Aviation’s Supply Chain Outlook Amidst Geopolitical Turmoil

Kevin Michaels, managing director of AeroDynamic Advisory

Along with labor, the supply chain has been the toughest challenge for aviation production and MRO recovery. Kevin Michaels, managing director of consultancy AeroDynamic Advisory, speaks to Aviation Week about how things currently stand and the many loose links of this vital chain.

Where are the toughest production restraints on the commercial aviation supply chain right now? What caused these restraints? How long before they are relieved?

There are several major bottlenecks, particularly in aero-engines. Recall that there were bottlenecks before the [Boeing 737] MAX shutdown and COVID-19 crisis, and these have come roaring back. The first is structural castings. Several OEMs will miss delivery commitments as a result. Boeing recently stated that this problem will take three to five years to solve.

Another bottleneck is titanium forgings, exacerbated by the Russia-Ukraine situation. Microchips and electrical components have emerged as a bottleneck in the last 12-18 months for defense, avionics and electrical systems suppliers. Lead times for specialty alloys continue to increase due to underinvestment in capacity and geopolitics. And then there is labor—this is creating bottlenecks everywhere at all tiers of the supply chain. For the first time in my career, the pace of production will be governed by the supply chain and not market demand!

How significant is the threat of a cut-off from Russian titanium exports?

Very significant. VSMPO-AVISMA supplies 35-40% of titanium used by aerospace. While U.S. OEMs weaned themselves off Russian titanium and stockpiled supply after its invasion of Crimea in 2014, many European OEMs like Airbus and Safran remained very dependent on VSMPO. As a result, Russia could disrupt production in a matter of months if it chooses to end titanium exports. It hasn’t done this yet. It isn’t surprising that the European Union just blocked a proposal to sanction VSMPO at the last minute after France and other member states objected to the move over fears of a potential retaliatory ban by Russia on titanium exports.

Do you foresee any enduring changes in aircraft and engine OEM supply chains to minimize future problems?

I think you’ll see more focus on greater buffer inventory, dual sources and suppliers that are closer to home. OEMs are now focusing on the carbon footprint of their supply chains, which means there will be a stronger focus on reducing the travel distance for larger components and assemblies. There is also selective insourcing happening. For example, Pratt & Whitney is building a major casting foundry and airfoil production facility in Asheville, North Carolina to help address investment casting capacity issues.

Does this mean OEMs will reduce sourcing from ‘best cost’ countries?

Not necessarily. While China and Russia are out of favor, cost pressures will persist, offset commitments remain, and labor-intensive parts and assemblies will continue to be sourced globally. Having said this, best cost countries that are close to aircraft final assembly lines like Mexico and Morocco are poised to grow.

Do you foresee any enduring changes in the aviation supply chains due to tensions between China and Taiwan and the U.S.?

Yes, I do. China is no longer an investment destination for aerospace OEMs like it was a decade ago. They haven’t closed their factories there, but they are not expanding capacity or building new manufacturing or research facilities either. The focus on IP protection has escalated dramatically. For example, the Canadian government effectively sidetracked the AVIC MA700 turboprop aircraft program when it denied Pratt & Whitney Canada an export permit to ship PW150C engines to China. The U.S. government could choose to do the same to the Comac C919 program, which is powered by the CFM LEAP-1C engine.

Taiwan is a huge supplier of semiconductors to aerospace and defense, and is obviously vulnerable. The U.S. recently passed the Chips and Science Act of 2022 to increase domestic semiconductor production to ameliorate the situation, but it will take time.