As airlines place record orders for new aircraft and refurbish existing equipment, seating suppliers are enjoying bulging order books. But that could be problematic, particularly as engineering, supply chain and certification issues delay deliveries of new seats to airframe OEMs and MRO providers.
A case in point is an announced intention by American Airlines to cancel an order for Zodiac Aerospace business-class seating on new Boeing 787-9s and retrofitted 777-200s due to ongoing delivery issues.
It is a challenging situation. According to a paper presented by Atlanta-based Tronos Aviation Consulting (TAC) at the Passenger Experience Conference in Hamburg last April, some 6.6 million seats will be required for jet airliners in 2015-24. TAC predicts a 50/50 split between new production and retrofits, with 7% of the seats slated for the premium cabins.
The new-build markets, product upgrades and interior reconfigurations are the primary demand drivers for seating, followed by aircraft trading and maintenance attrition—in that order, according to Gary Weissel, author of the paper and TAC’s managing officer.
The crunch for suppliers, he explains, stems in part from a merger and acquisition (M&A) spree in the airline seating industry, which saw some well-known names disappear.
“About 10 years ago, there were five principal OEMs in the business—B/E Aerospace, Zodiac, Recaro, Weber and Contour,” Weissel says. “Today, there are three major OEMs holding the majority of the market share—Zodiac, B/E and Recaro—with Zodiac holding about 40% of the market, B/E Aerospace at 30% and Recaro at 10%,” he adds. “The remaining 20% is comprised of smaller, niche-type companies. Along with the M&A activity came synergy issues involving integration of the acquired companies in terms of products and certifications. That will take some time.”
Weissel questions whether the three major seating OEMs have the capacity to meet current customer demand, noting, “there is room for growth in the space.” However, he says, capacity is not strictly limited to production. “Often, the bottleneck is with engineering, given the high degree of customization involved, especially for first- and business-class seating programs.”
On top of that, says Weissel, seat certification is “a constantly evolving dynamic,” in which regulations change quickly, and interpretation of rules is often a gray area. “When you get into premium cabin seats incorporating motor-driven electrical systems, complicated inflight entertainment systems and sometimes unique and innovative seating geometry, you are adding considerable complexity and challenges to certification,” he says.
Ken Herbert, an aerospace and defense analyst for Canaccord Genuity in San Francisco, characterizes the aircraft seating business as largely driven by customers looking for something unique. “The airlines are trying to make a fashion statement to differentiate their product from their competitors’,” he says. “So, the aircraft seat OEMs have to invest more into research and development to come up with a one-of-a-kind customized seating solution for each customer—especially for first and business class.”
This adds to overhead and further complicates the entire production process. “And given the complex process involved with engineering and certifying a customized seat, there is always the risk that the seats might not be available when they are needed—even when orders have been placed years ahead,” he says.
Herbert also points out that if an OEM is having problems that could delay delivery of the seats to a specific customer, it could affect multiple customers. “Since customized seating is the [big] moneymaker, the seating manufacturers will focus their resources more on the buyers of those seats instead of those who are buying the standard catalog product,” he notes.
One of the most important dynamics affecting aircraft seating design is weight. “It is a bigger issue than it traditionally was, especially now that the airlines are cramming more seats into the coach section,” says Wayne Plucker, director, North America aerospace and defense for Frost & Sullivan. “Along with this, the airlines are pressuring their suppliers to reduce the cost of seating. This has led to a redesign of seating, along with shrinking seat pitch.”
The other major developments affecting the industry are in-seat power supplies and lie-flat seats. Plucker adds, “With all of the changing dynamics, there will probably be more delivery delays from the seat manufacturers” to fulfill airlines’ customized engineering specifications.
Despite the projected demand, Plucker sees limited opportunities in the market for startups, although he says “some possibilities may exist” for new entrants providing seat components. “But as far as whole seats are concerned, there have been more cases where airlines have looked at proposals [from startups], but never followed through. They are staying with companies that have been in this business for years,” he says.
Herbert agrees. “Airlines tend to be very risk-averse regarding interior suppliers,” he notes. “They will stick with the established companies, and that is where any market shifts are likely to take place.”
Kestutis Volungevicius, head of engineering and training at FL Technics in Vilnius, Lithuania, says “a median wait” for a full set of new seats is usually at least four months, and often as much as 6-12 months due to supply shortages.
“Customers are also requesting us to provide used seats, which are overhauled or serviced,” Volungevicius notes. “However, they often do not meet the airline’s requirements and are not suitable for installation on the aircraft. This shows that even though the demand is very high, the supply chain still has some issues to resolve.”
Volungevicius adds that the majority of FL Technics’ customers request customized seating—even in coach. Most of that customization, he says, involves seat pitch. “Nearly all operators want to tighten this,” he notes. “However, not all seats are certified for 28-29-in. pitch, resulting in a longer certification process.”
Because higher levels of customization demand more intensive engineering and certification work, Boeing Commercial Airplanes has taken a proactive approach with its customers, to minimize potential delivery issues.
“For the past few years, we have had a seating integration team working with our airline customers and the seating manufacturers earlier in the seat development process,” says Kent Craver, Boeing’s regional director for cabin experience and revenue analysis. “This enables us to work with everyone to streamline the process, from design through certification and installation, and to make sure the schedule from development through delivery is a realistic one. By becoming involved earlier, we are better able to minimize the hiccups.”
In fact, says Craver, some of those hiccups have involved suppliers to the seat manufacturers.
“Sometimes, the components needed for the seats are either in very short supply or they haven’t even been built. When you get into the supply chain that caters specifically to the seating manufacturers, you are getting into lead time issues with component development, so there is a bottleneck there,” he says. “By intervening early, we can understand what the seating OEMs are up against and what they have to do in order to mitigate any potential issues,” says Craver.
For Recaro Aircraft Seating, the market is expected to expand at a compounded annual growth rate (CAGR) of 5% over the next 5-7 years, based on an internal study for commercial jets. This includes new production and aftermarkets, says CEO Mark Hiller, also a shareholder in the Schwabisch Hall, Germany-based company. The manufacturer, he says, is well prepared for growth.
“We started to build up our capacities years ago, when we expanded our plant[s] in Germany, Poland and South Africa. In 2013, we doubled our plant in the U.S., and opened a new plant in China. Thus we have our own production facilities in all three major aviation markets,” he says. “We have also invested in our R&D department, the development of innovations and introduction of new patents. Our R&D rate amounts to 10%.”
Recaro specializes in coach- and business-class seating. Hiller notes that in addition to customized seating, the company offers seats as supplier-furnished equipment for airlines looking for short lead times. “These seats are available in predefined, prequalified and precertified layouts and catalog configurations, which save considerable time normally required for individual product approval.”
While Hiller would not comment on the American Airlines situation—citing nondisclosure agreements—Zodiac acknowledges it is addressing its delivery problems, says Pierre Antony Vastra, Zodiac Aerospace’s executive vice president for communications and investor relations.
“Globally speaking, the root causes of our seat delays are our large commercial success with a new range of products, customization to accommodate customer needs, changes in certification requirements and a production system [that is] not robust enough,” he says. “This has [affected] engineering and then manufacturing.”
Vastra says Zodiac is addressing the problems by applying additional resources to reduce delays and is taking on additional costs, such as air freight shipping, to limit the impact on customers. “If possible, we are renegotiating delivery schedules for some retrofit programs,” he says.
Analysts suggest Zodiac continues to face difficulties with certification issues, which keeps backlogs higher than they should be and is straining some customer relationships. Expect B/E and others to capitalize on this.