After 15 years of uninterrupted growth, jetliner industry production rates are in a downward spiral, thanks to the Boeing 737 MAX production shutdown and the COVID-19 crisis.

While Airbus and Boeing will navigate through the crisis weakened but intact, the outlook for suppliers is less certain. The jetliner supply chain expanded and evolved in recent decades to cope with uninterrupted growth and new customer needs. Three major changes are likely for it in the post-COVID world.

First, aircraft and aeroengine OEMs and major Tier 1 companies will shed noncore and underperforming assets acquired or developed over the last 20 years. Rolls-Royce, which lost $7 billion in the first half of 2020, announced it will shutter several UK facilities as well as Trent engine final assembly operations in Singapore and Germany. More is on the way: It plans to sell £2 billion ($2.6 billion) in assets, including Spanish subsidiary ITP Aero.

Airbus recently terminated its initiative to insource A320neo nacelles, resulting in the loss of 350 jobs. Spirit AeroSystems also has scrapped its planned acquisition of component supplier Asco and may do the same with Bombardier’s aerostructures businesses.

Is this the end of OEM vertical integration? Not necessarily. OEMs may need to acquire major suppliers to ensure the viability of their supply chains—much like Boeing’s acquisition of Global Aeronautica in 2008-09. They will also continue to make investments in strategic technologies. And in some instances, they may insource to protect jobs and increase capacity utilization. What is clear is that the muscular pursuit of more capability to access profit pools and build service revenues no longer makes sense.

Second, we will see widespread failures and some consolidation among smaller build-to-print manufacturers, commonly known as Tier 3s. This supplier group faces the greatest pressure from the COVID-19 crisis. Tier 3 suppliers endured a four-part train wreck. They were first asked to make significant financial concessions to accommodate OEM supply chain cost-out initiatives. Next, they were asked to expand capacity to prepare for production rates of 60+ single-aisles per month. Then came this year’s 737 MAX production shutdown, followed by COVID-19. Thousands of suppliers are vulnerable.

Some governments are trying to ameliorate this lethal combination. In North America, the U.S. paycheck protection program provided sustenance through the summer, but it has ended. Mexican suppliers appear to be on their own. In Europe, the French and German governments established generous support packages, while support in the UK has been much more restricted. Impresa Aerospace declared bankruptcy on Sept. 24, and more are sure to follow. Some analysts believe Tier 3 attrition could be 10-20%.

Third, there will be deleveraging of the significant Tier 4 vertical integration plays over the last decade. As I wrote in an Up Front column seven years ago, leading suppliers of raw materials, forgings and castings—Tier 4 suppliers—acquired downstream operations in machining and component manufacturing to improve productivity and capture profit pools (AW&ST Sept. 9, 2013, p. 18). Precision Castparts led the charge, acquiring 20+ companies between 1999 and 2016 before its acquisition by Berkshire Hathaway for $37 billion.

With the COVID-19 crisis, the logic of many of these acquisitions has been reversed. Machine shops that alleviated production bottlenecks have become financial sinkholes. The most aggressive company in unwinding these moves is Alcoa, which spun off its downstream aerospace assets and created two new companies: Arconic and investment castings supplier Howmet. More is likely to follow.

These changes underscore the need for capital injection and acquisitions of weak and failing suppliers. Acquirers will include private equity, aerospace holding companies with strong track records (such as TransDigm and HEICO) and aerospace companies with strong balance sheets. We could also see governments enter the fray if a strategic asset or national champion is at risk.

If these predictions come true, we will have a much different jetliner supply chain architecture by the mid-2020s. There will be far fewer Tier 3s, as this is where most of the attrition and consolidation will take place. At the same time, we could see more Tier 2 component and subassembly suppliers as the drive to attain scale ends. TransDigm’s acquisition of Esterline is a harbinger, transforming an underperforming Tier 1 avionics conglomerate into more than 15 Tier 2 suppliers. Spin-offs of OEMs and Tier 1s will add to the Tier 2 ranks. Finally, we will see slimmed down and more focused OEMs, Tier 1 and Tier 4 suppliers.