Bain: Aerospace Production Growth Faces Supply Chain Issues

The aerospace and defence industry is an increasingly competitive one, but while organisations are aiming to increase production, they are facing significant supply chain issues.

Order books are at historic highs, but the industry is growing its backlog, rather than keeping pace with demand.

Now, the competitive advantage is going to the companies which are able to scale production and close their backlog before their competitors. 

The defence backlog

The defence industry is facing incredible demand, but backlogs are at an all-time high. Though in previous years, this increased demand and backlogs represented a positive – with companies being the go-to for manufacturing. Now, it reflects a wider industry issue.

According to Bain, Boeing's backlogs are at US$695bn, and though Airbus is still working towards increased production of A320-family, it is facing engine supply constraints. Despite delivering production at record-high rates, Lockheed Martin's missile and fire control division had a 20% growth in backlog over a single year. 

As the backlog is widespread across the industry, this points to a wider issue than organisational delay. The industry as a whole is unable to meet demand on time, suggesting supply chain constraints as a core reason. 

Bain recently explored 15 defence programmes, and 87% of companies stated that supply chain issues were more impactful than labour, engineering or capital equipment issues. According to Bain, much of this issue comes from multiple organisations relying on the same sub-tier supplier base – when demand across the industry goes up, these suppliers face a more intense surge in demand, which is not always represented in customer forecasts. 

"In nearly 90% of the aerospace and defence programs Bain analysed, supply chain constraints were cited as a key obstacle to ramping production," explains Jim Harris, Partner at Bain & Company and co-writer of the report.

"The companies pulling ahead are treating supplier capacity as a strategic asset — not a procurement problem."

Industry issues

Across the US and Europe, production growth targets are between 20% and 500% higher than levels between 2024 and early 2026. Due to supply chain issues, backlogs have resulted in allied nations having lowered munitions stock, airlines are unable to expand their fleets and suppliers are losing customers. 

Honeywell Aerospace has a backlog of US$19bn – an increase of 20% from the year prior. To close this gap and mitigate risk of future bottlenecks, Honeywell is planning to invest in its supply chain.

"If I ​need to buy equipment ⁠for suppliers, smaller suppliers that are providing critical components for us, we will go ahead and do that as well, where necessary and where required," Jim Currier, CEO of Honeywell Aerospace told Reuters.

"So, when I think of capital deployment, it's not just within our own four walls."

By acknowledging the need to invest in its supplier base, Honeywell is exploring the issues behind production delays. In doing this, it is protecting its assets and working to support its suppliers. Businesses are seeing the issues behind sole sourcing and long supplier qualification cycles. 

Demand for core materials used in aerospace has increased in recent years, putting strain on critical material supply chains. Rare earth minerals are difficult to process, but their use in aerospace and defence has seen production and demand grow.

Closing the gap

Despite the backlog and supply chain constraints, there are some ways to ensure fast production gains – particularly when aiming to overtake competitors. 

Bain points to four main strategies to close the backlog:

• Find new capacity within operations – undergo an inventory redesign and get rid of any scrap which does not add value to the organisation. This helps introduce buffers which can protect production continuity and prevent routine stoppages.
• Build a strong relationship – deploy people on-site at critical suppliers in order to engage with the company. This means issues can be resolved in a hands-on manner and shows a commitment to collaborating with the supplier.
• Commit to a supply base – by committing set volumes, firms can avoid the risk from 'just-in-time' manufacturing. Producing stock ahead of orders means organisations can have a stockpile of materials, which allows businesses to respond to heightened demand, rather than working to meet demand.
• Make use of digital tools – predictive analytics helps flag constraint risks in advance, digital twins can identify bottlenecks and help find solutions. Through implementing these tools into planning, organisations can prepare for the worst.

The production gap is an industry wide issue, driven by heightened demand and supply chain delays. The companies that can respond to these issues and invest in tools will position themselves better among competitors.