High fliers, high stakes

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How should exposure to risk be apportioned in the highly complex supply chains of aircraft manufacturing?

Demand for new jet airliners is booming. The order backlog for the world’s two largest makers of passenger aircraft, Airbus and Boeing, is reported to be more than 4,000 passenger jets on each order book, which is pushing the manufacturers to aim for an estimated 40 per cent increase in single and twin aisle passenger aircraft between now and 2015.

However, gearing up production places considerable pressure on the supply chain to perform and will, undoubtedly, require suppliers to invest in order to meet these aims. The aircraft manufacturers are acutely aware of the weaknesses within their supply chains. Boeing suffered a three year delay to the delivery of its 787 Dreamliner due to issues within its supply chain and only last November Airbus’ parent company, EADS, announced that problems with suppliers was to push the entry into service of the A350 back to the first half of 2014.

In order to strengthen their supply chains, Boeing and Airbus are keen to see consolidation between aerostructure suppliers – and tier-two and tier-three suppliers are obvious targets for consolidation.

But asking its supply base to forge closer financial links places greater risk on those suppliers.

Making such decisions will require considerable confidence on the part of those suppliers that the aircraft manufacturers are accurate in their estimates of future demand and will require the manufacturers to back those initiatives with greater commitment, both contractually and, perhaps, through financial incentives.

Slowing growth in global economies and a burgeoning passenger aircraft industry in China could impact confidence. Sharing the risks across the supply chain through a process of consolidation and partnerships, supported by the manufacturers, may well be the best approach to creating a more efficient and reliable supply chain for the passenger aircraft industry.

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