Eric M. Johnson and Aradhana Aravindan

SINGAPORE/SEATTLE – In tight health regulations, supply chain issues and wage inflation top the list for companies that attend the Singapore Airshow.

The aerospace industry is facing an acute shortage in skilled workers, weakened balance sheets and a lack of suppliers after the back-to-back crisis triggered by the 737 MAX safety groundeding and COVID-19 aviation slump.

In addition to existing worries about the availability of steel or aluminium, procurement managers are concerned by a lack of crucial materials such as titanium and microchips.

These factors, combined with a decade-long pressure from Boeing to reduce prices, are raising doubts about how the supply chain can meet aggressive narrowbody production ramp up plans for this year and beyond.

Gary Lowe (DE: Aerospace North America Chief Executive, Thyssenkrupp) stated that he sees problems wherever he looks in the supply chain. He spoke to a U.S. supplier meeting on the eve the show.

When asked about the planned increases in Airbus’ and Boeing production, he stated that “I believe it will be a lot lumpier and more problematic than people realize.”

As firms attempt to attract back employees who were displaced by the pandemic, a labor shortage will likely fuel inflation.

Kailash Krishnaswamy – senior vice president for aftermarket services, Spirit AeroSystems (NYSE) – stated on Tuesday that the recovery in aviation has been faster than we expected. He spoke at the Singapore Airshow.

When you’ve cut back on labour from 20% to 50% it can be very hard to bring people back. He added that if you don’t have people to back it, you don’t have any parts.”

Many analysts believe the highest point of vulnerability occurs when supply chains have to make investments in equipment or inventory to satisfy the increased demand from the crisis. This is not the case during low demand periods when relief programs are less effective.

“Some of these supply chains guys have been stretched by their balance sheets and cash flows. They also invested significant amounts into plant, material, and other investments before the pandemic. According to Domhnal, the chief executive officer of Avolon, an aircraft lender in Singapore, “I am concerned about their financial health.”

Lowe advised suppliers in the sector to share their needs and refrain from stockpiling.

Aviation is feeling the pressure after months of ignoring the effects of the shortage in semiconductors.

The low volume, high-value chips required for flight control and avionics can still be found by planemakers. Their designs are quite old in comparison to the rapid pace of innovation in the world of consumer goods.

According to a source close to the procurement process, however, supplies for chips used in more widespread applications like airplane seat electronics are starting to disappear.

Eric Bernardini (global co-head, aerospace, defence, and aviation, AlixPartners), said that it is easier to see the problem in Airbus’s supply chain than Boeing.

Airbus has been moving ahead quicker than any of its competitors despite the reservations made by engine suppliers. Meanwhile, Boeing’s supply base is being overstocked due to delays in 787 Dreamliner production and gradual recovery in 737 MAX.

Both companies’ executives stated Monday that they are aware of the supply chain risk and have begun to factor them in their plans.

According to Bernardini, American suppliers are shifting some of their production away from high-cost states like California in order to offset rising costs.

Omicron coronavirus has caused a number of problems in assembly lines. COVID-19 infection left many suppliers with a shortage of staff. Some cases saw 25% of workers being out of work due to the variant.  

Bernardini declared, “This disruption is extremely disruptive.” “The productivity has declined.”