Airbus CEO Says Company Is Managing Crises, One Supplier At A Time

Airbus, struggling to deal with supplier problems that are derailing plans for everything from commercial aircraft to satellites, has had to scale back near-term production and financial targets and bring more work in-house. Airbus CEO Guillaume Faury met with Aviation Week’s Executive Editor for Commercial Aviation Jens Flottau and Executive Editor for Defense and Space Robert Wall ahead of the Farnbo-rough International Airshow to talk about these issues.

AW&ST: The aerospace supply chain crisis seems to be getting worse rather than better. What has Airbus done to help so far? We are seconding more people—not a small fraction more, but multiple times more people—to the plants of our suppliers to look at their plans and to understand the way they prioritize, to modify the programs to fit with their difficulties and with our needs and to educate them sometimes on lean manufacturing. We are all over the suppliers that are struggling. Verticalizing is one of the many options to regain or gain control, gain visibility.

It is a very unstable environment when it comes to the supply chain for plenty of reasons. What is happening on the other side of the Atlantic is contributing to those difficulties for the supply chain and therefore for us as well when it comes to commercial aviation. On the way to ramp-up and almost at any point in time, we have to manage a large number of crises with suppliers, significantly more than what we had before COVID-19.

It seems whenever you try to ramp up fast, the same choke points resurface: seats, interiors, engines. It will be a problem every time. It is the case in the car industry, in microelectronics, in housing. What is really specific [to aviation] is the departure of so many experienced people. A skilled generation has left the industry after COVID-19. In some departments, more than 70% of people have left. So when we send people to those companies, they come back and tell us that we have to rebuild those [companies], and we have to offer our own systems to them to do the job. People have to learn those historical skills. Problems of the future may be different from these. They may be geopolitical; there might be export restrictions to parts of the supply chain because of U.S.-China [tensions].

What mistakes has Airbus made in managing the supply chain? I’m not sure we made real mistakes. There are probably many, many small things that we could have done better, but should we have done something structurally different in hindsight? I don’t see it. Maybe we could have been a little more prudent at the outset of the ramp-up trajectory, but would we have known that the recovery of the supply chain would be so chaotic? We can’t be everywhere knowing what the future will look like. When there is a quality problem because the humidity control in one plant is not working properly, can we as Airbus predict this? I think we can’t.

Were you too optimistic at the outset? In spite of all our efforts to derisk this supply chain environment, it is not where it should be. We have to face that reality and adapt the speed and make sure that we procure and produce at the right level of quality and in the time that it needs. It is not a reality I like.

You even have to take over parts of Spirit AeroSystems. For Spirit, the world of today is completely different from the one even at the end of last year, when they struck their deal with Boeing on volumes and the recovery of profitability, having renegotiated the prices. In that transition, Spirit is defocused; there is a lack of certainty and visibility for the employees, so it is not good for the operations and securing the volumes that we need in the ramp-up of the A350 and the A220. I cannot manage what is happening at Boeing, and in this case what is happening at Boeing has a lot of knock-on effects also on our supply chain.

Does Spirit show your appetite to integrate vertically? We want to be insourcing parts of Spirit against the backdrop of Spirit going back to Boeing. These are critical parts of our planes, wings and Section 15 on the A350 that I don’t want to see in the hands of Boeing. At an earlier time, for different reasons, we thought they were OK in the hands of others, and in this new environment we believe it is better to have our arms around these businesses. We are verticalizing but not as an overall strategy. In this case, there is a big reward because it is a huge driver of performance, the ability to do the ramp-up, future products, control. It is neither good nor bad. You need to do what is really important and not do the rest.

