Global commercial aircraft manufacturer Airbus has now reported both Q2 and 2019 half-year financial performance. The global aircraft manufacturer reported rather positive financial performance with the emphasis on continued ramp-up of production, opeartional and supply network execution. The manufacturer is likely to be well on track to be designated the globe’s largest commercial aircraft producer.

Needless to state, the financial performance contrasts among rival Boeing and Airbus could not be starker. Airbus A320 production

Airbus reported Q2 quarterly profit that increased five-fold, mainly as a result of increased commercial aircraft deliveries. Newly appointed CEO Guillaume Faury pointed to increased ramp-up of A320 aircraft family production along with further progress on the Airbus A350 financial performance as driving positive 2019 first-half results.

Following a rather positive operational performance, the aircraft manufacturer reported a Q2 net profit of $1.3 billion compared to roughly $236 million in the year earlier quarter. Revenues were reported to have grown 23 percent to approximately $20.3 billion. The aircraft maker generally benefited from favorable foreign currency trending.

In the first-half of 2019, Airbus has now delivered 389 aircraft as compared to Boeing’s 239 delivered aircraft. The gap will obviously widen in the upcoming second half of the year as Boeing continues to deal with the global grounding of the 737 Max aircraft. Airbus’s order book was confirmed as 7300 aircraft at the close of Q2.

In its reporting on the company’s financial performance, The Wall Street Journal indicated that Airbus has encountered a special challenge in the production of the larger versions of the A321 family aircraft, which have directly competed with the Boeing 737 Max aircraft. This model’s attraction has captured the interest of existing and prospective airline customers. The report indicates that Airbus is currently investigating options to assemble this particular aircraft in Toulouse France, in addition to the current Hamburg Germany facility.

In its formal reporting, Airbus acknowledged such ongoing challenges, specifically in the ramp-up in production of the Airbus Cabin Flex (ACF) configuration of the A321. Further acknowledged was the study of options to increase the share of A321 in current A320 overall production.  From our Supply Chain Matters lens, that is a meaningful indicator that Airbus intends to compete head-on for the ability to offer airlines a timelier delivery option in larger size and range single-aisle aircraft.

 

Second-Half Deliveries Remain Back-End Loaded

Airbus continues to deal with its own operational challenges, namely a growing backlog of airline customer orders for the very popular A320neo series of aircraft

In briefing analysts and investors this week, the company reiterated prior financial guidance which implies delivery of over 500 aircraft in the remaining six months of 2019. CEO Faury specifically indicated that the manufacturer’s principle operational focus for the second half remains A320neo production ramp-up, and that the company remains on-track toward achieving that goal.

That emphasis is certainly in the radar scopes of the Airbus global based supply network. A special concern relates to the looming revised October 31 Brexit deadline, and the now real potential of the UK’s hard exit from the EU. Airbus has reiterated that supply network contingency plans remain in place relative to any outcome of Brexit in the short term. Longer-term, the aircraft manufacturer has indicated that serious consideration will have to be made relative to UK based suppliers.

Of the total of 294 of A320 aircraft delivered in the first-half, 234, or 79 percent were of the neo option.

As Supply Chain Matters has indicated in prior Airbus focused commentaries, four global production facilities are now producing A320 aircraft including two in Europe, one in the United States and one in China.  Plans call for boosting overall monthly production of single aisle family aircraft to a combined 60 per month, with ongoing discussion on the ability to ramp that number to a higher volume by 2021.

A further positive in operational performance was the delivery of a total of 21 A220 aircraft in the first half. Readers will recall that the A220 represents the former Bombardier C-Series regional jet family, that was taken over by Airbus.

From our lens, that level of performance is an indicator that the transition appears to be going well and that the influence and breadth of Airbus’s supply chain management and manufacturing teams have had a positive influence in the aircraft’s supply network.

 

Noted Potential Tariff Impacts Involving the United States

In the company’s first-half financial performance press release, specific mention is made to ongoing EU trade tensions with the United States.

In April, the U.S. Trade Representative (USTR) had published a listing of EU products upon which the USTR would apply tariffs. That list included new commercial and defense aircraft along with major components for aircraft manufacturing in the United States.

The release indicates:

If the USTR decides to impose tariffs on Airbus products and other products from the EU, this could significantly affect the delivery of new Airbus aircraft and helicopters to the US market and have a negative effect on Airbus’ financial condition and results of operations. The potential decision of the EU to impose tariffs on US products could come at a later stage. Airbus continues to support an outcome through a negotiated solution.

That entry caught our Supply Chain Matters attention in that deliveries of both A320 and A220 family aircraft to U.S. airline customers such as Delta and JetBlue are produced at the Alabama manufacturing complex. Obviously, trade tensions remain among the EU and the U.S. specifically regarding government subsidies to both Airbus and Boeing, the latter having a direct influence on the Trump Administration.

 

Summary Perspective

The bottom line for commercial aircraft supply and customer demand ecosystems are the two dominant players dealing with far different challenges and risks.

For Airbus, the challenge remains aggressive production ramp-up to ensure airline customers that their new aircraft, especially more fuel-efficient single-aisle aircraft will be delivered according to schedule.  A further milestone is being crowned as industry leader by nature of total delivered aircraft and positive financial performance. That challenge is obviously shared across the supplier network, all of whom are being asked to allocate increased resources to support a production ramp with little tolerance for disruptions. The emphasis for sales and operations management teams remains end-to-end supply network visibility, inventory and process synchronization.

For Boeing, the challenge is managing one of the most significant product and corporate reputational related crisis that this manufacturer has ever had to deal with. The ongoing global grounding of its most popular and former most-profitable aircraft presents a unique set of challenges that are more related to leadership and relationships with global regulators, airlines, and equally important, the flying public.

While Boeing desires to get back to delivering new 737 Max aircraft, and the development of newer, more attractive aircraft, superior leadership and ultimately, an unprecedented operational response involving the entire global supply and customer services network, will be the basis of returning to some form of normalcy.

All could likely take many additional months to traverse.

As the lyrics of the popular Eagles tune, written by Don Henley lamented:

In a New York minute, everything can change.

In a New York minute Things can get pretty strange.

In a New York minute Everything can change

In a New York minute.

 

For industry supply chain management teams, the New York minute should remain a constant reminder of diligence and planning..

 

Bob Ferrari

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