The Supply Chain Matters blog continues in our efforts to highlight various industry specific supply network conditions in the midst of the ongoing COVID-19 pandemic and subsequent numerous supply chain disruptions.

The commercial aircraft industry was especially impacted by the pandemic, specifically the demand and supply chain networks for Airbus and Boeing. The industry’s sudden drop-off of aircraft demand, including booked orders, compounded by associated supply network impacts, have significantly impacted the industry.  We noted in a prior industry specific commentary that of these two industry competitors, Airbus has increasingly been perceived as making meaningful market gains and supply chain resiliency efforts over its archrival Boeing.

However, the notions of the state of the industry’s fragile supply chain has brought forth a further noteworthy caution.

Reuters reported highlights of Airbus CEO Guillaume Faury most recent remarks at an industry conference held in Montreal. Reportedly, his assessment of the industry supply chains was direct: “We really see that the supply chain is in a much more difficult spot than it was before.” He further stated that:

We fear that the supply chain management for the next 12 to 18 months will be the most difficult part of what we have to achieve to really recover. Their situation is tough.

The Airbus CEO observed that while the global airline industry is showing signs of recovery, business travel remains muted, and the industry is unlikely to be back to pre-pandemic service volumes for many years.

As Supply Chain Matters has noted, commercial aircraft supply networks are made up of some very large-scale suppliers as well as a considerable number of small to medium sized specialty suppliers. This is an engineer-to-order and make-to-order driven supply network that has strong anchors to engineering and technology capabilities garnered from years of experience. The ongoing pandemic induced disruption as impacted both supply network constituencies.

Prior to the pandemic, industry supply network thinking centered around bigger is better in the notions of providing supplier scale and influence for negotiating with the likes of Airbus and Boeing. Scale further equated to added resources for product and process innovation, and in securing more timely payments for either product delivered, or monetary support in times of monthly production volume disruptions. This was especially important during the 18-month operational grounding of the entire Boeing 737 Max fleet.

As the ongoing crisis has evolved, the smaller, specialty suppliers, as well as their highly skilled workers have especially struggled with the financial impacts of production and aircraft delivery suspensions. The bulk of revenue associated with aircraft sales occurs after the aircraft is delivered and accepted by an airline customer.

For Airbus’s extended supply network, the challenge is preparing for an earlier and more aggressive hike in single-aisle monthly production volume as the producer looks to gain additional market share advantage and added cash flows. The uncertainty is whether certain suppliers will have the working capital and skilled workforce resources to support such volumes after this difficult and challenging period. Faury’s usage of the descriptor “tough situation” is therefore rather telling.

Surprisingly, on the notions of industry outlook, Boeing indicated this week that while the industry has lost two years of growth, the plane maker is forecasting a $9 trillion market for commercial, defense and services business over the coming decade. That is up from a forecast of $8.7 trillion estimate put forward two year ago.

We found the Boeing forecast surprising from the notions of the continual engineering and manufacturing quality challenges and the deep hole of new aircraft development pipeline that currently exists. We observed in a prior commentary that Boeing’s Corporate Culture, Engineering And Supply Network Challenges Permeate.

As The Wall Street Journal noted in its reporting this week: “Airlines, plane makers and suppliers continue to debate whether the pandemic has fundamentally changed the industry.”

At this point it would appear that Airbus is being far more candid as to the ongoing industry aircraft demand and supply network challenges.

This is an industry sector to continue to monitor over the coming months.


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