Commercial aircraft producer Airbus surprised investors this week by warning that multiple supply network component shortages will have an averse impact on the company’s financial performance.

The news resulted in a reported 12 percent selloff of the company’s stock and along with added concerns about the industry’s ability to be able to provide timely delivery of new aircraft to global airline operators.

Multiple Component Shortages

According to various industry and business media reporting, Airbus is now pointing to shortages of aircraft engines, aerostructures, cabin interiors and other components.

A published report from Bloomberg indicates that Airbus CEO Guillaume Faury specifically noted to reporters that aircraft engine availability issues affecting the company’s highly in-demand A320 narrow aisle aircraft have “significantly degraded” in recent weeks.

He went on to state that Airbus will end up with “gliders” by the end of the current quarter, namely produced aircraft without engines attached. The engine shortages involve both the component performance troubled Pratt & Whitney GTF engines along with the Leap variant of engines supplied by the CFM International production consortium.

In addition to engines, shortages related to outfitting aircraft cabin interiors along with other components have come to the forefront. The aircraft interior component shortages are a further result of global wide airline operators efforts to refit older aircraft because of the delays in receiving their new aircraft orders.

Financial and Operating Plan Revisions

As a result of these supply shortages Airbus now expecting its adjusted earnings before interest and taxes (EBITA) to now be around €5.5 billion ($5.9 billion), down from a prior estimate of €6.5 billion to €7 billion that was indicated at the end of April.

The company further reduced its 2024 aircraft delivery goal from the prior expectation of 800 total aircraft established at the start of this year to now be upwards of 770 aircraft. Airbus delivered 735 commercial aircraft in 2023, and that number was adjusted downward from its original goal due to supply network shortages.

The company further pushed back by a year plans to ramp-up Airbus A320 monthly production levels to a volume of 75 aircraft monthly. That goal has been moved to 2027 from the prior plan of 2026.

Today, Deutsche Bank for one, downgraded Airbus shares to ‘hold’ from ‘buy’ rating. Specifically noted: “June deliveries are apparently sluggish and there is no guarantee at this stage that the new delivery target will be easy to achieve by year-end

Supplier Spirit AeroSystems Discussions Ongoing

As Supply Chain Matters and other business media has highlighted, rival Boeing’s ongoing production quality crisis has frozen Boeing’s 737 MAX monthly production schedule, pending demonstration of a comprehensive plan to address ongoing production quality shortcomings.

That plan involves Boeing re-acquiring fuselage and airframe structures key supplier Spirit AeroSystems. If the U.S. based company were to assume direct ownership of Spirit as a means to restore more direct control of internal production processes, it would have to deal with the existing supply agreements that are supporting specific Airbus aircraft production needs. Spirit’s supply contracts involve the wing structures for the Airbus A220 aircraft family that are produced in a facility in Belfast, Ireland. The center fuselage and other structural components for the wide body Airbus 350 are produced at Spirit’s facilities in Kinston, North Carolina and in Prestwick, Scotland.

As of last week, a Reuters exclusive published report, citing informed sources, indicated that Boeing was nearing a deal for Spirit. The reported stumbling block related to supplying Airbus aerostructures was noted as “showing good progress” according to the report. In April, Airbus CEO Faury had indicated that is was “not unlikely” that Airbus would take control of the Spirit production facilities directly supporting Airbus structural aircraft component needs. The Airbus CEO has since indicated to Bloomberg that the Spirit supply situation is related: “It is part of the difficulties that are triggering this update.

Significance of These Events

We advise readers to ponder the significance of these events along with the implications from an industry supply network supply and aircraft demand perspective.

As noted in February when Airbus declared its operating plans for this year there was a perception among industry and investment media have observed that Airbus was in its operating plan making a further effort to increase the competitive gap with Boeing. One equity analyst had already declared that the industry was no longer a duopoly.

Such events and hyperbole set aside, Airbus CEO Guillaume Faury was quick to make the observation: “Be afraid of what could go wrong. It cannot be quantity over quality, we don’t deliver a number of planes, we want to deliver a number of planes that are of high quality and are safe.”

Airbus has made multiple prior efforts to work with supply network partners in long-term plans to ramp-up monthly aircraft production and deliveries. The current setback adds surprise to these efforts, surprise that the supply network picture has changed so much in a relative short period of time.

It serves as another reinforcement that supply chain agility and resilience is a challenge that affects multiple industries in different planning and execution perspectives. Such challenges are constant.

 

Bob Ferrari

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