Airlines need new planes, but the supply chain has other ideas

Airlines are desperate to get more planes to meet insatiable and growing travel demand, but the two major plane manufacturers, Boeing and Airbus, are struggling to keep up.

After retrenching at the start of the pandemic in 2020, airlines bounced back quickly and started placing large orders for new planes as they sought to upgrade and expand their fleets. But supply chain problems have hampered production, leading carriers to warn investors this month that plane deliveries might be delayed.

American Airlines cut a forecast for how many Boeing 737 Max planes it would get next year based on discussions with the manufacturer, while JetBlue Airways said it was preparing to receive fewer planes than expected from Airbus in 2023. United Airlines, which has big orders with both manufacturers, said that its deliveries next year could slide, too.

“Nearly every industry is navigating broad supply chain, inflation, labor and macroeconomic challenges — and we’re certainly no different,” Boeing CEO Dave Calhoun said in a note to employees Wednesday in which he discussed the company’s quarterly financial performance. “We’re realistic about the environment we face and are taking comprehensive action.”

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Calhoun said Boeing employees were spending more time on-site with suppliers to understand their challenges. The company has also expanded its digital inventory tools, assembled a team of experts to address supply chain problems and taken other actions. But Boeing, a leading American manufacturer, expects the problems to continue through next year.

The company’s financial results for the three months that ended in September were mixed, with big losses from its defense business offset by better-than-expected cash flow and solid demand for its passenger planes. Revenue from its commercial airplane unit was up 40% in the third quarter from the same period last year. Overall, airplane deliveries in the quarter were up 32% from last year, thanks in part to resumed deliveries of the twin-aisle 787 Dreamliner, after a long delay. Boeing again cut its forecast of the number of 737s it would deliver this year to 375, down from about 500 that it had expected at the start of the year.

Airbus, which is scheduled to announce its quarterly financial results Friday, has said it faces production challenges similar to Boeing’s. This summer, the company said it would delay increasing production of its popular A320 family of planes because of supply chain issues.

The company’s CEO, Guillaume Faury, told investors last month that it had set up “watchtowers” to keep an eye on suppliers during the pandemic and help them deal with their own problems, one of which was hiring quickly enough. Airbus aims to deliver 700 planes this year, and Faury said he was optimistic that it could ship the remaining 320 planes to achieve that goal, moving at a pace it hasn’t achieved since 2019.

“It’s not just an end-of-the year battle,” he said at an Airbus event with financial analysts Sept. 23. “It’s something we need to manage as well in 2023, and it’s going to be a difficult year again. We don’t know exactly when the situation of the supply chain will have normalized.”

The disruptions come amid a spate of ambitious orders over the past two years as airlines emerged from the depths of the pandemic. Last year, Southwest announced plans to buy 100 more Boeing Max planes, while United Airlines announced a blockbuster deal for 200 Max jets and 70 Airbus A321neo planes. Early this year, JetBlue expanded an order for Airbus A220 aircraft to more than 100 planes, while Delta Air Lines this summer said it planned to buy 100 of the Max 10 variant.

Alaska Airlines, the fifth-largest passenger airline in the United States, announced Wednesday that it planned to buy 52 Max planes, bringing its total Boeing order to 146 planes through 2026. The airline also has an option to buy 105 more of the aircraft by the end of the decade.

“This is the biggest fleet announcement in Alaska’s history,” Nat Pieper, an Alaska executive who oversees fleet and airline alliance strategy, said in an interview. “This deal with Boeing ensures access for us for sufficient aircraft through 2030 for our replacement needs, and for our growth levels that we anticipate achieving in that time.”

For airlines, the orders serve multiple purposes, allowing them to replace older planes, benefit from the fuel efficiency and cost savings of modern engines and technology, and offer more service as travel continues to grow.

Alaska’s purchase, for example, will help the airline to rapidly expand its fleet and achieve its goal of becoming an all-737 operator by the end of next year. Flying a single type of plane yields benefits, making it easier to reassign pilots, swap planes and maintain a uniform inventory of parts. Alaska expects to eventually save about $75 million to $100 million annually from the simplification of its fleet, Pieper said. Southwest Airlines, the nation’s third-largest carrier, also operates an all-737 fleet.

The new Max jets will also allow Alaska to expand its hold on West Coast travel while adding more transcontinental service. The Max 8 variant has fewer seats than the Max 9, but more range, making it well suited to longer flights, such as those between the West Coast and Hawaii, Pieper said. The Max 10 has the most seats, making it optimal for heavily trafficked routes.

The Max was banned globally for almost two years after a pair of fatal crashes in which 346 people died. The plane was allowed to resume flying in late 2020, after Boeing agreed to make changes, including to the MCAS flight control software implicated in the crashes. Since then, the Max has been used to carry out nearly 1 million flights, according to Boeing.

The company said Wednesday that 737 production was mainly being held back by engine deliveries and that it was working closely with suppliers, including CFM International, a joint venture between Safran Aircraft Engines and General Electric, to address the problem.

“We are clearly on the same page, ourselves and our suppliers,” Calhoun said.

For Boeing, at least, the supply chain isn’t the only threat to its delivery pipeline. The company is also racing to meet an end-of-year deadline to get the Max 7 and Max 10 approved by federal regulators. If it fails to do so — or fails to get an extension passed by Congress — it will have to substantially overhaul the plane’s pilot-alerting system to meet more stringent standards. Boeing and others have argued that the overhaul would be costly and counterproductive, leaving the two Max variants with a different system from other 737s. Others, including the union that represents the pilots at American Airlines, say it is long past time for the overhaul.

Alaska said that it did not plan its first Max 10 delivery until the summer of 2024 and that it would take Max 9s if the Max 10 was unavailable. Delta CEO Ed Bastian said this month that the airline had a “plan B” if the Max 10 was not certified in time for Delta’s expected deliveries.

While travelers are returning to the skies in large numbers, the recovery has been rocky for airlines. Last winter, fast-spreading omicron cases decimated crews while bad weather disrupted flights, causing thousands of cancellations. Problems arose again in the spring and early summer, exacerbated by limited pilot availability. That led airlines to scale back their ambitions so they would be better prepared for disruptions.

For Alaska, the decision paid off. Transportation Department data shows that it had the best on-time performance of any major U.S. carrier in June and July. During those busy summer months, about 80% of Alaska flights were on time. Fewer than 1% were canceled, while the rest were delayed for various reasons, many of them out of the airline’s control.

The airline said this month that it had brought in record quarterly revenue in the three months that ended in September, with strong expectations for the rest of the year. Alaska said it expected revenue to be up 12% to 15% in the fourth quarter, even though it would offer 7% to 10% fewer seats. Airlines across the industry have been collecting record revenues — but not record profits — as they raised fares in response to higher costs.

Despite broad economic concerns, demand for travel remains high going into the end of the year because holiday trips will bring the industry a needed boost, countries are still reopening, flexible workplace rules have allowed people to travel more, and because airlines can’t get pilots or planes fast enough.