeing reported a rather positive financial performance for Q2 while boosting its revenue outlook for the remainder of the year by upwards of $1 billion. For the quarter, the aerospace company reported $2.2 billion in profitability , up $1.75 billion in year-on-year performance.

The company has targeted this year’s annual deliveries to a range between 810-815 aircraft, likely to outdo arch rival Airbus for industry leadership. At the mid-year point, Boeing had delivered 378 aircraft or 46 percent of its aircraft delivery goal, a far better performance. Industry observers indicate that Boeing took a more conservative viewpoint in scheduling the delivery of aircraft to be equipped with the newer more fuel-efficient engines. Similar to Airbus, Boeing experienced some delivery delays from CFM International, along with aircraft airframe component delays occurring at supplier Spirit AeroSystems.

As noted in our earlier commentary, Boeing’s order backlog and the end of June stood at 5900 aircraft. At Farnborough, the company announced orders or MOU’s representing 673 additional aircraft orders, reflecting increased airline interest in both the new 737 MAX single-aisle, the current 787 wide body model, and the newly announced 777F aircraft.

During Farnborough, CEO Dennis Muilenburg commented to industry press and analysts that ongoing supplier disruptions are on the company’s radar each and every day. Boeing has further invested in technology to enhance supply chain and individual supplier visibility.

Mid-Year Takeaway- The Looking Glass Intensifies

At the mid-year point, commercial aerospace supply chains remain in the looking glass as individual supplier’s continue to strain with supporting monthly manufacturing ramp-up or catch-up. While certain of the new fuel-efficient aircraft engines have been the weak link in the supply network, other strains and/or glitches are likely to be present in the coming weeks and months. Both Airbus and Boeing have declared supply chain performance as a top business priority, and that is bound to add to the day-to-day and week-to-week  pressures.

A further looming threat is that of global tariff and trade developments that can lead to added material costs in metals, unplanned component price increases, as well as potential added supply network disruptions.  A continuance of the current trade and tariff war among the U.S. and China will eventually force Boeing’s hand in having to evaluate changing manufacturing sourcing. Airbus has previously publicly warned government officials of the United Kingdom that if Brexit related customs and trade policies are not definitively outlined by the Fall, the manufacturer will have to make plans for alternative sourcing of certain manufacturing or distribution of component supply currently sourced in the UK.

Indeed, the looking glass on commercial aircraft supply and demand networks has intensified, and it will only loom larger as both major manufacturers continue their needs to step-up customer deliveries.

 

Bob Ferrari

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