Podcast: Engines Shortfall Holds Back Airbus And Boeing

The aircraft manufacturers are short hundreds of engines as suppliers can’t keep pace with demand to build and maintain airplanes. Listen in as we break down the latest supply chain meltdown.

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Rush Transcript

Joe Anselmo:

Welcome to this week's Check 6 Podcast. I'm Joe Anselmo, Aviation Week's editorial director. Demand for commercial airplanes has rebounded so sharply that the supply chain is struggling to keep up and a big source of that pain is a severe shortage of engines for narrowbody jets. Industry sources tell Aviation Week that Airbus and Boeing are waiting on hundreds of engines, the equivalent of several months of deliveries.

Joining me to delve into the problem are Jens Flottau, Aviation Week's executive editor for commercial aviation, Guy Norris, our senior propulsion editor, and Dan Williams, manager of fleet, flight, and forecast data at Aviation Week.

Jens, let's start out with you. You were recently at the IATA AGM, the global airline industry's annual show, and you got an earful from both airline CEOs and executives at the airframers. How bad is it? Which aircraft are most affected and what are CFM and Pratt & Whitney saying about it?

Jens Flottau:

Well, it is pretty bad, I'll just start with that statement. As you say, it's hundreds of engines. The aircraft that are most affected are the narrowbodies, in particular at this point, the Airbus narrowbodies. That's partially a function of the production rates there, which are much higher on the Airbus side than on the Boeing side. So, just for some context, for some numbers, Airbus is missing engines for about two to three months of narrowbody production, which is obviously a huge issue. I'm told on the Boeing side, the gap isn't quite as big. But that's only part of the story. The other half of it is that airlines themselves are lacking engines. There's aircraft parked on the ground at airline maintenance sites, simply because there's no spare parts. There's no spare engines. Lufthansa, here in Germany where I am, has eight A320s parked, each because a single component hasn't been delivered.

And whereas in the past they would, in an emergency, just fly them in at all costs just to get the aircraft back off the ground, they can't even do that because there are no components or no engines. So yes, it's a big problem and it's also a problem that will not be easy to solve. The engine OEMs appear to have massive, massive problems to ramp production back up. There are plans in place to improve the situation between now and the end of the year, which is what the engine OEMs are telling Airbus and Boeing. But of course, you've got that chunk of deliveries that is now being delayed into 2023, just because people cannot catch up as quickly as they should.

Joe Anselmo:

So all four of us, Jens, are going to the Farnborough Ai Show in a couple of weeks. It sounds like this is going to be one of the topics that are going to be front and center there.

Jens Flottau:

Yes, absolutely. The engine OEMs will have to answer difficult questions there from all parts of the industry. I guess part of their answer will be that they have suppliers themselves that are not delivering, smaller companies, third-tier suppliers that don't have the capital to ramp up as quickly as they should, given the rates that are requested. But the result counts, there are no engines.

Joe Anselmo:

Guy Norris, you and I, along with our colleague, Sean Broderick, sat down with Boeing CEO Dave Calhoun last week for an interview, and you asked him about supply change challenges. His answer was, ‘It's about the engines. It's just simply about the engines.’ He also told us there was enough market demand to essentially double production of 737 MAXs to 60 per month for the next couple of years, but they can't do that because of supplier issues.

Guy Norris:

Yeah. Well, at the risk of stealing our own thunder from Dave Calhoun's comments, which I think will be coming out soon, you're absolutely right, Joe. He was unequivocal about that, saying that engines are the bottleneck. There's no doubt about it. In fact, if you look at the, and Dan probably knows the real numbers here, I was just doing this off the back of an envelope type estimate here, but if you look at, say, Boeing trying to get to 31 per month on the MAX, so that's 62 engines, if you can imagine that, per month. Airbus, of course, I think this is right, Jens, at about 45 A320neos a month at the moment. 45 to 50?

Jens Flottau:

It's actually less than that too. Actually, they were going to be at that rate, but the engine OEMs have slowed them down.

Guy Norris:

Right. So even if they did get to, say, 45 and assuming the rough rates with Pratt & Whitney and the market share that they have on that, then CFM, provisionally, is looking at about 120 engines a month it would have to do just to maintain those two rates. From what we are gathering, because CFM's not really talking specifics on this, they've just not been able to do that. Not recently. So everybody's trying to shuffle around to compensate. But the point is that when you look at the production flow of, say, the 737 at the moment, Boeing, in the past, would have adjusted it based on other components coming in through for the airframe. Right now, what they're doing is they stop work altogether on that particular aircraft and they do not go ahead now because they're waiting for parts.

