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.