Business aviation’s new long-range leaders battle supply chain worries

Divergence between supply and demand has left manufacturers of large-cabin business jets with flush backlogs – and plenty of problems that need solving.

In short, demand is through the roof but supply is stuck at ground level.

That is the reality facing companies such as Bombardier, Dassault Aviation and Gulfstream – and, indeed, their counterparts in the commercial aviation sector.

Despite the Covid-19 pandemic (or perhaps because of it) business jet makers have been rapidly taking new orders for the $70 million-plus machines that occupy the upper echelon of the private-travel market, adding billions of dollars to their backlogs. Demand has also prompted the three main players to up their games by rolling out even-more-expensive models, including those that crack the 8,000nm (14,800km)-range barrier.

But such strong underlying dynamics belie real challenges. Owing to factors including Covid-19, inflation, economic slowdowns and geopolitical tension, business jet manufacturers are coping with significant supply chain troubles. Those challenges have left them scrambling to maintain production at current levels and raised questions about their ability to meet demand.

DAILY BATTLE

“Manufacturers in the large-cabin segment will find themselves unable to execute to keep up with demand at a time of surging orders,” says analyst Brian Foley, founder of aerospace consultancy Brian Foley Associates. “There will be few alternatives for those wanting delivery of a new large-cabin aircraft in the near future.”

Foley’s observations are mirrored in recent comments made by executives at the airframers.

“Supply chain is definitely… an ongoing issue for the industry,” Jason Aiken, chief financial officer of Gulfstream parent General Dynamics, said during a 27 July earnings call. “It’s a daily battle.”

“Dealing with supply chain pressure is a new normal,” Bombardier chief executive Eric Martel said on 4 August, also during an earnings call. “Over the last few months, we have been very active in… assessing where it makes sense to repatriate or consolidate small work packages or parts, to ensure our production line can operate as efficiently as possible.”

The airframers join companies across aerospace in facing parts shortages. Insiders say pandemic-disrupted logistics networks (and China’s lockdowns) are to blame, as are a lack of enough skilled workers, and economic sanctions against Russia imposed by Western powers in response to Moscow’s February invasion of Ukraine. The aerospace industry shrank rapidly in 2020 because of the pandemic and has struggled to regain footing.

As a result, Foley notes, business aircraft manufacturers are largely keeping 2022 production output flat at 2021 levels. They have far to go before returning to pre-pandemic production rates.

Bombardier, for example, delivered 49 aircraft in the first half of 2022 and anticipates ending the year with more than 120 deliveries, including about 40 of its flagship Global 7500. Similarly, the company delivered 120 aircraft last year. By comparison, the Montreal manufacturer delivered 142 business jets in pre-Covid 2019.

Martel says suppliers in various areas of the chain are struggling to ramp up. He also cites “risk” associated with the supply of engines. Executives at other manufacturers have also recently highlighted such equipment troubles, including Boeing chief executive David Calhoun, who has cited engine shortages as a central factor limiting 737 production.

Martel insists Bombardier is working through supply shortages. He says the company aims to increase production by 15-20% in 2023, which would equate to somewhere around 140 aircraft deliveries.

“We have been extremely meticulous in planning, in detail, every ramp up, taking into account that we don’t want to have too much backlog – or not enough,” Martel says. “On top of it, we are taking great note of what the strains in the supply chains are today.”

In a proactive move, Bombardier this year acquired Schrillo, a California company that produced a Global 7500 wing component. Schrillo had been struggling financially, so to prevent a shortage, the airframer simply bought the firm, including its machinery, intellectual property and inventory. Schrillo’s staff are now Bombardier employees, it says.

Gulfstream’s 2022 delivery target mirrors Bombardier’s. The Savannah airframer delivered 47 jets in the first half of 2022 and expects to hand over roughly 123 aircraft this year, nearly flat from its 119 deliveries in 2021, General Dynamics has said. Those figures remain significantly depressed from 2019, when Gulfstream handed over 147 aircraft.

Supply-driven production constraints are at work, say executives. In January, General Dynamics chief executive Phebe Novakovic said Gulfstream was dealing with short supply of wings, which it makes in-house.

Gulfstream has, meanwhile, worked through other complications. In May, the US Federal Aviation Administration (FAA) significantly limited G500 and G600 operations, prohibiting the jets from landing in wind speeds exceeding 15kt (28km/h) and wind gusts of more than 5kt. The move was in response to two hard landings during windy conditions caused by erroneous activation of the jets’ angle-of-attack (AoA) “limiter” function, which is designed to prevent stalls.

DEVELOPMENT DELAYS

Gulfstream developed a software fix which the FAA and the European Union Aviation Safety Agency approved in mid-September. But the problem has trickled into its delivery stream.

In the second quarter, the airframer handed over only 22 aircraft. It had planned to deliver four more – all G500s/G600s – in the period, but customers deferred taking those aircraft pending “removal of the FAA wind directive”. Gulfstream did, however, deliver nine G500s/G600s despite the operating restrictions.