But at the same time, the engines are the key one, obviously. It's the point at which an engine supply chain, in its own right, is so much further upstream than the whole of the rest of the airframe, because the engine has to be ready to bolt onto that as a complete system itself. So I think that's part of the problem here. The engine makers themselves in the ramp-up have had to be further upstream than the airframe, so that's their only excuse. It's the most obvious one, but it's true. They are dealing with trying to get that ramp-up earlier than other people in the chain.

I'm visiting Rolls-Royce at the moment. They're saying that they've got this way of dealing now with the crisis. It doesn't obviously impact quite as much with the lower rates they have for the widebodied engines, but nonetheless, they've given themselves an element of resiliency by slightly changing the way they're actually getting their parts from their supply chain. They've focused in on the big suppliers and promoted the amount of work that they supply them with. So that's given them a resilience. In other words, just wrapping up, the engine makers here are all having different strategies to deal with this problem, and it's across the board. As Jens said, it's work bringing up staff, it's materials, not just because of Ukraine, and it's the logistics. Everybody's in trouble with logistics right now.

Joe Anselmo:

So, you mentioned going upstream, Guy. The engine makers came out of the 2009 financial crisis pretty well, and we didn't really have a shortage of engines. Is it just the magnitude of the MAX shutdown followed by the COVID shutdowns that they're trying to recover from? Is that why it's so much harder this time?

Guy Norris:

It is, and the other thing, of course, is that because of the lessons learned of the last time when they had the ramp-up and they couldn't meet it, most of them have developed multiple sources within their own supply chains too. So now, they're trying to juggle the logistics of coping with two sets of underperforming suppliers, who are themselves affected by other suppliers to them. So, it's just this cascade, I think, and it's like the next perfect storm. So that's what they're dealing with.

Joe Anselmo:

Dan Williams, you're the guy we turn to when Jens or Guy are writing stories and they need the numbers. They go to you for the numbers. You've crunched the numbers. What are you seeing from the fleet data side?

Dan Williams:

Thank you very much for inviting me and having me on. I went and had a look in our fleet discovery product, which is our fleet tracker. And now I'm going to tell you some numbers now. I'm going to caveat some of these numbers -- these are not necessarily aircraft without engines. However, these are aircraft that are sat with the manufacturer, awaiting delivery. And as we sit today, there are about 160-ish A320 family aircraft that are sat with Airbus, awaiting delivery. As I said before, not all of these are going to be missing engines, but some of them are. And then, also, when you add onto the top of that, because as Jens was saying earlier, it's more of a narrowbody issue, so we are looking predominantly LEAPs and GTFs right now. So you've also got to add into the mix the A220, because that's GTFs, and the Embraer E2s, because they're GTFs as well, and then the MAX.

So, I've had a look at the numbers. I say 160-ish Airbus A220s and the split of missing aircraft, those engines are about 55% LEAP engines and 45% GTFs. Now, that is pretty much standard with the same split of those aircraft that are in service. Generally, the LEAP is slightly favored on the neo family. Then, when we look at the MAX, again, this is a tricky situation because there are still about 210 MAXs that were built prior to the recertification that are still awaiting delivery. And since then, there's been about another 66-ish aircraft that are still sat with the manufacturer that are yet to be delivered, that have been built in 2021 and 2022. So again, that's LEAP engines there. And then, there's about 15 A220s and about seven-ish Embraer E2.

So, to go back to using the back-of-the-envelope math that Guy was using, that is about 300-ish. So I'm assuming here that all of them haven't got engines and we know that isn't the case, that's about 300-ish LEAP engines and about 100-ish GTFs that, potentially, are missing, assuming none of those aircraft have any engines, and as I said before, that isn't the case. So Boeing are in a situation right now where they’ve got 200 aircraft that sat with engines, all those pre-recertification built engines, aircraft that they could deliver. The cure for Airbus's neo issue that they had early doors was the grounding of the MAX, because what happened was they started making more LEAP-1As rather than the LEAP-1Bs, because there was less requirement for those. It's been an underlying issue for quite a while.

It got masked slightly because of the MAX grounding, in terms of the LEAPs, but then also got masked slightly because of COVID, because there was less requirement for those aircraft. But now, with ramping up and the supply chain issues like you were saying before, the tier-three suppliers, they haven't got the cash to really invest heavily and quickly to get those parts up the chain, to the engine OEMs, to get those engines built and to get them to the OEMs. And the other issue is when you speak to some of the suppliers, they will always try and make sure that the OEMs get those parts first, rather than the after-sales. You were saying before, aircraft have sat there missing parts, a component, and that's because that component has been going to the new builds rather than to the after-sales.

