Opinion: How To Save The Aerospace Supply Chain

engine nacelle assembly line
Credit: GE Aviation

The aerospace supply chain is unlike any other. It is broad, complex and deeply tiered, and at the bottom it depends on thousands of small suppliers, often referred to as Tier 3 and 4, many of which are privately owned.

Although the industry has been through many crises—economic shocks, wars, the Sept. 11, 2001, terrorist attacks, self-induced program delays—the impact of COVID-19 will be more severe and extensive than any previous downturn. Airlines have too many aircraft and have grounded most of their fleets, forcing aircraft OEMs to lower production rates and shut down capacity. Oil prices and leasing rates have plummeted, further dampening demand for new airplanes. As the pain trickles down, the lower tiers of the supply chain will be hit especially hard.

There are debates about what the recovery will look like, but past experience will be of little use in the era of COVID-19. The future is a guessing game. But one tool is available today that could hasten the industry’s eventual recovery: decisive action to speed the retirements of older aircraft.

Clearing fleets of older models would help bridge the disconnect between demand and supply by incentivizing airlines to order new aircraft more quickly when airline travel returns. The concept is not new: During the Great Recession of 2008-09, the U.S. government supported the automotive industry through the Car Allowance Rebate System, which provided economic incentives to U.S. residents to purchase new, more fuel-efficient vehicles when trading in older vehicles. It proved to be very successful in aiding the recovery of the automotive sector and helped ensure the survival of some of its largest companies and suppliers.

As with its assistance to the automobile industry, the U.S. government is well-positioned to help the aviation industry. Government support for airlines and OEMs could include provisions that incentivize airlines to scrap older airplanes. In exchange, they would receive funding to pay for operations and employee salaries. 

How would it work? Each aircraft has a market value that is recorded in a “blue book,” just like for automobiles. For each aircraft scrapped, a cash payment and a credit for purchasing a new airplane from U.S. OEMs would be granted. The credit would have an expiration period, to give incentive to make the purchase sooner. The right balance for air passenger demand, existing capacity (including parked jets) and new production could be managed until stability and a viable level of demand can be achieved.

Additional capability to scrap and recycle aircraft would be established, creating job opportunities for skilled workers and maintaining the workforce for the future. The remaining in-service fleets would be more fuel efficient. That would have the added benefit of addressing climate change without burdening the industry with new regulations to reduce carbon emissions. Operational reliability, service and comfort levels would be improved, a positive for both airlines and their passengers. And the commercial aerospace industry would be positioned to compete globally in the future.

The current approaches that the U.S. Treasury, Congress and aviation industry leaders seem to be putting forth to address the devastating economic impact of the coronavirus are worthy, but they are focused on creating a bridge to an unknown recovery date and work from the top down. That’s a good start, but it won’t help the supply chain anytime soon. In an industry built on long cycles, Small Business Administration loans and a Paycheck Protection Program will not be enough to carry small suppliers through. 

The aerospace industry is complex and sophisticated, especially concerning the financials around producing, buying, owning and operating commercial airplanes. We need something different to attack this challenge.

Accelerating aircraft retirements is no panacea by itself, but the COVID-19 pandemic calls for bold and innovative steps. I have worked for more than three decades in aerospace operations and the commercial aviation supply chain. If we have a protracted recovery, the foundation of our industry will be further weakened, endangering our long-term competitiveness and economic security. It is time for the government, airlines, leasing companies, financiers, OEMs and suppliers to join forces. A quicker recovery will be better for both the industry and the taxpayer.

John Byrne is an advisor at Pasayten Advisors. He was vice president of supplier management for aircraft materials and structures at Boeing from 2011 to 2017.

The views expressed are not necessarily those of Aviation Week.


1 Comment
Your advice that 'It is time for the government, airlines, leasing companies, financiers, OEMs and suppliers to join forces', is all too the good.
Unfortunately they cannot provide the one essential component for a recovery, passengers!