and are headed up the production curve, and new aircraft from , and Mitsubishi will be entering the market soon. About 70% of the supply chain for all airframe manufacturers consists of the same companies. Will these common aerospace suppliers be pressed so hard by simultaneous demand surges that the supply chain is threatened?
Quite possibly, but not for the traditional reason—high volumes. Aircraft production usually peaks along with, or a little after, economic and industrial production high points. Those hundreds of aerospace suppliers also make products for other sectors. When every sector is booming, shortages can occur in both crucial raw materials and specialized manufacturing capacity.
The aircraft boom this time coincides with a still sluggish world economy, with plenty of spare capacity. Below the top airframe tier, suppliers and raw-product markets will likely have plenty of slack.
This surge is largely to replace older aircraft with more fuel-efficient jets. And there's the rub. In an effort to cut weight and improve efficiency of engines and cut weight and drag from airframes, OEMs are pushing new designs and materials forward rapidly. That could be where problems develop.
In 2012, Boeing and Airbus ramped up production of aircraft by 29%, measured by value. “That is a pretty steep angle, they can do that,” summarizes Richard Aboulafia, vice president for analysis at the Teal Group. “Also, remember military capacity is coming off-line, so that will be available.”
Aboulafia argues that the real challenge is learning to build new kinds of jets and engines and to manage mass production of thousands of new subsystems and structures. “Boeing can build 40 or 50a year, but can they do 10 or more a month?” Beyond the long-range 787, there are the Airbus , Bombardier's , the and Embraer's EJets 2, plus geared turbofan and Leap engines (see page 42).
Moreover, some OEMs may be out of shape when it comes to commercial engine runs. “Pratt hasn't built its own new commercial engines in 20 years, since the JT8D,” Aboulafia says.
The obvious change in airframes is a much more extensive use of composites. Aboulafia says the broad industrial base for composite production vanished when the Cold War ended and military orders for composites shrank. Compounding this, “new jets use not just composites but titanium to interface with aluminum, and you have to ramp up fasteners too. That has been a problem in the past.”
Fasteners are hardly simple commodities. They must be produced in different shapes, sizes and materials to do the specific jobs assigned to each.
The 787 uses plenty of carbon for composite production, but also more titanium than any other jet so far. “And it's getting the biggest production run of any widebody in history,” Aboulafia observes. If availability is not a problem, pricing on titanium, nickel and nickel alloys might be.
“Can airframe OEMs get these metals at the prices they expect?” Aboulafia asks. He believes even Boeing may have a tough time getting the rate it wants from major suppliers like Precision Castparts. “One challenge might be to ramp up at the price you want.”
Interestingly, the Teal analyst sees no challenge in what is arguably the most complex part of any aircraft, avionics: “Once you write the software, you just replicate it.”
Still, crucial Tier 1 companies seem confident. Spirit AeroSystems has endured financial stress, layoffs and management changes, but thanks to its importance to the A350 supply chain, Airbus may acquire one of the supplier's French facilities.
But Spirit is still worth $3.5 billion on the market. And it has a solid plan to support increases across all of its customers, especially on the 737, 787 andprograms, according to Don Harris, director of the Wichita-based operation's supply chain management. “We have an established cadence that integrates our internal operations and our external supply chain, ensuring we are all aligned on production rate increases,” he emphasizes. Spirit is watching raw material and hardware production as build rates increase and new aircraft transition from development to assembly.
Harris says the company has a strong logistics plan and is working with customers to continue providing quality products, on time.
So Spirit does not foresee any systemic problems in its portion of the supply chain. It focuses on sustaining product quality throughout its supply base and identifying any issues quickly. “We've been increasing production rates for quite some time and . . . have a good understanding of what it takes to support the increasing demand for our products,” Harris says.
Similar confidence is felt in newly important specialty metals. “We have had this vision since 2006 and 2007, that there would be this ramp up in titanium, nickel alloys and super alloys,” stresses Dan Greenberg, spokesman for Allegheny Technologies. “We feel we are prepared.”
Allegheny has built facilities for a secure supply chain and is eager to reach high build rates. It has built a facility in Utah near the magnesium resources of the Great Salt Lake to ensure supplies of this ingredient in titanium processing. Greenberg says his company has done all it has been asked to do to prepare for the 787, A350,'s series and the new engines for single-aisle jets.
On pricing, the Allegheny official says titanium costs were so high in 2007—the peak of global economic growth—that the company acted to stabilize prices. It integrated backward to titanium sponge, the porous titanium that is the first stage in processing the metal. “We have closed the loop on melt, remelt and reversion,” Greenberg stresses.