Jens Flottau:

There's another element that we should probably mention, which is MRO. There's a huge backlog of engine servicing, engines that need to go through checks but aren't because the engine OEMs just don't have built up the necessary capacity for those checks. So airlines are sending engines often under service agreements with the engine OEMs and then the engine OEMs cannot deliver, so to speak, which I guess for the future raises the issue of whether, if you're an airline, you want to enter into those agreements if your OEM is that unreliable.

Guy Norris:

And the other thing I was just going to chime in with was this is also causing a bit of a change in policy for a lot of these OEMs, because traditionally, it's all been lean manufacturing, let's bring in the piece just in time to get it ready. Now, in fact, our colleague Graham Warwick was doing an interview at the AIAA conference last week and a Lockheed executive there, Roderick McLean from the factory that makes the C130J, was saying their policy has gone from ‘just in time’ to ‘just in case,’ because they needed to back that up. So it's forcing a change in policy, in a way.

Joe Anselmo:

Jens, we're focusing on engines, obviously because how integral they are to aircraft, but you also can't fly an airplane without seats, or interiors, or entertainment systems. This supply chain problem is widespread, right? It's not just engines.

Jens Flottau:

Yeah. Engines are the biggest issue currently, but there's others, as you say. In-flight entertainment is one, there's a lack of chips. If you don't have chips for the monitors and for the IFE system, you cannot deliver seats, which is an issue that the seat manufacturers face. They can produce all the seats that they want, but they can't really deliver them. Another issue is the uncertainty of logistics, simply, that everyone faces. It's not only that you can't get stuff from A to B, but also that you cannot predict when you will ship things. Sometimes, shipments are possible that you didn't expect, and that's not much better than from not getting stuff from A to B. So yes, it's IFE, it's cabin monuments, it's composites, certain composites that you need for interiors that are in short supply, and across the board, staff shortages as we've discussed.

Joe Anselmo:

Guy, we all talk to people in the industry off the record, and when I talk to people on the engine side of the industry, they say, ‘Yeah, there is a problem here, but the OEMs are our customers, and they're pointing the fingers and blaming us for 100% of the problem when some of this is caused by actions of the OEMs.’ Do you buy that argument?

Guy Norris:

Well, much though I do love the engine makers, being the engine guy, I think they do actually have to take quite a lot of the blame this time. It's everybody's fault in a way. It's not they're the victims of the circumstances here, but unfortunately, I think the bottom line is that somewhere in this process, things have fallen down in the ramp-up. It's as simple as that. Some of it is beyond the control of planners as they're looking at getting this logistics setup again, but really, the airframe side of it, as I mentioned before, they're finding workarounds to these situations to avoid moving the work down the line, which was always the thing that bedeviled everybody who was trying to ramp-up. And now, really, the choke point is well and truly the engine suppliers, because they just have to hang those on the wing, and if they're not there, they're not there, and that is a big deal.

Joe Anselmo:

Dan Williams, when you look at the numbers, are there any signs of hope in here? Any glimmers that show that this problem is going to be solved?

Dan Williams:

Well, we've talked at length, that Airbus wants to ramp up. They want to be up to 75 in a relatively short time, 75 single aisles a month. There's going to be a pressing need for this. As Jens said before, they're probably two to three months behind in terms of production, and when you look at the numbers on the base of it, bearing in mind not all aircraft are missing engines, that's probably about right. Using Guy's back-of-the-envelope math as well, when the number of engines you need per month, and this is going to continue probably through the rest of this year while the system gets itself back into the swing of being able to produce that many aircraft. I have asked this question of the engine OEMs in the past, and you get a wry smile from them to say, "If we've said we can build it, we will be able to build it," which I would love them to be able to do.

But this is where yes, the engine OEMs most are to blame for the now short-term, but also then the airframe OEMs need to take a little bit of responsibility because of that pressing need to ramp up their rates as quickly as possible. But that is now being tamed and tempered by the engine OEMs and this was always potentially going to happen with these large numbers. Certainly, Airbus was saying that they want to get to, in effect, almost 100 single aisles, when you include the A220 over the coming X many years prior to the end of the decade, while it's great to be able to have that as a goal, you have to have the supply chain come with you on that journey and also your customers come with you on your journey. The supply chain are hesitant, and some of the customers, like some of the lessors are hesitant, so it will be interesting to see if those lofty numbers are reached prior to the end of this decade.

Joe Anselmo:

Okay. Well, we are about out of time as we got to get Guy back to his briefings at Rolls-Royce, but thank you, Dan. Thank you, Guy. Thank you, Jens, for all your insights and we'll see you all soon in Farnborough. That is a wrap for this week's Check 6. Special thanks to our producer in London, Guy Ferneyhough.

Join us again next week for a preview of the upcoming Farnborough Airshow. And one last request, if you're listening in Apple Podcasts and want to support this podcast, please leave us a star or write a review. Have a great week and thanks for your time.