Poor supply chains choking airlines

New Delhi: Thai Airways, the flag carrier of Thailand, is considering switching to traditional taps in its aircraft lavatories as supply chain issues have hit availability of spare parts for automatic water taps. “The electronic water tap is sophisticated and we cannot find spare parts, so we are thinking of going back to using a mechanical tap—it is more reliable and easy to maintain," Thai Airways chief executive officer (CEO) Chai Eamsiri told Mint.

“Another example is the chiller (refrigerator) on aircraft. We cannot get a spare of the chiller, so we have to use dry ice instead of the chiller. This is a supply disruption." The effort to reduce reliance on the global supply chain is also visible in the Tata Group backed Air India and IndiGo, India’s largest carrier.

With flight operations being impacted due to a scarcity of spare parts amid global supply chain challenges, Indian airlines are turning to local suppliers for non critical aircraft components. “I had to import paper used for printers in an aircraft ... Why can’t I use local paper? Even the stickers on table or toilet buffers or soap dispenser bottles...

These are small things we are looking at," said Sisira Kanta Dash, Air India’s chief technical officer. “If it is not a critical part, it should be acceptable. In certain leases, I made it a point to write it down that non critical parts should be accepted. We are in the process of getting approvals." Earlier, restrictive contracts between airline and aircraft lessors as well as a complex regulatory framework hindered local production of non critical aircraft components.

However, this has started to change in the last two three years. IndiGo has been seeking approval from the Directorate General of Civil Aviation for purchase of certain items, and has started using such indigenous supplies in its aircraft. “A few years ago, we started to identify non critical items like paper, or non critical, non load carrying items for cabins.

We now have in house capability to make a part and use it in our aircraft," said Parichay Datta, vice president and deputy head of engineering, IndiGo. As the supply chain ecosystem undergoes a transition in the post pandemic era, policymakers and airlines are increasingly calling for localization of maintenance, repair, and overhaul units with a robust indigenous supply chain.

All this is happening at a time when the Indian aviation industry is witnessing record demand. Air travel is recovering, particularly with the reopening of outbound travel from China. However, supply chain issues globally have affected the availability of aircraft, engines and parts, preventing airlines from ramping up capacity.

The International Air Transport Association (IATA) has pointed to persistent issues such as labour shortages in aerostructures and welding, higher costs for interiors, long lead times for electrical components, and challenges in availability of engineered items, castings, and complex machines. “Supply chain issues are slowing the industry’s ability to ramp up capacity to meet existing demand.

Almost all the airlines I spoke to have confirmed that these issues have not gone away. They are not able to re fleet, not able to do maintenance and repair on time… That is probably the main issue holding back their ability to ramp up the number of flights," said Subhas Menon, director general, Association of Asia Pacific Airlines (AAPA).

One of the biggest reasons airlines have not been able to ramp up the size of their fleets is because of issues with engines made by American manufacturer Pratt and Whitney (P&W). In July, RTX Corp, the parent of Pratt and Whitney, said that a powder metal defect could lead to the cracking of some engine components in Airbus A320neo jets.

It called for accelerated inspections of around 600 700 engines on these jets for lengthy quality inspections between 2023 and 2026. The repair work, which was initially expected to take 60 days, is now projected to last up to 300 days per engine. An average of 350 jets could be grounded per year through 2026, with as many as 650 aircraft sitting idle in the first half of 2024.

Over 40 airlines and lessors globally, including IndiGo and Air India, have been impacted by Pratt & Whitney’s engine issues. Nearly 140 aircraft of scheduled commercial airlines are lying idle across India. The primary reason for 95% of these groundings is the supply chain issues faced by Pratt & Whitney (P&W), civil aviation minister Jyotiraditya Scindia said last month.

The engine maker has a huge backlog of deliveries and repairs due to a lack of skilled labour, the absence of specific production lines contributing to the engine parts, and challenges in availability of raw material such as titanium since the covid pandemic, which was worsened by the Russia Ukraine war.

While P&W has been working on ramp up plans, hiring, training people, and certifying new suppliers to catch up with the backlog, airlines are worried that this problem will take a while to be addressed. Low cost carrier Go First voluntarily filed for insolvency in May, blaming the “ever increasing" number of failures in engines supplied by P&W and said that the US firm failed to supply engines on time.

The American company says those claims are without merit. However, the percentage of Go First’s aircraft grounded due to P&W’s faulty engines grew from 7% in December 2019 to 31% in December 2020 and 50% in December 2022. IndiGo may have to ground nearly 25% of its fleet by March due to the engine inspection recall by P&W and persistent shortage of engine supply from the US based manufacturer.

Currently, less than 150 of the 340 aircraft IndiGo fleet are powered by P&W engines. In order to address the capacity shortfall, IndiGo has decided to retain 14 of its older Airbus A320ceo planes, extended the leases on 36 other aircraft, and is in the process of inducting 11 additional aircraft on lease.

