With demand for new aeroplanes predicted to exceed 38,000 by 2035, this presents a £4.3 trillion opportunity. Across almost every metric, numbers have soared. The sector currently contributes more than £31bn to the economy every year, directly supporting more than 128,000 skilled jobs, with a further 154,000 indirectly. It’s predicted that air passenger numbers will rise by 80%, to 218 million by 2034. Accordingly, every one of the world’s airlines – from flag carriers down to low-cost budget brands – is looking to replace and augment their in-service fleets with ever more efficient aircraft. But can the industry cope?
Boeing and Airbus’s supply chain was the talk of the UK’s Farnborough air show this month — as the companies come under intense pressure to deliver a record number of aircraft. In 2020, the two companies are supposed to deliver 1,830 passenger jets — a 45 per cent increase on the 1,266 in 2013.
Their suppliers say ensuring the resilience of the supply chain was a serious concern for many at Farnborough and that unsurprisingly, strains are already being felt.
For suppliers, the six-year boom in orders is a mixed blessing. Revenues may be soaring but so too are the demands of the aircraft makers.
Component suppliers who want a share of the bonanza are being told they must take on greater development risk, invest in expanding capacity, provide stock just when needed, and sell at ever-lower prices. A price cut of roughly 15 per cent at each stage of an aircraft programme is standard.
Executives at Farnborough also spoke of pressure from the big aircraft and engine makers to sign long-term supply agreements lasting 10 to 15 years, promising both regular price reductions, and accepting unlimited liability should something go wrong. Those with rare or specialist skills are able to resist. Others are forced to accept “or they are out”, one supplier said.
For many suppliers, the way to cope with this pressure has been to innovate — designing out cost, by making simpler components. There has also been a push to acquire smaller suppliers, cutting out costs and expanding product portfolios — thereby appealing to aircraft makers that want to deal with larger, financially sound companies.
Those at the front line blame the problems on pressure from aircraft makers to deliver cutting-edge products at ever-lower cost. As pressure is applied from top to bottom of the supply chain, some smaller companies are struggling. Big suppliers cannot impose financial penalties on these smaller, often financially fragile manufacturers. Instead, they have to improve their own supply chain management and ensure the methods they use to improve efficiency in their own businesses are passed on.
But others argue that aircraft makers may have been using supply challenges as cover for problems of their own making, with many suppliers complaining that the rush to throw resources at planes to meet delivery targets this year has led to quality issues. The pressure to deliver will only get more intense in the short term, as manufacturers rush to get jets out of the hangar to avoid any chance of customers reviewing their orders, amid signs that the aviation capacity may be coming to an end.
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