Airline Executives See Labor Squeeze Easing: Paris Update

Aviation executives arrived in Paris on Monday for the first air show in the city in four years. The industry’s biggest conclave was expected to yield a bounty of jetliner orders for Boeing Co. and Airbus SE, and India’s IndiGo starting things off with a record-breaking splash.

(Bloomberg) — Aviation executives arrived in Paris on Monday for the first air show in the city in four years. The industry’s biggest conclave was expected to yield a bounty of jetliner orders for Boeing Co. and Airbus SE, and India’s IndiGo starting things off with a record-breaking splash. 

The industry is struggling to manage a surge of growth after travelers stormed back to the skies in force after the Covid-19 pandemic. Chief among the challenges are persistent supply chain kinks that have slowed output. That’s left some airline executives wondering when they’ll finally get the jets they’re ordering at the show, while Airbus and Boeing are pushing to raise production as fast they can to help alleviate the bottleneck. 

Gone Hiring (6:30 p.m.)

Dassault Aviation SA CEO Eric Trappier said the post-Covid-19 labor shortage is slowly improving, and the maker of Rafale fighter jets will use the Paris Air Show to attract new talent, notably female. Supply-chain problems, which have impacted civilian aircraft more than deliveries of Rafale jets, are improving “step by step,” the CEO said.

Buybacks and Deals (6:18 p.m.)

Safran SA says it could still do share buybacks even if it moves forward with the purchase of Raytheon Technologies Corp. business that makes products including flight controls. Talks continue and the deal makes strategic sense as flight control is “mission critical,” CEO Olivier Andries said in a Bloomberg TV Interview at the Paris Air Show.

“We could do both, it’s not one or the other,” he said, speaking about M&A and buybacks. Safran has a strong balance sheet, low debt and will generate “very strong cash flow” in the years to come, he said. “We want to make shareholders happy” even though the company still wants to be able to consider “opportunistic” M&A, the CEO said.

A Bubble Brews? (4 p.m.)

A second industry luminary cautioned of an impending glut of aircraft capacity as airlines desperate for planes place mega-orders during a travel upcycle.

“It’s a little bit of a herd mentality that’s not justified by economics or reality,” said Steve Udvar-Hazy, chairman and co-founder of Air Lease Corp. 

Udvar-Hazy, an aircraft-leasing pioneer who founded International Lease Finance Corp. nearly 50 years ago, echoed earlier comments voiced by Akbar Al Baker, CEO of Qatar Airways. “We’re not going to do irrational large orders just for the sake of getting publicity,” Udvar-Hazy said. 

Udvar-Hazy counts the tardy debut of Airbus’s largest and longest-range narrowbody as one of his greatest frustrations at a time when every aircraft program is buffeted by delays. He estimates the A321XLR will enter the commercial market in the third quarter of 2024 or early in the fourth-quarter, about 16 or 17 months behind its original schedule. Airbus is currently targeting mid-2024. “It’s going to be a great airplane, but it’s going to be late,” Udvar-Hazy said in an interview.

Air Taxis

A number of aspiring air-taxi manufacturers sent delegations to Paris, including Archer Aviation, Joby Aviation, Lilium, Volocopter and Boeing’s Wisk Aero. Archer is in “serious talks” with five airlines to become customers for its electric vertical take-off and landing aircraft, CEO Adam Goldstein said in an interview. 

Carriers “don’t want to be caught without one,” Goldstein said. “There’s been lot of talks with a lot of airlines and being here at Paris has certainly enabled many other conversations too,” including with suppliers. Jeep maker Stellantis was an early investor in Archer in 2021, and recently increased its strategic shareholding.

SAF Supplies

The Federal Aviation Administration’s top official said she’s confident there’s enough money available to hit the US target to raise production of sustainable aviation fuels to 3 billion gallons a year by 2030, and having enough SAF to meet 100% of aviation fuel demand by 2050 — around 35 billion gallons a year.

SAF, a substitute fuel made from renewable resources or waste, costs around five times more than traditional jet fuel. The FAA plans to provide $300 million to build the infrastructure needed to get SAF “from the farm to the airfield,” said Polly Trottenberg, the FAA’s acting administrator, said on a Paris Air Show panel. “We have the dollars behind us to implement these changes,” she said.

