The Growing Supply Crisis in the Aerospace Industry
French jet engine manufacturer Safran has raised concerns over the diminishing supply of materials and staff in the aerospace industry. Safran CEO, Olivier Andriès, explains that supply chain difficulties have persisted due to the effects of the pandemic and the Russian invasion of Ukraine which has resulted in raw material shortages. The scarcity of these resources means that aircraft manufacturers will find it challenging to meet growing demand and increase production rates.
Andriès emphasizes that the unprecedented supply crisis is limiting the industry’s progress as they continue to struggle to obtain the necessary parts. These supply chain issues will not end in the next few months, and according to Andriès, it could last until 2024. Other industry players, such as Airbus, are also facing similar challenges due to the supply chain constraints, which they predict will persist until 2024.
Despite these issues, Safran expects sales growth of around 20% this year, indicating the company’s financial resilience. Additionally, the company may consider larger acquisitions and further share buybacks due to its strong financial position resulting from a good cash generation profile in the last two years.
Safran’s potential acquisition of Raytheon Technologies’ flight controls unit, estimated to be worth $1 billion, will further enhance Safran’s market position and strengthen its growth profile. The division, whose operations are mainly based in France, the UK, and Italy, allows Safran to be active in the high entry barrier market where competitors are less visible.
However, there remain challenges in the aviation industry, including overcoming staff shortages following layoffs, including sanctions arising from war in Ukraine impeding sourcing of raw materials such as aluminum. Safran will continue to source titanium from Russia, so long as it is allowed to do so as titanium is used in crucial aircraft components.
Safran continues to meet its objectives despite the supply chain constraints. The company aims to deliver 1,700 Leap engines which it produces with American General Electric in 2023. These engines, which power the Airbus A320neo and Boeing 737 Max, have encountered durability issues in hot and dusty climates like India and the Middle East. Safran ensures that no airline grounds aircraft due to engine problems, guaranteeing customer satisfaction.
Summary
Safran warns that the limited supply crisis in the aerospace industry will continue into 2024, due to ongoing supply chain difficulties caused by the pandemic and the Russian Invasion of Ukraine. The French jet engine manufacturer is among other industry players who face similar challenges in acquiring parts and personnel. Despite these constraints, Safran expects sales growth of around 20% this year, hinting at the company’s resilience. Safran’s recent acquisition of Raytheon Technologies’ flight controls unit would increase its position in the market. The aerospace industry faces increasing challenges, including potential raw material shortages, sanctions arising from the war in Ukraine, and staff shortages following employee layoffs due to the pandemic. Safran aims to continue delivering 1,700 Leap engines, ensuring they tackle issues related to durability while keeping aircraft flying.
The Aerospace Industry: Adapting to a Changing Climate and Embracing Technology
As we continue to face these unprecedented supply chain constraints, the aerospace industry must adapt to these challenges and embrace new technological trends. Many aerospace companies have already started doing this by exploring new forms of automation, digitalization, and data analysis to optimize efficiency and cut costs. Ensuring that aircraft are environmentally friendly is also becoming an essential priority, with many companies working towards fuel-efficient engines.
The aviation industry’s expansion is encouraging many companies to innovate, introducing novel materials, composites, light alloys, and 3D printing into the production process. With technological advances, the adoption of electric aircraft and propulsion systems can lead to technological and environmental efficiency.
Additional collaborations between aerospace and other industry stakeholders such as the automotive and renewable energy sectors in developing logistics and fuel-efficient transport solutions can substantially benefit mitigating the supply constraints. Innovative aerospace efforts and technology adoptions such as those highlighted go a long way in ensuring the industry’s adaptability and survival when faced with an unprecedented crisis.
As recent legislation and public sentiments increasingly emphasize carbon emissions and sustainability, aerospace companies must adapt to shifting tides within their industry. Technological innovations tailored towards environmentally friendly practices can lead improvements both for the industry and customer satisfaction, as long as supply constraints are met in production.
In conclusion, addressing the supply chain issues that the aerospace industry faces is a priority, such as outsourcing from other industries, to withstand upcoming growth, production, and economic demands. However, incorporating changing environmental and technological trends into their operations should be a priority to ensure the longer-term resilience of the industry.
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French jet engine maker Safran has warned that the “unprecedented supply crisis” in the aerospace industry will continue into next year as aircraft manufacturers struggle to find the parts and personnel they need to respond. to growing demand.
Safran chief executive Olivier Andriès told the Financial Times that supply chain problems have not stopped since the Covid-19 pandemic as well as Russia’s invasion of Ukraine which caused shortages of raw materials.
“We have to fight every day to get the parts. This is true for Safran and also for the entire industry,” Andriès said in an interview. “We went from an unprecedented demand crisis in 2020. Now the demand is back but we are in an unprecedented supply crisis. We have never seen this before,” he added.
Other industry players are also facing similar headwinds, with Airbus warning supply chain constraints until 2024, as airlines rush to order new planes to meet strong travel demand.
Andriès added that the constraints would likely last until 2024, limiting the rate at which the sector can further increase production. “I would like to say that it will be over in three months. But this is not true . . . it will last,” he said.
Despite the challenges, Paris-based Safran now expects sales growth of around 20% this year. That would put it on track for revenue to return to its pre-pandemic peak of 25 billion euros by next year, analysts say, and shares are also up 55% in the past 12 last months.
The company generates significant revenues through the supply of civil and military engines, as well as its aircraft interiors business, which together accounted for almost 45% of the group’s revenues in 2022.
A sign of Safran’s financial strength, the company is now considering larger acquisitions and is also open to further share buybacks, the CEO said.
Safran recently revealed that it was in talks buy US-based Raytheon Technologies’ flight controls unit, estimated to be worth around $1 billion, in what would be its biggest acquisition since 2018.
Andriès said a deal for the division – whose operations are largely based in the UK, France and Italy, not the US – would “in one step” help Safran become a market leader. market in an area where it has lagged behind its competitors. “Our DNA at Safran is to be active in critical equipment for which the barriers to entry are high and where there are not too many players,” he said.
Analysts had questioned whether the deal would hurt Safran’s ability to make further share buybacks, with the current buyback program, which began in October 2022, nearing completion.
“There is an opening” to takeovers, says Andriès. “Our balance sheet has become stronger because we have been able to have a good cash generation profile over the past two years, and that will continue.”
One of the key remaining issues for the civil and military aviation industry is overcoming severe hiring challenges after cutting staff during the pandemic.
Sanctions related to the war in Ukraine have also made it more difficult to source materials such as aluminum.
In a bid to diversify some of its raw material supplies, it bought French steel parts maker Aubert & Duval alongside Airbus and Tikehau Capital earlier this year. However, he has no immediate plans to stop imports of Russian titanium, which is currently not covered by sanctions, as switching suppliers takes time due to the complexity of certification. materials needed for critical aircraft parts, Andriès said.
“We will continue to source titanium [Russia] as long as we are allowed to do so,” he said.
Andriès also reaffirmed the objective of delivering 1,700 Leap engines in 2023, which Safran produces with the American General Electric. The engines, which power the Airbus A320neo and Boeing 737 Max, have encountered durability issues in hot and dusty climates such as India and the Middle East.
Andriès pointed out that no airline has had to ground an aircraft due to engine problems. “We keep [their aircraft] fly,” he said.
https://www.ft.com/content/ec304d7b-91d0-41b8-9e0c-34bd387039f0
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