Supply Chain Matters has provided multiple commentaries related to the unique supply chain challenges facing major global aerospace manufacturers Boeing and Airbus.  Readers can review any of these by clicking on the search category Aerospace specific supply chain in our Categories panel.

Innovation and use of composite materials within the next generation of airliners, promising significant fuel and operating cost savings, have motivated carriers to place multiple orders with either global OEM. Some customer order backlogs or capacity windows now extend up to ten years. Many industries can envy the situation of having such robust backlog of product demand.  As we have pointed out on numerous occasions, product innovation and market success can bring its own unique supply chain stress.

As an example, Boeing is over three years late in deliveries of its 787 Dreamliner aircraft, and has now incurred some initial signs of customer cancellation. Qantas Airways recently canceled its order for 35 of the larger 787-9 version of the Dreamliner citing high fuel costs and a fragile economic climate as the prime reason. The airline placed its initial order in 2005 and planned to have up to 28 in service by the end of 2011.  That was before the series of program delays that has plagued this program. Qantas did not change its existing order for 15 smaller 787-8 aircraft but remains financially challenged with the current economic environment. A late August article published in The Wall Street Journal reported that “Boeing currently loses an estimated $100 million for each 787 that it sells” and that the breakeven point for the Dreamliner program is estimated to be 1100 booked and shipped aircraft. Boeing currently has firm order backlog for the Dreamliner series at 843 aircraft as of July. While Boeing is aggressively ramping-up its production volumes from two separate final assembly facilities, recent incidents of engine malfunctions involving Rolls Royce and General Electric powered versions have caused concern for more delays.

Airbus has also been challenged in ramping and delivering its newer aircraft, the latest being the A350 program.

Yesterday, Airbus published its long-term global market forecast for aircraft deliveries for the 20 year period 2012 through 2031.  It calls for 28,200 passenger aircraft and air freighters to be delivered by all manufacturers during that period. This latest forecast represents a 1.3 percent increase from last year’s long-term forecast.  According to Airbus, the forecast anticipates a more than doubling of the world’s overall passenger aircraft inventory, from 15,500 today to more than 32,500 by 2031.  Airbus acknowledges reduced global economic growth could dampen output and demand with other measures such as revenue passenger kilometers or miles indicating potential saturation of the market.

In July, Boeing issued its own forecast which calls for 34,000 aircraft to be delivered in the same 20 year period, a 1.5 percent increase from the previous year. Both forecasts taken as different views of the market, imply an average industry supply chain delivery rate of 1400 to 1700 aircraft per year, and a near doubling of the total market fleet over the next 20 years. Using available reports from Airbus, the average annual delivery rate for Airbus during the past three years has been just shy of 500 aircraft. Average backlog for Airbus in the past 3 years is 9587 orders. Available reports from Boeing indicate its annual aircraft delivery rate for the past three years is an average of 473 aircraft.  Boeing’s current total aircraft backlog through July 2012 is 4139 aircraft.

Call us cynics, but if you review the above numbers, both manufacturers have a considerable challenge in meeting the low end of the 20 year forecast, let alone the high end. Granted, we have discounted all other manufacturers of over 100 seat aircraft. A view of past history also does not portend that either manufacturer or the aerospace supply chain as a whole, has performed at these fulfillment levels.

The takeaway, at least in our view, is that aerospace supply chains can anticipate a period of reckoning over the next 2-3 years. There is a window of opportunity in firm customer orders and the industry supply chain must demonstrate higher levels of near term fulfillment.  The economic and competitive climate is quickly changing and aircraft customers will have little patience for further delays, let alone longer delivery timelines.

Long-term forecasts have little impact unless there is a credible history of volume output capability. Unless of course, some other manufacturer steps into the void of expectations.

Bob Ferrari