Airframers Set To Squeeze Suppliers as Backlogs Grow

 - June 3, 2013, 2:55 PM
Airbus A320/A320neo backlogs run into 2020. (Photo: Airbus)

With airliner order backlogs at Airbus and Boeing running to five or six years, the problem of keeping the complex global supply chain on track and in sequence is, some might say, a nice problem to have. But a problem it is, nonetheless, because while it suits the world’s dominant airframers to keep cash-yielding deliveries flowing quickly, it doesn’t necessarily follow that it suits suppliers equally well to ramp up output rates with the investment spikes this requires.

“It’s tough to run an industry with a five- or six-year backlog,” said David Baxt, global head of aerospace and defense investment banking at Jeffries International. “The supply chain just can’t keep up. It’s not that it’s not robust enough, but it’s reluctant to advance the build rate. It’s a constant battle to try to increase [bring forward] delivery dates to move cash forward for OEMs.”

Speaking at Boeing’s annual investors conference on May 22, CEO Jim McNerney said that the airframer intends to boost profit margins by squeezing suppliers still harder on productivity rates and pricing. He indicated that suppliers who don’t meet the group’s more exacting standards for competitiveness could find themselves indefinitely frozen out of future work share. “We have no-fly lists across the company,” said McNerney. “If a certain group is not working with us they’ll be on a no-fly list. They’ll not be allowed to bid on new programs with Boeing.” The group, which is concerned that its suppliers have been enjoying better profit margins than itself, now intends to apply the “Partnering for Success” policy it has applied in selecting suppliers for the new 737 Max narrowbody to its plans for producing the new 787-10 and 777X.

Meanwhile, Baxt told AIN that he sees no let-up in the pace of new airliner sales. “Financing is there only for new aircraft. The pockets of capital for older aircraft don’t exist as much as they did,” he commented. “The decision on the part of the operator to buy a new airplane has never been more secure. Boeing and Airbus are both overbooked [in terms of delivery slots] for 2013 and 2014. They could use a bit of softening [in demand].”