“Plane makers have a legitimate gripe,” said Tom Captain, head of a global aerospace and defense consulting practice at Deloitte.
To some extent, aircraft makers are victims of their customers, the airlines. Planes are technical marvels that operate with great precision and safety, but the flying public still demands fares that cost less than a good hotel room, and jet fuel costs are likely to remain high. So airlines are driving hard bargains to pay as little as possible for jets.
Boeing is selling some jets more aggressively, since Airbus has gained 60 percent of the market for new single-aisle planes, a market that represents more than half of the new planes to be delivered over the next 20 years.
Boeing recently launched an internal campaign to fight for market share, opening itself to more negotiations over price. However, that requires driving down the cost of building planes.
Boeing and Airbus are also making their own operations more efficient, as they press suppliers to do the same, and are offering to help.
“It’s not going away,” Boeing supply chain vice president Stan Deal said of its cost-cutting program, Partnering for Success.
What’s most important to Boeing “is maintaining or gaining our long-term competitive advantage,” he said.
Of course, many suppliers are also benefiting from the boom. Larger companies and those with proprietary products say they have more leverage to push back against price pressure. Even when margins fall, larger volume can compensate and boost total profit.
Still, concern is rising because many smaller suppliers lack the capital and access to talent to make the price concessions plane makers are demanding.
“Some suppliers will have trouble and may not be able to step up to the challenge and thus go out of business, or sign contracts they cannot deliver on,” Captain said.
A 2011 study by PricewaterhouseCoopers of more than 100 aerospace suppliers found that 20 percent were at high risk of being unable to keep up with rising production and had relatively weak financials.
The pressure has increased since then, said Scott Thompson, head of PricewaterhouseCoopers’ US aerospace and defense business. Suppliers that make commodity products, such as GM Nameplate, are most at risk of losing work to rivals, since they face the greatest number of competitors.
The risk to Boeing and Airbus is biggest from “sole suppliers,” since any slip there risks fouling up the plane makers, Thompson said.
And because aerospace has relatively low volume compared with automobiles, there are many sole-supplier arrangements.
“It’s absolutely a risk,” Thompson said. “You have one supplier that has a problem. It can really have a significant effect on the supply chain.”
Even Boeing is having difficulty keeping pace. Its 787 factory in South Carolina has failed to finish fuselage sections on time. It is hiring contract workers and sending unfinished pieces to its larger factory in Washington to ease the bottlenecks.
Consultant Dave Bender has seen this pressure before. In the mid-2000s he worked as a vice president at GDX Automotive, a major supplier of rubber window seals to Detroit automakers. Back then, one of the Big Three threatened to put GDX on a “no-bid” list unless it cut prices.