Econ 101 And People Skills: Aerospace Managers Head Back To School

Aerospace and defense program managers will tell you they never had an easy job, but recent trends in the sector are turning the task of building and delivering products into an almost Sisyphean task. What can be done to get industry and customers back on track?

It is time to head back to school. A growing movement in program management headquarters appears to be a recognition that everyone needs to brush up on the fundamentals, and nothing can be taken for granted.

From a historic spike in inflation to workforce shortages starving companies of manpower and triggering related challenges, issues are mounting. Some challenges have not been seen in a generation or more, catching program managers and their senior leaders off guard.

Investors also have been surprised. Defense consultant Jim McAleese, who reviewed recent second-quarter financials results, says supply chain disruption and labor shortages are being blamed for what amounted to roughly 4% lower quarterly sales and about 10% lower sector profit across contractors, based on a year-over-year comparison that was adjusted for one-time factors.

What is more, several contractors recently cut their 2022 sales guidance, especially within sectors such as aircraft manufacturing. Contractors are telegraphing that supply chain disruption could persist well into 2023, further slowing sales growth.

Not surprisingly, in a closed-door meeting of program management leaders from across industry hosted by Aviation Week in August, prime contractors and leading suppliers acknowledged significant disruption in their portfolios. Inflation, longer lead times and workforce frustration top the list of common sore points.

Among the trends, inflation has turned out to be one of the biggest surprises, according to executives’ comments, because it is not something the sector has had to accommodate in a long time.

For years, companies have focused training of new program leaders on schedule and scope, establishing guardrails against committing cardinal sins such as changing dates unilaterally and even adapting to the long-running effort by the U.S. government to transition more awards from cost-plus to fixed-price contracts. But companies now find they need to give ad hoc “microlearnings,” or crash courses, to their program managers about inflation and how decisions and deals those leaders make now can come back to haunt the company later.

“We certainly do alert training where we say, ‘look, you might not have been thinking about this that much over the last 20 years of your career, but we need you to think about it,’” an executive explained.

Contractors also are trying to be proactive about pursuing economic price adjustments, especially with government customers. The index-based payment adjustments are a long, conventional contracting tool available to address inflationary effects. But, perhaps not surprisingly, industry is finding that government customers are slow to grant them in general. Industry representatives think that is because government contracting officials are either unfamiliar with economic price adjustments, or the customer wants the contractor to account for inflation upfront as part of the initial award.

Another common complaint is growing lead times, including for basic parts. “Lead times have increased three, four, 10 times on components that are in our legacy designs—they’ve been there forever,” one executive lamented. “All of a sudden the capacitor is a long-lead item, and it’s not even close to when it was supposed to be [delivered].”

Some contractors are trying to design out their most problematic long-lead items. Several also are stockpiling key parts—an act that has been anathema to financial departments since lean manufacturing swept into aerospace decades ago. Many report recruiting redundant suppliers, another eschewed practice, to eliminate single-source chokepoints.

Still, there is one area where companies report little or no progress, and it is “haunting us,” one executive says. Workforces, smaller than before and harder to attract and retain, are increasingly living bifurcated lives based on remote-working or in-office realities. The result is growing frustration and envy, especially among classified workers with security clearances who must go in every workday to windowless workplaces, even to do a Zoom call with at-home colleagues.

The new list of requirements in program management is clear: more training, fewer assumptions, fewer chokepoints and more sensitivity to human resources. School is in session: time to brush up on the fundamentals.