The global aviation industry is facing a severe supply chain crisis that could cost airlines more than $11 billion in 2025, according to warnings from the International Air Transport Association (IATA). The situation has become so critical that IATA Director General Willie Walsh has called for a fundamental correction in the relationship between airlines and aircraft manufacturers.
Massive Financial Impact on Airlines
Speaking at the 69th Assembly of Presidents of the Association of Asia Pacific Airlines (AAPA) in Bangkok, Walsh expressed huge frustration that supply chain issues are not improving significantly. The global commercial aircraft backlog has reached unprecedented levels, standing at more than 17,000 aircraft last year compared to an average of 13,000 planes per year during 2010-2019.
A recent study conducted by IATA in collaboration with consulting firm Oliver Wyman reveals the staggering financial implications. The slow pace of aircraft production is projected to cost the airline industry over $11 billion this year alone, primarily due to excess fuel consumption, additional maintenance requirements, increased engine leasing costs, and surplus inventory holding expenses.
Manufacturer Profits Versus Airline Struggles
Willie Walsh highlighted the stark contrast between the financial performance of aircraft manufacturers and the struggling airline industry. While airlines operate on thin margins, original equipment manufacturers (OEMs) are maintaining high profitability. Walsh specifically pointed to engine makers who are actually improving their financial performance during this period of massive disruption that has added enormous costs to airlines.
"There's got to be a correction to this. Airlines need to be properly rewarded. I don't object to anybody making profits... But we've got to see a greater balance," Walsh emphasized during his address. He expressed particular concern about suppliers discussing price increases due to tariffs and other supply chain issues.
Tariffs Threaten Recovery
AAPA Director General Subhas Menon added another layer of concern, warning that tariffs could undermine the nascent recovery of the aviation supply chain. While aircraft and engines themselves are typically exempt from tariffs, their raw materials and components sourced from global suppliers are not protected.
Menon described the situation as a "double whammy" affecting both supply and demand sides of the market. Tariffs increase supplier costs while simultaneously reducing demand through inflation. This comes at a time when air transport demand remains buoyant, creating additional pressure on the industry.
The supply chain challenges have been particularly acute following the pandemic, resulting in delayed aircraft deliveries even as airlines desperately seek to expand their fleets to meet rising passenger traffic demand. Walsh called on critical suppliers to significantly raise their game to ensure they're serving the industry properly.
The industry leaders also addressed sustainability concerns, with Menon emphasizing that taxing airlines directly or indirectly through mandates has not been effective. Sustainable Aviation Fuel (SAF) production remains disappointingly low, adding another challenge to the industry's recovery and transformation efforts.
