New money flows and their impact on the ancillary industry

julio 16, 2015 por
Archivado en la categoría: Análisis 

   Times have changed. The last 20 years have been probably one of the most interesting moments in the lives of aeronautical designers, as there have been more new programs and developments as never before in the history of the aeronautical industry: B787, A380, A400M, B737MAX, A320neo, MRTT, F-35, Eurofighter, C-Series, E2, and some others.

   Now is time for production. Both Airbus and Boeing estimate a production of more than 30,000 aircraft in the next 20 years, being their current backlog of nearly half that period.

   Investments have been successful, at least in terms of incoming orders. The market has responded positively to the new product proposals of the main manufacturers. But, how will the industry adapt to this new scenario of mass production?

   Not a long time ago, governments used to have a key role in the financing of new aeronautical projects. The influence of the US Government in Boeing and the direct participation of European governments in the Airbus equity made possible a money flow from national budgets. Of course there were conditions: manufacturers were obliged to produce locally in financing countries, and select supply chain companies in these same countries. This has created through the years an ecosystem of aerospace companies specially in Europe, where the aerospace & defense sector is more fragmented due to the diversity of nationalities and political interests.

   Today, governments have not so much money to spend in industrial ventures as before the crisis, and the weight of the money flows has moved from governments to airlines, or in general, to aircraft purchasers.

   So the first source of money has changed, and purchasers want industrial returns from their investments. Quite a number of airlines are property of the governments of emerging countries that have money to spend and a lot technology and industrial know-how to learn and implement. Undoubtedly, they ask for production and supply chain to be managed locally.

   This is quite a challenge for manufacturers. Airbus, for example, has started its A320 production in China. It won’t be the only one.

   But in fact, sometimes it is easier to start from the supply chain movements. One good example is Strata Manufacturing, the result of an offset for massive purchases in the Middle East.

   Movements from big manufacturers are clear: they are going to be where the sources for money are. They are going to do what their customers demand. What a surprise, isn’t it?

   Continuing with the case of Airbus, contracts for local supply chain in Europe are no longer protected, neither directly or indirectly, from government investments. On the other hand, there is a load of know how present in this supply chain that cannot be ignored. What will be the solution for this puzzle?

   The european aeronautics ancillary industry must prepare itself for this new scenario, and this means:

  • Invest in technology to be always one step ahead of the emerging countries, in order to protect their business from low-cost policies.
  • Be ready to be a partner rather than a subcontractor of the big manufacturers. Yes, it means risk sharing.
  • Gain volume to perform internationalization processes easier and quicker. This may lead to complex merge & acquisition processes. This is a reality in the US already.

   If there is only one thing clear, it is that strategies at Tier-1 and Tier-2 level must be at least, reviewed for the next 20 years in order to have opportunities to survive.


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