The Global Aeronautical Industry

The Global Aeronautical Industry

Warning: foreach() argument must be of type array|object, bool given in /home/mexiconow/public_html/sites/mexiconow/wp-content/themes/mexiconowwpnew/single.php on line 254
Managing the complexity of the supply chain is the key for success

The Global aviation industry has finally reached a higher flight level. After four years of turbulent conditions, European, North American and Asian OEM's and their extensive supply chains appear to be in a frank recovery mode in 2011. But challenges remain visible on the radar screen.

The order backlogs of OEM's have improved substantially, and their woes for launching new models are about over. Nevertheless, managing the complexity of the aerospace industry supply chain has never been tougher.


Putting the house in order

According to a report by Flight Daily News: Over the past two years Airbus has brought down its final assembly cycle for the A380 by 30%, from 14 months to 10. The improvement signals the overcoming of the early production bottlenecks that weighed down the manufacturer as out-of-sequence structural components piled up and forced it to transfer personnel from other plants to complete and correct work in sections that had already been shipped for assembly.

Assembly will start shortly on the first A380 for Malaysia Airlines, the eighth carrier to join the list of operators for the type.

Airbus's efforts to smooth the production run have been hampered by the Qantas in-flight Rolls-Royce Trent 900 engine failure in November 2010, which resulted in the three Trent-powered A380 operators having to replace several engines on their fleets.

According to the Flight Daily News report, an Airbus spokesman admits that "there has been an impact on the delivery of new engines" but a recovery plan, agreed with R-R, is in place "to protect the final assembly line and deliveries". Engine deliveries, he says, are expected to be recovered by the first quarter of 2012.

Meantime, on the other side of the Atlantic: If all goes according to plan, when 2014 dawns Boeing will move to a production rate under which it completes one commercial aircraft every 12 hours. The estimated annual total of around 720 commercial aircraft would be a record for the airframer, at more than 40% higher than the 485-500 deliveries forecast for 2011 and 154% above the output from 2004.

Flight Daily News report continues to state that: Production rates are being pushed up as a consequence of the Airbus-Boeing duopoly's desire to thwart new entrants, combined with a general aerospace market upswing.

"We're sold out on the 737 through 2015; we're sold out on the 787 through 2019. And one of the biggest challenges that we have is having the slots for our customers, and that's why we're going up in rate," says Jim Albaugh, chief executive of Boeing Commercial Airplanes.

The 737 lines stoppage of 1997 remains a fresh memory, cautioning that a production ramp-up can be terribly costly if pushed too hard, too fast and without appropriate oversight.

However, a more recent example of costly production woes guides Boeing's approach to ramping up its commercial output. The Boeing 787's supply chain has proved a trial by fire for the company since 2007, delaying the Dreamliner's deliveries by threeand- a-half years and pushing its first production plateau four years to the right while it absorbs the astronomical costs of the delays, says the Flight Daily News report.

"Boeing will only be successful if our supply chain is successful," says John Byrne, director of common commodities supplier management for Boeing Commercial Airplanes.

"We have 10 separate rate brakes coming at us. Every rate brake is an opportunity for each and every one of us to experience problems," he said recently. He added: "It doesn't do any good if Supplier A has everything perfect and Supplier B doesn't, because then I can't build airplanes."

"We have to have the full supply chain aligned, which means there's a tremendous amount of collaboration and there's a tremendous amount of information sharing that has to go on. In that way, that's what allows our supply chain to begin to achieve that competitive advantage."

Optimism mists the horizon

At the recent Paris Air show, Aviation week reported the following findings in their "Show News" edition: Boeing is assuming world GDP growth of 3.3% per year, while passenger totals will grow by an average of 4.1% per year. Airline passenger traffic is expected to grow at 5.1% per year and cargo even faster, at 5.6%.

"Airlines have accommodated this growth with more flights to more places rather than larger and larger airplanes," Boeing Marketing VP Randy Tinseth said. "What passengers want is more frequent non-stop service."

Despite the success of airplanes like the 777 and the loud emergence of the Airbus A380, average airplane size has slightly decreased since 1990. Thus single-aisles dominate the forecast, at 23,370 aircraft worth $1.95 trillion, or 47% of the total. Single-aisles will account for 70% of the world fleet in 2030, up from 62% today.

There will be demand for 820 large jets, Tinseth predicts. Boeing's new 747-8 and the Airbus A380 will account for just 2% of the market by unit count and, at $270 billion, 7% by value, justifying Boeing's decision not to go with a full two-decker in response to the A380.