Additionally, it plans to lease 12 more A320ceos from the secondary market starting in January. Unrelated to the P&W issue, the Tata Group backed Air India, meanwhile, is waiting for nearly 4,000 5,000 small parts to get its two wide body aircraft off the ground, according to its CEO and managing director, Campbell Wilson.

Bad timing The sector, long used to an excess of supply, has been hobbled by the shortage of aircraft and parts at a time when demand has surged. IATA estimated air traffic as of October to be at 98.2% of pre covid levels from 40% in 2020. “There were a lot of options for getting an aircraft around 2 3 years back.

New lessors don’t want to order; they want to wait for a better time to order. The biggest challenge right now is finding airplanes for growth; lessors don’t have enough supply of aircraft, and airlines are opting for any airplane that they can get," said an executive at an aircraft manufacturer.

Thai Airways, for instance, is looking to add used aircraft to its fleet. “But even when we find those aircraft, we have to bring those to our MRO (maintenance, repair, and overhaul) to fix the equipment. That can take 3 4 months — not to retrofit, just to change the carpet and seats," said CEO Eamsiri.

Airlines from across the globe, especially from India, are meeting growth in passenger demand by inducting aircraft despite the challenges. However, the shortage in the availability of planes has had a trickle down effect on air fares, as industry estimates suggest airlines are taking any aircraft they can, leading to higher lease rentals for used as well as new aircraft.

Industry data suggest that the supply chain issues and rising interest rates have led to a spike in lease rentals for a used narrow body aircraft such as a Boeing 737 or an Airbus 320 to around $300,000 per month from nearly $200,000 per month earlier. The lease rental for a new aircraft in the category is estimated to be around $400,000 per month from nearly $300,000 per month earlier.

Currently, the Indian aviation sector has a fleet of 644 aircraft against 626 aircraft a year ago. By March, this number is projected to rise to 686. A total of 164 aircraft remain idle across various Indian airports, including planes of regional airlines and private jets. IndiGo leads with 44 grounded aircraft, followed by SpiceJet with 26, Air India with six, and Alliance Air with three.

Covid headwinds Pre pandemic, the aviation sector was a well oiled machine with sophisticated supply chains for aircraft components. That changed with the onset of the covid pandemic in early 2020. Air travel came to a standstill due to travel restrictions, resulting in over 67% of global passenger aircraft—nearly 17,000 planes—being grounded by April 2020, according to data research firm Cirium.

With their assets on the ground, airlines across the globe went into survival mode, leading to aircraft and parts deliveries being put on hold, and widespread layoffs to compensate for the loss of revenue. As per a recent IATA report, the industry targeted the most experienced employees with early retirement packages to lower costs, while other industries competed for aerospace talent with decent pay and flexibility, appealing to younger hands in particular.

“Those who had gone or were asked to leave have not come back to this industry. It takes time to rebuild the expertise of hundreds of experienced engineers, resulting in delay in the process of design, development and production of parts," a senior executive at a global aircraft manufacturing company told Mint, on condition of anonymity.

“The supply chain is so vast and at so many levels, that when covid hit, a lot of shops at the lowest level of the supply chain shut and moved on to some other sector." In flight entertainment was also affected by the job cuts, said Thai Airways’ Eamsiri. “Vendors who are service providers laid off all engineers during covid, so that means they had to start from scratch.

These days, it takes at least six months to just modify the logo of the airline on the screen," he said. Before the repercussions of the covid pandemic could be addressed, the industry was hit by the impact of the Russia Ukraine war in 2022. With Russian airspace closed to carriers from around 40 countries, airlines continue to face higher fuel costs on account of longer flight times, especially on Europe Asia and Asia North America routes.

The aviation sector, at large, faced further severe consequences from the trade sanctions following the war, as Russia has 13% of the world market share of titanium sponge production, which is used extensively in airframe and engine parts such as in fasteners, brackets, landing gear struts, and frames, as well as a variety of engine parts.

American aircraft manufacturer Boeing had signed a memorandum of understanding with Russian titanium producer VSMPO AVISMA in November 2021, months before the war, affirming that VSMPO AVISMA would remain the largest titanium supplier for current and future Boeing commercial airplanes. The war led to the termination of this contract as well as suspension of Boeing’s Moscow Design Center, where it employed more than 1,000 engineers, as well as the Engineering & Technology Center in Kyiv, with over 1,000 staff, which provided engineering expertise, research and technical assistance for its commercial airplanes.

The Airbus Engineering Centre in Russia (ECAR) was also put on hold by European aircraft major Airbus due to the sanctions. Industry experts view the supply chain induced shortages as a more severe concern than the labour shortage and fuel prices. Oil prices initially plunged from approximately $80 per barrel in 2019 to $47 in 2020.

But in 2021, they rebounded to $78 and are currently trading at $88 per barrel. “Every time you have a crisis, the fuel price will shoot up. We have learnt to live with it; we have no choice. But, non fuel costs also rising is a point of grave concern," said AAPA’s Menon..