Tuesday, June 18, 2024

Supply Chain Woes Could Bruise Air India Mega Order

By Bikram Vohra

There is currently much excitement in the corridors of Air India as it presumably puts the final touches to the ostensibly 100 billion dollar deal for 500 aircraft it will order from the two top plane makers.

The current fleet is 127 aircraft of both Airbus and Boeing, with the Dreamliner as the tip of its state-of-the-art spearhead. Even if you combine it with the 54 mixes from the Vistara fleet, the ambitious addition of 500 aircraft in one go seems a bit of a PR headline and not something that will materialise even in 10 years. It is more likely to be two decades, and that is also if both Boeing and Airbus can ratchet up their production and clear the decks.

In the event of getting preferential treatment and a leap over the queue of both manufacturers will be hard placed to maintain this hectic production schedule. Boeing took orders for 21 aircraft, including 18 737 MAX, to raise its backlog to 4414 aircraft. Airbus recently confessed its inability to reach the promised target of 700 aircraft in 2022 with a backlog of 7,344 orders. Just from these figures, you can see that neither needs Air India to order with even a thimbleful of despair. In fact, it is an embarrassment of riches but no place to bank them.

The very fact that almost 92% of these global orders are for the A320 and A220 single-aisle aircraft makes Air India’s call for 400 of the same even more tenuous. Even if Air India decides that rather than sit at the back of the queue and wait, it might as well jump onto the shorter one at Boeing where the narrow body demand stands at around 3400, it begs the question of why the airline does not seek to at least examine a third option. The Embraer E jet family’s robust and very valid attractiveness in the sub-150 seat category has yet to be considered a viable entity.

Much is made of India opening its interior and creating an impressive network of regional landing fields. Yet turboprops are not mentioned in the mix even though as many as 2400 units out of the projected 10,000 plus aircraft demand till 2032 are for short-haul turboprops. As such, the ATR family and the soon to be seen New tech TP50 AND TP90 props that Embraer is working on that could well retain relevance in the Indian context well into the 2030s. This option would be ideal for any carrier involved in the regional connectivity programme.

Therefore, the current hush-hush negotiations that Air India might be engaging in are dependent on availability and concurrent infrastructural build-up at home. From hangars and engineering capabilities to obtaining slots to land, activating new routes and training flight deck and cabin crew as well as support staff, are all inputs that affect the induction. At present, our Maintenance Repair Overhaul (MRO) capacity, even though finally brought out of the shadows of oblivion and given due courtesy, is still far behind the curve and lacks the depth and enough skilled human resources needed to keep the fleets airworthy.

But let’s get back to the source. The fallout from the crippling supply chains after the Ukraine war has hurt manufacturers, and Boeing has been candid in accepting the wrinkle. Many parts are being delayed, and the lag mounts up. According to the company, the Boeing supplier network stretches around the globe and includes 12,000 active suppliers – more than 6,000 of them being small and diverse businesses. Of those numbers, approximately 600 are veteran-owned, and 850 are women-owned.

Last year according to a Reuters report, Boeing forecast delivering fewer than half of the expected 100 or so 787 Dreamliners in its inventory this year, instead of the “vast majority” it had expected – as it continued forensic inspections and costly repairs to address quality flaws in the aircraft. That was the next wrinkle, followed by a sharp cut in the order by flydubai, slashing 65 from its initial order of 251.

Several of its programmes are out of sync with the intent. The 777x schedule is off the charts in negative mode, and as said, the Dreamliner is having a hard time. The demand for the 737Max is strong, and it has survived the fear and freeze post-Ethiopian and Lion Air tragedies, but delivery is still a burr under the saddle. To put it in perspective, if this is the speed currently of about 157 odd 737s a month, then the undelivered 4000plus Max aircraft will take 13 years. This knots up Air India’s intent of getting even 200 aircraft of this genre anytime soon. Even if Boeing puts the carrier as most favoured, how many clients will it annoy, and how many penalties will it incur when it suffers from the abundance in demand that it cannot presently handle.

At Airbus the effort to absorb the delays from supply chain delays is ongoing, but the Toulouse – based company is stretched to keep deliveries on schedule. In early December 2022, it declared its inability to deliver the promised 700 planes scheduled for this year and saw a shortfall of 70. In a statement, it blamed the “complex operating environment” for its slack. Under these pressures, it has regrettably had to cut back its highly successful A320 family production from a promised 75 aircraft a month to 65, dropping back by 240 units until 2025, when it hopes to return to normal. To be fair, the figure of 65 is a boost from the 50 per month that was expected. The hike was pushed to exploit the Boeing slowdown in the crucial single-aisle category, where the 737Max is the strong challenger.

With no relief on the supply chain choke and no clue when things will revert to normal, both manufacturers are aware they are at the mercy of their suppliers. It is easily forgotten that Airbus lost a lot in the A380 collapse, which is still smart. It was the perfect solution to a need for mass transit, except the need evaporated as fuel prices and demand for upload did the dirty through Covid and the twin-aisle twin-engine ability to go long-haul. Why have four when two can do the job? Especially since power plant technology improved exponentially and positively impacted the bottom line.

And so, back to Air India. While one understands the rationale of sticking to minimum aircraft families to reduce overheads and create parallel teams, sometimes it becomes necessary to consider a third option that allows the blueprint of progress to grow wings. Before the final signature, it is worth factoring in the future with some more equally pertinent scenarios.


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