Airline Industry Caught In Late Payment Spats

Late payments can threaten supply chains in any industry, but one sector in particular has seen the supplier payments struggle turn stark in recent days.

Two of the airline industry’s largest players — Airbus and Lufthansa — are caught in late payment disputes, recent reports revealed, and issues can be traced back to contractual disagreements and struggles down the supply chain. The cases highlight the challenges that late payments can present, not only to small suppliers, but to large multinational conglomerates as well.

CNBC reported last week that Airbus is withholding deliveries of A330 passenger jets to Chinese conglomerate HNA Group, claiming its customer is late on payments. The publication cited unnamed sources that spoke with Reuters, which also assessed parked aircraft in its reporting.

Reuters said there were five A330 aircrafts parked near Airbus’s delivery center, and a sixth parked further away, all having the design of HNA Group airlines, which includes Hainan Airlines, Tianjin Airlines and Beijing Capital Airlines. The value of those six aircrafts total at $1.6 billion, reports noted, adding that it is impossible to know whether those parked planes are part of the order in dispute.

“After six months of talks, Airbus took the decision to withdraw the planes, as it does not want to play the financier,” one unnamed source told Reuters last week.

However, the source also said that the companies are in the midst of resolving their dispute, and Reuters reported a day later that the companies may come to an agreement involving partial delivery of the aircraft order.

“There are problems with finance,” one unknown source told Financial Times in a separate report. “But we are talking and there is progress.”

HNA did not comment on the matter, while a spokesperson for Airbus told reporters, “We keep our talks and contractual terms with customers confidential.”

Airbus’ dispute demonstrates the challenge of late payments on large enterprises, not only small suppliers. The company posted $77.8 billion in revenue for the 2017 fiscal year. According to CNBC, the cost of parking the planes is estimated at $10,000 per day, linked to maintenance, storage costs and lost value.

In a similar vein, Airbus and industry giant Boeing are reportedly struggling with their own supplier issues. The Wall Street Journal (WSJ) said the supply chain struggles are also causing payment delays for the companies, with customer agreements requiring payment upon delivery. Boeing CEO Dennis Muilenburg told the publication that it hasn’t missed any order deliveries, but supplier issues are “on all of our radars every day.”

Boeing is investing in technology to analyze supplier performance and work with the vendors themselves to avoid any supply chain disruptions, reports noted. Airbus, however, has failed to deliver on some of its orders this year, according to WSJ, with some delays linked to its supplier CFM International.

“The suppliers are saying, ‘Houston, we have a problem, we need to slow down,'” said AlixPartners Managing Director Eric Bernardini in an interview with WSJ.

CNBC said the aircrafts ordered by HNA, however, do not use the engines supplied by CFM international. As Airbus and HNA work to resolve the late payments dispute, a separate disagreement involving B2B payments has sprung in the industry.

Reuters reported Monday (July 16) that Austrian airline Laudamotion denied making late payments for aircrafts leased from Lufthansa, Germany’s largest airline. The denials followed earlier reports that Lufthansa is accusing Laudamotion of failing to meet lease payment agreements outlined in their contract. The dispute involves nine Airbus A320s, which accounts for nearly half of Laudamotion’s fleet, reports said.

“These accusations are unfounded,” said Andreas Gruber, Laudamotion’s managing director. “We have paid all our bills on time.”

The companies are set to meet in court in the U.K. later this week to resolve the dispute, reports said, which comes only weeks ahead of Ryanair‘s acquisition of Laudamotion.