For aerostructures in general, vertical integration seems to be the way to go these days, no? If you are in a business like ours and verticalize everything, you become a monster. You also need agility. Small is beautiful to an extent when it comes to running a business. A huge company is a heavy company. Aerostructures was a difficult call. Boeing decided 20 years ago to carve out their aerostructures—Spirit—to simplify their operations and rely on a company that could specialize. At that time, Airbus thought that might be a good idea and created Stelia Aerospace and Premium Aerotec. In 2018-19, we reviewed this and concluded that we would either have to completely divest and give them the freedom to be independent, smaller, more agile and broader in terms of business reach or reintegrate and make them internal core businesses. We came to the conclusion at Airbus that this is what we wanted to do. We created Airbus Atlantic and Airbus Aerostructures and insourced aerostructures completely.

Do you fully understand the latest commercial supply chain issues that are slowing you down again? The short term is always easy to understand; it is determined by triggering events. In this case, we fully understand the supply chain issues at GE Aerospace and CFM that have led to the shortages of parts in the hot section and therefore a shortage of engines going to the in-service fleet and to Airbus. The CFM [issue] is a new one, so in the next few weeks and months we are faced with a shortage of engines both from CFM and Pratt & Whitney. This had not been the case—CFM was on trajectory most of the time over the past two years. The target is to recover the engines by the end of this year. They have a lot of uncertainties, and in our risk assessment, we have recognized that it is not very likely that it [will be] completely recovered then.

But the consequences for you are severe. It is unfortunate that the two [engine manufacturers] are impacted at the same time. We were at 662 aircraft in 2022 and on a trajectory for 720 in 2023 and 800 this year. We did slightly better in 2023—we did 15 more. We wanted to maintain the 800 nonetheless. If you add up the two years, we might be missing 15 aircraft. It is not such a big deal. What is important is the pace of the ramp-up that we are guiding to everyone for 2025-27. We recognize all these ups and downs and all the challenges in the supply chain and are damping the ramp-up significantly in the next years to reach rate 75 in 2027. That is probably the bigger decision.

Does the transition to the next narrowbody become even harder under these circumstances? It is never easy to transition from a volume product that drives a lot of profitability to the next generation, but we recognize this challenge. We try to identify all the topics we need to address, so we are well prepared. The deglobalization will be here for some time. There will be more regionalization, more sovereignty [issues] in the way you do things, less dependence on global supply chain.

Where are you in defining an A320neo successor? We are in the concept phase; we are considering different architectures and solutions. There is a lot at stake in the propulsion system. That is why we are happy to engage with CFM on RISE [Revolutionary Innovation for Sustainable Engines], because the open-rotor architecture has a lot of potential. It also has a lot of consequences for the architecture of the plane and the selection of suppliers. We are looking at the most promising technologies and architectures. It is still a world with many options. We are quite early in the selection process.

Do all the difficulties with the current ramp-up affect the timeline of the project? They are marginally affecting the timeline. We are trying to decouple what we do on technology, preparation of the future, from the day-to-day life of procurement, missing parts, pace of ramp-up. It is clear that this level of instability in the environment is making us a bit more prudent than if it were easy going. Also, the geopolitical instability is something that forces us to look at many more scenarios. What the future will look like is a much more difficult question than in a stable environment.

So what is the timeline? Since we shared our view of when this product would enter into service, we are exactly at the same point in time: the second half of the next decade. It calls for the launch at the end of this decade or the turn of this decade. When we look at the RISE timeline and some of the critical parts from our suppliers, that is the same timeline. It is also consistent with the view that we would reach stability on the A320neo program significantly ahead of the launch of a new program for everyone to have time to make money and have a strong balance sheet. That gives us a 15-year outlook that makes sense.

Has your thinking on the hydrogen aircraft changed, that it should be put in service in 2035? There are three challenges: one is the plane, one is regulation, and the third is the ecosystem. We need to have visibility on all of this when we launch a program. We are spending a lot of time on hydrogen—not just the plane but all the other things around us. It is not unlikely when we come close to the launch of the program that we will have far more certainty and control on the technologies than on the preparedness of the ecosystem.

