Airlines face $11bn supply chain hit, Iata says

Study raises questions about whether suppliers are subjecting airlines to anticompetitive practices

Willie Walsh, director-general of the International Air Transport Association. REUTERS/ANUSHREE FADNAVIS/FILE PHOTO

Paris/London -- Global airlines face more than $11bn in extra costs from supply chain disruption this year, a leading industry group said on Monday, in a report likely to rekindle debate over competition in the $250bn aerospace industry.

The study by the International Air Transport Association (Iata), produced with consultancy Oliver Wyman, marks the first attempt to quantify the impact of a five-year supply chain crisis that has driven up fares and led to flight cancellations.

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 anticompetitive practices by suppliers, after dropping a previous complaint in 2018.

"Even if you halve the number, it's still a massive drag on the industry," Walsh said in an interview.

Extra fuel

Researchers found the largest impact stems from $4.2bn in extra fuel as airlines keep older planes in service. Additional maintenance is expected to cost $3.1bn, while leasing engines to replace those stuck in queues for maintenance adds another $2.6bn. Holding more spare parts to cushion delays is projected to cost airlines $1.4bn.

Plane makers and their suppliers have waded through a mire of setbacks, from shortages of labour, materials and parts to mounting delays at repair shops, particularly for engines.

There is also a growing tug of war with the defence industry for capacity as governments increase military spending.

"There's now going to be continuing competition for the limited supply that is there," Walsh said, adding that supply chains would be an issue for the rest of the decade.

He questioned the influence suppliers exert over parts pricing and called for "additional competition in the aftermarket, which clearly has seen significant consolidation".

More competition

Iata has previously called for greater competition in maintenance, including improved access to independent parts. In 2016, it filed a complaint with the EU 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 said there were no plans to launch any new challenge, but did not rule it out.

"We have been evaluating it, but we'd have to do a lot more work," he said, noting that airlines have confidential agreements, so digging deeper involves teams of lawyers. "It's a complex piece of work, but I think there could be merit in us looking at that again."

He pointed to the gap between airline operating margins, forecast at 6.7% this year, and margins of some engine makers and suppliers in the mid-20s as 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 said.

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.

Airlines are expected to spend $120bn on repair and maintenance this year, rising to $150bn by 2030, Iata said.

Walsh softened his tone towards Airbus and Boeing, saying they were becoming more transparent about jet delays. In June, he accused plane makers of "failing badly".