Aircraft Parts Suppliers Are Struggling
Aircraft makers Airbus and Boeing Co. announced the biggest orders for commercial jetliners in civil aviation history Monday, but Southern California jetliner parts suppliers weren’t celebrating: They figure even $19 billion worth of new planes won’t mark a turnaround for the industry.
The orders by Emirates airlines were for a total of 67 commercial jets, with 41 of them, costing $12.5 billion, to be built by Airbus, Boeing’s European archrival.
Joseph C. Berenato, president of Long Beach-based Ducommun Inc., Southern California’s oldest aerospace company, said he didn’t care that Airbus trumped Boeing in the deal because both companies sales have been slipping. “The general decline has been much more pronounced than the shift in market share” between the two giant jet makers, said Berentao, whose firm makes wing components for both Boeing and Airbus.
Since the Sept. 11 terrorist attacks, airlines have cut back plane orders or canceled them outright, and parts suppliers have struggled with layoffs and scrambled for defense work to make up for the downturn.
With a six-to-18-month lag time from when Boeing or Airbus wins an order before parts suppliers see any new business, most suppliers expect the market won’t improve until late 2004 or 2005.
In the last two years, Ducommun has cut its workforce by nearly 500, or about 30%, from its heyday of 1,700. The drop was in line with cuts made by Boeing last year, when it sliced a similar percentage of its workforce.
Berenato said Ducommun’s cutbacks could have been far worse if an increase in defense-related work had not helped offset the declines in commercial orders. Ducommun’s mix of commercial versus defense business has flip-flopped since 2000, when the ratio was 65% to 35%.
Ducommun was able to hold on to its revenue last year mainly because of the shift in business to more defense work. Revenue was down slightly to $212.4 million last year from $212.7 million in 2001, while net income fell to $9.9 million from $16.1 million.
The orders for jets, announced at the Paris Air Show, marked the latest of several major sales for Airbus, which is expected to surpass Boeing this year as the world’s largest commercial aircraft maker.
Airbus made the announcement with much fanfare. Chief Executive Noel Forgeard said it was “the largest wide-body order ever, both in terms of value and the number of planes.”
Still, combined sales for Airbus and Boeing are down sharply. Boeing expects to deliver 280 aircraft this year, down from 381 last year and 527 in 2001; Airbus is expected to deliver 300 planes, down from 303 last year and 325 in 2001.
One of the main features at the Paris Air Show is the jockeying by the two jet makers to try to outdo each other in announcing major orders. Airbus announced the order from Emirates for 21 of the A380 super jumbo jet under development, 18 A340-600 twin-aisle planes and two A340-500s. Emirates also ordered 26 Boeing 777s worth $6.8 billion.
Boeing is expected to announce this week an additional order for 20 777s, which might put it ahead of Airbus, at least during the air show.
Companies that once supplied parts and components exclusively to Boeing have long since begun selling them to Airbus as well and aren’t so closely tied to the future prospects of either aircraft maker.
The biggest effect on the bottom line, they said, has been the general decline in the commercial aircraft business, which has hurt Boeing and Airbus and in turn the supplier base.
“It really doesn’t matter to us who is winning against who because we supply to both,” said Valorie McClelland, spokeswoman for Goodrich Corp.’s Aerostructures Group, which makes jet engine casings and pylons in Chula Vista and Riverside.
McClelland said that if orders from Boeing go down, orders from Airbus typically rise, as is likely to be the case with Airbus winning the Emirates contract, and vice versa when Boeing gets a big order.
But some smaller suppliers that have been unable to diversify and still rely heavily on Boeing for orders are hurting.
Venkat Raman, chief financial officer for employee-owned LeFiell Manufacturing Co. in Santa Fe Springs, said that for several years the company had seen a gradual decline in orders for its engine parts that go on Boeing 777s and 737s, and it doesn’t expect a recovery until perhaps 2005. During the slump, LeFiell has reduced its payroll from 250 to 115.
