Both Airbus and Boeing declared that they each exceeded commercial aircraft net orders and operational delivery performance targets in 2017. The numbers would indicate far more evidence of an industry inflection point at-hand, one that has continued implications for the collective industry supply chain ecosystem for the next several years.
European based Airbus announced the delivery of a record 718 completed commercial aircraft to 85 customers in 2017, four percent higher than the previous record 688 aircraft delivered in all of 2016. That stated, 2017 delivery performance was half that of the 8 percent delivery increase that occurred from 2015 to 2016. Compared to rival Boeing, Airbus was late in announcing its 2017 delivery performance. The likely reason was that a total of 105 single-aisle aircraft, nearly twice the rate of October and November, were delivered in the month of December. Deliveries in the last month included 47 of the new engine option (neo) A320/A321 aircraft, an indicator of the “hockey stick” queue related to delivery of the new, more fuel-efficient Pratt & Whitney geared turbo fan engines. Completed aircraft were literally parked during the month waiting for designated engines.
Another noteworthy data point related to deliveries was the 78 A350 wide body aircraft delivered in the year, exceeding the 49 delivered in 2016. This model was dogged in 2016 with component supply shortages related to interior seating, lavatory, and other interior components during the prior year. There has been a dedicated effort to scale-up the cadence of A350 production, but as of the end of December, the stated goal for a sustained monthly production rate of 10 aircraft per month had not been met. An actual total of 48 A350 aircraft were delivered in the second-half of the year.
Of the year’s total deliveries, 558 (78 percent) were in the single-aisle category, including 161 of the highly popular and more fuel-efficient model A320neo model. That number could have been somewhat larger, but as Supply Chain Matters has continually pointed out to readers, Pratt had to cut-back on deliveries of completed GTF engines to Airbus. Initial operational performance issues with in-service GTF engines forced Pratt to allocate additional completed engines as hot spares for pre-mature off-wing maintenance for certain airline customers.
Total net orders for 2017 amounted to 1109 from 44 customers, compared to 731 reported net orders during 2016. Entering the final month of the year, Airbus was in jeopardy of having to take a second-seat to rival Boeing in the crown of total net new orders. Thus, extremely significant was the unprecedented inflow of 841 aircraft orders in the month of December 2017, the highest monthly intake in this aerospace manufacturer’s history and far surpassing total net orders in all of 2016.
Orders were dominated by the single aisle A320 product family (828 orders) in both neo and ceo engine options. Three of December’s orders were in triple-digit categories, reflecting Airbus’s ability to attract and compete on bulk aircraft purchases among multiple airlines to secure attractive pricing. As an example, in what industry insiders characterized as a hotly contested deal, Delta Airlines and Airbus jointly announced a firm order for 100 Airbus A321neo aircraft with an option to acquire an additional 100 of the new aircraft. The order was valued at $12.7 billion at list prices, and according to the announcement, many of the new aircraft are targeted to be manufactured at the Airbus Mobile Alabama production facility during the 2020-2023 period. Another notable order was the booking of an order for 146 of A320/A321 neo aircraft models from Wizz Air.
Another promising aspect of new order growth in 2018 and beyond is Airbus’s blockbuster announcement to partner with Bombardier on marketing, sales, production, and component procurement related to Bombardier’s C-Series narrow-aisle aircraft.
As of end of December 2017, the backlog of Airbus commercial jets was noted as 7.265 aircraft, representing over 10 years of production when factoring the 2017 delivery performance.
Pending Senior Management Challenges
Looking toward 2018-2019, Airbus has a special challenge in that many key senior executives have announced their exit potentially over the next two years, including the manufacturer’s CEO, COO, and Chief Sales Executive John Leahy, who recently announced his intent to retire in 2018. Tom Enders, the current CEO, informed the company’s board that he would not seek a third employment contract after his term expires at the end of April 2019. Current COO Fabrice Brégier is anticipated to leave the company in February after the board refused to support his bid to become the next CEO. Some of this executive shake-up has been attributed to anti-corruption investigations occurring within several European countries related to past military and civilian procurements.
In December, the company announced the departure of its Chief Technology Officer, Paul Eremenko, a former Google tech executive, effective at the end of 2017. Marc Fontaine, Digital Transformation Officer, was announced as Acting Chief Technology Officer.
