Aerospace suppliers flag cash flow warning as jet production hits turbulence

Woodward

18/11/2022 16:37

By Abhijith Ganapavaram
       Nov 18 (Reuters) - Aerospace suppliers are staring at
the prospect of dwindling cash flow as they struggle with excess
inventory due to production challenges at top planemakers Boeing
Co  BA.N  and Airbus SE  AIR.PA .
    A rebound in global air travel has left the two planemakers
scrambling to meet demand but labor and shortages of engines
have held them back from ramping up production.
    Boeing-supplier Spirit AeroSystems Holdings Inc  SPR.N  said
earlier this month a "challenging environment" is "putting a lot
of pressure on our ability to generate cash".
    "We've got to carry extra inventory buffers because of
supply chain," Spirit's finance chief, Mark Suchinski, had said.
    Global supply chains have been roiled by disruptions and
rising inflation in the wake of the pandemic, deepening risks
for manufacturers depending on a fragmented network of parts
makers.
    The aerospace industry hasn't traditionally carried higher
inventory levels, instead relying on a just-in-time model to
reduce costs, but the COVID-19 pandemic has upended that
strategy by hobbling the shipment of parts in a supply chain
that is spread out globally.
    The war in Ukraine has only amplified the industry's
headache, with companies such as French jet engine maker Safran
SA  SAF.PA  stocking up on titanium to offset any supply
shortages due to the conflict.
    "The problem is just-in-time inventory does not work at the
current environment, because there are too many uncertainties,"
Morgan Stanley analyst Kristine Tan Liwag said.
    Among those are fluctuating production schedules at
planemakers. Boeing, for example, has struggled to stabilize 737
production at 31 jets per month.  urn:newsml:reuters.com:*:nL1N3241HF
    "Starting in September, cash flows were impacted as Howmet
Aerospace carried higher inventory due to customer schedule
rebalances, which we expect to persist in the fourth quarter," 
the company said last month.
    Some suppliers are also stocking parts in anticipation of
jet output hikes next year as they look to speed up their
recovery from one of the worst crises the industry has faced in
modern times.
    An inventory build opens up the possibility that companies
may struggle in the event of a downturn but aerospace executives
maintain demand is strong. Industry observers also note long
backlogs at Boeing and Airbus will offer protection.
    "Our analysis indicates healthy growth in aircraft
deliveries even through a severe recession," CFRA Research
senior equity analyst Colin Scarola said.
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Aerospace manufacturers placing orders earlier to beat parts
shortages     urn:newsml:reuters.com:*:nL1N31I1UU
FOCUS-Aircraft parts output is being grounded by worker
shortages     urn:newsml:reuters.com:*:nL4N30U08B
Inventory levels at aerospace suppliers    https://tmsnrt.rs/3AqffKS
Inventory levels at aerospace suppliers    https://tmsnrt.rs/3XgtRpG
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 (Reporting by Abhijith Ganapavaram in Bengaluru; Editing by
Anil D'Silva)
 ((Abhijith.G@thomsonreuters.com; +91-9019785574;))