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Supply disruptions cloud aerospace outlook after strong first half

Concerns over the supply of parts, materials and labor dominated the Farnborough Airshow last week and are now reflected in the quarterly outlook releases.

Airbus cut its forecast for full-year jet deliveries by 3% and slowed a planned increase in factory production, noting pressure on the engine sector. The world’s largest aircraft manufacturer has 26 engineless A320 family jets.

U.S. rival Boeing Co slashed its 737 MAX delivery estimates this year and warned supply chain constraints had capped its ability to ramp up production despite “significant” demand.

“We continue to work hard on the predictability of the delivery chain,” chief executive Dave Calhoun said Wednesday.

On Thursday, French firm Safran – co-owner of engine maker CFM alongside General Electric – warned that supply chain problems would last until 2023, although it raised some financial forecasts due to currency fluctuations.

Chief Executive Olivier Andries, who has repeatedly expressed concern over Airbus’ plans for a record increase in aircraft production, said the European manufacturer’s decision to temper its production plans for 2022 and 2023 was a “adapting to reality”.

“This is unlikely to be a quick fix,” said Nick Cunningham, analyst at Agency Partners, adding that the main problem for Safran was the supply of castings and forgings from the United States, where hiring qualified welders is a real headache.

The world’s largest aerospace contractor, Raytheon Technologies, is facing shortages of microelectronics, rocket engines and structural castings. It has a total of 330 vendors on its watchlist.

Chief executive Greg Hayes said he was adding secondary or tertiary sources for parts, but Raytheon, which bought United Technologies in 2020, doesn’t expect those pressures to ease until 2023.

ON OUR TOES

The industry is grappling with supply issues at a time when much of the air transport market, with the exception of China, is booming after two years of sluggishness. Delays in aircraft production and deliveries have made it harder for airlines to add capacity.

United Airlines, which aims to operate more flights next year, has flagged aircraft delivery delays as a risk to its capacity plans.

To stabilize production and address shortages of engines, raw materials and semiconductors, Boeing, for example, has airdropped more specialists into its suppliers’ facilities. It also holds larger stocks to deal with any shortfalls.

In public, aerospace executives talk about collaboration, but in practice, smaller suppliers say that knocking on the door of the end customer, Boeing or Airbus, can be a stressful wake-up call. Few of them are willing to publicly discuss their glitches.

To be sure, manufacturers of all shapes and sizes have been scrambling to produce enough to meet current demand and replenish stocks after the pandemic fractured global supply chains.

But so far, aerospace has lived through the scale of the disruption faced by automakers and machine makers, as Boeing and Airbus were building far fewer jets than before the pandemic. Airbus is about halfway back to pre-pandemic production.

A pick-up in demand highlighted the tensions.

“It’s a ramp-up that’s going to keep us on our toes,” said Larry Culp, CEO of General Electric.

Mr Culp, whose company supplies Airbus and Boeing jet engines, said there was no silver bullet to supply chain problems as it is a “multi-year task”. “.

GE has deployed a fifth of its engineering team to deal with the bottlenecks, which emanate from various suppliers, including family businesses, according to industry sources. It strives to increase production rates.

Mr Culp, who is expanding his role to include the aviation unit which helped the conglomerate deliver a higher-than-expected profit in the second quarter, said the moves had increased supplier throughput by 30% .

Nonetheless, supply chain pressures reduced GE’s aviation revenue by 9 percentage points in the second quarter. Airbus Chief Executive Guillaume Faury told Reuters last week he was leaving Farnborough with a “little bit more comfort” on the engines, while Mr Culp this week stressed the need for “predictability and stability “.

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