Sharing the (order) spoils

By any measure, the aviation supply chain crisis that emerged during the pandemic has become one of the defining structural challenges of the modern aerospace industry. Across Asia, airlines are facing delayed aircraft deliveries, shortages of engines and spare parts, and maintenance bottlenecks that are disrupting fleet plans and impacting bottom lines. Asian-based carriers are being forced to defer capacity expansion plans or extend the life of older aircraft, leading to both cost and operational inefficiencies. Yet demand for air travel across Asia is robust, leaving airlines unable to fully capture that demand and effectively stranding valuable revenue on the ground. But as airlines scramble for lift and manufacturers work to rebuild production capacity, a recurring question is whether the industry could ease supply chain stress by restructuring how aircraft orders are financed. Some analysts and industry participants believe that shared order-payment structures, where airlines, manufacturers, suppliers, and even financiers collaborate earlier in the production cycle, could stabilise aerospace manufacturing. However, whether original equipment manufacturers (OEMs), are willing to adopt a more altruistic model remains an open question. For Ismael Fadili, vice president of sales for Europe and Asia at Ametek MRO his opinion is clear: “The obvious answer is ‘No’ as their business models are not based on sharing cash or profit with anyone in the aviation ecosystem. However, we could envisage a scenario whereby OEMs do invest more in securing their supply chain.” (PHOTO: Shutterstock) Asia’s Delivery Bottleneck The demand side of the aviation equation is acknowledged. Asia remains one of the fastest-growing aviation markets globally, with airlines across the region placing significant orders in anticipation of that long-term travel growth. Major full-service carriers such as Singapore Airlines, Cathay Pacific, ANA, Japan Airlines, and Korean Air are investing heavily in next-generation widebody and narrowbody aircraft to modernise fleets and improve efficiency. At the same time, low-cost operators including AirAsia, IndiGo, Cebu Pacific, and VietJet Air are aggressively expanding to meet intra-Asia travel, targeting the region’s fast-growing middle class and short-haul demand. China meanwhile, adds to the order tailback through its state carriers, including China Southern Airlines and China Eastern Airlines, which maintain some of the largest aircraft order pipelines in the world. Yet despite these immense order books, aircraft are still arriving late. Production issues affecting Airbus and Boeing have slowed delivery schedules, while engine shortages involving suppliers such as Pratt & Whitney, Rolls-Royce, and CFM International have further constrained output. Even China’s emerging manufacturer COMAC faces ramp-up challenges as it attempts to scale production of its nascent C919 narrow-body jet. Against this backdrop, last year the International Air Transport Association (IATA), in collaboration with Oliver Wyman, published a comprehensive assessment of the industry’s supply-side constraints. The paper “Reviving the Commercial Aircraft Supply Chain” was introduced to challenge the underlying causes affecting on time delivery of aircraft, and put forward coordinated actions designed to restore resilience and support future growth. IATA’s paper aimed to reframe the aviation supply chain not as an industry disruptor, but as a template for the structurally underinvested system where tight inventory models, supplier weaknesses, and capacity imbalance are currently hurting global airline growth and forcing a rethink of industry coordination. But in response the supply chain needle hasn’t moved much, if at all. In light of the situation, pooling mechanisms like the International Airlines Technical Pool (IATP) are becoming increasingly critical, acting as decentralised buffers in a supply chain that no longer has sufficient, if indeed any, slack. (PHOTO: Shutterstock) The Weakest Link At the heart of the issue lies the complexity of the aerospace production ecosystem. A single commercial aircraft is the product of a vast, globally distributed network of suppliers spanning dozens of countries, from avionics manufacturers to metal fabricators and composite specialists. During the pandemic, many smaller suppliers either downsized significantly or exited the market altogether as demand and their working financial margins collapsed. When air travel rebounded faster than expected, this fragile supply network struggled to recover at the same pace, creating a cascading bottleneck across the entire system. The effects are visible at every stage of production and maintenance. Shortages of engine components delay aircraft assembly, while missing cabin equipment can leave otherwise completed aircraft sitting idle on the ground. At the same time, maintenance backlogs are tying up operational aircraft as airlines wait for spare parts needed to return them to service. While the industry has responded by emphasising greater collaboration and transparency, through improved production forecasting and closer coordination between manufacturers and