Supply Shortage To Impact Profitability As Aircraft Issues Persist Globally

Global aircraft markets are facing a prolonged supply shortage due to manufacturing challenges affecting engines and aircraft across Original Equipment Manufacturers (OEMs). According to ICICI Securities research, new issues continue for both Boeing and Airbus, and the anticipated recovery in aircraft supply is likely to be postponed. This persistent supply crunch is expected to have a positive impact on the profitability of airlines as the challenges of aircraft availability persist.

Manufacturing and technical challenges have plagued the aircraft industry in recent years. Boeing, which previously faced the grounding of its B737 Max planes, is now grappling with issues such as aft fuselage fittings and improperly drilled fastener holes. Airbus, on the other hand, has dealt with problems related to its P&W GTF engines and the need for inspections due to contaminated powder metal in some engines. These ongoing technical concerns are leading to delivery delays and the rescheduling of planned deliveries across aircraft manufacturers, including Boeing, Airbus, and Embraer.

The Indian aviation sector has experienced its fair share of challenges in aircraft supply over the years. Despite the country's rapid growth in air travel, the supply of new aircraft has been hindered by both OEM-related issues and the financial struggles of airlines. As a result, for the past four years, India's fleet of aircraft has been roughly stable at 650–700 units.

Given the persistent supply shortage, the investment outlook remains positive for InterGlobe Aviation (IndiGo), India's leading airline. The shortage in aircraft availability is expected to contribute to improved profitability for airlines, including IndiGo, even in the face of potential seasonal weaknesses.

An interesting debate has emerged around the structural aspects of these aircraft-related challenges. Questions have been raised about the extent of outsourcing and cost management in airplane part manufacturing. The merits and drawbacks of maintaining a vertical supply chain versus a more distributed one are also being discussed within the industry.

As aircraft manufacturers work to resolve these technical challenges and optimize their supply chains, the global aviation industry continues to navigate an intricate landscape of supply shortages and operational considerations. The lasting effects of these issues underscore the need for robust strategies to manage manufacturing complexities and ensure a more seamless aircraft supply chain in the future.