Supply Chain Matters continues with our streaming commentary focused on the globe’s most visible supply networks, specifically the duopoly anchors of commercial aerospace supply chains.
Both Airbus and Boeing have now reported Q2-2019 operational performance.
The most anticipated was that of Boeing, which is attempting to manage what is likely one of the most challenging corporate global branding crisis in that company’s memory, that being the ongoing grounding of the manufacturer’s 737 MAX family of aircraft after two tragic accidents. All 737 MAX aircraft have been grounded since March.
Boeing’s Q2 operational performance indeed reflected the ongoing operational impacts on one of its most profitable aircraft families. At the close of Q2, there are indications that the global grounding may possibly extend to early 2020, while airline operators operating the 737 MAX have for the most part, pushed out schedule cancellations to the Q4 period.
With such news, the 737-manufacturing supply network ecosystem is likely assessing further cutbacks in overall monthly production and a growing concern for potential headcount reductions.
Meanwhile, Airbus reported extraordinary operational performance in Q2, establishing a new quarterly production record and strong evidence that former monthly aircraft engine supply chain challenges for the A320/321 neo aircraft are being addressed.
Q2-2019 and Total Year Customer Deliveries
European based Airbus delivered a total of 227 aircraft in Q1, a nearly 40 percent increase over reported commercial aircraft deliveries in Q1-2019. Once more, deliveries were fairly balanced across the quarter, a visible improvement over prior quarterly delivery volumes that were skewed toward the final month of the quarter.
The breakout of 2019 customer deliveries was as follows:
|Aircraft Family||Q1-2019||Q2- 2019||Q3-2019||Q4-2019||2019 YTD|
|Single Aisle (A320/21/220)||134||181||_||_||315|
The declared 2019 milestone to boost total single-aisle production to 60 aircraft per month from the existing level of 52 per month looks to be nearly achieved.
With Boeing now suspending all aircraft delivery guidance as a consequence of its 737 MAX crisis, Airbus is assured the 2019 industry coveted title of most delivered aircraft. Once more, the European based commercial aircraft manufacturer is now on-pace to deliver on its stated goal of up to 890 commercial aircraft deliveries this year.
Net New Orders
Airbus reported a total of 151 net new orders for Q2 with the majority weighted for announcement at the Paris Air Show held in March. At the show, Airbus booked 130 firm orders for A320neo aircraft family, as well as 15 firm orders for the smaller A220 family.
Aircraft orders for the first half of 2019 were reported as 219 net new orders.
Airbus further landed 44 firm orders for the newly announced A321XLR extended range aircraft in June, in addition to dozens of nonbinding commitments.
At the end of Q2, backlog of commercial aircraft orders amounted to 7,276 aircraft. The single-aisle tally was composed of 5,871 A320 jetliners and 473 A220s; while the wide-body backlog was comprised of 605 A350 XWBs and 275 A330s.
Other Airbus Related News
One of the first tangible signs that Airbus might benefit from the ongoing Boeing 737 MAX grounding crisis came in early July. Saudi Arabia based flyadeal Airways indicated intent to acquire 50 of the Airbus A320neo aircraft. The airline had made a prior commitment to acquire the Boeing 737 MAX aircraft for fleet deployment. The deal had a list price value of $5.5 billion. Two Indonesian based airlines had previously indicated their concern on the safety perceptions of the MAX, and the possible cancellation of their orders for the aircraft.
What was further of interest in the announced Saudi deal was that Airbus had previously indicated that A320neo production was sold out until the 2024 period, yet according to media reports, the Saudi flyadeal order calls for initial deliveries to begin in 2021. That has fueled industry speculation that Airbus will compete for former MAX business.
Airbus further has the opportunity to further leverage the A220 product family as a fill-in for near-term regional, single-aisle aircraft needs. With Boeing currently consumed operationally and financially with the ongoing MAX grounding, its plans to integrate the addition of Embraer into aircraft development and production strategy can be an added burden, affording more opportunity for Airbus and other global manufacturers of regional aircraft.
Boeing reported total Q2 customer deliveries of 90 aircraft, 60 percent below Q1-2019 levels. The obvious challenge remained suspension of 737 MAX customer deliveries.
