Massive Financial Impact on Global Aviation
Global airlines are facing more than $11 billion in extra costs from ongoing supply chain disruption this year, according to reports from the International Air Transport Association. The comprehensive study, produced with consultants Oliver Wyman, represents the first attempt to quantify the impact of a five-year supply chain crisis that has driven up fares and led to flight cancellations across the industry.
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Breakdown of Additional Costs
The report details how the supply chain bottlenecks are generating massive additional expenses for carriers. Researchers found the largest impact stems from $4.2 billion in extra fuel costs as airlines keep older planes in service longer due to delivery delays. Additional maintenance is expected to cost $3.1 billion, while leasing engines to replace those stuck in queues for maintenance adds another $2.6 billion. Holding more spare parts to cushion delays is projected to cost airlines $1.4 billion annually.
Competition Concerns Resurface
IATA Director General Willie Walsh said he was surprised by the extent of the findings and told Reuters there may be grounds to revisit whether airlines are being subjected to anti-competitive practices by suppliers. “Even if you halve the number, it’s still a massive drag on the industry,” Walsh stated in an interview, highlighting concerns about supplier influence over parts pricing and calling for “additional competition in the aftermarket, which clearly has seen significant consolidation.”
Industry-Wide Supply Chain Challenges
Aerospace manufacturers and their suppliers have been navigating numerous setbacks, from shortages of labour, materials and parts to mounting delays at repair shops, particularly for engines. Analysts suggest there is also a growing tug of war with the defense industry for capacity as governments increase military spending. “There’s now going to be continuing competition for the limited supply that is there,” Walsh noted, adding that supply chains would be an issue for the rest of the decade.
Historical Context and Future Actions
The International Air Transport Association has previously called for greater competition in maintenance, including improved access to independent parts. In 2016, it filed a complaint with the European Union against CFM International but withdrew it two years later after the engine maker agreed to maintain an open and competitive market. A similar agreement was reached with Rolls-Royce in 2021. Walsh indicated that while there are no current plans to launch any new challenge, he hasn’t ruled it out, stating “It’s a complex piece of work, but I think there could be merit in us looking at that again.”
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Profit Margin Disparity Raises Questions
Sources indicate the significant gap between airline operating margins, forecast at 6.7% this year, and margins of some engine makers and suppliers in the mid-20s has become a source of concern. “How is it that they can make such massive margins from an industry that makes margins that are wafer-thin? It just doesn’t add up,” Walsh questioned. Meanwhile, engine makers argue they are entitled to adequate returns given the risks involved in developing new technologies and offering insurance-style contracts to cover repair costs.
Growing Maintenance Expenditure
According to the analysis, airlines are expected to spend $120 billion on repair and maintenance this year, rising to $150 billion by 2030. The report comes as the industry continues to grapple with production delays from major aerospace manufacturers including Airbus and Boeing. Walsh did soften his tone toward the planemakers, saying they were becoming more transparent about jet delays, a contrast to his June comments when he accused them of “failing badly.”
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