Industries everywhere have seen the effects of supply chain disruptions ever since the onset of the Covid pandemic and the aerospace business has felt the impact as acutely as any other. From top-tier OEMs to small companies at the end of the supply chain, it seems virtually no one has escaped the fallout from drastic production cuts during the public health crisis and raw materials shortages. In a series of interviews with AIN, aerospace companies shared their strategies to address the problem, from shifting sources of titanium to more often engaging in multi-source procurement of parts. Still, turnaround times continue to lag everywhere, as OEMs try to accelerate production rates beyond 2019 levels in reaction to the unexpectedly robust and speedy recovery from the pandemic.
While opinions on when the industry will see a full recovery from the supply chain challenges vary, sentiments expressed by some companies appear to point to a measure of relief. Raytheon subsidiary Collins Aerospace, for one, told AIN that reduction in demand in certain industries and increased investment by others have begun to mitigate challenges associated with the supply of electronic components following stubborn shortages and delivery delays last year. However, it added that raw materials supply remains constrained, causing increasing shortages of machined parts.
“We expect that electronic component demand and supply to be more balanced in the back half of 2023,” said Collins Aerospace supply chain v-p Kristopher Pinnow. “Beyond electronics, we are seeing constraints with the supply of certain specialty raw materials, which is manifesting in increased shortages of machined parts. We continue to monitor and assess this risk and are actively working on mitigation actions with our suppliers.”
Mitigation measures at Collins include what it calls ongoing supplier readiness assessment activities, aiding visibility and capacity planning in mid- and long-term forecasts for suppliers to plan and add resources and training ahead of respective rate increases. The company also continues to work with its tier-one suppliers to improve the planning and management of its sub-tier supply base.
“As part of our readiness assessment initiative, risk mitigation actions have been identified with the respective suppliers and we are tracking the implementation and corresponding risk reduction,” added Pinnow. “As part of our risk management process, we explore various options to mitigate part shortages including but not limited to resourcing, buffer stocks, pursuing new manufacturing technologies, and dual sourcing and using Collins or [Raytheon] agreements for raw material supply, for example, so that our suppliers can participate in our agreements for supply.”
Although raw materials shortages have no doubt exacerbated the problem, skills shortages resulting in part from accelerated retirements during the Covid pandemic appear to have posed an even bigger challenge given the tight labor market and the length of time it takes to train new employees. Collins said it sees the situation gradually improving among its supply base “later in the year,” when the wave of new-hire training finally generates sufficient staffing levels.
“A large portion of the problem is labor,” Bloomberg Intelligence senior analyst George Ferguson told AIN. “I think they're recovering on the backfill now, but the people they’re bringing back aren't the people that left in a lot of cases, and now they're busy training those people.”
Ferguson added that the large OEMs are doing what they can to mitigate the problem by sending representatives to lower-tier suppliers and, in the case of Boeing and its major 737 Max structures supplier Spirit Aerosystems, with financial help.
“That just goes to show you how strong Spirit’s position is vis a vis Boeing,” noted Ferguson. “Boeing can’t make the 737 without them.”
Leaning on Fabrication Unit
According to Spirit Aerosystems senior v-p and chief procurement officer Alan Young, the crisis has to a degree changed the way companies view and execute risk management strategies. Dual sourcing accounts for one, but Spirit’s embrace of digitization and automation in the factory over the past years has proved particularly helpful for the Wichita-based aerostructures supplier, he said. Spirit has also invested heavily in its own fabrication capabilities, allowing it to make parts that it simply cannot get from its own suppliers in a timely fashion.
“We’ve got the largest fabrication shop in the world under one roof, and at the moment we have about 2,000 people making parts,” noted Young. “We have a really good industrial engineering, mechanical engineering pedigree, so we can produce parts in a hurry when someone is not performing.”
While Spirit maintains large composite shops and sheet metal forming capability among other competencies, Young said very portable metallic parts probably account for most of its fabrication activity in lieu of components acquired from suppliers. But its massive automated chemical processing line has proved invaluable given the problems many suppliers have encountered maintaining their metal treatment capacity.
“[The processing line encompasses] four and a half miles of monorail and we do tens of thousands of parts a week through it,” said Young. “That's been one of the challenges in the supply chain—it’s the processing plants and their capacity to ramp up. We have that internally and it’s the jewel in the crown for Spirit.”
For Spirit’s suppliers, though, acquiring working capital to finance rate increases presents its own set of pressures on the supply chain, particularly during an inflationary period when the cost of capital runs high, noted Young. “When you’re accelerating [production], it’s important to start building working capital and inventory to allow you to consume those parts and deliver at a faster rate. So you’ve got to typically do that in advance of when you ship, so that puts some pressures on suppliers.”
Although the Covid pandemic certainly contributed to the production peaks and troughs that led to much of the supply chain disruption, Sprit encountered its own set of difficulties resulting from the complete halt in production of the Boeing 737 Max, for which it supplies fuselage sections. From a peak rate of 57 shipsets a month entering 2019, Spirit saw the grounding of the Max reduce its output to zero over the course of a month.
“[The Max grounding] was pretty dramatic for Spirit,” said Young. “We were producing exceptionally high levels one month until the next month we were asked to produce nothing. It was seismic. We as a supply chain team talk about the resiliency in the supply chain and the ability to get up from a punch. You have to have that. And the aerospace supply chain is known for doing that because there are vagaries and cycles in this industry.”
