Aircraft Delivery Delays: The Poles Are Switching

For much of the past decade, airlines have been locked in a frustrating and deepening cycle of delayed new aircraft deliveries.

Material but manageable delays before COVID-19 became systemic during the pandemic, as production halted not only at the OEMs¹ themselves, but in their supply chain.

Airframe OEMs (Airbus and Boeing primarily) invoked restrictive contract provisions to shield themselves from liability with the result that airlines bore the brunt, absorbing losses, missing growth opportunities, and recalibrating fleet plans in an environment where delay and uncertainty were normalised.  In combination with recent new technology engine performance issues, this has been a period in which a bright light has been shone upon the stark imbalance of contractual protections for airlines in OEM contracts.

Aircraft delivery delays are not without consequence.  Uncertainty in the EIS² dates for aircraft can cause schedule changes, delays to new routes and may force airlines to retain older, inefficient aircraft in their fleet or to have to lease in extra capacity.  It can also create difficulties or extra costs with finance and lead to huge periods in which airlines are deprived of funds paid towards delivery of aircraft that they have not received. Many airlines have found themselves ostensibly unprotected from these associated losses (though many explored and agreed commercial solutions with the OEMs).

The Long-COVID Shadow

Even after the pandemic subsided, delays persisted and, in many cases, worsened.  In the immediate aftermath of lockdowns, a mix of airlines either sought delivery of aircraft or looked for ways to defer or cancel orders.  The heavy order books that had predated COVID exacerbated a bloated and unwieldy delivery programme that increased the difficulties associated with on-going manufacturing delays.

These delays were largely attributed to “supply chain” issues which were mostly unspecified and even more rarely justified with evidence.  This created a market expectation that delivery dates were aspirational rather than absolute. In some cases, this appears to have cultured a commercial lethargy that spread to other links in the supply chain feeding the airlines.

The Shift: OEMs Reclaim Control

Recent comments from OEMs, together with shifts in momentum in the delivery programmes, suggest that the OEMs are now in much better control of their supply chains and delivery schedules.  Aircraft manufacturers are now signalling a decisive shift: delays are over, and they intend to deliver aircraft on or even ahead of schedule. More strikingly, OEMs are asserting their contractual rights to deliver, irrespective of airline readiness.  In essence, OEMs can generally either force delivery of aircraft on the scheduled delivery date or charge punitive penalties for failure to take delivery.  This represents an intriguing flip of the magnetic poles of contractual risk and liabilities.

Most aircraft OEM purchase agreements will allocate the vast majority of risk to the purchaser.  It is simplistic to see this as inherently unfair, because there is a complex hinterland of cost and pricing that allows this model to work in making aircraft affordable.  However, the current situation does allow for some degree of irony.

In the recent past, all focus has been on delays by the OEMs, relying on heavily weighted contracts and often slightly nebulous explanations about supply chain issues.  Many airlines, with some force of argument, pushed back on these issues.  Now, if the OEM is ready to deliver and the airline is not ready to take delivery due to issues in its own supply chain, then those arguments are, in general terms, reversed.

In those circumstances, it is easy to see the irony, and both the force and the farce of those inverted positions.

The BFE Bottleneck

There are a number of ways in which an airline can find itself unable to take delivery of an aircraft on its scheduled delivery date, such as issues with finance or regulatory problems.  However, the current focus seems to be on Buyer-Furnished Equipment (BFE). BFE comprises the components (such as seats, galleys, in-flight entertainment systems and others) that airlines source directly and deliver to the OEM for installation on the aircraft prior to the scheduled delivery date.

Delays in BFE delivery can stall aircraft EIS even if the airframe arrives on time, particularly noting the challenge of flying passengers without seats - even for an ultra-low cost airline… Every day that an aircraft sits idle represents lost revenue, schedule delays and potentially the extended use of less environmentally friendly equipment.  If penalties for late delivery are added to those costs, the effect can be debilitating for the airline.

With OEMs pushing punctuality, airlines must therefore ensure that their BFE supply chain is watertight. That means revisiting contracts, enforcing timelines, and escalating with suppliers where necessary. The cost of complacency is no longer theoretical—it’s contractual and a financial imperative.

This shift reverberates beyond operational planning. Many airline-supplier agreements contain restrictive provisions on liability and recovery, for example limitation clauses or liquidated damages. If a late BFE delivery delays an aircraft, the airline may find itself squeezed between an uncompromising OEM and a supplier contract that offers little recourse. Complications can arise if there is any ambiguity in agreed delivery schedules for BFE or where the supplier gets involved in discussions with the OEMs about the delivery timetable. All of this can cause quickly-escalating losses for an airline.

Examples of problematic provisions include:

• Broad force majeure clauses that excuse suppliers in case of delays in performance.
• Ambiguities in delivery specifications or in regulatory compliance that give rise to opportunities for suppliers to delay or obfuscate their obligations.
• Weak delivery obligations that allow for only “reasonable endeavours” or “estimated delivery dates” for compliance.
• Liquidated damages clauses that restrict available compensation on delay or failure to deliver that do not mirror the airline’s obligations to the OEM.

What Should Airlines Do Now?

      1. Audit Existing Contracts

Review BFE agreements for delivery obligations, remedies, and liability caps. Identify gaps that could leave you exposed.  Set those obligations against those in the OEM contracts and seek suitable indemnities with regard to potential exposure to the OEMs

      2. Engage Suppliers Early

Communicate the new reality: OEMs are enforcing timelines. Suppliers must align or risk damaging relationships. Put pressure on the suppliers to perform and to prioritise your deliveries.  In a market where demand exceeds supply, there will be a process of commercial prioritisation by the suppliers.

      3. Negotiate Proactively

Where possible, strengthen contractual protections in all areas of potential exposure, and for new contracts try to align them as far as possible to any commitments made to the OEMs.

Be prepared, in extreme situations, to take the risk to terminate a supplier agreement and seek more reliable and favourable terms elsewhere.  The damages risk of doing so could well be lower than the effects of an extended delay.  Clearly, the earlier this process is assessed and implemented, the more likely it is to be effective.

      4. Integrate Delivery Planning

Treat BFE readiness as a critical path item, not a parallel process. Build contingency buffers and monitor milestones rigorously.

Managing The Shift

Airlines therefore need to be careful on the terms they enter into for BFE and would be well advised to review their BFE contracts and engage robustly with their suppliers to deliver on time. 

Parties that adapt quickly will be better able to protect revenue, preserve flexibility, and maintain credibility with OEMs. Those that don’t risk being caught in a perfect storm of operational disruption and financial liability.