Record Deal (3:05 p.m.)

Airbus secured the biggest aircraft order in aviation history, notching a 500-plane deal with India’s dominant airline, IndiGo. The mammoth accord for Airbus’s top-selling A320 family of single-aisle jets brings IndiGo’s order backlog to close to 1,000 planes as extends its lead in the world’s fastest-growing large market for aviation.

“No one has ever ordered an order of this magnitude,” IndiGo Chief Executive Officer Pieter Elbers said from the podium. “It speaks to the potential of Indian aviation and the ambitions which Indigo is having.”

Akasa Talks 

India’s Akasa Air also working on a deal, albeit on a much smaller scale. It’s in talks with Boeing to place a follow-on order for 737 Max single-aisle jets if it can lock down financing, people familiar with the matter told Bloomberg News. The deal may cover 10 or fewer jets, one of the people said.

Flynas A320neo Deal (2 p.m.)

Saudi Arabia’s Flynas firmed an order for an added 30 Airbus A320 aircraft, as the low-cost carrier leans into the gulf state’s massive tourism push. The accord, confirming an earlier Bloomberg report, is part of a deal to purchase 120 jetliners for its all-Airbus fleet. The board aims to increase its aircraft order book to 250 planes as it expands.

GE in India? (2:32 p.m.)

General Electric Co. CEO Lary Culp danced around speculation the US industrial giant will announce a program to manufacture jet engines in India when Prime Minister Narendra Modi visits Washington this week. “It’s only Monday,” Culp said. “It’s going to be a busy week.” He also said he’s optimistic about GE’s business in China despite political strains between Beijing and the US. 

Saudi Copter Factory (1:40 p.m.)

Airbus agreed to build military and civilian helicopters in Saudi Arabia with local defense company Scopa Industries Corp. in a deal valued at more than 25 billion riyals ($6.7 billion).

Construction of the helicopter factory is expected to begin early next year, Scopa CEO Fawaz Alakeel said in an interview from the Paris Air Show. The plant will be able to produce up to 100 military and commercial helicopters a year by the end of the decade, he said.

Ordering Too Much? (12:45 p.m.)

Qatar Airways Chief Executive Officer Akbar Al Baker said there’s a risk that airlines are ordering too many aircraft, “at least in our region.” Emirates has said it wants to buy more aircraft, and Turkish Airways is also in the market for additional jets. Riyadh Air has announced orders as it builds a new airline in Saudi Arabia. 

“We have players flooding the market with huge number of planes, I just hope that they’re doing this right,” Al Baker said. 

The executive said he will place orders again in the “not too distant future” once the carrier’s fleet replacement plans run out.

Supply Chain Woes (10:39 a.m.)

Pratt & Whitney is “making solid progress on the supply chain,” and is now returning more GTF engines to service than are being removed, said Shane Eddy, president of the Raytheon unit, in a Paris presentation. The number of GTF-equipped jetliners sidelined for maintenance and repairs — now about 10% of the commercial fleet — is stabilizing and should improve by year-end, he said. He blamed customer disruptions on operational issues such as maintenance shops waiting for parts, adding: “This is not tied to the engine.”

To improve performance, Pratt is introducing upgrades to the in-service fleet and plans to introduce a GTF variant called GTF Advantage that should be certified by the middle of 2024, Eddy said. “This drives time on wing that will meet expectations right on entry into service.”

Going Higher (10:30 a.m.)

Boeing Co. plans to reach a monthly build rate of 42 aircraft on its bestselling 737 Max model before the end of the year, Stan Deal, the manufacturer’s head of commercial operations, said in an interview with Bloomberg TV at the Paris Air Show. The company is also laying the groundwork for a step-up to a monthly pace of 48 jets over time, he said. 

On the bigger 787 Dreamliner, Deal said the aircraft is the “next natural act” to be offered as a freighter model.

Focus on Defense (9:57 a.m.)

