In prior Supply Chain Matters commentaries related to today’s aerospace supply chains challenges, we and business media have identified the sensitive dynamics concerning multi-year backlogged customer orders, with the voices of customers growing ever louder. One would optimistically believe that having upwards of 7-10 years of booked orders would be an enviable position, and perhaps it may in certain other industries. But such a situation provides added dynamics for managing and fulfilling customer demand as well as insuring long-term supply and capacity in strategic supply areas.
Last week, news concerning Boeing provided added evidence of the ongoing dynamics. In the course of a week, two major U.S. airlines exercised changes in existing orders. American Airlines announced that it would delay delivery of five previously ordered 787 Dreamliner aircraft in response to slower growth in international routes. Earlier in the week, United Airlines engineered a deal with Boeing that swapped 10 existing orders for 787’s for larger 777-300ER aircraft. In the case of United, it managed to leverage an opportunity that resulted in Boeing needing to fill open product capacity slots in the 2017 time period, before the next generation 777X begins its market entry. Thus in just a week, orders for 15 new 787’s experienced changes.
As noted in our prior commentaries, both the business and economic climate can change dramatically over a 10 year horizon. United apparently elected to take advantage of current dramatically lower fuel prices to expand its capacity for international routes. Some industry observers have noted that over time, the technological leap of 787 can become minimized by other factors, including competing models that are more discounted by sales teams. Global airlines themselves are examples of savvy customers who constantly monitor industry dynamics and are not shy to exercise customer influence.
Certainly, events in one week do not make a long-term trend. However, they are yet another reminder to commercial aerospace supply chains that even with a cushion of multiple years of order backlog, change is a constant. It is a far different business climate.