In the current environment of supply chain issues that are exacerbated by the war in Ukraine, it must be unlikely that Airbus and Boeing will be able to ramp up the production of their aircraft. That’s the view, at least, that two influential specialists in the lessor scene expressed during the CAPA Aviation Leader Summit on April 7. 'Supply chain issues make production ramp-up Airbus and Boeing unlikely'. Even before the war in Ukraine, supply chains were under heavy pressure as they tried to recover from the two-year Covid-crisis, which resulted in reduced demand, staff lay-offs, and financial pains. Still, Airbus increased its A320neo-family production rate to 43 in the second part of 2021 and confirmed a further increase to rate 65 by summer 2023. In the coming months, Airbus will decide on a further ramp-upto rate 70 or 74 beyond 2024. The A350 would go from five to six per month in early 2023, CEO Guillaume Faury said in February. Boeing is trying to recover from the MAX crisis by gradually increasing the rate from 26 in January to 31 later this year, while already exploring going to rate 42. CEO David Calhoun said in January this depends on various factors, including the recertification of the MAX in China. Boeing also still needs to start redeliveries of the 787, which were paused last May over production quality issues. It is dependent on the approval from the FAA on this. Discussing supply chain issues at the CAPA summit, BOC Aviation CEO Robin Martin and Lynn Guiney were asked about their opinion. Guiney has worked for SMBC Aviation Capital and Avolon but is in the process of establishing a new leasing company Zalair since October. Martin said that BOC Aviation, as part of a four banks consortium and a $10 billion business in the supply chain, has seen issues coming for some time. Staff shortage and inflation “It is very clear to us that with the cutbacks during Covid, particularly to suppliers outside of the European area, and now trying to bring workers back in, there are two issues. One is getting the workers to come back in the first place. Can they find them, if they haven’t gone off to do another job in another industry?”, said Martin. “Second is also inflation: wage inflation is becoming an issue now all across the supply chain. And you add to that that you also have price-escalating of commodities. The obvious ones like titanium. People are concerned as to how much supply have, how much longer can they keep producing ranges of six months of up to a couple of years.” “By the time then we get to the aircraft coming down the production line, we are seeing two to three months delays on an average narrowbody. And of course, we haven’t seen a 787 coming out for a long time. We as BOC Aviation were to receive 22 787s by August last year. We have seen four so far and we hope they will start again some time in late April or early May.” BOC Aviation hopes to receive its first Boeing 787 since last year again hopefully by late April or early May. (BOC Aviation) These supply chain issues and delayed deliveries have cost lessors dear, as Robin Martin explained. “We lost a couple of billion dollars of Capex last year on the back of delays of manufacturers. We should have been at somewhere around $4.0 billion, we are down at $2.0 billion. We can really feel the effect of that, as that’s planes undelivered, not producing revenues.” Staff issues at OEMs could be seriously holding up rate increases, says Martin: “We are seeing older workers getting close to retirement before Covid who took terms and won’t be coming back into the workforce. There’s a lot of retraining having to be done as well. So we see all across the supply chain these issues and then you try to combine that with the idea that they are going to try push production up. This is also going to cause some challenges this year and next year.” Lynn Guiney agrees: “There is plenty of aircraft out there, but supply is going to be constrained. I don’t think Airbus is going to be able to ramp up to the levels that it has suggested. The A350 ramp-up is going to be delayed and will remain at five a month for the next months.” She added that airlines have had supply chain issues even before the pandemic. She mentioned Virgin Atlantic but also Iberia, which got an A321neo two months late, something frequently identified by other lessors like Air Lease Corporations. Also shortage of spare parts airBaltic CEO Martin Gauss who was on the same panel said that his airline has received many aircraft usually two months late, but for one scheduled for next year, “they advised us if we could take it six months earlier. So even that happens.” Gauss added that even more troublesome is the sourcing of spare parts for airBaltic’s MRO business: “It is a nightmare to do a heavy maintenance check now. They are the issues. You do the C-check but you aren’t getting the parts. Something that is scheduled for two to three weeks and then you are out three months on that aircraft.” The effect of supply chain issues, delays, lack of commodities like titanium, and rising inflation could be a “nasty shock” for those who haven’t covered contracts with price caps. BOC's Robin Martin sees inflation going up to eight percent on certain pieces on the aircraft. It’s a spike not seen as high since between 2001 and 2003. “And remember it is not an escalation in your aircraft price, it’s also an escalation in your service contracts related to the aircraft where you might have flight-hour agreements over the next twelve to fifteen years. People haven’t capped the escalation on those”, says Robin Martin.
