Complaints about the supply chain during the annual European air shows are as predictable as complaints about the weather. But the reason is different this year—the supply chain’s No. 1 problem is Boeing, not the suppliers.
More than 60% of aerospace and defense suppliers responding to the latest iteration of a longtime supply chain survey run by a well-known financial analyst said Boeing’s 737 MAX production is the leading challenge for the sector. Indeed, Boeing is to blame for the lion’s share of industry woes heading into the Farnborough International Airshow as the supplier base itself continues to improve, RBC Capital Markets Managing Director Ken Herbert states in his latest Voice of the Supplier survey.
“Boeing 737 MAX production rates have taken a large share of the key issues that suppliers called out compared to last survey,” Herbert and his team write in the latest edition of his survey, which is issued in the first and second halves of each year. “With rates weighing on volumes, suppliers appear to feel better about other supply chain issues and industry dynamics.”
The degree to which Boeing stands out in Herbert’s survey results for the first half of 2024 is staggering. Almost 70% of respondents polled see further “downside” to the 737 program coming. Roughly 50% listed the engine supply chain as a key issue, while labor shortages were identified by a third of respondents, and raw materials and manufacturing delays by even fewer. What is more, labor shortages, supplier financing, materials and manufacturing saw their rankings as pain points improve the most compared with the last survey, in the second half of 2023.
When it comes to planning production, suppliers continue to ratchet down their plans. Herbert’s survey in the second half of last year found that suppliers’ 737 shipset production rates as of June were expected to be 35 a month, but according to the survey in the first half of this year, they are now only 26 a month. Likewise, planned December 2024 rates have come down to 33 from 44 per month.
“Suppliers continue to assign the most risk to Boeing’s production goal of 50 a month on the 737 MAX by 2026,” Herbert and his team note regarding a comparison of which specific programs concern contractors. In contrast, supplier confidence on Airbus A320 and 787 production levels has remained steady from the survey in the second half of last year.
Herbert’s latest results come as other industry surveys affirm beliefs that the supply chain outside of the OEMs is improving. According to Accenture’s latest Commercial Aerospace Insight Report, which includes the results of a global commercial aerospace executive poll run in March and April, almost 80% of executives surveyed expressed confidence in their supply chain’s delivery timeliness and quality over the next six months.
This was an increase compared with the consultancy’s previous survey, when only 72% expressed short-term confidence. In addition, 91% of executives express confidence about suppliers’ ability to meet or exceed delivery expectations in both 12-month and 24-month time frames. “It seems clear that the supply chain situation is gradually improving,” the Accenture report notes.
To be sure, supply chain challenges will still hamper the aerospace market through 2024 and likely into 2025, Accenture adds. More important, manufacturers are unable to accelerate production enough to meet demand for new commercial aircraft, leading to delivery delays.
Others concur. “Recent data points indicate challenges are still real, if not increasing in some areas, and will remain a strong hurdle for the ramp in the next 12-18 months,” analyst Ron Epstein and his team at Bank of America write in their June report to investor clients, in which they cut their midterm outlook for the aerospace ramp-up. “Growing commentary around interiors challenges [and] questions around the willingness of suppliers to invest into the midterm ramp . . . are all risks against an exceptionally strong demand picture.”
Still, that begs the question of whether OEM forecasts and master schedules bear credibility in the post-pandemic, post-MAX accident era. Suppliers not building as quickly or as much as Airbus and Boeing would like is different from failing to deliver on actual purchase orders or dropping contract work, as was the case in recent years.
Suppliers now openly dismiss OEM master plans—something akin to heresy or insanity in a previous era—and no one is surprised that Airbus recently walked back its A320 outlook. Boeing is expected to do the same as soon as it can find someone to become its next CEO, if not sooner.
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