The Gathering of the Flock

In a week from now, 80,000 visitors will descend on a airfield outside of London to participate in the Farnborough International Airshow. Begun in 1948, Farnborough is held on even numbered years, alternating with the Paris Air Show on odd years. Farnborough is at once a trade show, a gigantic networking event, a signature venue for new product announcements and a discreet opportunity for deal making amidst the roar of aircraft overhead and the din of countless opulent evening receptions and dinners

Attracting the senior leadership of commercial aerospace and defense companies and their customers, the AirShow brings together U.S. and foreign military delegations, governmental representatives, state and geographical business development agencies, airlines, aircraft owners, lessors and investor groups. For five days, beginning Monday July 23, the eyes of the world turn to Farnborough to take the pulse of the industry.

That pulse is strong but irregular. Commercial aircraft backlogs remain oversold into the future amidst a rebound in air travel post pandemic. The war in Ukraine and tensions across the globe have pushed defense budgets to new highs. Yet ripple effects from Boeing’s travails and stressed supply chains continue to permeate the industry tiers.

On July 1 Boeing agreed to buy Spirit AeroSystems for $4.7 Billion in an attempt to reintegrate the aircraft structures subsidiary it spun off in 2005. Spirit makes the fuselage for the Boeing 737MAX aircraft and provides 70% of its content. Then on July 8, Boeing pled guilty to felony charges brought by the US Department of Justice for defrauding the Federal government in its actions related to two MAX crashes killing all 346 passengers and crew aboard the two flights in 2018 and 2019. In its agreement with the DoJ, Boeing agreed to a fine of $487.2 Million and to invest $455 Million over the next three years to improve safety and compliance.

Boeing’s production of the MAX has been significantly constrained due to regulatory limits imposed by the FAA over quality issues. This slowdown has cascaded through the supply chain affecting hundreds of companies with systems, components or parts on the airplanes, causing cash flow issues as inventory mounts. A search for a new CEO to lead Boeing has been underway for months. Until that process is completed, questions about a new aircraft to replace or supplement the MAX will be on hold.

Airbus, similarly, is facing supply chain strains, but less dramatic. It has admitted that the duress of many suppliers has affected some operations causing significant financial impact. The labor effects coming out of the pandemic, where thousands of skilled workers left or retired, is still a persistent problem across the industry.

Meanwhile, the return to the air of fleets of aircraft that were grounded, and the new aircraft that are due to be delivered, portends a huge wave of maintenance, repair and overhaul into the future. Companies specializing in MRO are looking for new or additional facilities and struggling with the recruitment and training of the skilled workers needed to inspect and overhaul the engines, landing gear and subsystems that keep the fleet airworthy. Although AI is impacting this industry like many others, MRO remains a highly labor intensive operation, with an installed fleet of aircraft that are decades old.

In the defense and space sector, similar challenges exist. Despite increased demand, the same systemic forces are causing delays and shortfalls. Programs such as Lockheed’s F-35 have been impacted in the US as well as Airbus programs overseas. The Pentagon’s use of fixed price contracting is causing large losses in some areas and forcing contractors to rethink their portfolio of opportunities or no-bid on risky programs.

Meanwhile, the inroads of new technology will be on display as well. Smaller defense companies such as General Atomics and Sierra Nevada have recently won notable contracts often paired with Silicon Valley type startups such as Anduril. Electric powered Vertical Take Off and Landing (eVTOL) aircraft will be showcased, as their parent companies are approaching the transition from prototype to full scale production – often a valley of death.

Sustainability will also be a central theme, however, the recent shutdown of Universal Hydrogen illustrates the challenge of reducing the carbon footprint of aviation. Despite the backing of industry marquee entities such as American Airlines, Airbus Ventures, GE Aerospace, Toyota Ventures and JetBlue Ventures, the startup announced in June that it was closing its doors due to inability to secure additional funding after burning through $100 Million of investment. Sustainable Aviation Fuel (SAF), which uses non-petroleum sources of energy such as waste oils, remains a nearer term reality, but also faces daunting infrastructure and feedstock constraints.

The Farnborough AirShow of 2022, was the first major gathering of the industry after the pandemic. Temperatures soared to 100 degrees Farenheit, making visiting the chalets and stands of the 1500 exhibitors spread across the airfield’s tarmac an exhausting and sweaty endeavor. This year, most will be hoping for a transfer of that heat energy into the industry’s lifeblood to achieve a more stable ecosystem.