Commercial aircraft industry eyeballs were focused on this week’s Paris Air Show, a biannual event with enormous significance to major aircraft manufacturers and their respective supply chain partners. Each event is a competition as to which manufacturer walks away with bragging rights to the most landed customer orders or most buzz regarding a new aircraft model. Beyond the headline buzz as to whether Airbus or Boeing landed the most orders, the global supply chain takeaway is an additional $100 billion plus in customer orders and another obvious extension of multi-year backlogs. The overall pressures on aerospace focused supply chain have clearly and unquestionably turned toward fulfillment execution.
Reports indicate that Airbus booked $57 billion for 421 new aircraft orders at list prices while Boeing landed $50 billion worth of orders representing 331 new aircraft. Combined, it represents nearly another 6 to 9 months of customer order backlog at current monthly production volumes.
Aircraft engine providers also shared in the order bonanza with consortium based CFM International reporting a combined $19 billion in orders related to its LEAP family of engines, and other models, while General Electric Aerospace reported orders valued at $5.4 billion for its new GE9X engine. Interesting enough, as a literal follow-up to our previous Supply Chain Matters commentary related to CFM International, the CEO of that engine supplier publically warned the two major OEM’s not to request additional production volume beyond aircraft currently scheduled for delivery through 2020, and that the consortium is currently stretched to capacity in fulfilling what has already been booked in orders. Likewise, the President of Rolls Royce’s aircraft engine business indicated that supplier was booked out to 2021 and the current industry message is about production and supply chain ramp-up.
On the topic of engines, Airbus had previously planned to feature its new A320neo aircraft at this week’s show but a component problem within the new model Pratt and Whitney engine grounded the aircraft.
A further industry implication is that more and more of added industry orders are originating from new and up and coming discount based carriers. Indonesia based Garuda was reported to be one of the most active buyers this week, placing orders for both Airbus and Boeing aircraft. Many are opting for termed “power by the hour” or included service management contracts where manufacturers guarantee a specified level of operational up-time and assume annualized aircraft maintenance costs. The longer the industry backlog continues, the less likely that OEM’s and engine suppliers can take advantage and leverage these incremental recurring revenue streams.
On the product design front, the reported buzz centered on a potential new Boeing model termed “Mom”, billed as a likely replacement of current discontinued Boeing 757 fleets. The aircraft does not exist and is more in the pitching stage, but talk of the new model was enough to reportedly generate a lot of interest and a lot of differing views. Postings by Business Insider and Bloomberg provided added color to Boeing’s potential new model. Industry participants are quoted as indicating that Boeing has no choice but to pitch such an aircraft because of current functional advantages offered by arch rival Airbus with its new A320neo aircraft. According to these postings, Boeing is indicating a “clean sheet” design. However, the current realities of the current highly capacity constrained industry are already adding to the discussion as to the time-to-market timetable for such a new model. Once more, the current operational 757 fleet is noted as more than two decades old and will need replacement rather soon. This author alone is rather frustrated in having to fly coast-to-coast across the United States in aging and dull United Airlines 757’s. It is akin to driving a station wagon with 200,000 miles on the odometer with seats and upholstery worn out. The notion of “Mom” will undoubtedly place enormous pressure on Boeing’s design engineering and program management teams at a crucial time when other new aircraft need to meet delivery and volume milestones.
Obviously, the industry question centers on whether both Airbus and Boeing have learned from past supply chain snafu’s with prior models and can effectively instill added agility, cadence and responsiveness to global-based supply chains. Supplier resiliency and contingency planning will be crucial as will supply chain risk mitigation. Advanced technology is already playing a crucial role in areas of additive manufacturing, RFID, IoT and more extensive end-to-end supply chain visibility. Both OEM’s, along with key suppliers, would be wise to increase their investments in more predictive planning and supply chain wide business and operational intelligence.
As Supply Chain Matters has noted often, an industry with engineering based culture having upwards of a current ten year order fulfillment backlog while enviable, has unprecedented challenges and requires more innovative approaches by all its players. The focus is now flawless and synchronized execution.
Supply Chain Matters calls special attention to readers who are involved in either commercial aerospace or engineer-to-order focused internal and supply chain environments. Today’s printed edition of The Wall Street Journal features a front-page article, Airbus-Boeing Speed Race Increasingly Takes Place on the Ground. (Paid subscription or metered view) By our lens, this article should be mandatory reading.
The article itself is well written and very insightful in pointing out how two rival commercial aerospace OEM’s are learning important lessons in consistent manufacturing and supply chain execution.
