In this Supply Chain Matters blog focused primarily on commercial aircraft product demand and supply networks, we update readers on added developments permeating industry perceptions and their aligned aircraft demand and supply networks.

Airbus Industry Gains Becoming More Visible

The Wall Street Journal published a report this week titled: Airbus Soars Past Boeing by Showing Little Mercy to Struggling Customers. (Paid subscription or metered view). The essence of this report is that during the aircraft demand and respected supply chain crisis’s that have surrounded the commercial aircraft industry since the start of the COVID-19 pandemic, Airbus has increasingly been perceived as making meaningful market gains supply chain resiliency over its archrival Boeing.

The report describes how Airbus has held a firm line on airline customers that were seeking relief from their contractual aircraft delivery timetables which are typically some of the hardest to waiver from. Whereas during the global financial crisis of 2008, airline and aircraft leasing companies had leverage to negotiate desired changes to delivery schedules, these past months have reflected an aircraft manufacturer that held firm because of its known demand and supply influence.

One particular passage from this report indicates:

Analysts say Airbus recent gains are so big they may be tipping one of the world’s most entrenched duopolies into something looking more like a monopoly in at least one crucial market, the industry’s most popular type of commercial plane, the single-aisle jet.

The above statement is obviously of some concern to this industry’s supply chain networks aligned to either of these aerospace designers and producers, particularly for single aisle commercial aircraft.

Last year, in the midst of the ongoing impacts of COVID-19 restrictions on employees and facilities, Airbus managed to deliver a total of 566 aircraft to customers. Boeing, on the other hand, was hampered by the effects of the pandemic coupled with its own internal crises related to the 737 MAX aircraft grounding and with manufacturing quality shortcomings associated with the wide-aisle 787 Dreamliner aircraft.

With the first half of 2021 now in the books, Airbus has reported delivering a total of 296 aircraft compared to Boeing’s 156 aircraft delivered.  In this industry, manufacturers are primarily paid when aircraft are delivered and accepted by customers.

Of particular interest to Airbus’s extended supply chain network are indications that the producer is planning to begin ramping up monthly aircraft production levels towards the second half of this year, expecting domestic commercial airline travel to expand to pre-pandemic like levels during this same period.

Boeing, on the other hand, has other challenges to manage for the remainder of this year. As Supply Chain Matters has noted in prior industry commentary, the company is now described as financially and operationally fragile and has been forced to further cut engineering investment and sell off buildings and assets. That includes the shuttering of the manufacturer’s engineering research center in Seattle and the expected idling of former production facilities around the Seattle manufacturing campus. The aerospace manufacturer reported its sixth consecutive quarterly loss in its latest quarter, while continuing to manage additional quality challenges related to both the Boeing 737 MAX and Boeing 787 Dreamliner aircraft.

 

Boeing’s Ongoing Product Design and Manufacturing Challenges

During this week, industry and business media reporting indicate that a new production flaw problem has been identified for the wide body Boeing 787 Dreamliner aircraft, which could further delay the delivery of completed aircraft to designated customers.

In April of 2019, a published New York Times report called attention to reported claims of shoddy production and manufacturing quality lapses surrounding the South Charleston South Carolina production facility producing new 787 aircraft.  That subsequently led to increased inspections of this aircraft and consequent identification of suspected cracks and spacing or wrinkling of parts in certain areas of the aircraft’s fuselage area. Reportedly, this all has to do with the FAA and Boeing engineers’ efforts to understand whether flawed production processes might lead to pre-mature fatigue on certain aircraft structures.

The development subsequently led to a five- month halt of Dreamliner aircraft deliveries to allow certain suspected aircraft to be inspected and manufacturing assembly processes to be modified. Reportedly, that drove the company’s inventory balances $1 billion higher while about 100 aircraft were parked at various storage areas.

Deliveries of the Dreamliner aircraft resumed in March but were again suspended in May for the second time, after safety regulators declined to approve Boeing’s proposed process for inspecting this aircraft’s identified manufacturing process deficiencies.

Earlier this week the U.S. Federal Aviation Administration (FAA) disclosed another issue being detected near the nose structure of certain 787 aircraft that were manufactured but not yet delivered to airline customers. Noted was this new development was part of the ongoing inspection of this aircraft’s shimming processes. Reportedly neither of these deficiencies impact the aircraft’s overall safety. The FAA further noted that a determination as to whether similar modifications might need to be made to 787’s now in operational service will be determined at a later date.

Boeing has indicated to The Wall Street Journal that this latest citing will take upwards of three weeks to inspect various 787 aircraft queued for customer delivery. The company reportedly will temporarily slow the current production rate of 5 aircraft per month while added employees are assigned to more detailed inspection of aircraft structures.

The company further issued a statement that it now expects to deliver less than half of its upwards of 100 of the completed 787 aircraft this year. The company’s executives had previously indicated that the bulk of the 100 Dreamliners would be delivered this year. That statement did not go well with investors relative to Boeing’s stock price.

This week developments sadly overshadow a rebound in reported new aircraft orders which now amount to 599 gross orders during the first half of this year.

Industry Takeaways

The takeaway for this industry’s specific supply networks are different.  For Boeing’s extended supply chain, constant ups and downs in pandemic related deep cuts in monthly production are now compounded by continual setbacks as to when to expect forms of pre-pandemic monthly production rates to return. At the same time, ongoing efforts to compensate certain suppliers for working capital needs are hampered by Boeing’s own cash flow shortfalls predicated on actual aircraft deliveries from previously produced aircraft. There are likely building concerns relative to when the manufacturer returns to its former self in areas of aircraft engineering design, innovation and manufacturing prowess coupled with discernable market leadership. Multiple consecutive quarters of operating losses take a toll. To its credit, Boeing is maintain and demonstrating its commitment to produce quality focused and safe aircraft but as we noted in a February industry focused editorial, corporate culture, engineering and supply network challenges permeate.

For Airbus’s extended 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 question remains whether certain suppliers will have the working capital and skilled workforce resources to support such volumes after a rather difficult and challenging period dealing with the effects of the pandemic. The open question is whether Airbus is reading market demand correctly and whether the company can remain true to its demonstrated engineering and innovation roots.

There is obviously a lot at stake for the industry as a whole.

 

Bob Ferrari

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