As we have noted in prior Supply Chain Matters commentaries related to aerospace industry supply chains, air shows have customarily become the preferred trade show venue for the announcement of customer orders.  Last week, the biennial Farnborough Air Show wrapped-up with its flurry of customer order activity not only for aircraft OEM’s but for engine providers as well.  Farnborough Air Show 2014

Various business media reports indicate that Airbus landed the bulk of order activity booking a reported $75 billion of orders at list prices, involving 496 aircraft.  Boeing snagged a little over $40 billion worth of orders involving over 200 aircraft orders. In its reporting, the Wall Street Journal crowned Airbus as beating rival Boeing for air show bragging rights but the more important headline is the growing backlog of orders that industry supply chains must respond to. Neither of the dominant OEM’s came to this air show featuring brand-new aircraft, instead they showcased newer versions of previous new model aircraft including Airbus’s A330 and Boeing’s Dreamliner787 series.

Aircraft engine providers were further big winners at last week’s event. The consortium of General Electric and CFM International booked over $36 billion in new aircraft orders that involved over 1100 engines along with contracts for maintenance, overhaul and repair. Rolls Royce had its share of new order announcements including being the exclusive engine power plant for the newly announced Airbus A330neo, along with new engine orders related to various other Airbus and Boeing wide-body aircraft.

Another important development related to Farnborough related to the aircraft models that were unable to make a presence because of program difficulties. Bombardier elected not to feature its C-Series after test flights were suspended following a major engine incident.  That incident occurred at the end of May when a newly designed geared fan engine produced by Pratt & Whitney incurred an uncontained engine failure during a ground test.

The highlight of the military aircraft aspects of the air show was supposed to be the F-35Joint Fighter being developed by Lockheed Martin for the U.S. Air Force. That aircraft was restricted from flying to the United Kingdom after it suffered an engine failure in late June.  The aircraft was also powered by a Pratt engine.

The other interesting theme within commercial aviation from last week’s air show was increased nervousness about current backlogs as well as more evidence towards the emergence of a preferred supplier strategy.

There are fears for an industry downturn or cancellations as global airlines adjust to a changing global and industry economics.  Current multi-year backlogs for new aircraft delivery are not meeting the business challenges for airlines to have more fuel efficient aircraft operating on a more-timely basis, especially when competing with lower-cost budget airlines.  These lower-cost rivals are now taking delivery of the newer aircraft and extending their route coverage, flying longer distances and charging lower fares than existing long distance carriers. Intense competition has raised concerns for overcapacity, especially if marginal airlines start to succumb to faster growing operators. Carriers operating across Asia are responding to pressures to sustain 30 to 40 percent growth rates while having to deploy new aircraft on newer routes. Terminals, runways and air traffic control systems are reportedly not keeping pace with current demands for airline expansion across Asia. Euphoria is making way to the realities of hyper-growth.

Airlines and leasing operators also want to have negotiating flexibility in the all-important selection of engine providers.  Increasingly, as OEM’s continue to tune product designs among airframe and engine, such options are beginning to whittle. They are no longer inclined to spend development dollars across multiple engine power plant options.

As we continually point-out, aerospace industry supply chains are dealing with an extraordinary unique set of challenges. There are the blessings of multiple years of order backlogs with the challenges among OEM’s for ramped-up production and delivery of new aircraft under a shared risk and revenue arrangement. Rather, dynamic and responsive capacity management, end-to-end value chain intelligence, enhanced supplier collaboration and goal-sharing will all come into play as aerospace supply chains continue to adjust to extraordinary and constantly changing industry dynamics.

While other industry supply chains will envy such circumstances, the ongoing situation in aerospace continues to provide a rather interesting set of circumstances that will no doubt, provide business case content for many years to come.

Bob Ferrari

© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.