suppliers, analysts argue that these measures alone may still be insufficient to resolve the deeper structural issues. Pragmatic Support System One of the more innovative ideas gaining traction among aviation financiers and supply chain specialists is the concept of shared order-payment models. Under the traditional framework, airlines place aircraft orders with manufacturers and make staged payments as production progresses. OEMs, typically Airbus or Boeing, then pay their suppliers separately as components are delivered. This structure places considerable financial pressure on suppliers, particularly smaller firms that must invest heavily in tooling, workforce expansion, and raw materials well before receiving full payment. A more collaborative payment structure could fundamentally alter this dynamic. Airlines, for example, could commit portions of their order payments earlier in the production cycle, providing an upfront flow of capital into the system. OEMs could then act as intermediaries, directing part of this liquidity to critical suppliers to ensure production continuity and capacity expansion. Financial institutions would play a crucial supporting role by structuring working-capital facilities tied to production milestones. These could take the form of supply chain financing programs or other structured solutions designed to bridge funding gaps between initial investment and final delivery payments. The objective of this model is straightforward, to improve liquidity across the manufacturing ecosystem. With more stable funding available earlier in the process, suppliers would be better positioned to scale operations, invest in capacity, and manage procurement risks. In theory, this would enable the entire supply chain to respond more effectively to rising demand. Joshua Ng “Among smaller, capital-constrained tier-2 and tier-3 suppliers, limited working capital can restrict the ability to hire labour, invest in tooling, and build inventory buffers, so additional liquidity can support incremental improvements in output,” says Joshua Ng, Director, in the Singapore office at Alton Aviation Consultancy. “However, today’s supply chain challenges are not purely financial. The aerospace sector is also constrained by structural factors such as shortages of skilled labour, where developing experienced workers requires years of training and on-the-job learning. These are not constraints that can be resolved quickly, even with additional funding. “In addition, the production ramp-up that OEMs are targeting requires suppliers to invest in new facilities and capital equipment. This involves securing sites, constructing facilities, and obtaining certification to produce aerospace-grade components, all of which are time-intensive processes that limit how quickly capacity can be expanded,” adds Ng. Another proposal gaining traction involves the introduction of “take-or-pay” style commitments within the aircraft supply chain. Under such arrangements, airlines or OEMs would commit to purchasing components or production capacity regardless of short-term fluctuations in demand. Simon Spells Simon Spells, Singapore-based aviation specialist who leads the Asia aviation team at international law firm Reed Smith said: “Liquidity constraints among some of the lower tier suppliers can be seen as one of the mechanisms feeding into the supply chain bottlenecks, though they interact with several other structural issues, in short, strong demand together with capital intensive ramp-ups and weaker supplier balances sheets engenders production delays.” Despite the potential benefits of collaborative payment models, adoption has been slow. Several structural barriers remain. Aircraft financing is already highly complex, involving pre-delivery payments, export credit arrangements, and leasing structures. Introducing shared payment mechanisms could complicate risk allocation and contractual frameworks further. There are also concerns around commercial sensitivity. Airlines often negotiate confidential pricing agreements with manufacturers, and greater transparency in financial flows could expose this sensitive information. From the OEM perspective, some will argue that suppliers should maintain financial discipline and resilience independently, rather than relying on upstream funding. Finally, cultural factors play a role. The aerospace industry has traditionally operated within rigid hierarchical structures, with OEMs maintaining tight control over supplier relationships. Moving toward a more collaborative financial model would require a significant shift in that mindset. “In practice, OEMs have already provided targeted financial support to critical suppliers where it directly supports production. Beyond funding, they are also working with suppliers on operational and productivity improvements to maximise output from existing facilities and workforce,” points out Alton’s Ng. “Ultimately, the focus is on maintaining strong, long-term partnerships to ensure suppliers remain resilient and able to scale in line with OEM production needs.” For Editorial Inquiries Contact: Editor Matt Driskill at [email protected] For Advertising Inquiries Contact: Head of Sales Sally Passey at [email protected]