How is the coronavirus outbreak affecting the aerospace supply chain?

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18 February 2020 - 17:18, by , in Uncategorised, Comments off

We are currently in the final stages of writing our new report Aircraft Harnesses and Electrical Standard Parts 2020. Although this article has an aircraft-wiring bias, we think it has relevance to the whole supply chain. We observe the following.

  • Airlines have taken a heavy impact from the outbreak of the coronavirus since December 2019. Nearly 10,000 flights have been suspended since the outbreak in China. How is the outbreak effecting the wiring and harnesses supply chain? We think it is still too early to draw conclusions, but we have observed the following:
  • In an adjacent industry:
    • As a result of Beijing’s order to close factories in several cities as it seeks to contain the epidemic, Hyundai, which with its affiliate Kia has ran out of the wiring harnesses that are supplied from China. The impact on Hyundai is estimated to have cost the company at least $500 million so far.
    • Hyundai is not the only corporate casualty: Kia suspended three plants for a day, the South Korean unit of French automaker Renault is considering stopping its factory in Busan, and Fiat Chrysler CEO Mike Manley said that the company could be forced to halt one of its European factories.
    • Sourcing wiring harnesses from three different companies still failed to protect Hyundai’s South Korean plants from halting production.
  • Aircraft OEMs:
    • Boeing warned on 12th February 2020 that the coronavirus outbreak could hurt aircraft deliveries in the first quarter of the year, as traffic in Asia slows sharply because of the epidemic. Boeing’s CFO, Greg Smith said that the coronavirus’s impact is something “we’re focused on” and that the company is working with Chinese customers over the issue. “I can certainly see that impacting, as a result of the traffic, impacting some near-term, first-quarter deliveries for a lot of us”
    • Boeing gets some aircraft components from China, but the company said it is not yet seeing any impact on these operations from the coronavirus. Boeing has three subsidiaries, four joint ventures, and more than 35 direct suppliers in China. The company said that in response to government guidance it is “working through plans to delay office openings, provide masks, and offer informational briefings and facilitate work-from-home options when available.” Work at Boeing’s Zhoushan completion and delivery centre had already stopped due to the ongoing suspension of 737 Max airliner production.
    • The delivery of Boeing planes to China and potential Chinese orders for new aircraft would be delayed.
    • On February 5, Airbus confirmed that its A320 final assembly line in Tianjin, China, remained closed following the New Year holiday as part of measures introduced to resolve the coronavirus outbreak. “It’s not related to the fact that we don’t need to produce aircraft, it’s the fact that you cannot get the workers to come. And you observe that across the industry, it’s not just aviation”. The company said that domestic and international travel restrictions were posing logistical challenges for operations of its factory. In a statement, Airbus said that is “constantly evaluating the situation and monitoring any potential knock on effects to production and deliveries and will try to mitigate via alternative plans where necessary.” The Tianjin factory makes six A320 aircraft each month, accounting for almost 10 percent of global production for the single-aisle family. On 11th February Airbus was authorised to restart production in Tianjin.
    • Beyond the single-aisle final assembly line, Airbus also has an A330 completion centre in Tianjin and relies on Chinese suppliers for its global production system across its lines in Europe and the USA. Its Chinese joint venture in Harbin supplies composite components for the A320 and A350 families.
    • Not all OEMs are exposed to the supply chain disruption in China, Embraer said that it has no Tier 1 suppliers in China and that the company does not expect much effect from disruptions at the small number of lower-tier vendors it uses in the country. Embraer does not plan to make any aircraft deliveries to Chinese airlines during 2020.
  • The Tier 1s:
    • Safran extended the Chinese New Year break at its Chinese facilities until 10th The company has extensive manufacturing and maintenance operations in the country, employing around 2,500 people at 20 different entities.

Israel Aerospace Industries’ maintenance, repair, and overhaul joint venture with Lingyun Science and Technology Group is another operation that has been suspended on government orders. It is located in China’s Hubei province, which is where the outbreak started.

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