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July 22, 2024
Airbus HQ

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Airbus today formally reduced its earnings and aircraft-delivery goals for the year due to continuing supply-chain issues. Delivery forecasts were cut from 800 to 770 aircraft this year. CEO Guillaume Faury indicated that the supply-chain situation was not getting better, forcing the company to adjust its targets. Unfortunately, the impacts are highest on the most popular aircraft in the industry, the A320neo family for which demand is at record levels.

The supply chain issues facing the industry continue to emerge, two years past the pandemic, primarily because of the lack of skilled workers. The pandemic resulted in what has been described as the “great retirement” and the highly skilled workers, often the highest paid and first to be bought out, are no longer able to train the new workers needed. Since it often takes 3-4 years to fully train new employees, the situation may not improve at some suppliers until 2026 at the earliest, a lasting impact on the industry.

This comes at the same time the A321 in particular faces record demand. The most popular aircraft in the world will be in short supply, putting the industry further behind as demand continues unabated, and airlines are placing orders because the fear missing out on obtaining aircraft delivery slots. We are expecting several large aircraft orders at the Farnborough Airshow that could exacerbate the situation.

Airbus has now pushed its goal to produce 75 A320neo family aircraft per month back to 2027 from 2026, the second time since 2022 that Airbus has reduced its goals. While Airbus has a strategic opportunity to take advantage of competitive weaknesses at Boeing, the inability to ramp production has cost an opportunity to dramatically change the duopoly.

Engines continue to be a supply-chain issue for Airbus, even though it uses both the Pratt & Whitney GTF and CFM International’s LEAP engine. The GTF problems and AOG situation has been well documented, and the situation with CFM has “significantly degraded” in recent weeks. As a result, Airbus will be completing aircraft with metal blocks in place of engines, or gliders, until deliveries can catch up to production rates. Recent issues with false documentation on titanium from China is impact both Airbus and Boeing, and could become another problem for the industry.

The Bottom Line

New aircraft production is not keeping up with demand, either at Boeing or Airbus. This is not a good thing for the industry, as newer and more fuel efficient aircraft are delayed and older, higher emissions aircraft are refurbished for a few more years in service. The supply chain delays are impacting OEM cash flows, earnings, and R&D investment into the next generation of aircraft, which will be needed sooner rather than later to meet the aggressive goals the industry set forth for 2035 and 2050.

Even prior to the global pandemic the supply chain was having difficulty in ramping up production. Traffic and demand were increasing significantly pre-pandemic, with many suppliers investing in capacity expansion just before the rug was pulled from under them with the global grounding of aircraft. After that fall, financial survival became a priority.

While demand levels have come back, OEM forecasts have been unrealistically optimistic, resulting in a credibility problem with the supply chain. Suppliers don’t want to invest in additional capacity until they obtain firm orders for that demand, which haven’t been forthcoming from OEMs. The problem is that additional capacity, in facilities and fully trained employees, cannot magically appear overnight. Regaining the trust of the supply chain, particularly for Boeing, but even for Airbus, will not be easy when projections keep being pushed to the right.

author avatar
Ernest Arvai
President AirInsight Group LLC

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