Oct. 3, 2022, © Leeham News: Aerospace suppliers don’t lack demand. But they still have a long way to go to recover from the crisis brought about by the COVID-19 pandemic. The pandemic began in earnest in March 2020. While largely under control today, there are still COVID variants sending people to hospitals and deaths.
Jeff Knittel, the president of Airbus Americas, homed in on the fundamental question during the US Chamber of Commerce Aerospace Summit last month in Washington (DC). Knittel moderated a panel with suppliers Tom Gentile, CEO of Spirit Aerosystems, and Paolo Dal Cin, Senior Vice President, Operations, Supply Chain, Quality, Environmental, Health, and Safety for Raytheon Technologies.
“Is this the beginning or the end or the end of the beginning in terms of [supply chain] disruptions?” Knittel asked. “This has been painful for everyone, and outside our industry also. Where do you see us today in terms of the recovery and next steps for you and the industry?”
“I would say that the recovery has started for the supply chain, but we still have a long way to go,” said Gentile. At the July Farnborough Air Show, there were few orders announced. The whole story was the supply chain.
“It’s not a demand issue. There’s plenty of demand. It’s about the supply chain’s ability to produce,” Gentile said. “The suppliers are stressed right now for a number of reasons. One is that during the pandemic, a lot of us had to take on additional debt because we had to get liquidity. The interest rates are higher. We’re paying more interest expense, which means less to invest and grow productivity.
“At the same time, the demand has not recovered back to where it was in 2019. For example, in 2019, we produced 606 737 MAX units. Last year, we only produced 162. This year, we’ve targeted 300. We’re only about halfway back to where we were in 2019.”
Gentile said all suppliers are affected by inflation in labor, material, utilities, and logistics. Then there is a shortage of labor. “It’s harder to hire people back right now.”
Spirit, which is headquartered in Wichita (KS) offered signing bonuses of $3,000 for some positions. Competitor Textron, which has a production plant nearby, offered a $4,000 bonus. “We’re in a bit of an arms race, but that’s the market,” Gentile said.
Dal Cin said Raytheon’s suppliers need to make similar investments undertaken by Raytheon. The dynamics for workers and raw materials mean Raytheon and its suppliers need to be in step.
“I think that we’re going to have to go in steps and we need to find ways that make it easier,” he said. “Even if you don’t have the full suite of digital tools, you can still provide in a relatively simple way a manual input into where your status is. We just need to know a few critical ones and that will help tremendously.”
China and Russia (the latter before the Ukraine war) increasingly became competitors for labor, suppliers, and materials. Russia also was a go-to engineering resource, particularly for Boeing. But events since the beginning of the pandemic changed things.
“The biggest issue with Russia is titanium,” Gentile said. “A few years ago, half of the aerospace gray titanium came from Russia, specifically VSMPO. Starting with the Crimea situation back in 2014, the OEMs started to shift away from VSMPO–both Boeing and Airbus. Obviously, with this current situation, Boeing completely stopped purchases of VMSPO. Airbus is still continuing, but everybody is looking at making sure they have stockpiles in titanium. They are also starting to certify and validate new sources.
Gentile said sourcing titanium will be a challenge for the next two to three years.
“With regard to China, China hasn’t been a low-cost country for a long time. It’s really about being there because there’s demand there, both from Airbus and Boeing on the commercial side and from COMAC on the Chinese side. It’s getting harder with licensing going forward, so I think that part of the supply chain is changing,” Gentile said.
“I would say that while there is a focus on simplifying the supply chain and making sure it’s closer, it’s still staying global. This is a very global industry and as we look at our supply chain, we still buy a fair amount from overseas suppliers because of cost, quality, and their ability to be reliable. I think it’s going to stay global, but I think you’ll see less from China because it’s no longer low cost and it’s getting harder and harder.”
Dal Cin agreed, and added, “We’ve got great support from our suppliers in the space that are making those investments. They are finding alternative sources of raw materials. Do I think that we’ll see our way through that, and will it be at the same price levels that we’ve been used to? Maybe not. But we’ll have that security of supply.
“Because there are shortages of materials, supply chain challenges, and labor challenges, part of the solution is going to is to think about advanced technology, advanced manufacturing. Some people call it Industry 4.0, but these tools are now getting mature and we’re implementing in our factories.”