The aerospace supply chain is a complex animal. Made up of many different links that are spread around the globe and that rely on thousands of suppliers that come together to deliver the world’s air transport vehicles, it’s facing some interesting challenges so far in 2018.
“The number of orders currently booked on the commercial side of the industry equates to six to seven years’ worth of aircraft,” says Patrick Boy, corporate VP and head of DB Schenker’s Aerospace and Defense division. “At the same time, capacity in the airfreight market as a whole is shrinking, so getting these products to market is getting more and more expensive.”
As aerospace companies seek out ways to mitigate these issues—often by working closely with a global logistics provider that can guarantee airfreight space at a predictable cost—they’re also keeping a close eye on these five trends:
- Aerospace firms are partnering up and consolidating. To better manage the complexities of their market and gain economies of scale, more aerospace companies are merging and/or forming partnerships with one another. According to Boy, the key deals include the acquisition of Zodiac by Safran; BE Aerospace and Rockwell Collins being now part of UTC Aerospace; Airbus and Bombardier joint venture to produce and commercialize the C Series (now rebranded Airbus A220); and the recently-announced partnership between Embraer Commercial and Defense with Boeing.
- Worldwide passenger traffic is up. According to Capstone Headwaters’ most recent aerospace mergers and acquisitions (M&A) report, worldwide airline passenger traffic grew 7.5% last year, far exceeding long-term 4.5% growth forecasts. Such expectations are increasingly dependent on the expansion of the Asia Pacific fleet, with the region projected to account for 40.0% of new deliveries—more than the mature markets of Europe and North America combined. After a year of “subdued growth” in 2017, the global aerospace and defense (A&D) industry is expected to strengthen in 2018, with Deloitte forecasting industry revenues to grow by about 4.1 percent. The industry closed the 2017 year with 2.1 percent revenue growth, in line with Deloitte’s forecast of 2.0 percent.
- Aerospace manufacturers are ramping up to meet demand.Capstone Headwaters says that in 2018, both Airbus and Boeing expect to significantly increase production with Airbus lifting output by 11.0% to 800 planes and Boeing by 6.0% to 810-815 aircraft. Boeing and Airbus each expect passenger growth to average 4.5% over the next 20 years with fleet growth around 3.5%. Combined, they expect 75.0% of deliveries to be single aisle (25.0% wide body). “With the entry in service of newer airplanes, Boeing 787 newer versions; 737 Max, Airbus 350, and 320 Neo as well as upcoming models (Airbus 330 Neo and Boeing 77X),” Boy points out, “the commercial aviation order books are at an all-time high.”
- To stay competitive, aerospace firms are looking closely at their inventory carrying costs.Staying competitive and profitable requires highly-efficient operations that not only deliver new aircraft on time, but that also minimize the high cost of aerospace-related inventories. In addition to creating accurate forecasts, companies must develop highly-efficient, global supply chains that are supported by reliable logistics partners.
“Aerospace companies rely heavily on airfreight service for their supply chains due to the small size of their production batch and high value of the spare parts,” says Boy, who adds that the cost of inventory is a critical indicator of success (or of challenges) for aerospace companies. “We’re at the point where airfreight has tightened and upper-deck capacity has been reduced, and especially in the Americas,” says Boy, “this has forced firms to review their supply strategies to seek out strategic logistics partners that can guarantee service and price.”
- More aerospace firms are outsourcing their supply chains to third parties.Comparing aerospace to the automotive industry, Boy says the latter has been outsourcing its supply chain to competent third-parties for decades. However, because of the stringent requirements of the Federal Aviation Authority (FAA) and other governing bodies, aerospace has been slower to embrace the outsourcing trend. That approach is shifting as more companies adopt outsourcing strategies that allow them to focus on their core competencies. “The Aerospace industry is now looking more and more at outsourcing a supply chain that’s long been kept ‘in-sourced,’” Boy explains. “Thanks to logistics partners that have invested in aerospace expertise—and that have acquired experience in transportation and contract logistics—aerospace firms are now turning to these firms to manage engine moves, aircraft on ground (AOG) services, and other critical functions.”
Logistics Providers’ Role in the Aerospace Supply Chain
Expect the aerospace supply chain outsourcing trend to continue over the next few years. For example, DB Schenker recently worked with Airbus to develop a streamlined logistics and transportation system for the latter, which is ramping up final assembly line production in Mobile, Ala., to be able to handle five commercial passenger twin-engine jet airliners (A320s) per month. Airbus partnered with DB Schenker to develop a logistics plan to accommodate the manufacturer’s larger, ocean-going vessels. Those vessels are now being used for the international transport of four complete airplanes (a number that will increase to five in 2019) per month. Using its new roll-on/roll-off terminal, barge, and newly-dredged section of river, Airbus can now use larger vessels to transfer the huge components by water.
As logistics providers continue to invest in their infrastructures while also adding robotics, the Internet of Things (IoT), and warehouse automation to their advanced technological capabilities, expect to see even more aerospace companies leveraging their logistics and transportation expertise. “Here at DB Schenker we’re investing a lot of time and money into our worldwide innovation centers,” says Boy, “all with the goal of helping our customers work smarter, better, and faster in their respective industries—aerospace included.”