Fasten Your Seat Belts: What’s Ahead for Aerospace Manufacturing in 2022

Fasten Your Seat Belts: What’s Ahead for Aerospace Manufacturing in 2022

The last 21 months have been the most volatile period in the history of commercial aviation. The industry experienced peak aircraft deliveries in 2018, with Boeing and Airbus hitting 1,860 combined aircraft and the supply chain continuing efforts to ramp up production from there. Then came the one-two punch of the Boeing 737 Max grounding, followed quickly by the onset of the Covid-19 global pandemic.

The entire industry has been thrust into a period of turmoil due to the evaporation of global passenger demand, which is the engine that powers the entire commercial aviation ecosystem. According to IATA, global passenger demand dropped in 2020 by nearly 70% compared to the prior year, marking the largest year-over-year decline. A bifurcated recovery of sorts occurred in 2021 with passenger demand surging in large domestic markets such as China, Russia, the United States and Brazil. The uptick was fueled by pent-up demand for leisure travel and some workers’ sanity threatened by the tedium of virtual conferencing. Meanwhile, long-haul international travel (flights greater than 3,000 miles) remains in doldrums with passenger demand still down 68% in late December 2021 compared to two years ago.

The pandemic has challenged all the recent norms and forecasting capabilities of the aerospace industry. From 2004 until 2018, aerospace manufacturers enjoyed nearly continuous production rate increases and new program introductions. Early in the pandemic, the V-shaped recovery and quick recertification of the Max were the darling headlines of the industry journals, indicating the trends hoped for by many analysts and market players. Boeing and Airbus both kept their options open by maintaining production rates within the supply chain, consciously allowing their balance sheets to balloon, while maintaining supply chain cohesion and positioning themselves to recover as soon as the world returned to normal. But every approach has its limits. With a resurgence of Covid in the form of the Omicron variant, the industry again had to navigate imposition of travel restrictions, lockdowns, and flight cancellations.

So, what happens now? As 2022 kicks off, my Magic 8 Ball toy tells me to “ask again later,” rather than make predictions for the aviation market, but the year ahead will likely present following themes:

Liquidity in the supply chain will inhibit production rate increases
From the perspective of a professional who spends most waking hours helping clients work through liquidity enhancement and performance improvement opportunities, the relationship between liquidity and production presents one of the least-covered stories of the pandemic. Although a large share of press coverage centers on big companies—such as the aircraft OEMs and large Tier 1 suppliers—a high proportion of the industry’s annual component and assembly requirements rely heavily on a foundation of lower middle-market, privately owned or private equity-backed, component manufacturers. These companies have made it through the pandemic thanks to continued procurement by the OEMs and Tier 1s, government liquidity infusions and lenders’ unwillingness to move on non-performing loans. Those sources of liquidity have now largely run dry, leaving many companies with high leverage ratios and little access to working capital to fund production rate increases, and these factors will cause industry-wide recovery to drag.

Read more: Fasten Your Seat Belts: What’s Ahead for Aerospace Manufacturing in 2022