Aerospace manufacturing curbed by labour, supply chains

Tight labour markets and constraints along certain supply chains are limiting aerospace manufacturers' ability to ramp operations back up in line with strong demand, Richard Aboulafia, managing director at US-based AeroDynamic Advisory, said in a recent webinar.

Commercial aviation has been lagging behind the post-pandemic recovery curve of other sectors — from automotive to consumer goods — which are hiring workers, making capital investments and ordering machine tools before the aerospace industry, Aboulafia said.

Tight labour availability resulting from layoffs, retirements and career changes during the pandemic has led to "labour inflation", therefore increasing the cost of hiring workers.

Furthermore, higher spending on typically more inflation-proofed defence contracts — arising from the Russia-Ukraine conflict — is pulling workers away from the commercial aerospace industry, he added.

This problem of labour inflation is compounded by overall high inflation rates that may affect prices locked in on contracts with tier one, two and three suppliers.

Supply chain limitations

Aside from the labour market, the main supply chain problems that Aboulafia cited were microchips, forgings, superalloys, chemicals and resins, engineered components and machined parts, underlining that supply chain problems are not a thing of the past.

"One new complication that has emerged over the past year is titanium," Aboulafia said, as Boeing and Airbus have ruled out Russian titanium milled products from their supply chains, and alternative suppliers in the US and Japan are only able to increase their output so much.

"That's something we need to watch. Things could get a bit tight, especially if widebodies come back because widebodies have a higher percentage of titanium compared to narrowbodies," he said. Although in this decade, the demand points to significantly higher demand for lower-cost single-aisle aircraft, notably the Boeing 737 MAX and the Airbus A321neo.

Strong demand fundamentals

Global RPK (revenue passenger kilometres) rates are expected to return to pre-pandemic highs by 2024, AeroDyanmic Advisory data show. Passenger demand through the course of 2023 is expected to reach 85.5pc of pre-pandemic levels, International Air Transport Association (IATA) data show. In North America and Europe, RPK's are already back at 2019 levels but Asia is still behind as China reopens for international travel.

"We are living in a demand-crazy moment. Part of it is simply the return of traffic now, the return of China […] and the rightful concerns on the part of our airline customers that the supply chain has been constrained and will stay that way. And so the orders now are actually in many cases exceeding five years of demand," Boeing chief executive Dave Calhoun said.

But Airbus chief executive Guillaume Faury warned earlier this year that aerospace original equipment manufacturers are struggling to keep up with recovering air travel demand, and could continue to do so as Asian markets expand.

Stumbling blocks for aircraft manufacturers

Constraints on the manufacturing side are reflected in Airbus' January-March deliveries, and in the most recent setback for Boeing on its 737 MAX.

Earlier this month, Boeing was forced to halt deliveries of some 737 MAX models after reports of improperly installed fittings on the aft section of the fuselage.

Boeing maintained its delivery guidance of 400-450 737 MAX's for this year, but said it would have to defer some deliveries from the second and third quarters through to the fourth. Additionally, Boeing is planning to increase production of the 737 to 38/month, from the current rate of 31.

"When we gave our guidance, we didn't just assume the supply chain was 100pc better on day one, quite the opposite. We knew we would have to contend with issues over the course of the year" Calhoun said.

European manufacturer Airbus delivered 127 aircraft in the first quarter, an 11pc shortfall year on year. The company is targeting 720 deliveries this year, leaving an outstanding 593 deliveries to fulfil by year-end. Market participants therefore expect a ramp-up in output, leading up to the mid-year mark to reach this target.

By Samuel Wood