Aerospace supply chains are among the most complex across the global industry. Not only must aircraft parts be built to extremely fine tolerances, but they need to arrive for assembly on schedule and on spec from manufacturers scattered across dozens of time zones. If production rates surge, or new technologies debut on the factory floor, both of those conditions can be threatened.
A case study for what can go wrong is the Boeing 787. Four years after launching the innovative, carbon-fiber aircraft, the OEM had racked up close to 1,000 orders, making it one of the fastest-selling airliners ever. Unfortunately, this was also the time—2008—when the Dreamliner had originally been slated to enter service, but it was nowhere near ready to do so.
Its problems lay with an overextended supply chain that Boeing didn’t manage effectively. While in the past the manufacturer had contracted out less than half the production of previous aircraft models, it aimed to outsource more than two-thirds on the 787. The goal was to lower costs and accelerate the 787’s development; the result was a three-year delay to service entry and a new aircraft program several billion dollars over budget.
Boeing subsequently admitted that it had overestimated the capabilities of several suppliers. The problem was exacerbated by a lack of on-site monitoring and assistance, and it ultimately forced Boeing to buy out Vought, which built part of the 787’s fuselage.
All this occurred despite an internal warning that outsourcing had to proceed hand in hand with enhanced supplier oversight. “If this is not done, the performance of the prime manufacturer can never exceed the capabilities of the least proficient of the suppliers,” said L.J. Hart-Smith in a presentation to Boeing in 2001. And although Hart-Smith acknowledged that many of his views were at odds with those of Boeing management, seven years later he was vindicated when the 787 was delayed due to a shortage of nuts and bolts.
Airbus pledged to avoid Boeing’s mistakes when it came to building the A350. As a multinational enterprise, managing cross-border supply chains was in the DNA of the European manufacturer, and its newest widebody did begin test flights on schedule in mid-2013.
Yet Airbus also ran into problems as it sought to scale up production. In January 2016, the company blamed suppliers for missing its production goal for the A350 in 2015. Like the 787, this came down to the most prosaic of parts, with Airbus saying it “suffered a lot” due to Zodiac’s failure to deliver toilets fast enough.
Although higher airframe production rates demand more of the supply chain, they are always planned long in advance, giving manufacturers time to bolster existing tooling and manpower. It is a step into the unknown, however, when new components are being rolled out for new aircraft.
Naturally, in these circumstances suppliers prioritize their main customer—the aircraft manufacturer. But this can cause problems for MRO providers and airlines that require their own inventories of spares and retrofit material.
“The phase-in of the A350 showed that it is difficult to perform the initial provisioning of home bases due to the very long lead times of the OEMs,” says a spokesman for Lufthansa Technik.
Bottlenecks are particularly common for cabin equipment items, such as seats, lighting, galleys, monuments, Wi-Fi and storage bins. As passenger experience is drawn from the interior, manufacturers always will refresh the design of new aircraft. Airlines also will add their own buyer-furnished equipment, which could be all-new items or just tweaked designs.
“The combination of new aircraft and new aircraft interiors quite frequently leads to situations where quality doesn’t meet the demand and delays occur. In such a case it happens that suppliers focus their capacities to meet the quality and schedule of new aircraft deliveries. This will have an impact on the parts delivery for retrofit activities,” says Lufthansa Technik.
Connectivity is a good example of the interaction between new aircraft programs and support for the existing fleet. The prevalence of mobile technologies dictates that the latest aircraft offer inflight Internet, but many carriers also want to update their existing fleets with similar technology. TAP Portugal, for instance, announced in April that it would become the launch customer for the A330neo with Airbus’s new Airspace interior, and also that it would upgrade the cabins of its existing A320 and A330-200 fleet. Both new and retrofitted models will offer Wi-Fi, requiring so-called “rare parts” such as special connectors.
While there has been no suggestion at this stage that TAP will encounter problems, Lufthansa Technik reports that several airlines have been “severely affected” over the past two years by delays to cabin equipment. American Airlines and Virgin Australia, for instance, both plumped for custom variants of new seat designs. Last year, however, American dropped Zodiac as a supplier for its 787-9 and 777-200 business-class seating after several of its Dreamliners were delayed due to missing equipment. Virgin Australia refits, meanwhile, were hit by certification problems for new B/E Aerospace seating.
After its troubled experience with the 787, Boeing is desperate to avoid any embarrassment for its next aircraft launch, the 737 MAX, which is set to enter service with Southwest Airlines in the third quarter of 2017.
“We have said for some time we are learning lessons as we go, and we are building on our experience with 787 production to ensure that our suppliers are prepared to support future rates,” says Boeing spokesman Doug Alder. That preparation includes regular executive and working-level meetings with key suppliers, plus detailed reviews by Boeing of their production capabilities.
Perhaps the highest-profile casualty of this stricter oversight has been British manufacturer GKN, which was to supply a new titanium inner wall for the 737 MAX’s thrust reverser. However, the part will appear only on the first few models of the aircraft, as late last year Boeing dropped GKN due to fears that it could not meet rapidly escalating production rates, although GKN is still supplying other components for the MAX.
Over the past five years, Boeing says it has expanded production by 60% while reducing parts shortages, an achievement it partly credits to on-site assessments at more than 500 suppliers.
Airbus has also stepped up production and plans to take its narrowbody rate from the present 42 A320s per month to 60 in 2019. “We never take such decisions before fully assessing our own capacity and that of our supply chain; we are in this together,” says an Airbus representative.
Some aviation analysts have questioned whether the A320 production ramp-up is fully justified by demand. Instead, Airbus might be trying to pressure Boeing, whose 737 MAX—a more updated version of its predecessor than the A320neo is—might be harder to turn out at higher rates. Boeing currently produces 42 units per month and plans to increase that to 47 next year, 52 in 2018 and 57 in 2019.
What the company hasn’t disclosed is the mix of 737NGs and 737 MAXs within those future rates. This affords it some flexibility if MAX production falters, but external factors will also play a role. Sustained low oil prices, for instance, would tempt many airlines to hold on to their existing fleets longer, while a rise in interest rates might also discourage new purchases.
For maintenance providers, the pace of introduction of new aircraft can significantly affect the dynamics of the MRO market. Mass retirements of current-generation A320 and 737 fleets will lead to a glut of used serviceable material, depressing prices for parts and demand for repairs. In turn, this will hit pricing for many of the total support packages that the larger MRO providers offer.
“Retirements lead to additional surplus volume, thus reducing MRO workload and reducing market prices for nose-to-tail component services,” says Lufthansa Technik.
And while work on the A320neo and 737 MAX will offer some compensation, it will take several years for those fleets to scale up enough to offer attractive maintenance volumes. The new aircraft also have been designed to need less frequent maintenance, although the huge number of orders may offset the hit MRO providers will take from this.
Instead, the maintenance sector is looking warily at the airframers’ advance into the aftermarket, which has progressed with successive aircraft launches. Boeing, for instance, introduced Gold Care with the 787, while Airbus signaled its ambition to become a “major” player in the A350 aftermarket with its Flight Hour Services package.
Unlike the engine-support market, many independent airframe maintenance providers will receive work from OEM packages, but they still find themselves pushed further down the aftermarket food chain, with potential consequences for parts procurement and access to intellectual property.
By leveraging their own service data and multi-airline spares pools, the larger MRO providers should easily withstand OEM encroachment, but it is far from certain whether new aircraft such as the A320neo will be the boon to smaller MRO shops that current narrowbody equipment has been.