The issue also has affected Gulfstream’s development and certification of its flagship G700 and G800 ultra-long-range jets. General Dynamics had in April warned about possible delays to those certification programmes, citing FAA scrutiny of software.

Then, in July, Aiken said Gulfstream had reassigned “flight sciences engineering resources” from the G700 programme to work on resolving the G500/G600 AoA problem. As a result, the G700/G800 certification delay has “become a reality”, he said.

Gulfstream now expects the G700 will be certificated by mid-2023, with the G800 to follow about six months later. Previously, it was aiming to achieve the milestones by the end of 2022 and mid-2023 respectively. The company’s first test G800 made its flight debut in late June, before being flown to the UK to attend the Farnborough air show in mid-July.

Dassault is facing similar supply chain and production hurdles. In July, the French company cited Russia’s war in Ukraine and lingering Covid-19 effects as causing inflation and “uncertainty over the supply of energy, electronic components and materials”.

The company, which also has a large defence aviation business, described the supply chain as “weakened”. It called out shortages of raw materials, including aluminium and titanium. Sanctions against Moscow have particularly thrown the titanium market into disarray, as Russia had been among the world’s leading suppliers.

“We need to safeguard existing sources, or urgently find reliable alternatives. We are endeavouring to build up inventories to secure production for the coming years,” Dassault added. “We have placed orders, but we will need to monitor physical deliveries over the next few weeks.”

Amid such pressure, the airframer delivered 14 Falcon-series business jets in the first half of 2022 – up significantly from six shipments in the first half of the previous year.

For full-year 2022, Dassault expects to deliver 35 Falcons. That would be up from 30 examples handed over last year, but down from 40 in pre-pandemic 2019.

The airframer has also been dealing with company-specific challenges on top of industry and geopolitical troubles.

“Dassault missed the order surge” of recent years, says Foley, after cancelling development of its 5,200nm-range Falcon 5X in 2017. It shuttered the programme following problems with the type’s Safran Aircraft Engines Silvercrest turbofan.

SELLER’S MARKET

Dassault replaced the 5X with the 6X, launched in 2018, but the debacle put the company behind competitors, Foley says. The 6X, with 5,500nm of range, competes in the same segment as Gulfstream’s G500 and G600, and Bombardier’s Global 5500 and 6500.

In May, Dassault announced a six-month delay to the 6X’s service entry, to mid-2023, blaming supply chain trouble.

Production constraints aside, business jet makers are having no trouble at all selling aircraft.

Dassault logged orders for 41 Falcons in the first half of 2022, up from 25 in the same period last year. The company ended June with 82 Falcons in its backlog, worth €4.3 billion ($4.3 billion), up from a €2.9 billion backlog with 53 orders one year earlier.

Bombardier’s backlog surged by 37% in one year, to reach $14.7 billion at the end of June. The company holds orders equating to two years of production, Martel says.

Demand, he adds, has been particularly strong from US customers. Bombardier also sees “improving” sales activity from European buyers despite the Russia-Ukraine war, and has seen reviving demand from the Asia-Pacific region following a two-year Covid-induced slowdown. Broadly, Martel calls the pandemic an “accelerator for people moving towards private jet” travel.

Similarly, General Dynamics’ aerospace business (which is anchored by Gulfstream but also includes aviation services provider Jet Aviation) closed June with a backlog worth $18.8 billion, up 39% in one year.

Amid roaring demand, the large-cabin competitors have continued bettering each other by rolling out larger and longer-range models.

Gulfstream set a new range standard in October 2021 when it launched the G800, with an advertised maximum range of 8,000nm.

Not to be outdone, Bombardier shot back in May by revealing plans to bring the long-promised Global 8000, also with 8,000nm of range, to service in 2025. The platform will be a modified version of the Global 7500, which has 7,700nm of range.

Dassault is likewise targeting the ultra-long-range market with its in-development Falcon 10X, a 7,500nm-range aircraft pegged for a late 2025 service entry. But in July, Dassault warned of delays, saying the 10X “calendar is tight because of difficulties related to Covid, with its impact on the supply chain and collaborative work”.

STILL HOT

There is some evidence the large-cabin segment has cooled of late, amid inflation, a US recession and stagnant economic growth in Europe, says aerospace analyst Richard Aboulafia of AeroDynamic Advisory.

“It was white hot. Now it’s just hot,” he says. “It has eased a little bit.”

But if souring economic conditions are worrying the leaders of business jet manufacturers, they are not showing it. Martel does not foresee a spike in order cancellations and describes Bombardier’s backlog as placing it “in a great position” to weather a potential economic slump.

General Dynamics’ Aiken agrees. “There’s a lot of talk out in the market about interest rates, inflation, the stock market, recession potential and so on,” he said in July, addressing a question about aerospace. “We have not yet seen any impact of that, in terms of our order pipeline.

“We remain very confident and steadfast in our outlook for the next couple of years,” he adds.