Spirit AeroSystems Chief Predicts Supply Chain Strain

Contract manufacturer buys raw material to produce wings and fuselages; under pressure as production increases for key Boeing and Airbus programs.

LE BOURGET, France (Dow Jones/AP) - Strains on the supply chain will continue as key programs including Airbus' A380 and Boeing's 787 Dreamliner ramp up, Jeff Turner, chief executive of Spirit AeroSystems, said in an interview on Thursday.

''My most immediate concern is getting the supply chain flowing through for the industry,'' he said at the international Paris Air Show.

Wichita, Kan.-based Spirit AeroSystems, formerly Boeing's Wichita division, is the biggest contract manufacturer in the commercial aerospace industry.

Spirit makes the forward fuselage for Chicago-based Boeing Inc. hot-selling 787 Dreamliner, a midsize, long-range jet expected to roll out of the hangar on July 8. It also designs and produces wing components for many Airbus aircraft, including the A380 superjumbo.

The company's services include buying raw material, such as carbon fiber, and crafting it into a whole wing or a fuselage for aircraft makers. Consequently, it plays a key role in managing the industry's supply chain, which several top-ranking aviation executives this week suggested is under enormous pressure to keep up with demand.

For example, earlier this year, Boeing had to dispatch 100 engineers into the field to work with suppliers to help 787 program partners in danger of missing their deadlines. Among the components in short supply are fasteners, things like nuts and bolts that hold the aircraft together.

While Turner agreed that supplies of some items are scarce, he said the concerns may have been exaggerated.

''We see the situation as tight supply of raw materials and fasteners that impacts our suppliers and our production line,'' Turner said. ''The demand curve is increasing. The supply curve isn't quite catching up to it.''

Turner said supplies of some key components have been tight for several years. The problem is becoming more acute, and attracting attention now, because the 787 is about to enter production just as Airbus ramps up its output rates on the single-aisle A320 and the A380.

France-based Airbus S.A.S. has its U.S. headquarters in Herndon, Va.

Spirit has also been reported as a potential acquirer of Airbus' Filton plant, in Britain near Bristol. EADS-owned Airbus is looking to sell six factories as part of its restructuring program, which also involves slashing 10,000 jobs.

Airbus Chief Executive Louis Gallois earlier this week said he expects to announce the acquirer of its first plant by the end of July. Airbus hopes to save capital investment by outsourcing assembly and manufacturing work to key contractors.

Turner didn't deny such discussions with Airbus, but wouldn't elaborate.

Earlier this week, Airbus said it wouldn't change the design of the A350XWB's fuselage, and will stick to an aluminum frame to which composite panels are attached, despite criticism from some large potential customers. Boeing has opted for an all-composites fuselage for the Dreamliner.

How much composite material and how much metal will be used in planes in the future is a key question facing the industry.

''It's like with houses. Is it better to build a brick house or a wooden house? There's demand for both,'' he said. ''We have customers who want more composites and customers who want more metal.'' Turner expects, however, that the cost of using composites will decrease over time.

While many aerospace industry observers worry that bulging order books could result in overcapacity down the line, when the industry goes through its usual down cycle, Turner said the cycle ''feels a little different this time.''

The last downturn was artificially severe because of the shock and resulting trauma of the Sept. 11, 2001, terrorist attacks, he said.

''It was arguable that we should have had a plateau,'' he said. ''I think there's a strong argument that it (Sept. 11) dampened demand artificially.''

Turner's upbeat on the industry overall, citing strong order books at Boeing and Airbus, and GDP growth in emerging countries like China and India, which he says will surely spark greater demand for travel.

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