Opinion: How Aerospace Can Improve Its Risk Management

An explosion and fire at SPS Technologies, a Precision Castparts Corp. plant in Jenkintown, Pennsylvania, in February devastated the facility and its capabilities to produce highly specialized and high-strength aerospace fasteners, nuts, bolts and machined components for commercial and defense aircraft and engines.

This event has reduced the already diminished available fastener supply chain capacity and undoubtedly will strain airframers and engine-makers. But the SPS fire should serve to call attention to larger looming concerns in aerospace manufacturing—the risks of aging factories and sclerotic supplier situations.

When any industrial sector experiences strong demand, it must respond accordingly in the supply of materials, labor and services. What is not being addressed in the aerospace supply chain is the decreasing production capacity within the industrial base, e.g. SPS, and the limited use of important risk assessments and tools that should be guiding manufacturers.

The industry has been working to alleviate constraints, but it also must take steps to mitigate risk in these three areas:

Facilities and Equipment Investment Many plants have not been upgraded since the 1990s, and machines from the 1950s are still in operation at numerous manufacturing sites across the U.S. Capital expenditure is often the determining factor for the long-term success of a business. A summary published by the New York University Stern School of Business in January shows the ratio of net capital expenditure to sales in aerospace and defense averaged 0.7%. The ratios in the automotive, metals and mining and shipbuilding industries were 3%, 5.8% and 4.6%, respectively. Aerospace companies must prioritize capital expenditure on upgrading facilities, fixed assets and equipment improvement. Aging factories and equipment lead to higher operating costs and elevated risk.

Qualification Timelines and Complexity The SPS fire exposed lengthening and overly stringent qualification processes for fasteners and other critical components. Existing inventory levels for affected parts may not be sufficient to cover the gaps and are only a midterm solution. This has renewed the debate about the ability of airframers and engine OEMs to certify a new source rapidly. Prolonged qualification times can deter new suppliers from entering the market due to extensive upfront costs and delayed revenue potential.

Sole-Source Supply Relying on a single supplier with limited to no competition has been a trend for many years due to its cost-effectiveness compared with securing several qualified suppliers for critical components. But sole-sourcing presents significant supply chain risks. A singular disruption will create bottlenecks that can derail production output throughout the value chain.

This SPS accident highlights the need to revisit and reestablish the usage of risk management tools. For example, a “risk cube” assessment tool that has been adapted widely for industrial analysis (see chart) is an example of risk management practice. It highlights the consequence and likelihood of identified risks and helps to prioritize the establishment of mitigating actions that should be taken within the business or the supply chain.

Companies maintain their competitive edge through continuous improvement, enhancing competitive dynamics and reinvesting in their businesses and supply chain. We are in a perilous time with the combination of underinvestment in our factories, lengthy certification timelines and sole-source awards for critical industry products.

It is time to revisit the use of risk management and mitigation planning tools to avert further damage to aviation and aerospace production.