Four weeks ago, Supply Chain Matters called attention to the good news – bad news world of today’s aerospace focused supply chains. We cited a Bloomberg Businessweek report that posed a fundamental question- with over 10,600 firm orders for new commercial aircraft among Airbus and Boeing, when is order backlog too big?
Many of these new and technology laden fuel efficient aircraft orders are destined to support expected explosive Asia focused air travel growth. But, what happens when the CEO of Asia’s fastest-growing discount airline and other airline executives begin to communicate an air of caution. A more recent Bloomberg published report now indicates that Asian aviation guru Tony Fernandes, CEO of AirAsia has cautioned that the jet buying frenzy among Asian based carriers may give way to a more sober approach that reflects the current airline challenges of intense competition, pilot shortages and inadequate infrastructure. That is significant since AirAsia has reportedly 350 in unfilled aircraft orders. The report further quotes senior executives of prominent aircraft lessor firms indicating that there may well be a thinning of order volumes.
Carriers operating across Asia are responding to pressures to sustain 30 to 40 percent growth rates while having to deploy new aircraft on newer routes. Intense competition has raised concerns for overcapacity, especially if marginal airlines start to succumb to faster growing operators. Terminals, runways and air traffic control systems are reportedly not keeping pace with current demands for airline expansion across Asia. Euphoria has made way to the realities of hyper-growth.
The question posed by the January Bloomberg report was that elongated aircraft deployment plans can be impacted by ever changing business conditions motivating some aircraft owners to consider alternative aircraft deployment or deferred procurement strategies. When senior executives of the most influential customer stakeholders for new aircraft orders begin communicating such caution, than supply chains need to be cautious and diligent. Suppliers have a special take since OEM’s continue to practice financial compensation when aircraft are shipped.
We again echo our prior advisory, namely that an enviable industry position awash with order backlog does not condone a business-as-usual focus on product introduction and supply chain management. Rather, dynamic and responsive capacity management, end-to-end value chain intelligence, enhanced supplier collaboration and goal-sharing will all come into play as aerospace supply chains continue to adjust to extraordinary and constantly changing industry dynamics.