Defense is a major component of the air show, even if commercial deals grab the attention. “The defense presence is something that we need to showcase here,” US Senator Jerry Moran of Kansas told Bloomberg TV. Russia’s invasion of Ukraine has “galvanized the world and the transatlantic alliance,” said New Hampshire Senator Jeanne Shaheen in the joint interview. “It’s also invigorated NATO in ways that we haven’t seen in decades.

The bipartisan tandem called on President Joe Biden to move quickly to nominate a permanent head of the FAA who understands the aviation industry as well as the agency’s role in passenger safety. “There’s no reason why the administration can’t find a man or a woman that fits those qualifications,” Moran said.

The Candy Shop (9:53 a.m.)

Steven Udvar Hazy, the self-proclaimed godfather of the aircraft leasing industry, expects the air show to be all about “mega orders,” while cautioning that the deals “may or may not be delivered.” Speaking on the first day of the show, the CEO of Air Lease Corp. likened the Paris Air Show to “kids in a candy shop” as airlines rush to place order in an increasingly supply-constrained market. 

GTF Optimism (9:01 a.m.)

Pratt & Whitney “has a great story to tell about where we are, where we’re going and what we need to do” with the GTF engine that’s seen durability issues on Airbus A320 and A220 aircraft, Greg Hayes, chief executive officer of parent Raytheon Technologies Corp., said at an investor day presentation in Paris. No new narrow-body introductions until the mid-2030s means the GTF will be produced for much longer than originally anticipated, “which means a much longer afterlife” for in-service aircraft, he said.

Raytheon on Sunday reaffirmed its financial outlook for this year, expanding its commitment to return $33 billion to $35 billion to shareholders through 2025 in the form of dividends and stock buybacks, after the merger with United Technologies.

Read more: Airlines Are Rankled About Pratt & Whitney’s Jet Engine Problems (1)

Narrow-Body Talks

Airbus is in talks to land a large narrow-body deal from Mexico’s Grupo Viva Aerobus, Bloomberg News reported Sunday, citing people familiar with the matter. Negotiations could wrap up at the show this week, they said, giving the fast-growing budget carrier the means to expand its footprint in Latin America.

Separately, IndiGo is set for a landmark order as it expands its fleet to accommodate surging demand in India. Bloomberg News reported that the company may order 500 aircraft as soon as today. 


Saudi Plans

Saudi startup Riyadh Air is shopping for narrow-body aircraft and is “actively engaged” in talks, with the two major planemakers vying for the sale, said CEO Tony Douglas, confirming a Bloomberg News report from late May. The airline has brought over an airliner to Paris to show off its new livery, an unusual hue of dark lavender that the carrier says will set it apart at airports.

Keeping Up With Demand

Aerospace manufacturers were whipsawed by the Covid-19 pandemic, shedding staff as aircraft demand evaporated, then racing to hire workers back to meet a post-pandemic stampede of orders. As Airbus and Boeing strain to lift production, their top executives gave updates on the state of their effort to overcome stress on their elaborate manufacturing networks. 

Companies at the bottom of the supply chain are proving to be the weakest links in the effort to ramp up output, Airbus CEO Guillaume Faury told reporters on Friday. “It’s really the ramp-up that’s at stake,” with suppliers in tiers 4 through 6 — who provide parts used in larger aircraft assemblies — struggling to access capital and sufficient staff.

Airbus is deploying its own staff to the factories of smaller suppliers but that’s not a long-term solution, Faury said. He’s most concerned about the US, where “we continue to see more critical situations when it comes to both labor and balance sheets.”

Boeing Steps It Up

Boeing Co. is preparing to accelerate production of its cash-cow 737 jets to 38 units a month “sooner rather than later,” the planemaker’s commercial chief, Stan Deal, told reporters on Sunday. The move will boost revenue at the US planemaker after a supplier defect slowed output of the the single-aisle jetliner. 

Boeing is also getting its arms around a supplier issue with the 787 Dreamliner, another major source of cash. It’s shipped the first of its wide-body jetliners that had its horizontal stabilizer bar inspected and repaired, Deal said. 

At the same event, defense chief Ted Colbert expects the unit to post a second-quarter margin in line with the negative 3.2% operating loss reported in the first quarter.

–With assistance from Guy Johnson and Fahad Abuljadayel.

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