The Supply Chain Matters blog highlights Airbus’s recently announced aircraft orders from three China based airlines and the likely industry and supply chain implications.

 

Significant Customer Order

Earlier this month there was a significant development concerning the commercial aircraft industry which has added interest for the industry’s global supply networks.

European based commercial aircraft producer Airbus landed what was considered a rather significant order deal involving three of China’s top airline providers. The deal, estimated to be valued at $37 billion at aircraft list prices before typical discounts, involves a total of 292 new Airbus A320neo aircraft, with initial deliveries reportedly  starting in 2023.

The airlines involved include Air China, with an order of 96 aircraft, China Eastern, with an order of 100 aircraft, and China Southern, with an order of 96 aircraft. Previously, China established a governmental agency responsible for centrally procuring new commercial for the country’s major airline carriers, with the goal of securing the most competitive deals.

This was a major deal for Airbus in the post-pandemic industry environment and the first involving China after landing a 300 aircraft deal in July 2019. The new orders add to the European aerospace manufacturer’s existing order backlog of the provider’s rather popular single-aisle aircraft, and provide a boost to post-pandemic recovery for the industry’s supply networks.

However, the implications of this deal are significant for arch industry rival Boeing.

 

Geo-Political Factors

Obviously, this development comes with a backdrop of geo-political as well as industry market factors. China’s commercial aviation market is long noted as being strategic for industry short and long-term growth potential.

The ongoing escalating trade tensions involving China and the United States are a further factor, and to a lesser extent, the Russia-Ukraine conflict and its impact on the Eurozone economy.

Boeing has had its eye on further order growth involving the region’s air carriers, forecasting a growth potential of over 8,000 aircraft over the next two decades. The prior trade war and the worldwide two-year grounding of the 737 Max aircraft have hindered Boeing’s efforts to gain added traction. China Southern Airlines elected last year to remove Boeing 737 Max aircraft from its near-term fleet replacement plans, and now, it would appear that Airbus jets are the replacement.

When this deal was announced, a Boeing spokesperson indicated to Bloomberg:  “It is disappointing that geopolitical differences continue to constrain US aircraft exports.”

The China based Global Times reportedly replied in a published editorial: “It is natural for the US side to feel sour after losing competition to Airbus. Judging from the performance of these two companies in the global market, since 2019, Airbus has been way ahead of Boeing in terms of competing for passenger plane orders and market share.”

Airbus had previously initiated an A320 family manufacturing assembly presence in China as a result of its prior deals with the country’s airlines, and that had likely influence as well, as was the declining value of the euro.

 

Industry Supply Network Implications

In May, Supply Chain Matters highlighted that Airbus was actively working on a revised plan to once again ramp-up monthly production volumes of the A320 family. Working directly with engine, airframe and essential key component suppliers, to be able to boost output from the existing level of 40 per month, ramping to a rate of 64 aircraft per month by 2023. There was further mention of potential interest is boosting monthly production to 75 aircraft per month around the mid-decade, which was noted as an unprecedented monthly output number for the industry as a whole. Airbus further reiterated a forecast to produce at least 720 jetliner deliveries in 2022, even with challenges related to the Russia-Ukraine conflict and the ongoing Covid-19 restrictions occurring across major industrial regions of China. This is further the challenge of securing long-term supply of titanium metal components which were primarily source in Russia.

That plan now has added significance with the scale and delivery timeframe dimensions of this latest order intake deal.

We further highlighted growing frustrations among Boeing’s influential airline customers relative to lack of leadership in engineering, aircraft quality and delivery performance.  Delays with ongoing delivery of the 737 Max and the continued grounding of the wide aisle 787 Dreamliner because of engineering, quality and manufacturing issues are wearing thin with customers, and likely with Boeing’s suppliers as well.

The open question is know whether Airbus’s newly announce deal with China adds to the pressure on needed leadership changes.

The industry’s Farnborough International Airshow kicks off on July 18 where industry manufacturer’s announce new deals or products amid the gathering of airline representatives along with major industry suppliers.

In addition to talk of industry renewal timelines, a likely conversation among the industry’s supply network players may well be what’s up with Boeing, and what is the current heading.

Perhaps announcements of added 737 MAX or 787 Dreamliner deals may help, but one can speculate that management changes either in engineering, manufacturing or line of business leadership may be better received.

Stay tuned.

 

Bob Ferrari

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