Leonardo Aerostructures can no longer wait on Boeing solution, explores carve-out, alliances

Leonardo (Rome, Italy) is a global aerospace, defense and now security company with divisions that include Helicopters, Aircraft, Aerostructures, Electronics and the recently added Cyber and New Space (see its new Industrial Plan). Its Aerostructures division participates in the Boeing 787 Dreamliner, the Airbus A220 and A321, and the best-selling regional turboprops produced by ATR.

Specifically for the 787, Leonardo Aerostructures produces the Section 44 and 46 fuselage barrels located between and just aft of the wings and horizontal stabilizer in the empennage, all made from carbon fiber-reinforced polymers (CFRP). It is also responsible for certification, production and assembly of all the moving surfaces of the wing and stabilizers of the Boeing 767.

Even though the machinists’ strike at Boeing is now over, its multiyear downward spiral continues to severely threaten the global composites and aircraft supply chain. Tier 1 supplier Spirit Aerosystems (Wichita, Kan., U.S.) has expressed concerns over continuing its operations, and now Leonardo has announced that it can no longer wait on Boeing to fix its problems. Although Leonardo CEO Roberto Cingolani acknowledges Boeing’s goodwill in the company’s Q3 2024 results presentations, and that the two companies had tried to find a solution, Cingolani says the current situation involving lost Boeing work and revenue is unsustainable.

Boeing events in 2024

In his video “Executing the Industrial Plan” (starting at 30:44), Cingolani outlines Boeing events in 2024 that give an example of the issues its severe lack of performance continues to create:

• June – Announced a 25% reduction in the 787 production rate.
• September – Strike began, halting 737, 767 and 777 production.
• November – Announced additional delays to beginning 777x production and the halt of 767 freighter production in 2027.
• November – Strike ended after 7 weeks but Boeing announced another 11% drop in 787 production for 2024 and 16% drop for 2025.

The result is that shipments for four Leonardo plants have dropped from 80 to 55 to 49 in 2024 and from a planned rate of 115 to 97 to 81 in 2025. Cingolani noted that three of these plants are doing relatively well, but the one in Grottaglie, Italy, is struggling due to Boeing’s continued decrease in production.

As reported by Reuters in July, Leonardo had said in May that its costs from Boeing’s non-production could reach €50 million ($54 million) in 2024. In June, the company thought a 4-month closure would be needed but was able to come to an agreement with unions to drop the workforce to one shift per day. Roughly 1,300 people then worked at the Grottaglie site where the 787 fuselage sections are produced.

Leonardo scenarios for its Aerostructures Division

Cingolani explains that Leonardo’s Aerostructures capability is based on 4.5 million hours of engineering capacity, but the workload based on the announced rates by Boeing has decreased to 3.2 million hours between 2025 and 2029. That loss of work and revenue is not sustainable. This unutilized capacity is a burden on the financial position of the Aerostructures Division. Further, additional impact is expected due to inflationary pressure on material and labor costs.

“Leonardo has an international team of advisors as well as our engineers, production and finance departments studying potential scenarios to address this situation,” says Cingolani. “We’re not able to wait anymore for a solution on the Boeing situation.”

Leonardo has already implemented an improvement scenario which comprises introducing new programs, including military, and enhancing industrial efficiency. The latter has a strong focus on automation and an incremental optimization of the cost base and supply chain. This is a big issue, says Cingolani, explaining that 80% of Leonardo’s suppliers operate in countries where the cost of labor is very high, while its competitors are relying more on suppliers from areas where labor cost is very low. This scenario is ongoing, he explains, but likely will not be enough to create a self-sustaining Aerostructures Division.

Thus, Leonardo is also pursuing a scenario to achieve end-to-end transformation, which includes cost structure repositioning and new business opportunities. Regarding costs, the company will explore reconfiguring the Aerostructures Division footprint of facilities and restructuring its supply chain. Meanwhile, new opportunities are being analyzed that focus on diversification and higher profitability segments. All of this will be implemented with financial and/or industrial partners, says Cingolani. “We have to think in a totally different way and prepare alliances that can make the division attractive on an international level. The quality is outstanding — the situation, however, needs an evolution that may go toward a carve-out with alliances that can compete in the global market.”

Further details about this scenario and its possible implementation will be presented in Q1 2025, together with an update on the company’s recently announced New Space Division.

For additional commentary, see Dominic Perry’s Nov. 8 article at FlightGlobal.com and for Leonardo’s forward-looking investments at Grottaglie, see an April 2023 article.