Concerns grow over structure, location of aircraft supply chain partners
It may be the aerospace industry's equivalent of Catch-22. and want to deal with fewer, more resilient suppliers but at the same time they worry that a lack of choice could undermine their flexibility and business prospects.
With the two large aircraft makers and other industry powers boosting production, suppliers are being stretched to keep pace. The situation is expected to become more difficult, not just because of the ongoing rebound in commercial aircraft output, but also becauseJoint Strike Fighter deliveries are ramping up, with many of the same suppliers involved.
“There is probably not as much redundancy as there should be” in the current supply chain, warns Jim Albaugh, president of. Airbus and Boeing may share as much as 60-70% of the same supply chain, with new entrants now tapping those sources as well, notes Chief Strategy and Marketing Officer Marwan Lahoud.
There is concern the system will crack, causing disruptions in production. Airbus already is seeing signs of that situation as it looks to bring single-aisle production to 42 aircraft a month. “The supply chain is beginning to creak,” warns Tom Williams, executive vice president for programs. Concern over suppliers is one of the main reasons Airbus is holding off on boosting output further to 44 aircraft per month, although Williams sees demand for such production levels. The aircraft maker is being forced to dispatch large numbers of engineering teams to help suppliers keep pace, he notes.
Pratt & Whitney President David Hess is more sanguine about the situation, noting that there are no significant issues yet, but that problems have to be monitored closely. He says the industry has two to three years to prepare for peak demand. Nevertheless, Pratt is also spending more management time to head off potential supplier problems and has teams working to mitigate shortfalls.
Although the concern is mainly focused on lower-tier suppliers, even some larger ones are struggling. Aerolia, the French aerostructures business spun off from Airbus, builds around 2 million parts per year for the aircraft maker. But even making deliveries on schedule and with no flaws 96% of the time leaves Airbus with a “large headache,” concedes Aerolia's CEO Christian Cornille, adding that 99% performance needs to be achieved.
However, where the prime contractors see problems, others see opportunities. “We look at this with open eyes as business to be captured,” says Homaid Al Shemmari, executive director of Mubadala Aerospace. The Abu Dhabi investment firm is trying to build its Strata composites unit into a Tier 1 supplier to Airbus and Boeing by 2020. He notes that as companies like turboprop makerboost output, this creates an opportunity to bring in second or third sources, especially in new markets.
The company has been gradually building up its work packages for large aircraft makers, with Boeing and Mubadala last week finalizing a deal for Strata to provide 777 empennage ribs and 787 vertical-fin ribs. Deliveries are to start in 2013. Boeing also has signaled that it could award Strata the vertical-fin assembly. The U.S. aircraft maker last year opened a new vertical-fin assembly facility in Salt Lake City. The other site currently building the part is in Frederickson, Wash. Strata will have until around 2016-17 to prove it is up to the task and then could become the exclusive provider of the component to Boeing, Al Shemmari says.
For the initial work packages on the 777 and 787, Boeing says it “has already begun to provide tooling, operational early training and other support for those work packages.”
Strata was already working with Airbus, providing flap tracks forand , but now has ambitions to expand that to the as well.
There are other areas where the industrial structure underpinning the aircraft makers may be falling out of balance. Williams worries that among some key equipment suppliers consolidation may be going too far, citing' planned acquisition of . On the reengining program, UTC—combining Pratt & Whitney, Hamilton Sundstrand and Goodrich—will have huge content. “Who is the prime?” Williams quips. “Are we a subcontractor to UTC? It might feel a little bit like that.”
Some have additional concerns about the structure of the supply chain. Strata CEO Ross Bradley sees “a real conflict” in the fact the bulk of the supply chain remains in the West, while purchasing power has clearly moved to the Middle East and Asia. Many of the legacy suppliers have older and higher cost structures and are focused on older technologies, adds Al Shemmari, arguing more consolidation of those suppliers is needed.
Despite Williams' concerns about over-consolidation in some areas, he acknowledges there are still some regions where there are niche suppliers that will likely not be viable as stand-alone businesses in the long-term.