Here come the labor demands

Last year, we saw big wage and salary increases among US airlines. Being a global industry with a skilled and mobile workforce, this wave didn't take long to hit Europe. After the pilots came cabin crew and the wave kept going. Westjet averted a labor crisis withits maintenance union yesterday. As if you needed the reminder, the commercial aviation is a silo. The wave goes down and across. The OEMs face the labor demands, too. Boeing workers want 40%. Airbus also faces this pressure. French labor is especially vocal and has been making demands since last year. This feedback speaks for itself. Airbus also faces demands in Spain. Spanish workers for Airbus are likely to face some pushback because they produce the A400 M military freighter, which may be one of the worst-run military programs anywhere. Airbus is likely to see low labor pressure in China and Alabama. But their Canadian workforce is decidedly French in their action and demands. The duopoly's challenge is its near-decade-long backlog. Airlines and lessors want new aircraft ASAP. Air traffic seems to have fully recovered in most markets. In growth markets across Asia and India, greater proportions of the population are discovering air travel. Demand for aircraft is robust and looks to remain that way. The following chart lists new deliveries for Airbus and Boeing. The 2024 decline is because only three months have been reported. [caption id="attachment_83324" align="aligncenter" width="580"] OEMs; AirInsight[/caption] John Leahy used to make the critical point when showing this chart (and he did it often): Airbus makes steady deliveries compared to Boeing's more spiky line. The point was to show that Airbus was a more reliable OEM with more stable labor relations. How long that remains true will be interesting as Airbus adds FALs worldwide. The Achilles Heel for the duopoly is the growing skills shortage from the great retirement. The pandemic's negative impact on skills loss is underreported. Is there a correlation between the rise in aircraft "incidents" and the shortage of experienced maintenance staff? We think that's a fair assumption. What happens if Boeing's workers don't get that 40% pay rise? This may be a guide- Boeing locked out their firefighters and brought in scabs. Playing hardball with firefighters is one thing, but FAL labor is another. The backdrop to the firefighter situation is that Boeing's other workers are "angry." It has been a long time since Boeing's labor had such a strong negotiation position. Boeing cannot afford to take any more delivery hits - even now, with an FAA-approved rate of 38 MAXs per month, the company is estimated to be producing ~20 per month. This throttled-back rate is causing the company to hemorrhage cash. This leads to an obvious question. This story should not be seen as yet another dump on Boeing. We want to point out that whatever happens in the silo impacts the entire silo. As Boeing goes unstable, it hurts Airbus, too. And their supply chains. Airbus faces a hostility in Quebec at its Mirable FAL. A new deal was reached, but there were threats of a lockout there, too. Airbus could flex because it has the Alabama FAL to deliver A220s as they are from Mirabel. But there are limits to that flex. The limit is the shortage of skills - there aren't enough people in the aerospace industry. All the way across and down the supply chain. Moves are being made to address the skills shortage. However, acquiring the skills takes a long time, and the industry has zero tolerance for safety risks. We are seeing several issues compound to hit the silo at once: a skill shortage, sharp labor cost increases, robust aircraft demand, and a key part of the duopoly under severe financial pressure. You would be right to feel uncomfortable.

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