The Strategist

Clearing backlogs for Airbus and Boeing is a mammoth task

07/17/2015 - 09:19

Although the aerospace industry is riding a wave of increased orders, a smooth functioning of the supply chain management is increasingly becoming critical for its operations, delivery and profitability. Adding to this burden is the phasing out of old models and replacing them with newer more fuel efficient ones.

With the Paris air show underway, the movers and shakers of the world’s aerospace industry is busy flaunting its models on runways the way haute couture models parade on catwalks, Boeing and Airbus are excited and busy trying to outcompete each other and get more orders. Critics on the other hand are focusing on the happenings at the backstage.
Both manufacturers have had a 3 year record of orders thanks to the booming aviation industry and to the introduction of increased fuel-efficient aircrafts. Although they have garnered a record number of orders they now have to put those figures into production lines and translate them into sales figures, without the traditional stumbling blocks of cost overruns.
Together, the airlines have had bookings for close to 12,000 aircrafts which would typically represent 8-10 years of productions. That is a long time for any customer to wait. Manufacturers from China and Canada are lurking with their models, trying to snag customers from commercial passenger planes. The stakes are high despite the challenges.
“The number one thing on our minds is delivery. We have to make sure our programmes deliver on time and on budget,” said Randy Tinseth, head of marketing for Boeing.
Tom Williams, Airbus chief operating officer, says the European aircraft manufacturer has to “build a single-aisle aircraft about every six hours. It is a drum beat and intensity that is very demanding.”
Both companies are set to increase the output from their production lines by a whopping 28% by 2018. Both have already boosted production rates for their most popular models - the Aribus 320 and the Boeing 737. The growing demand for air travel shows no signs of slowing down.
Boeing’s ambitious plans have raised doubts whether its supply chain machinery is well oiled enough to take on the strain of increased production. Efforts are being made to ensure that the smallest suppliers have the resources to meet the increased demand in production.
However, engine and aircraft manufacturers are demanding discounts which are acting as pressure points for smaller companies located at the bottom of the supply chain. This pressure could threaten the smooth function of the entire production line, since the delay in delivery of even the smallest component can in turn delay the delivery of the aircraft.
As per Alix Partners, a consultancy firm, the supplier’s share of the overall profit of the industry has falled from 24% to 21%. The sharpest decline has been for those companies who contribute to the aircraft’s structure.
The production challenge is not just about new aircraft models. Both giants, have the delicate task of keeping productions lines busy while transitioning from older to newer more fuel efficient and re-engined models. Airbus has already dropped hints that its A330 model will be replaced by the A330neo model in 2017.
These orders are “particularly important because the company needs [them] soon to fill its planned production for 2016”, says Douglas Harned, aerospace analyst at Bernstein.