Allegheny also integrated forward so it produces not just titanium ingots, but near-net shapes, very close to final part shapes and even finished titanium components.
Moreover, Greenberg says Allegheny Titanium Alloy 425, approved for aviation in 2010, will reduce the cost of making titanium parts. For the future, the company seeks only stable prices and a strong level of demand, which he points out are in everyone's interest. “We do not want peaks and valleys.”
The market does not seem worried about supplies, at least now. In fall 2013, titanium-ingot prices were 25% below their late-2011 peak, and nickel prices were half their 2010 level.
Michael Lentini is distribution sales manager at Spirol International, which makes spring pins and shims. Lentini does not anticipate any supply chain problems for these fasteners as long as OEMs call for standard items. But problems might arise if OEMs go outside these standards.
One reason is that certification for military and aerospace fasteners is often extremely rigorous—demanding examination of the ore from which the metal was obtained, where it was smelted, the chemicals and oil used and an extensive paperwork trail. The paperwork can take longer and cost more than the actual making of the fasteners.
The fastener industry is moving toward more environmentally sensitive processes as standards, but aerospace and military customers sometimes require methods outside these standards, which creates special challenges and costs. Moreover, Lentini says, some aerospace orders require an extra 90 hr. of fastener preparation, adding to potential delays.
All of these difficulties can be handled with good planning. But Lentini observes, “[Fasteners] are always the last thing on the list [OEMs] think about.” When everything else is ready, OEMs call for fasteners. A little more forethought would help.
But if supply chains problems do arise on the new jets, it will be despite the fact that, this time, major OEMs have probably prepared more thoroughly than ever for production increases. Airbus has centralized all procurement in one unit and built an electronic hub for collaborating with suppliers. Boeing has set up an organization dedicated to development of new aircraft.
Pratt may not have made new commercial engines in large volumes in a while, but it has been active in the aftermarket where supply chains can be tricky. To prepare for its ambitious geared-turbofan program, the company has been scrutinizing suppliers and reviewing their systems thoroughly. Scorecards and remedial clinics are used extensively.
And Rolls-Royce designed a virtual XWB on computers, dramatically improving the initial engine build. The British company has set up a preproduction facility to handle all preparatory work, experiments and tooling for the XWB.
has taken a different approach than Pratt to improving engine efficiency. GE's Leap will actually ease pressure on markets for expensive metals such as titanium by replacing some metal parts with ceramic matrix composites (CMC). This novel technology has its own challenges, but GE will fabricate CMC in its own new plant.
There may be fewer composite manufacturers now than at the end of the Cold War, but survivors such as Spirit, GKN and Hexcel are high-tech enterprises and want to be high-volume. To be economical, the new capital-intensive composite-manufacturing techniques such as automated lay-down need big orders. So, as with Allegheny, this is a production surge suppliers have been panting for, not fearing. That does not mean everything will go right. Aircraft production is always complex and characterized by long lead times. Ali Bahrami, vice president for civil aviation at the Aerospace Industries Association, says extensive assessments are undertaken to ensure all suppliers have the capacity and resources to match demand.
Assessments start with long-lead items, complex parts and those subject to tight tolerances. “Availability of certain raw materials may be an issue,” Bahrami acknowledges. But he argues that OEMs and suppliers usually manage this material challenge.
When pressed on where problems may crop up, Bahrami cites not a supply sector, but a process affecting many sectors. “Critical steps in quality-control checks and statistical analyses need to be evaluated and monitored to make sure quality is not sacrificed in favor of quantity,” he says. “The cost of fixing a quality-escape or rework could be very expensive if the right checks and balances are not in place.”
So the real challenge for the supply chain is producing a massive number of newly designed parts made of innovative materials on budget, on time and at the very high-quality levels demanded by commercial aviation. And this challenge can have a knock-on effect on aftermarket parts.
In the past, when production cycles hit their peak, suppliers favored production for new-aircraft manufacture, notes Richard Levin, managing director of A.J. Levin, a value-added distributor of specialty hardware and consumables for Airbus andaircraft. At first, prices rise in the aftermarket and then “it becomes a capacity problem,” he says. “Some OEMs tell us they can't supply us, we do not buy sufficient volumes.”
Levin says the potential problem is most significant in fasteners. He sees no sign of it now, and is sanguine about the future. He notes that lead times can vary from 16-18 weeks at the trough to 52 weeks at the peak of a production cycle.
As far as remedies go, one is expensive. Levin can buy “deep,” or stock bigger inventories. But he also tries to partner as much as possible with his suppliers, helping out when they run short of an item and hoping they will return the favor when he is short. “We try to be a partner, not just a customer.”