We cite two opening excerpts:
“After years of racing to develop and market new models, both have clear product lines for the next decade. Their order backlogs stretch as long.”
“Now, the world’s two biggest jet makers are squaring off on execution. Each aims to grab market share by building its planes faster and more efficiently than the other—a gambit both have struggled with in the past.”
Specific examples are provided on how Airbus and Boeing have addressed inter-organizational and supplier cooperation, more streamlined and focused processes, and a reoriented focus towards how aircraft will be built vs. what they would look like. It is a focus toward design for manufacturability as well as supply chain. In the specific example of the new Airbus A350 program, insights are brought forward in organizational design, workforce selection and manufacturing process design.
Included is a powerful quote from Boeing Chief Executive Jim McNerney:
“It is not just about building more airplanes but also building them more efficiently, with higher first-time quality, greater component reliability and improved employee safety.”
Well stated and an important reference for both internal and supplier based teams.
In this Supply Chain Matters posting, we provide some background to our prior commentary noting that Airbus is in the process of evaluating a further ramp-up of the production cadence of its A320 aircraft. The most significant suppliers involved in these ramp-up decisions are often aircraft engine suppliers, fuselage and airframe components suppliers as well as the myriad of avionics and electronic component suppliers. A recent commentary from General Electric’s GE Reports, provides added perspective on how the prime aircraft engine provider for the new A320 NEO model is preparing. It further reflects on the challenges for ramping-up newer materials sourcing and production process technologies, including deployment of 3D printing techniques.
The new next generation A320 NEO aircraft will be offered with twin LEAP jet engines supplied by CFM International, a 50/50 joint venture between GE Aviation and Safran (Snecma). To date, CFM has recorded a backlog of more than 2500 orders for the LEAP-1A model that powers the new A320 NEO. Other versions of the LEAP power plant will be available as engine options for the newly designed Boeing 737 MAX as well as the Comac C919. Thus, with a total combined backlog of 8900 orders related to the LEAP engine, CFM is indeed a strategic linchpin for commercial aerospace supply chain output planning. The first operational LEAP engine is scheduled to enter service sometime next year.
The GE commentary reports that the newly designed LEAP engine will include 19 3D-printed components to include fit-to-print fuel nozzles and static turbine shrouds produced from super strong ceramic composite materials. There are currently 30 prototype LEAP engines supporting all OEM three manufacturers, going through final assembly or testing phases among global based facilities. The report provides a rather fascinating photo of the flying GE Aircraft test aircraft as the engines are tested for operational performance.
As noted in our prior A320 focused commentary, Airbus has already announced plans to increase its monthly A320 production rate to 50 aircraft by early 2017, but is now actively evaluating an even larger 60 per month cadence. As the LEAP engine moves through its initial prototype assembly and testing phases this year, and operational service in 2016, CFM must gear-up its own production volumes to match both Airbus and Boeing production volumes, while incorporating new leading-edge processes such as custom 3D printing.
It’s a tall order which obviously palaces CFM International as being one of the most key commercial aerospace suppliers to observe in the coming months and years. If further provides perspectives on how challenging such commercial aircraft output volumes will become.
Boeing’s web site indicates that the commercial aerospace producer has begun the prototype build of its first 737 MAX jetliner, a key milestone in upgrading the product family. The web site features an informative video indicating how the wing is assembled as well as this photo of the loaded 737 MAX wing skin panels and stringers within the new panel assembly line that uses automation to drill holes and install fasteners in the upper and lower wing panels.
The 737 model lineup is Boeing’s most important volume airliner in generating cash flow and profits and has been in continuous production since 1966. The 737 MAX was designed to incorporate the latest technology which includes CFM International LEAP-1B engines, advanced technology winglets and other improvements. The new single-aisle airplane is marketed as delivering 20 percent lower fuel use than the first Next-Generation 737s and the lowest operating costs in its class. To date, the 737 MAX has attracted 2,720 orders from 57 customers worldwide.
The GM of the 737 MAX program indicates that the wing assembly for the first test aircraft began production on May 29, as planned several years ago. The prototype aircraft is scheduled to undergo final assembly in September with its initial test flight planned in early 2016.
The announced launch customer is Southwest Airlines, which anticipates delivery in the third quarter of 2017.
Commercial aircraft producer Airbus is reportedly evaluating a dramatic ramp-up of the monthly production of new A320 aircraft. The European aerospace provider currently supports a monthly production cadence of 42 A320 aircraft per month. In February, the company indicated that it had plans to increase the monthly production rate to 50 aircraft by early 2017, but is now actively evaluating an even larger cadence.
