Raw materials, castings, and forgings hold up CFM LEAP deliveries

Persistent supply chain issues with raw materials, forgings, and castings are to blame for the lower production of CFM LEAP engines this year. Instead of delivering 50 percent more LEAPs or 1.700 in total, the GE Aerospace and Safran joint venture will only deliver 40-45 percent more engines. For 2024, CFM is still targeting around 2.000 deliveries. Safran Group CEO Olivier Andries provided a little more color on the supply chain issues during Friday’s Safran Q3 earnings call. On Tuesday, GE Aerospace provided lower guidance for LEAP deliveries and projections for 2024, when LEAP deliveries should be up by 20-25 percent over 2023 levels. “Of course, we will manage very carefully the supply chain in the coming months and come back at the beginning of 2024 to give you guidance for the 2024 LEAP deliveries,” Andries said. Based on 1.136 deliveries in 2022, a 40-45 percent increase for this year would mean that between 1.590 to 1.647 LEAPs will be delivered this year. Taking 1.647 as the reference point, a 20-25 percent increase in 2024 would see deliveries go up to between 1.976 and 2.058 engines. Andries highlighted that deliveries have been progressing well so far this year and were up by 45 percent at the end of September to 1.174 LEAPs. “We already produced more engines in the first nine months than in the whole of 2022. We are not in a slow down, we are ramping up. In Q4, we will deliver what we did roughly at the peak of 2019,” Andries noted. He didn't want to point a finger at one specific supplier that has caused delays in Q3. Nor did he specify the split between the engine variants, the -1A for the Airbus A320neo family, the -1B for the Boeing MAX, and the -1C for the COMAC C919. He added that CFM is not pacing aircraft deliveries and this will continue in Q4. Growing market share CFM is not actively seeking more market share as it could benefit from the various durability and quality issues that its rival Pratt & Whitney is suffering from with the Geared Turbofan. “As you know, we have a 60 percent market share on the A320neo backlog. In the last 1.5 years, our win rate was around 70 percent. Frankly speaking, we aren’t looking for additional market share. We’d rather make sure that we strike deals at good economic conditions,” said Andries. The CEO said that discussions with Airbus and Boeing about production rate increases for the A320neo family and MAX don’t go beyond 2025. “We are preparing ourselves to get back to the pre-Covid levels for both airframers in 2025. We are prepared and committed, should Boeing confirm to go to rate 50 per month and rate 65 for Airbus in 2025. We have no discussion beyond that, it’s too early.” Boeing is planning rate 50 in 2025-2026, while Airbus has said this summer that it only wishes to discuss rate 75 for 2026 and not any rate breaks that come in between. Aftermarket on a high Safran’s civil aftermarket revenues have seen a steady increase this year, growing by on average 37.5 percent over the last nine months. This reflects the continued demand for CFM56 engines as deliveries of new-engine aircraft with LEAP and GTF remain behind schedule. Last week, CFM announced the upgrade of the CFM56-5B and -7B with new High-Pressure Turbine blades to make the engines even more durable. CFM delivered 38 CFM56s in the first nine months, down from 44 in 2022. Based on the strong aftermarket demand, Safran is now guiding a 30 percent revenue increase this year compared to the mid to high 20s guided earlier. Part of that comes from a price escalation in August, with the next one planned for August next year. “But we don’t want to be abusive, there needs to be a rationale about it. If you look at what happened in the last years, even before the pandemic, we have always been above the inflation by three to four points. We will continue on that path, at least for some years.” Still sourcing Russian titanium Speaking of raw materials and specifically titanium, Andries said that Safran is still sourcing titanium from Russian supplier VSMPO. This falls outside the sanctions on Russia that have been imposed since the war in Ukraine in February 2022. “We are still allowed to do that, it is not within the perimeters of the sanctions. So we are building up stocks and inventory in order to be more protected against potential disruptions. We have also engaged with other suppliers to get titanium billets and we are also working on alternative sources for the forging of those parts for landing gear and engines.” One of them is Hubert Duval, but it takes time before this company can produce them according to very strict specifications.

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