Aerospace industry supply chains had a significant event this weekend, one that will resound for years to come. The event was the Dubai Airshow, and there were two significant industry statements that will have long-term industry implications.
The first was a significant statement from certain Middle East’s Gulf airline carriers that they intend to be a dominant force in international airline travel in the coming years. That statement involved the placing of in excess of $150 billion in aircraft purchasing power with aerospace manufacturers. That is indeed a considerable statement of both intent and global customer influence.
Boeing was a major recipient, receiving what is reported to be $100 billion in new aircraft orders from four Middle East Gulf carriers. Boeing utilized the event to formally launch the development of the new 777X aircraft and by booking orders and commitments for 259 of this aircraft. Orders received involve two models of this new long-range aircraft capable of transporting approximately 350 to 400 passengers per plane. The 777x family includes two models: the 777-9X and the 777-8X. Each model of the 777x aircraft has a list price in the range of $350 million -$378 million. The orders came from three Gulf based carriers: Emirates, Etihad, and Qatar Airways. Dubai based Emirates which is already noted as the globe’s largest operator of 777 family aircraft, alone ordered 150 of the new 777x valued to be in the range of $76 billion. The orders were in addition to a previously announced deal for 34 777x planes from German based Lufthansa which was announced in September. In its reporting, the Wall Street Journal tagged the 777x announcement as “the largest product launch in commercial-jetliner history.”
Current plans call for deliveries of the new 777x to begin in seven years, around 2020, even all goes according to schedule.
Boeing further landed an order for 30 additional 787 Dreamliners from Etihad, which is reported to make this carrier the ultimate largest operator of the 787 when all are operational. Budget carrier Flydubai placed an order for 86 new 737 single aisle aircraft.
Airbus was also a recipient, landing orders for 50 of its new A350 aircraft while Emirates announced that it is buying an additional 50 of the gigantic A380 aircraft estimated to be in the range of $23 billion in order value.
Another major benefactor of this weekend’s orders was General Electric and CFM International. The consortium landed commitments for aircraft engines and services value to be $40 billion at list pricing. Among the highlights was an Emirates commitment for 300 GE9X engines valued at approximately $11 billion to power the 777x which GE describes as “the largest ever commercial jet engine award from an airline.” CFM International, the joint venture of GE and France’s Snecma (Safran) was the recipient of orders for 450 of its LEAP engines. Both aircraft engine producers now have a record backlog of orders.
Over and above the flurry of announcements regarding new equipment orders are other important implications which will collectively make up the second significant implication from this year’s Dubai airshow. The Associated Press and Yahoo Finance reported that with almost $78 billion in purchasing commitments, Emirates has cemented itself as Boeing’s and Airbus largest and most influential airline customer for years to come, one that will be favored by each of these aerospace OEM’s. Upon review of the order split among both OEM’s, Supply Chain Matters is of the believe that Emirates is also practicing proactive risk management by splitting its orders for replacing its existing fleet of intercontinental aircraft among both a yet to be designed and delivered 777x from Boeing, and more advanced staged A350 and A380 aircraft from Airbus. The A380 is already a released and operational aircraft while the A350 completed its first maiden flight in June. The industry track record for development and producing an aircraft of the size and technological complexity of the new 777x is fraught with multi-year delays from both of these global OEM’s.
The other statement coming from this weekend is what the Wall Street Journal reported (paid subscription or free metered view) as a crucial part of both the Emirates and Etihad 777x deals with Boeing. A joint venture with Mubadala, an Abu Dhabi government-owned conglomerate calls for Boeing to add its technical expertise in making advanced composite materials for jets utilized in the UAE. It is reportedly part of a broader effort to increase the presence of aerospace technology production in the region and add advanced technology manufacturing to existing economies of the region. While specific details are lacking, the effort could lead to added local sourcing of suppliers in this region, the type of deal that Boeing made with crucial Japan based airlines for the 787 Dreamliner program, that led to significant sourcing in that region.
Boeing is already in the midst of a controversial negotiation with its Seattle based labor unions over ultimate engineering and production sourcing of the 777x. The principle labor union in Seattle has already turned-down Boeing’s latest offer for a multiple-year labor agreement extension that could extend for as much as seven years. That leaves the ultimate decisions for engineering and supplier sourcing, along with final assembly up for grabs. As noted in our most recent Supply Chain Matters commentary related to the 777x, current public threats by Boeing to source major design engineering outside of Seattle along with major sourcing decisions related to the production sites provides shades of whether past supply chain related learning of multi-year program delays and snafus with the 787 program have been internalized.
November 2013 is a significant customer related milestone for certain aerospace supply chains. It represents the implications of the emerging prominence of the Middle East Gulf airlines and their growing influence on certain aerospace supply chains for many years to come.