Jet aircraft manufacturers have big problems
2022.11.18 11:49
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Jet aircraft manufacturers have big problems
Budrigannews.com – Aerospace suppliers are staring at the prospect of declining cash flow as top plane manufacturers Boeing (NYSE:)Co and Airbus SE (OTC:) struggle with excess inventory due to production challenges.
The rebound in global air travel has left two planemaker scrambling to meet demand, but labor and engine shortages have left production ramping up.
Boeing supplier Spirit AeroSystems (NYSE:) Holdings Inc. said earlier this month that the “challenging environment” has “put a lot of pressure on our ability to generate cash.”
“For the supply chain, we have to carry an extra inventory buffer,” said Mark Suchinski, head of finance at Spirit.
Global supply chains have been swirled by disruption and rising inflation in the wake of the pandemic, deepening the risk for manufacturers that rely on a fragmented network of component manufacturers.
While the aerospace industry has traditionally not implemented higher inventory levels, relying on a just-in-time model to reduce costs, COVID-19 has been a major driver of this trend.
The war in Ukraine has only amplified the industry’s headache, with companies such as French jet engine maker Saffron (EPA:)SA stocking up on titanium to offset supply shortages caused by the conflict.
Graphic: Inventory levels of aerospace suppliers –
“The problem is that just-in-time inventory doesn’t work in the current environment,” said Christine Tan Liwag, an analyst at Morgan Stanley (NYSE:).
Among them, the production schedule of planemakers fluctuates. Boeing, for example, is struggling to stabilize production of 31 737 jets per month.
The company said last month that “cash flow was impacted as Howmet Aerospace increased inventory due to a rebalancing of its customer schedule that is expected to persist in the fourth quarter.”
Some suppliers are stocking parts in anticipation of rising jet output next year, looking to speed up the industry’s recovery from one of the worst crises facing modern times.
Building inventory opens up the possibility that aerospace executives will keep demand strong, while companies may struggle in the event of a downturn. Industry observers also note that the long backlog of Boeing and Airbus provides protection.
“Our analysis shows that aircraft deliveries are growing healthy even with a severe recession,” said Colin Scarola, senior equity analyst at CFRA Research.
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