With a current order backlog of over 5100 A320 aircraft, current indications are that Airbus is now considering upping the cadence to 60 per month, which would represent a near 43 percent increase from current production volume. The company is now in the process of assessing the impact among its global based suppliers and expects to make a final decision regarding timing by the end of this year.
Rival Boeing’s single-aisle monthly production volumes averaged 40 737 and 10 787 Dreamliner aircraft during the recently completed first quarter, with plans to increase the monthly production rate of 737 aircraft to 52 by 2018. Boeing continues with efforts to ramp-up monthly delivery volumes of its multi-year backlogged 787 aircraft.
Since key suppliers for Airbus also support production requirement needs of Boeing, this planned ramp-up has significantly broader implications for the entire commercial aerospace supplier ecosystem. The most significant suppliers involved in these ramp-up decisions are often aircraft engine suppliers, fuselage and airframe components suppliers as well as the myriad of avionics and electronic component suppliers.
Airbus is likely matching and/or upping the competitive pressure on Boeing’s competing single-aisle aircraft families in assuring its airline and leasing customers more timely and flexible delivery options relative to orders. Supply Chain Matters has recently called attention to a recent trend of airline customers exercising changed order preferences as the economics and business strategies of the airline industry become more dynamic due to the current dramatic reductions in the cost of fuel and in the rapidly changing competitive dynamics of the global airline industry. Global airlines themselves are much more savvy customers who constantly monitor industry dynamics and are not shy to exercise customer influence among the two major aircraft OEM’s.
The recent occurrence of high-profile aircraft tragedies involving discount airlines is further raising concerns as to whether the supply of experienced pilots, air controllers and air safety systems can support the addition of so many new aircraft over the coming decade.
As Supply Chain Matters has noted in a number of our previous aerospace supply chain focused commentaries, the realities of multi-year order backlogs are now reaching the point of all-in commitment. These are record-breaking production volumes and massive scale that this industry has never experienced at a regional or global-wide perspective. Technology will play a critical role along with people, since the aerospace industry is facing the same reality of highly experienced older employees about to retire. Processes, systems, risk mitigation, talent and supplier management practices are sure to be tested in the journey that is unfolding.
As a supply chain community, those directly involved, and those of us as outside observers, get the opportunity to observe the lessons, process innovations and accomplishments that lie ahead for the commercial aerospace supply chain industry.
Supply Chain Matters has featured a number of previous commentaries related to Bombardier and its global supply chain challenges in development and launch of its new C-Series single aisle aircraft. The commercial aircraft provider has placed a huge strategic bet on the market success of the C-Series in filling an under served need within the single-aisle aircraft market. The effects of cumulative delays concerning the C-Series program have had recognized financial and market implications for Canada’s commercial aerospace producer and its supply chain ecosystem. This week provides news involving a broader implication.
Bombardier indicated yesterday that it will spin off a portion of its rail business, Bombardier Transportation in in independent offering of stock. According to business media reports, the IPO is being planned for the latter part of this year and the shares will be listed in Germany to attract transportation existing industry investor interest where rail equipment providers Siemens and Alstom are listed. According to a published report by The Wall Street Journal, other strategic moves remain on the table for the rail unit.
Of added interest is a previous published report indicating that China state-owned locomotive and rail equipment producers CSR Corp. and CNR Corp., who are in the process of merging their businesses, are possibly eyeing a controlling stake in Bombardier Transportation after completion of their merger. If that were to occur, it would have significant implications for the global wide passenger rail industry including high-speed rail equipment.
Bombardier CEO Alain Bellemare further indicated to the company’s annual meeting that the company was keeping all possible options open for its aerospace operations in the light of continued profitability challenges.
Bombardier’s business strategy has been designed to have its commercial aerospace and rail business’s serve as a cyclical balance, namely those in good economic times, commercial aircraft sales thrive, but struggle during broad economic slowdowns. Rail equipment, on the other hand, tends to sustain itself during hard economic times. With the increasing financial challenges brought about by the C-Series and other commercial aircraft program delays, the company is navigating a tightrope to raise additional capital while sustaining its prior business strategy. What has obviously changed are the global wide industry dynamics among both of these industries. Both Airbus and Boeing have managed to attract the bulk of airline buyer interest in new, technologically advanced single-aisle aircraft while China’s state rail players are making their thrust towards broader global market penetration to compete with Siemens, Alstom as a lower-cost producer.
This will be an important multi industry dynamic for Bombardier’s supply chain ecosystem to monitor in the coming months.