Boeing reported a record of 763 commercial aircraft deliveries among 89 customers in 2017, thus taking the industry total deliveries crown. The 2017 delivery performance compared to the 748-aircraft delivered in 2016, representing an overall 2 percent increase in deliver performance year-over-year.
Reflecting a similar trend as Airbus, 69 percent of 2017 deliveries were in the single-aisle, 737 aircraft family. Of the total of 529 of 737 model aircraft delivered in the year, 74 were of the 737-MAX family, the aircraft that competes head-to-head with the A320 neo family of aircraft. With increased backlogs of 737 orders, Boeing has plans to boost 737 single aisle monthly production from the 2017 cadence of 47 aircraft per month to 52 per month in 2018, and 57 per month in 2019. According to reports, 737 production slots are now sold-out until the 2022-time period.
Another important metric related to deliveries of the 787 Dreamliner, which has had a continual multi-year order backlog but was challenged in breakeven profitability. Boeing made a conscious delivery of stabilizing the monthly product rate of the 787 to achieve its goal of breakeven profitability in 2017. In 2017, 136 of the Dreamliner family of aircraft were delivered, compared with a reported 137 in 2016, and 135 in 2015. After a series of highly visible snafu’s related to explosions with its lithium-ion batteries resulting in a several month FAA grounding, the Dreamliner did not enter full operational service until 2011, two years from original plan, and today, two separate production facilities produce finished aircraft.
Airbus was hoping to capitalize on this trend with sales and delivery of its competing A350 aircraft family.
Boeing’s strategy in 2017 was to concentrate on cash flow, profitability, and enhanced investor return with dividends and stock buyback outlays, which resulted in a doubling of company’s stock valuation during the year. The strategy resulted in decisions to selectively move previously externally procured aircraft components to in-house production and to continue to pressure suppliers for more attractive component pricing.
Boeing reported 912 net orders in all of 2017 compared to 668 reported in 2016, a 36 percent year-over-year increase. Boeing would have taken the industry’s net-order crown entering the November period, but Airbus’s aggressive sales performance in the last two months took that away.
Of the total net new orders, nearly 82 percent stemmed from the 737 single-aisle family. In the twin-aisle category, the 777-family garnered 60 net new orders while the 787 Dreamliner garnered 94 reported orders.
In Boeing new product development and production ramp-up, 2017 included the maiden flights of the 737 MAX 9 and the 787-10 stretch Dreamliner, and the start of production of the 737 MAX 7 and the new version 777X.
At the end of December 2017, Boeing reported a total backlog of 5864 aircraft orders, representing 7.7 years at 2017 delivery performance levels.
Industry Ongoing Learnings and Takeaways
As this blog has magnified in our commercial aerospace industry commentary, and further reflected in our 2018 Predictions for Industry and Global Supply Chains, industry supply chains are reaching an inflection point in overall global market demand. As industry observers continue to observe, the super-cycle of global demand for wide-body, twin-aisle aircraft is being subsumed by ongoing demand for more fuel-efficient, single-aisle aircraft stretched to accommodate the maximum number of passengers. That impacts the total number of production facilities dedicated to wide-body aircraft. Already, Airbus now has four globally located production facilities dedicated to its single-aisle product lines.
Commercial aerospace supply chains will likely run into more potholes in plans to scale-up monthly production volumes while attempting to satisfy investor interests in greater short-term returns. As occurred in 2017, aircraft engine producers will remain the critical weak link in supply networks. As industry OEM’s continue to take-on more independent services of operational aircraft with corresponding replacement part needs, there will be a building flash point with existing component suppliers who have strong reliance on service management revenues and profits for revenue and profitability growth.
The ultimate impacts of Brexit in terms of trade and currency impacts will loom as important over the next 24 months because of the concentration of existing component and engine sourcing within the U.K. region.
At one point several years ago, having a multi-year backlog of unfilled orders was looked upon with envy by OEM manufacturers and their respective supplier partners. With each passing year, with markets and economies subject to constant change, and with industry-wide acquisitions at the key component level threatening each other’s market turf, several years can be viewed as an eternity where anything can happen. There is also the reality that much of the current order backlog stems from low-cost, no-frills start-up airlines that position to be industry disrupters. Some have succumbed, including the recent demise of Air Berlin. The open question is how many of consequence may succumb in the next ten-year cycle.
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