Aerospace Needs to Leverage Automotive Industry Supply Chain to Meet Customer Demands

The Drilling Unit

Ever since the brief downturn in the aerospace industry caused by 9/11, the industry has experienced an unprecedented increase in orders and new aircraft deliveries. New aircraft delivery records were set in 2007 including an 11% increase by Boeing, a 5% increase by Airbus, and a 16.9% increase in general aviation. The supply chain supporting these record levels of production is at capacity. Additional capacity needs to be found to support continued growth to meet the multi-year backlog that now exists.

An excellent place for aerospace OEMs to look for additional capacity is the automotive industry. Many of today's automotive suppliers have manufacturing technology, capabilities, quality and excess capacity needed to fill the unmet demand. However, in order to become qualified sources for aerospace, these companies will need to implement process and information systems improvements required for traceability and FAA and/or EASA certification.

Aerospace OEMs with the vision and commitment to work with automotive suppliers to implement required changes should find their investments rewarded with additional supply chain capacity and possibly more competitive pricing then the traditional aerospace suppliers.

Existing Aerospace Market Demand

Order books for new aircraft are at historic levels. As of the end of September 2008, Boeing and Airbus had a combined total backlog of 7,534 airliners, including 1,353 next generation aircraft. This backlog represents more than $600 billion. (Table 1 provides a breakdown of Boeing and Airbus backlog.)

Major business aircraft OEMs, including Bombardier, Cessna, Dassault, Embraer, Gulfstream and Hawker Beechcraft, also have historic level backlogs. In February, 2008, the General Aviation Manufacturers Association published an industry backlog total estimate of $58.1 billion (EOY 2007). Total business aircraft backlog continued to increase in 2008 as orders for both existing production models, and newly announced models exceeded deliveries. Forecast delivery dates for new orders of certain business jet models may be as far out as 2015 to 2016.

Given the need for significantly more fuel efficient aircraft by the airline industry and increased security and flexibility provided by business aircraft, the current financial crisis on Wall Street has had little effect on aircraft OEMs order books.

Both Boeing and Airbus have major nextgeneration airliners in development, including the Boeing B787 Dreamliner and the Airbus A350 XWB. Several major new aircraft are under development in the business jet segment, including: Bombardier C-Series and Learjet 85; Cessna Columbus; Embraer Phenom 100 and Phenom 300; Gulfstream G650; and Honda HondaJet.

To address the growing backlog, Boeing, Gulfstream, Cessna, and several other aircraft OEMs have announced production rate increases and significant expansion plans. To meet increased production rate objectives, the aerospace supplier network will also have to expand. Many existing aerospace suppliers, particularly those at the lower tiers, have been hesitant to make major capital investment commitments required to meet future production rates for the OEMs. Lack of parts impacted Boeing's final assembly, even before the IAM strike forced Boeing to halt production.

Current Automotive Supplier Network

Conversely, demand for new automobiles is at record lows. The automotive supply chain has significant excess capacity due to the downturn in demand for new vehicles. A recent article in Detroit News forecasts that the total automotive supplier network will shrink from more than 6,000, to less than 4,000 in the next five years as suppliers become financially unviable.

A closer examination of automotive supplier manufacturing capabilities, technologies, and capital equipment reveals that many automotive suppliers may be ideally suited for aerospace applications. Technical manufacturing processes, tolerances and quality required for existing automotive suppliers meet and exceed existing aerospace manufacturing requirements. However, a number of critical aerospace requirements that may not be required in automotive manufacturing include:

• Detailed traceability and pedigree data for components and raw materials
• Testing to meet FAA and EASA certification requirements

In addition, much of the automotive supplier network is designed and sized for high volume production. As quantities for aerospace applications are typically significantly lower, production layout, capital equipment and facilities need to be reviewed to achieve optimum, cost effective execution.

Becoming an Aerospace Supplier

In order to serve the aerospace industry, existing automotive suppliers must be willing to invest in incremental systems and processes necessary to meet aerospace certification, and traceability requirements:

• Information systems that provide for full traceability of raw materials and components need to be implemented
• Quality management systems need to be upgraded to capture and track required inspections and certification testing
• Products need to be designed and tested to meet FAA (and EASA) certification

As a result, a number of automotive industry suppliers have successfully expanded into serving aerospace and have improved overall financial results.

Benefits

A number of potentially significant benefits exist for both Aircraft OEMs and automotive suppliers. Benefits for aircraft OEMs may include:

• Gaining increased supply chain capacity and alternate suppliers
• Potentially receiving more favorable prices as competition increases
• Leveraging of advanced technology and manufacturing improvements already implemented in automotive industry that may have not yet transitioned to a perspective aerospace OEM including:
  • High speed precision machining of alloys
  • Advanced manufacturing automation and robotics
  • Advanced manufacturing processes including implementation of the Toyota Production System (TPS)

Benefits for automotive suppliers may include:

• Organic growth into new markets and customers
• Increased utilization of existing capacity, and assets
• Improved product margins, and overall financial performance

BBK Value Propositions

BBK has critical in-depth knowledge of both the aerospace and automotive industries and can provide the following services:

• Facilitate screening and qualification of automotive suppliers for aircraft manufacturing companies
  • In-depth knowledge of automotive suppliers, including manufacturing capabilities, quality and financial performance
• Assist existing automotive suppliers in achieving necessary certification and traceability requirements to become a qualified aerospace supplier
• Assist automotive industry suppliers to successfully and cost-effectively transition to become qualified aerospace industry suppliers
• Assist aerospace manufacturing companies in transfering lessons learned from newly qualified aerospace suppliers back into their respective companies

Summary

Aerospace manufacturers need to expand their procurement criteria to include consideration of automotive industry suppliers to achieve increased capacity to meet market demand for new aircraft.

Existing automotive suppliers should take a hard look at becoming aerospace suppliers. Successful entry into the aerospace supply chain will provide new growth opportunity, resulting in additional revenue, increased utilization of capacity, and ultimately, increased profitability for the successful entrant.