OPINION: Can Boeing beat its suppliers in avionics power play?
To loosely paraphrase a saying attributed to Sir WinstonChurchill, never waste a good crisis – or a new aircraft development programme.
Boeing has proposed a new midsize airplane family to enter service in the mid-2020s for commercial reasons. It perceives a gap emerging in the middle of the market, and believes that airlines may potentially be more profitably served by new technology than by an adaptation of existing products.
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The commercial imperative may drive Boeing’s pending launch decision, but a new aircraft programme provides a platform on which to pursue other corporate priorities, such as reshaping the economics of the commercial aviation supply chain.
Boeing’s suppliers on average earn nearly twice its profit margin, despite exposure to less risk on new product development and execution. The forces creating this lopsided dynamic are complex, but the consolidation of suppliers at the Tier 1 and Tier 2 level has certainly helped. Airframers now have fewer options than ever at the subassembly and assembly level, making the aircraft supply chain a classic sellers’ market.
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Boeing, loudly, and Airbus, more quietly, have been fighting these market forces for several years. Since 2012, Airbus’s single-aisle cost optimisation programme and Boeing’s partnership for success have each sought to reset supplier profitability by trading lower costs for higher volumes.
In some areas where suppliers have not responded, Boeing has moved to insource the work.
