This is a brief update to our Supply Chain Matters and Expert Community commentary earlier in the week regarding aerospace supply chains remaining stressed, and specifically Airbus’s recently announced setback on its lighter weight and more fuel efficient multi-aisle aircraft, the A350.
In an interview which was published in the November 18 printed edition of the Financial Times, (paid subscription or free metered view) Louis Gallois, the chief executive of Airbus’s holding company EADS, expressed his personal apology for the announced delay of the A350. He noted that Airbus made the decision to delay the introduction from late 2013, to the first half of 2014, because “we have to bring mature components to the assembly line and to get mature components we need a bit more time.” The Times reports that Airbus concluded that certain supplier components were not of acceptable quality and it was necessary to “stop and fix” the program.
The FT interview coincided with Mr. Gallois’s attendance at the Dubai Air Show event, along with all other major manufacturers.. The big headline of that event has been the announcement from Dubai based airline Emirates of the single largest commercial aircraft order, ever. The airline ordered 50 of rival Boeing’s 777-300 long range aircraft at an estimated list price book value of $18 billion, with an option for an additional 10 aircraft. Deliveries are planned to begin in 2015. A separate FT published article quotes an aerospace industry analyst as noting that Emirates selected the 777-300 because of the announced delay of the rival Airbus A350-1000, where planned first delivery has slipped from 2015 to 2017.
The European focused headline from the show was the perceived public humiliation incurred by Akbar Al Baker, the CEO of Qatar Airways, directed at Airbus, also reflecting on the delay. Qatar is the designated launch customer of the A350. According to a separate FT article, Qatar accused Airbus of “still learning how to make airplanes.”
Tough words indeed, coming from your launch customer.
But reports indicate that Qatar, after some last minute negotiation with Airbus senior management, later unveiled an order for 55 aircraft at list value of $6.4 billion, with a provision that Qatar would be the designated launch customer of the highly popular and new to arrive A380 neo aircraft. That obviously equates to maximum leverage of customer power and bargaining chips. It’s like the analogy of the enterprise software account manager who makes the largest sale of the year on the last calendar day of quarter or fiscal year-end, with a healthy discount and all sorts of added perks for the customer.
To our earlier commentaries, airline customers, especially the newly emerging and more powerful global high growth carriers, are aggressively augmenting long-term lift capacity and are highly sensitive to aircraft delivery windows. They also practice high energy, savvy negotiation skills that reflect their current presence as aerospace industry disruptors.
Supply Chain Matters offers two additional follow-up observations, post Dubai Air Show.
First, we believe that Airbus should be praised and not chided for its latest actions. Citing lessons learned from previous public delays of the A380 super jumbo jet and perhaps unstated, Boeing’s current three year delay status with the 787 Dreamliner, Airbus felt it was far more prudent to fix potential supplier quality problems now, rather than later, when the stakes are higher. A public apology coming from the CEO of any company is a bold statement of acknowledgement and commitment to accountability.
Second, airline customers have been patient regarding numerous setback announcements, perhaps leaving their gripes behind closed doors. We get the strong sense, however, that this will change during 2012 and beyond.
It seems that every very passing week brings fresh reminders of added stress in aerospace supply chains. The transfer of supply chain learning and a renewed emphasis on agility, risk avoidance and operational excellence are now new table takes for all aerospace value-chain participants.