What do Boeing and Airbus have in common with the Big Three? If you look solely at their bottom lines, then the answer is ‘not much.’ However, the two industries do overlap in certain areas, and although the aerospace and automotive industries are on different cycles, they face similar issues.
The aerospace industry is currently hot — perhaps a little too hot. The intense competition between Boeing and Airbus has resources stretched thin. Boeing and Airbus can’t make planes fast enough and their suppliers can’t make parts fast enough.
“The entire supply chain has been surprised by the demand in both commercial and defense aircraft,” said Philip Toy, Managing Director, AlixPartners.
After 9/11, aerospace companies scaled back production, making it twice as hard to ramp up production now.
“Boeing and Airbus suppliers and their suppliers are seeing a two to two and a half year backlog,” said Toy.
And it’s not just a domestic problem. Aerospace, like the auto industry, has seen a surge in global demand.
“There is a bigger demand than ever in emerging market countries,” Toy said.
Also similar to the auto industry, aerospace has been suffering from a shortage of qualified workers.
“The industry has seen a shortage of aerospace engineers over the past two years,” Toy said. “It’s only going to get worse and it’s a global problem.”
While the two sectors share a lot of issues, they could share the same solution. The suppliers could take a cue from GM to turn things around.
GM is currently in talks with UAW to address its financial troubles, but it isn’t drowning as fast as some would think. Sure, it’s weighed down by retiree health care costs and its reputation is tarnished as far as consumers are concerned, but it has turned its operations around.
“If you look at a GM plant today, there isn’t a lot of fat,” Toy commented.
GM is following Toyota’s example and investing in efficiency and becoming as lean as possible — and people are starting to take notice. In a recent study, several GM facilities were rated as world-class.
Top Tier suppliers like Pratt & Whitney have turned to efficiency processes to reduce bottlenecks and increase their ability to meet demand, but many of the smaller suppliers haven’t.
“They’re not forward-looking enough,” suggests Toy. “They’re so busy doing what’s on the schedule, they don’t think about how to get better.”
He adds that there is a need for initiatives like lean across the industry.
“It’s about creating pathways that weren’t there before,” Toy said. “It’s about reconfiguring the supply chain.”
However, the aerospace suppliers are following some aspects of auto suppliers to bring costs down. Like automakers, plane makers are in charge of design and final assembly, but components and systems are produced elsewhere.
“It reduces complexity, but it also reduces some control,” cautions Toy.
The high demand and extreme supply shortage (the Dreamliner could be delayed because of a shortage of fasteners) could lead to potential quality problems as companies have to find replacements for high-price items like titanium.
“High costs and short supplies have companies turning to new suppliers and substitutes,” Toy said. “As they struggle to balance quality with meeting their schedule, airframe companies may not get enough visibility.”
When it comes to the costs involved in building the planes, suppliers are shouldering some of the burden, just as they do in the automotive industry.
“They get a bigger piece of the revenue when the planes are purchased, but it’s contingent on delivering the final product,” Toy said. “If the plane is delayed, so is their paycheck.”
But it’s not all bad news.
“It brings choices for airlines and leads to innovation,” said Toy. “Before the A380 and the Dreamliner, companies were afraid there wouldn’t be a market for jumbo and superjumbo planes. They could do surveys and research, but in the end, it all comes down to what the customers buy.
“Boeing took risks with the Dreamliner’s composite structure,” he continued. “Carbon fiber has been used before, but not to that degree. It changes the manufacturing and maintenance procedures, not to mention whether or not it would sell. They took a risk.”
And it paid off big time. Boeing has around 1,000 orders so far, making the 787 its fastest-selling plane to date.
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