Aviation supply chain faces mounting strain as demand picks up

·3 min read

By Allison Lampert and Rajesh Kumar Singh

LAS VEGAS/CHICAGO (Reuters) - Global shipping and supply chain disruptions are making it harder for corporate planemakers and suppliers to meet resurgent demand for parts, according to industry executives and analysts.

Disruptions, which are also hitting commercial aviation, are beginning to drive up costs and risk slowing down the aerospace industry's recovery from the COVID-19 pandemic.

With private aviation traffic surpassing 2019 levels this year, some corporate planemakers and suppliers at a flagship business jet show in Las Vegas this week flagged warning signs about supply chain and labor hiccups.

Their comments added to recent concerns expressed by Airbus Chief Executive Guillaume Faury about mounting pressure on commercial aerospace's supply chain.

Aerospace has, so far, avoided the scale of supply woes faced by auto makers and machinery companies as planemakers Boeing Co and Airbus are producing fewer jets than before the pandemic.

But supply chain strains are increasingly becoming visible for the production of narrow-body jets, which have seen a pick-up in demand due to a recovery in short-haul trips, said Eric Bernardini, global co-head of aerospace, defense and aviation at consultants AlixPartners.

Easing travel restrictions and the lure of private flights have led to an unexpected surge in business jet traffic, filling seats for private operators and expanding order backlogs for planemakers, but straining supply of jets, parts and pilots.

Planes produced by Cessna business jet producer Textron Inc are flying around 20% more than in 2019, putting pressure on suppliers to keep up with the need to deliver replacement parts.

"We're in a healthier position compared to what it could be, but we are starting to see some issues," said Ron Draper, chief executive of Textron Aviation.

Draper said Textron is managing the hiccups, but is still "seeing some suppliers pop up with capacity constraints."

Stirling Macfarlane, a segment manager in aerospace with PPG Industries, said at the show that the maker of aircraft coatings and transparencies has faced some delays in receiving needed components.

Aerospace companies are experiencing shortages of semiconductor chip and plastics, and paying far more for raw materials like steel and aluminum, Bernardini said.

The input costs are going up at a time when the pricing power in commercial aerospace industry is constrained because of overall weak demand, making it harder for equipment makers and their suppliers to pass along the increased costs to customers.

The aviation industry on average paid 27% to 44% more for raw materials in the first half of this year compared to last year, according to data from AlixPartners.

Protecting profit margins is the "number one worry" for the industry, Bernardini said.

Companies are also struggling to find enough skilled workers to ramp up production and are battling shipping delays.

Adequate staffing levels are needed to meet anticipated production increases in 2022 and 2023, said Robert Martin, chief executive of lessor BOC Aviation at a CAPA Centre for Aviation event on Wednesday.

Embraer SA is keeping more parts available in its warehouses for customers, despite higher carrying costs, said Marsha Woelber, head of customer relations and aftermarket sales for the Brazilian planemaker.

"We've staged more inventory at local warehouses around the world because we know there is disruption when you look at international cargo flights or shipping containers," she said.

Some U.S. states are taking steps to help ease the bottlenecks.

Oklahoma, for example, created a portal earlier this year that helps connect local suppliers with manufacturers, such as ones in aerospace that are looking to diversify their supply chain to help fill in the gaps.

Draper said the challenge would be greater if production by commercial airlines returns to the levels of 2019, which could be a year or two away.

"If Boeing and Airbus get back to the arms race they were in and absorbing a lot of capacity, we could face capacity constraints."

(Reporting By Allison Lampert in Las Vegas and Rajesh Kumar Singh in Chicago, additional reporting by Jamie Freed in Sydney, editing by Richard Pullin)