You have a new mandate since the beginning of the year where you focus more on the defense and space turnarounds. Were you surprised by how serious the problems in space were? Well, the answer is “yes.” The longer answer to your initial point was: [The mandate] was not to focus more on defense and space but to focus on a number of topics and give more bandwidth to the Airbus commercial team to deal with the commercial aircraft matters, which are also increasing in number and complexity against the backdrop of the environment we are in.

We wanted to give more firepower to external matters, strategy, international, potential mergers and acquisition (defensive and offensive),- political and geopolitical including defense, space and to some extent helicopters, and at the same time, doing more on commercial suppliers, supply chain management and the complexity of the landscape. That is the reason for the organizations; it is not just about me.

Space was a big part of your recent profit warning. Why? We realized last year that space was one of the areas where we had to spend more time because telecom and navigation programs were proving to be more difficult to come to life. We need to fix it. The space business took a lot of risks in 2018-21 on programs with a high degree of complexity and new functions to be developed. We’ve had COVID-19 in the meantime. We launched an action plan, so-called deep dives and reviews of each and every one of those programs, and put together a new team with skilled people in development of complex and sophisticated programs.

We were expecting findings, but we were not expecting on those long-term programs risks to have materialized, knock-on effects of the different programs where we have bottle-necks in our test facilities or the need to reinsource a number of activities given to subcontractors that were defaulting or likely to default at a later stage.

Where in space are you looking at insourcing? The reinsourcing is not necessary on parts and equipment. It is more on software development and testing, those kind of things, specific functions, sometimes part of the payload or payload development. That is probably a different kind of verticalization or reinsourcing than what we would consider for commercial aircraft, where it is really about parts, goods, systems and for the sake of better controlling the supply chain of physical parts.

Do you think the space business should generally be more vertically integrated? In space, these are much smaller objects than planes. They come with a high degree of complexity and integration. A satellite has to be small, has to be very compact, and there are a lot of interdependencies on the systems. It is probably an industry that calls for more integration than other kinds of products.

What is your expectation to make defense a more meaningful contribution to the business? Defense is working well and moving in the right direction. We have the legacy of the A400M, a program that was handled by Airbus when Airbus and Cassidian were different organizations. So now the A400M is in Airbus Defense and Space, and that gives maybe a bit of a feeling that defense has a problem in general. That is not the case. We are happy with our defense business, be it in Airbus Defense and Space or in Helicopters.

So no big changes for defense? We can and will do better on defense. We want to grow the defense business of Airbus Defense and Space in more profitable ways. We’ve probably been taking programs more for their strategic relevance than the likelihood they’ll be profitable years ago, and we are refocusing our efforts on what makes sense for the product line, for the profitability and the risk-taking to be more consistent in what we do in defense. Resolving the A400M questions at a point in time to no longer have this program being a drag for the whole Airbus Defense and Space and the whole defense business is important. I remember in helicopters, a long time ago, the NH90 was a big drag for the division, and it has been turned into an opportunity and now is a program that contributes to the success of helicopters.

It has been 15 years since the A400M’s first flight. Commercial success has been lackluster. When do you say: ‘It had a good run, but it is over’? It is not a lost cause, the A400M. It is a very good product. The in-service performance is amazing. We have a lot of good feedback.

There is a moment where the transition from launch customers or partner countries of the program to export market is important. You need to cross this valley of tears between when the success of the product is established but also the success of the program. We see that transition coming on the A400M. That is what we have faced with NH90, with Eurofighter Typhoon, and that is what the Dassault Rafale has faced as well. It was a long time without export orders, and then export orders came. That is the life of these military programs. The fact that the A400M as a program has had difficult times is not helping for the transition to export contracts, but I think we are getting there. There is traction with some important prospects on the A400M.

The very good feedback of the A400M in service coupled with the new security and international situation is leading to reassessments of capabilities needed and therefore to some discussions on the need to maintain the program so launch countries, at a later stage, can reorder A400Ms.