Aerospace Makers Are Placing Orders Sooner In Order To Avoid Part Shortages

The shortage of parts ranging from chips to windshields that has slowed plane production will last until at least 2023, according to aerospace executives, and manufacturers are spending more to address the issue.

Manufacturers are ordering material up to two years in advance, a departure from the just-in-time models that were previously used to cut costs, and dispatching specialized staff to keep production lines running, executives said at the world’s largest business jet show in Orlando, which concluded on Thursday.

Parts shortages, however, are expected to continue to plague US planemakers and large aerospace suppliers, who report quarterly earnings next week.

According to a first-quarter survey of aerospace companies, supply-chain disruptions cost an average of $160 million in lost revenue in the previous year, according to Jennifer Bisceglie, CEO of supply-chain risk management company Interos.

Honeywell International Inc, Textron Aviation, and General Dynamics Corp’s Gulfstream Aerospace executives told Reuters at the National Business Aviation Association show that they are doing more to support suppliers.

Honeywell Aerospace Avionics vice president and general manager Vipul Gupta said his division is ordering parts two years in advance, compared to previous lead times of 60 days to 10 months, depending on the component.

Lead times for simple avionics components have increased to around a year, up from 90 days previously. Honeywell manufactures avionics and engines for business jets, as well as flight management systems for commercial jets.

“The story is very simple: getting our forecast right and putting the demand in front of our suppliers a lot earlier,” Gupta said. “It provides a very clear picture for our suppliers on what they need to deliver.”

Gupta stated that his division would support Airbus SE’s (AIR.PA) longer-term production goal of 75 A320 family jets per month in 2025, up from around 50 in 2022. Some manufacturers have questioned whether a battered supply chain will be able to meet the deadline.

“If they want to execute 75, we will execute 75,” he said.

Smaller suppliers, who are struggling with higher costs and labor shortages, are pressuring manufacturers to place orders many months in advance to alleviate concerns about an economic slowdown.

However, ordering earlier means making payments sooner, increasing working capital, and delaying when manufacturers can recoup costs on plane or part delivery.

According to one corporate planemaker executive who asked not to be identified, some private planemakers are asking customers for larger deposits on jets before delivery to offset additional costs.

Last year, business aviation recovered faster than commercial traffic in the United States, as wealthy travelers chose to fly on private jets rather than crowded airports during the peak of the COVID-19 pandemic.

Gulfstream Aerospace orders six months to a year in advance, compared to a previous “just in time” strategy, according to President Mark Burns.

According to Burns, the company’s strong order book has more than offset any potential impact on working capital.

Longer lead times, according to analysts, increase the risk of unwanted inventory in the event of a downturn.

“The longer lead times stay high, the more of a risk to earnings in our view,” Bank of America Global Research analyst Andrew Obin said.

As a result, companies are advising and staffing constrained suppliers, such as machinists and engineers, at the same time.

“The only caveat is if we send you help, you have to work on our stuff first,” said Ron Draper, president of Cessna business jet maker Textron Aviation in an interview.

“We’ve been at some of these suppliers and we see a lot of other OEMs in the visitor logs.”

Nonetheless, Gulfstream Aerospace’s Burns and others are more optimistic about supplier performance as delivery dates approach.

“We’ve kind of plateaued and will see improvements into 2023.”

(Adapted from

Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability

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