According to the Aviation Week Show News report, GE Aviation president & CEO David Joyce said "If it wasn't for the recovery and the installed base, we couldn't afford the level of development investment we have today..." GE Aviation will produce a record number of engines this year, as its revenues rise to $18 billion and its investment in R&D hits a peak of more than $1 billion.

"Wide body engines are up in a big way, and production of CFM56 engines is about four a day," said Joyce. "Aircraft orders rebounded strongly in 2010, and we see that same trend in 2011, so we think aircraft orders are back where we expect them to be on a normal basis," he told Show News.

The company will deliver 2,200 commercial and 1,000 military engines this year, and expects growth of 8-9% in 2012, as production rises to 2,450 commercial and 1,150 military engines. 

Dramatic market change

"We've seen a dramatic change in the landscape of aviation," said Tinseth of Boeing Commercial Airplanes. The biggest difference is the emergence of the Asia Pacific market, especially China.

Asia Pacific has already edged out North America as the biggest traffic segment, with nearly a trillion revenue passenger kilometers last year, and China is the fastest growing. "Twenty years from now the Chinese domestic market will be bigger than North America," Tinseth predicts. 

Boeing sees Asia Pacific accounting for 34% of new aircraft deliveries over the next 20 years, or 37% by value. Another change is the emergence of the large Middle East carriers, with their strategy of connecting the world, especially Asia and Europe, through hubs in Dubai, Abu Dhabi and Doha.

"They see the world as their market," Tinseth says. "They are clearly going to gain market share, and it has to come out of somewhere else."

Cloudy Forecast

But according to a report by AIN publications in their interview with Adam Pilarski, senior vice president with U.S. aircraft value specialist Avitas, the industry faces not so farfetched dangers that could derail its impressive recovery from the most recent recession and prove the airframers' zeal to speed production misguided.

Although demand appears robust for now, and airlines, particularly those in the Middle Eastern oil-producing countries, control significant capital to spend, the current rate of aircraft selling can't continue indefinitely, said Pilarski. Indeed, he added, at some point in the not too distant future cancellations might decimate the backlogs Boeing and Airbus have accumulated. "Boeing and Airbus are sold out until, I don't know, 2019 or something like this," he said. "And they're saying, 'If somebody comes today and wants to buy planes, I don't want to tell them to come back in ten years.'"

"I, Adam, believe that many of the airplanes that were bought will eventually disappear," he added. "So right now Airbus and Boeing are acting in a rational way if you believe that everybody who bought planes will actually take them. I do not believe that."

However, he said that buyers have undoubtedly expressed irrational exuberance in their spending habits lately, particularly in the narrow body market. Now, as China's Comac, Russia's Irkut, Canada's Bombardier and perhaps Brazil's Embraer enter into a market dominated by two players for years, Pilarski argued that a proliferation of narrow body types will only serve to weaken residual values still further.

Aviation Week Show News reported the following on this subject: "There are tremendous competitive pressures on aircraft manufacturers by the airlines to deliver a product that offers new technology at a lower cost," says Eaton Aerospace president Brad Morton. "We as an industry have to be careful about bowing to that pressure beyond our own capability."

Clay Jones, the CEO of avionics supplier Rockwell Collins, sees another problem behind the program delays. "In my mind, it is less about rushing the technology to the customer than the ability to manage that process," he says. "There's a heavy dose of inadequate management of the process, either by the OEMs or the suppliers."

But Jones does not see OEMs easing up their pressure on suppliers. "That's the nature of this industry," he says. "We will always be driven to a date. The customer comes to us... and they say, 'This is when I need that capability.' So we're forced to say, 'Do I play or not?"

The Chinese are coming!

As reported by Aviation Week: China's new single-aisle aircraft, the Comac C919, has amassed its first 100 orders and a heavyweight team of international suppliers as it heads for a scheduled first flight just three years from now and service entry in 2016. Only a scale model is on show at trade shows for now, but the program represents nothing less than China's first serious bid to hit the international air transport big time.

The Commercial Aircraft Corporation of China was established in May 2008 with former defense technology minister Zhang Qingwei as chairman. Its aim is to help meet the country's need for large numbers of new aircraft to connect fast-growing cities in farflung provinces.

Comac will make parts and assemble the C919 at a new Shanghai Aircraft Manufacturing (SAMC) facility in the Pudong district of Shanghai.

×