The playbook for clean-sheet single-aisle aircraft needs an update. Rapid technological innovation and pressure to reduce emissions mean the next generation of aircraft may not enjoy the standard 30-plus-year lifespan.
This shift will demand higher upfront R&D costs and shorten aftermarket timelines in an industry where MRO revenues drive margin for many.
Aerostructures is the segment most in need of overhaul. Boeing’s Spirit AeroSystems deal highlights the financial untenability of current models for even the largest tier one suppliers and risk and revenue sharing partners (RRSPs). As companies weigh divesting aerostructures units, buyers are scarce.
The future looks challenging, especially for tier two and tier three suppliers. Airbus and Boeing have extensive fabrication footprints; a new thermoplastic fuselage or wing could revolutionise the sector, potentially lowering outsourcing and simplifying supply chain. With less metal on the aircraft, the long tail of machining and sheet metal suppliers could shorten.
BACKBONE SUPPORT
Consequences must be managed. These companies are the supply chain’s backbone – willingness to invest during transition is critical for maintaining continuity and ramp-up. Accelerated consolidation benefitting the best-performing and advanced players, potentially backed by private capital, could be the ideal outcome.
Systems suppliers are the healthiest segment in the supply chain following significant consolidation.
A small number of highly integrated suppliers dominate, offering complete subsystems and advancements in electrification, cockpit connectivity and single-pilot operations. Super tier ones enjoy substantial revenues and disproportionate profits, largely thanks to aftermarket. Healthy balance sheets fuel research and development investment and provide cushion for production transition valleys.
OEMs could maintain the status quo by adopting a winner-takes-all strategy for the next generation of major systems. This could mitigate risks associated with co-ordinating and integrating multiple vendors, limiting competition to a handful of super tier ones.
Alternatively, OEMs could lead on system integration, increasing control over the aftermarket and supply base, potentially through dual sourcing. This approach could increase risks, requiring larger upfront investments from OEMs.
Cabin interiors are increasingly a key differentiator, shaping customer experience. Further innovation is inevitable, and tomorrow’s single-aisle aircraft may resemble smaller widebodies. However, cabin suppliers can be bottlenecks in ramp-ups. Increasing interior complexity alongside higher production rates could spell disaster.
One potential solution is having airlines customise visible parts, keeping the core standardised. This could be achieved through pre-approved suppliers and cost-competitive buyer-furnished equipment.
Striking a balance between customisation and standardisation will also shape the supply chain. The market is complex, with many small players offering craftsmanship without industrial maturity.
Engine manufacturers lead innovation but face challenges from emerging technologies, including open-rotor, hydrogen, and full- and hybrid-electric propulsion. Developing and certifying these technologies is a high-dollar gamble – but any new clean-sheet aircraft not incorporating one or more of these technologies risks obsolescence.
Unlike their aerostructures counterparts, engine makers’ profitability also relies on the aftermarket, limiting incentive to ramp up production and introduce new products. Barring change, an accelerated push for new technologies is unlikely.
The most extreme options airframers have is vertical integration, similar to the automotive industry where automakers produce powertrains. Another is entering RRSP agreements with the engine makers. Both would further inflate the already staggering $15-20 billion development cost for a new aircraft and could limit opportunities for dual sourcing, a key lever for risk reduction. However, these strategies would allow aircraft OEMs to tap into the lucrative aftermarket.
HISTORICAL ALLIANCES
Decisions made to address these challenges will test historical alliances and have significant implications for the widebody market as well.
Technology advancements may shorten aircraft lifecycles, but achieving net-zero emissions is impossible with aircraft powered by fossil fuels or even sustainable aviation fuel. To meet or get close to emissions targets, the industry must rapidly adopt technological breakthroughs as they are ready, even if it means rewriting the rules of the game.
Every link in the value chain must adapt, and OEMs play a critical role in orchestrating a smooth transition. The blueprint for the future must be defined by clear objectives, supported by adequate investments, and be agile enough to thrive in an uncertain world.
Matteo Peraldo is a partner in the Aerospace, Defense & Aviation practice for consultancy AlixPartners, based in New York
