15/11/2024 INSIGHTS
Lack of capacity is not usually a problem in transportation. Until 2020, one of the main characteristics of road freight markets was the excess supply of vehicles. Shipping was even more prone to overcapacity. Air freight was slightly different: the big three air express companies maintained strong control over large segments of the market by virtue of the sophistication of their networks, but not because there was a shortage of aircraft. In fact, in much of the world there were too many cargoes in the warehouse. This oversupply situation could be changing as aircraft manufacturers struggle to keep up with demand.
The problem is that key equipment manufacturers have supply chains that are struggling to adapt to higher levels of production. A recent example is the jet engine manufacturer Rolls-Royce. It has worked, although not always successfully, to provide the necessary levels of spare parts support for customers of its large Trent 1000 engine. This particular engine, which powers long-range airliners such as the Boeing Dreamliner, has proven to have a voracious appetite for components. It seems that Rolls-Royce cannot obtain enough components to maintain the existing fleet, let alone expand it. These supply chain issues are also having an impact on the large maintenance centers that Rolls Royce operates, with spare parts inventory shortages and difficulties with maintenance center capacity.
The situation is such that some airlines operating the Trent 1000 are restricting their operations: British Airways has discontinued services between London and Fort Worth Dallas, and Virgin Atlantic has slowed the introduction of new services to Israel and Ghana.
Rolls-Royce is not the only company suffering from supply chain problems. Both Boeing and Airbus have just been forced to pump money into SpiritAero Systems, a supplier that makes components for airplane wings and fuselages. SpiritAero Systems has long struggled for profitability, but recent strikes at Boeing appear to have destabilized production and inventory management operations, impacting cash flow. A bankruptcy at SpiritAero Systems would paralyze production in large parts of Boeing and Airbus, so they must guarantee its stability.
These issues not only illustrate the importance of supply chain management for the aerospace industry, but also warn that there are likely to be limits on aircraft supply in the short and medium term. Given the strength of demand for air freight at present, this is likely to have a significant impact on both freight rates and service quality.
THOMAS CULLEN