The breakout of year-to-date customer deliveries at the completion of Q1 is as follows:
|Aircraft Family||Q1-2018||Q2-2018||Q3-2018||Q4-2018||2019 YTD|
In mid-March, Boeing was compelled to ground all of the existing global fleet of 737 MAX model aircraft after an Ethiopian Airlines aircraft crashed on takeoff. This was the second tragedy involving the 737 MAX after a Lion Air aircraft had plunged into the sea in October 2018. Preliminary respective air safety investigations are pointing to the aircraft’s flight control system as a probable cause for both tragedies.
In April, Boeing announced a temporary 20 percent reduction in the 737 monthly production schedule in lieu of the aircraft returning to operational status. A return to service and global-wide clearance is currently not anticipated until either Q4, or in some global regions, possibly early 2020.
At the beginning of the year, Boeing indicated plans to boost single-aisle 737 production levels from 47 per month to 52 per month during 2019. As the conclusion of Q2, Boeing suspended delivery guidance for the remainder of the year.
According to industry and business media reports, upwards of 150 undelivered MAX aircraft are parked among sites near Boeing’s Renton Washington campus as well as other U.S. sites. Upwards of 380 grounded airline operated aircraft remain parked awaiting approved flight control software upgrades, as well as calls for additional hands-on pilot training. According to The Wall Street Journal, the undelivered aircraft are draining Boeing’s cash flow, which had been used to fund attractive stock buyback and higher stock dividends. Boeing’s market value has reportedly declined $50 billion since the March grounding. The publication has cited analysts as indicating that it could take several years to get MAX deliveries back on plan.
Boeing Net New Orders
Boeing reported a negative 119 net orders of aircraft as of June. Of that figure, gross 737 family orders were 36, while 86 subtractions were noted in the product family, all of the MAX variant.
During the Paris Air Show, Boeing stunned the industry with an announced blockbuster deal involving International Consolidated Air Group, the parent of British Airways, for an announced order for 200 of the 737 MAX aircraft. Airbus took special note of the order, indicating that the European plane maker was not aware that ICAG was considering such an acquisition, and was therefore not allowed to compete for this order. That order has not as yet been acknowledged in Boeing’s current order book.
Total commercial customer order backlog for Boeing at the end of Q2 was reported as 5515 aircraft. That would represent 6.8 years of backlog at 2018 annual production volumes, but given the manufacturer’s current production shortfalls, that years of backlog number is obviously higher.
Other Boeing Related Developments
As noted in our Supply Chain Matters commentary on Q1 operational performance, Boeing was moving in the direction of communicating development of an entirely new mid-range aircraft as a replacement for the very popular but aged 757 aircraft fleet.
The market effect of that development suffered as Airbus took advantage of the Paris Air Show to announce the debut of the Airbus A321XLR extended range aircraft, a new variant of the A320neo product family. News of the aircraft debut came with firm orders for 44 aircraft along with discernable industry buzz. According to Airbus, service entry of the A321XLR is targeted for 2023.
That announcement, coupled with the growing financial implications of the 737 MAX groundings, have raised industry skepticism as to whether Boeing can marshal required financial and engineering resources to counter the Airbus market announcement. As noted in our last operational update, the Boeing program can further take on added significance if global airlines and respective flyers lose confidence in the MAX as a safe aircraft. As we pen this blog, UK media is reporting that photos have emerged of a new, yet to be delivered 737 MAX in Ryanair colors outside Boeing’s manufacturing hub, with the designation 737-8200 emblemed on the aircraft’s nose. The 737-8200 is a type name for the aircraft that is used by aviation agencies.
In early July, Boeing announced availability of $100 million in funds to address family and community needs of those affected by the tragic accidents of Lion Air Flight 610 and Ethiopian Airlines Flight 302. These funds will reportedly support education, hardship and living expenses for impacted families, community programs, and economic development in impacted communities.
Very much unclear at this point are the overall financial impacts to Boeing relative to the ongoing 737 MAX crisis. That number is obviously in the billions.
Takeaway Industry Assessment
There is industry concern that airlines have become more cautious in new aircraft purchases in the light of slowing global trade and building geopolitical tensions. The biannual Paris Air Show garnered 560 orders and commitments, the lowest total since 2009. Increased fuel prices and the operational effects of the ongoing 737 MAX groundings have trimmed global airline profits.
The MAX crisis has further raised awareness to the building global-wide needs for adequately trained and experience pilots as well as experienced aircraft mechanics. In short, at the mid-point of 2019, the commercial aircraft industry will need to realistic assess long-term aircraft demand levels along with the resiliency of respective aircraft globally based supply networks to sustain required output levels given a more risk laden global sourcing landscape.
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