July 12, 2021, © Leeham News: With Washington State and the US open for business following nearly 18 months of COVID-pandemic shut-down, there is a lot of optimism in commercial aviation.
In the US, airline passenger traffic headcounts are matching or exceeding pre-pandemic TSA screening numbers. Airlines are placing orders with Airbus, Boeing and even Embraer in slowly increasing frequency.
The supply chain to these three OEMs looks forward to a return to previous production rates.
It’s great to see and even feel this optimism. But the recovery will nevertheless be a slow if steady incline.
Airbus and its supply chain will recover quicker than Boeing and its suppliers. It’s not that market forces are different between the two. Boeing’s challenges are unique to Boeing.
Airbus hopes to return to the pre-pandemic production rate of 60/mo for the A320 family in about a year. Officials are studying increasing rates up to as many as 75/mo by 2025. One can’t help but wonder whether there is some market-share grabbing going on at Boeing’s expense. Is there truly enough demand among current A320 operators to support a higher production rate? Or is this more, or as much, a matter of taking advantage of Boeing’s weakness with the 737 MAX?
I don’t have enough information to answer these questions. But if I were Airbus looking at the realities of the MAX recovery, the weakness in the family and in Boeing’s overall product line, I’d be considering everything to boost production, too. There is a risk involved, but this will be discussed in a future article.
Airbus was in the early days of ramping up production for the A220 when the pandemic pause hit. Resuming these plans is a given. Officials announced plans to eventually take the production rate to 14/mo.
Production rates for the A330neo and A350 are a mere 2 and 5/mo, respectively. With international travel still anemic, and recovery forecast around 2025, the supply chain will have to wait for this return to normal. Or, maybe lower rates become the new normal. This will take a few years to play out.
Assessing the recovery of production rates at Boeing and its suppliers is a matter of stating the obvious: this will be a long, slow process.
Boeing still has a sizable inventory of MAXes to deliver, suppressing production rates. Spirit Aerosystems, the maker of the 737 fuselages, also has a large inventory to deliver to Boeing. While clearing this inventory, which will take about two years, supports Boeing’s production rate, its existence suppresses Spirit’s own rate—and with it, the supply chain.
Boeing wants to achieve a MAX production rate of 31/mo next year. Any more than this depends in part on when China recertifies the MAX. LNA wrote July 7 that China needs Boeing as much as Boeing needs China. After holding MAX recertification hostage for political reasons, it now appears there is some movement toward returning the plane to the skies in China.
But Boeing’s ability to match Airbus’ A320 production rate will lag, giving Airbus an advantage. Also, the weakness of the MAX 9 and MAX 10 vs the A321LR/XLR gives Airbus an advantage.
Furthermore, Boeing’s continuing indecision about a new middle of the market aircraft gives Airbus more and more time to sell the XLR into this sector, reducing the demand for whatever Boeing offers.
As for the production of the 777X: certification now won’t come until 2023 at the earliest. LNA believes the market has moved to downsizing and fragmentation that reduces long-term demand for the X. Softness in the current order skyline also is an overhang. All this casts doubt on the 777X program and with it, the supply chain feeding it.
As for the 787, LNA believes this program is already on the downward side of the bell curve. We don’t believe production rates ever will recover to the 14/mo peak.
The picture for Embraer is not bleak, but it is not robust, either.
Sales of the E2 have been disappointing. First, the proposed joint venture with Boeing stalled orders as customers waited for the outcome. By the time Boeing withdrew from the deal, the COVID-pandemic set in.
Development of the E175 E2 relied upon the US regional airline industry and relaxation of the labor Scope Clause that limited the airplane’s weight. The E175 E2 exceeds the Scope limit—and unions refused to relax the restriction. Sales of the aging E175 E1 continue. This model remains the cash cow.
The E190 E2 is a “tweener” model that attracted few sales. The E195 E2 is the most-ordered model, but it has strong competition from the A220-300, which has the backing and heft of Airbus behind it. Embraer has difficulty competing against Airbus, which was a driving factor in pursuing the Boeing JV.
Embraer officials hope to launch the “E3” turboprop program next year. But the market demand is small—about 2,100 airplanes over 20 years. This is an average of 105 airplanes a year (though sales certainly will be front-loaded) to be split with ATR, which is 50% owned by Airbus. The business case seems iffy at best.
Embraer’s biggest advantage is that with Mitsubishi getting cold feet about the development of the competing SpaceJet, effectively killing the program, Embraer now has a monopoly in the 76-90 seat sector. While Mitsubishi ponders restarting production of the CRJ, this is an uphill climb.
One can argue that the commercial aviation industry was already on a path to reshape itself. Airbus was gaining strength. Boeing’s product line was becoming weaker even before the MAX grounding. Bombardier withdrew from commercial aviation. Mitsubishi had a unique chance to replace Bombardier as a rival to Embraer, but this opportunity appears gone.
The COVID pandemic accelerated this trend. The reshaping of the aviation sector picked up speed. But there will be some challenging days ahead for the suppliers. There certainly will be for Airbus, Boeing, and Embraer.