While Bloomberg's Ferguson characterized raw materials shortages as less of a concern than components, companies without the good fortune to have stockpiled supply lost access to a major source of titanium due to Western sanctions against Russia for its invasion of Ukraine. As large airframers benefitted from an accumulation of titanium due to Covid-related production slowdowns, Renton, Washington-based specialty spring manufacturer Renton Coil Spring enjoys no such luxury. The company uses a higher grade of the metal than what owner and CEO Chuck Pepka called the garden variety titanium supplied by Russia’s VMPSO, for example, but its suppliers continue to struggle to meet their lead time guarantees due mainly to manpower shortages, he explained.
Pepka told AIN that its “best” titanium suppliers now meet their lead time quotes about 40 percent of the time, and the most recent lead time estimate stands at 50 weeks. Consequently, Renton Coil Spring quotes a 52-week lead time for its own customers. Pepka, whose company supplies parts for several programs including the Boeing 737 Max, already had suffered a major interruption to his business with the 19-month grounding of the narrowbody. At its peak employing 88 people, Renton Coil Spring saw its headcount shrink nearly in half at its nadir, said Pepka. It now employs about 55 people, who produce about three-quarters of the volume the company shipped before the 737 Max grounding began in March 2019. Pepka told AIN that he expects his company’s production to return to its 2018 output within about a year and a half.
Shortages Widespread
Meanwhile, Renton Coil Spring’s biggest customer, French tier-one supplier Safran, continues to suffer from shortages of aluminum, steel, and titanium, affecting foundry activities for the company’s entire range of products. According to Safran CEO Olivier Andriès, the company’s supply chain ranks as its “number one watch item.”
“Our teams are fighting every day to get parts,” Andriès said during the company’s first-quarter earnings call. “We believe that supply chain [constraints] are going to be persistent throughout 2023 and probably also in 2024. Our suppliers are struggling in recruiting people. The main roadblocks are people, equipment, and also raw materials. But I have to say, and this is good news, on the engine side we are not pacing the aircraft assembly lines on [either side] of the Atlantic.”
In the case of Toulouse-based Liebherr Aerospace, not only have the sanctions against Russia disrupted its supply of titanium parts and forgings, they forced the company to stop production at its Nizhny Novgorod factory there. Liebherr also has discontinued the sale and support of aerospace equipment, including spare parts, in the Russian Federation to comply with the international sanctions regime.
“So we had to re-source our Russian supply chain, which we did without impacting the final assembly lines of our customers, which was a huge effort,” Liebherr Aerospace and Transportation managing director and CFO Francois Lehmann told AIN.
Liebherr, whose range of products includes landing gear, air management systems, flight controls, onboard electronics, and gearboxes, has struggled to keep up with production rate increases mainly due to the difficulties it has encountered getting materials and parts on time from its own suppliers.
“It’s a problem of supply, but it’s also a problem of human resources,” he explained. “We have seen also at some of our suppliers a shortage of experienced staff, which is [aggravating] the fact that we are missing some parts. This supply chain crisis is across the board; it’s not only in our industry. At the same time, we have the ramp-up at many of our customers. So the [combination] of going back to normal [from the Covid pandemic] and having this ramp-up has put a lot of pressure on the supply chain.”
As Collins Aerospace reported, Liebherr has seen a particularly tight supply of electronic components such as microprocessors, mainly from Asia. Lehmann, however, expressed some optimism that the shortage will ease within a few months. “We have not seen it yet, but speaking with some colleagues from the industry, some think there is some sort of relief and it’s getting better,” he said. “But the supply chain crisis, in general, will not totally be over before the end of the year. It will continue to be difficult because we have built up backlogs.”
On limiting the risk of future supply chain crises, Lehmann said he thinks industry players will engage in more dual sourcing of supplies when appropriate to mitigate the effects of geopolitical uncertainty and price fluctuations, for example. “I think for the next programs, the aircraft manufacturers will also look at this a little bit differently,” he noted. “They may also ask their tier ones to make sure to have more backup solutions for the sensitive components. So some of the risk has to be managed by us a little bit differently.”
Thinking Ahead
The UK’s GKN also sees a case for a more proactive approach to supply procurement. “At our facilities in the UK and Sweden we are now trying to think way ahead, trying to understand what skills we will need in 10 years’ time and how we deliver training,” said GKN chief technology officer Russ Dunn. “This is partly what led to the creation of the Global Technology Centers and we’re also looking at ways to use more artificial intelligence.”
Contrary to the sentiments expressed by Collins, for example, GKN chief executive David Paja challenged the notion that the situation has begun to improve.
“There are still significant problems throughout the supply chain and it is a daily fight for many companies that really is not improving in general,” he told AIN. “All OEMs are struggling to get different components and sometimes these issues surprise them [and cause disruption to the manufacturing process]. A lot of the issues are around castings and forgings. The fundamental problem is that the time it takes to get parts can be months in complex supply chains, and we have to sort this.”
Nevertheless, GKN has seen an improvement in its own labor shortage problem after last year struggling with “rehiring struggles,” Paja noted.
“We are coping at our [tier one] level but smaller companies are still struggling,” he explained. “Today it is more a case of needing to do more training than on actual shortages of staff. But, overall, we have the scale and the processes we need so that it’s not putting our customers at risk; the impact is mainly in terms of internal disruptions.”