March 2024 – In 2022, PwC reported that the Global Aerospace Market generated $741bn, seeing year-on-year growth of 3%1. Prior to that, the Pandemic placed enormous pressure, with a vast number failing or requiring refinancing and restructuring. The recovery into 2022 was positive, but it is something we expect will be dramatically exacerbated as we move through 2024.
The Singapore Airshow recently came to a close, where we saw more than 1,000 companies participating to continue to grow demand. This is characterised by the established players from the West, such as Airbus, Boeing and Lockheed-Martin, but we now see the emergence of Chinese new entrants such as COMAC and AVIC. In fact, during Singapore and at other recent shows, the order volumes have been exceptionally high across the board, with examples including COMAC’s 40 orders of their C919 aircraft at Singapore and the vast deal between IndiGo and Airbus for 500 narrow-body aircraft in 2023.
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The forecast is positive for aircraft manufacturers globally, and their aviation industry on the whole. However, there are a number of challenges which must be addressed in order to fulfil the order book. Airbus is predicting that they will increase deliveries in 2024 to 800, up from the 725 delivered in 2023, but also predict a single-aisle run rate increase from 50 per month to 75 per month by the close of 2025. This volume increase is not unique to Airbus, with 78% of Aerospace executives expecting an increase in production capacity over the coming 24 months2.
Suppliers are often ill-prepared to cope with sudden surges in demand, leading to disruptions in supply chains and customer dissatisfaction. It is imperative for suppliers to anticipate and adapt to these fluctuations to ensure seamless operations.
Vietjet
Vietjet has entered into a preliminary contract with Airbus to acquire 20 A330neo aircraft, with the finalisation of the order anticipated in the near future3. Scheduled for delivery commencing in 2026, these A330neos are poised to bolster Vietjet’s medium- to long-range routes, paving the way for expansion into untapped markets such as Europe and the USA. This new fleet will supplant Vietjet’s current leased A330-300 aircraft, totalling seven planes, representing a substantial advancement for the Vietnamese budget airline.
Once finalised, this order will signify Vietjet’s inaugural purchase of widebody aircraft. Vietjet chief executive Dinh Viet Phuong remarks, “It represents Vietjet’s ongoing advancement and expansion as a key player in the regional aviation sector,” adding that it will unlock fresh opportunities for the airline to venture into new markets.
Vietjet already boasts a substantial backlog of orders, including over 100 Airbus A320neo-family aircraft and commitments for 200 Boeing 737 Max jets. During a press conference at the Singapore Air Show on 22 February, Phuong refrained from directly addressing the status of their narrow-body orders but emphasised the airline’s broadening network presence, stating, “We’re extending our reach…everywhere.”
OEMs must optimise capacity utilisation
With the increase in aircraft order volumes, Original Equipment Manufacturers (OEMs) face the daunting task of optimising their capacity utilisation while navigating complex supply chain dynamics. Achieving this requires enhanced planning and execution strategies that are synchronised with lead times and available resources. Manufacturing facilities are pressured to improve operational efficiency to meet evolving market demands; implementing lean processes is essential for streamlining operations, reducing waste, and improving overall productivity.
Suppliers must take a holistic approach to evaluating their environmental impact, not only in terms of resource consumption but also considering factors like embedded product carbon emissions. This becomes especially pertinent against the backdrop of the global sustainability challenge to achieve Jet Zero emissions. The pressure is on suppliers to not only ramp up production volumes but also enhance supply chain efficiency, all while striving to minimise Scope 3 emissions. This prompts the question: could this be seen as the implementation of “Lean Green Supply Chains” in practice?
As suppliers and OEMs alike embark on the journey towards net zero emissions, they are confronted with the intricate task of managing engineering changes and ensuring adherence to stringent quality standards amidst evolving sustainability requirements. This necessitates a meticulous approach to overseeing engineering revisions, ensuring that each modification contributes positively to the overarching goal of reducing environmental impact whilst meeting the increased volume demand.
Commercial agreements applying pressure
Commercial agreements, particularly long-term fixed pricing contracts between OEMs and suppliers, are exerting additional strain on an already inflationary environment as it is gearing up for growth. This situation places undue pressure on both parties involved, as they strive to navigate through market fluctuations and rising costs. Amidst these challenges, it is crucial to prioritise quality management to ensure that standards remain uncompromised. This involves not only upholding existing standards but also proactively adapting to meet evolving market demands and technological advancements. By keeping quality at the forefront of the agenda, OEMs and suppliers can navigate this period of change with resilience and ensure the continued success of their partnerships through this period of volume growth.
Connect with James Stanley, Head of Strategy at Unipart Consultancy, to collaborate towards operational excellence, supply chain optimisation, or transformative strategies. Reach out to James Stanley should you wish to further discuss the topic of semiconductor investment and the impact of semiconductor supply chains globally.
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