Supply Chain Challenges Impacting Airlines
A comprehensive study conducted by Oliver Wyman, in collaboration with the International Air Transport Association (IATA), has revealed that supply chain difficulties could lead to losses exceeding $11 billion for the airline sector by 2025. The report, titled “Reviving the Commercial Aircraft Supply Chain,” delves into the core issues plaguing the aerospace industry, assesses their repercussions on airlines, and suggests pathways for advancement within the aviation sector.
The report highlights that delays in the production of new aircraft and spare parts have forced airlines to reconsider their fleet management strategies. Consequently, many airlines are maintaining older aircraft for longer periods, which can lead to increased operational costs and inefficiencies. In 2024, the global backlog of commercial aircraft hit a record high, surpassing 17,000 units, a significant rise from the approximately 13,000 units recorded annually between 2010 and 2019.
Financial Implications of Production Delays
The financial toll of these supply chain setbacks is attributed to four primary factors. Firstly, excess fuel costs, estimated at around $4.2 billion, arise from airlines operating less fuel-efficient older aircraft due to delivery delays of new models. Secondly, the aging fleet necessitates more frequent and costly maintenance, leading to an additional $3.1 billion in expenses. Thirdly, airlines are incurring approximately $2.6 billion in increased engine leasing costs since engines are taking longer to return from maintenance. Lastly, inventory holding costs, which have surged by $1.4 billion, are mounting as airlines stockpile spare parts to counteract unpredictable disruptions in the supply chain.
These escalating costs come at a time when passenger demand is climbing, with a reported 10.4% increase in 2024, outpacing the industry’s capacity growth of 8.7%. This trend is anticipated to persist into 2025, further highlighting the disconnect between supply and demand.
Addressing Supply Chain Issues
The report identifies a multitude of factors contributing to these supply chain challenges, including geopolitical instability, shortages of raw materials, and a constricted labor market. To tackle these issues, it outlines several initiatives aimed at original equipment manufacturers (OEMs), lessors, and suppliers, in partnership with airlines.
One of the suggested strategies involves enhancing supply chain visibility to facilitate early detection of risks and inefficiencies. Furthermore, it advocates for improved access to alternative sourcing for materials and services to alleviate dependency on traditional supply channels. By leveraging predictive maintenance insights and creating shared maintenance data platforms, airlines can optimize inventory management and reduce downtime.
Matthew Poitras, a partner in Oliver Wyman‘s Transportation and Advanced Industrials practice, noted that while today’s aircraft are more advanced and fuel-efficient than ever, the ongoing supply chain hurdles are hindering the performance of both airlines and OEMs. He emphasized the need for collective efforts to improve supply chain performance, which would ultimately benefit the entire industry.
Call for Collaboration
The report calls for a strategic approach among all stakeholders in the aerospace supply chain, stressing that collaboration is crucial to effectively address the myriad challenges facing the industry. Willie Walsh, the Director General of IATA, pointed out that the current delays in aircraft, engine, and parts deliveries have led to spiraling costs and limited airlines’ capacity to respond to consumer demand. He underscored the importance of greater transparency and access to parts and services to help airlines navigate these ongoing challenges.
As the aviation industry continues to face significant supply chain obstacles, stakeholders are urged to implement these recommendations to foster resilience and ensure a more efficient operational framework moving forward.
Related
