On a wing and a prayer? Challenges and opportunities in the aerostructure supplier industry - January 2019 - Roland Berger
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January 2019 On a wing and a prayer? Challenges and opportunities in the aerostructure supplier industry
2 Roland Berger Focus – Challenges and opportunities in the aerostructure supplier industry Management summary After flying high with strong growth in the past decade, the commercial aircraft industry is altering its trajecto- ry. Production volumes will remain strong, but a lack of new programs mean that growth rates will decline. In addition, OEMs are starting to rethink their industrial systems and make-or-buy strategies. As OEMs continue to squeeze shipset prices from sup- pliers, insource work packages or transfer them to emerging markets and limit suppliers' bargaining pow- er, suppliers could be left with overcapacity and serious pressure on margins. To avoid a hard landing and im- prove their competitiveness they must invest in automa- tion, new technologies and their global footprint. That in turn will open up new, business-defining opportuni- ties. A survey of top executives conducted for the 2018 edition of our Aerospace & Defence Issues Radar indeed identified aerostructures as an area with a high poten- tial for insourcing by OEMs and for consolidation be- tween supplier firms. The resultant upheavals are bound to reconfigure the aerostructures industrial landscape. Suppliers therefore must proactively shape their future to secure a "sweet spot" in the changed market constellation.
Challenges and opportunities in the aerostructure supplier industry – Roland Berger Focus 3
Contents
1. Leaving cruising altitude ............................................................................................................ 4
As growth slows in the commercial aircraft industry, OEMs
and aerostructure suppliers must rethink their strategies
2. Turbulence ahead ............................................................................................................................. 6
OEMs are looking to cut costs and control the market –
putting serious pressure on suppliers
3. Riding the storm ............................................................................................................................ 10
Suppliers must embrace change and reinvent themselves
to become indispensable
4. Into the future with a flying start .......................................................................................13
A proactive role in shaping consolidation will keep aerostructure
suppliers on the winning side
Cover photo: Neal Wilson/Getty Images4 Roland Berger Focus – Challenges and opportunities in the aerostructure supplier industry
1. Leaving cruising altitude
As growth slows in the commercial aircraft industry, OEMs and aerostructure
suppliers must rethink their strategies
The commercial aircraft industry has been flying high for will keep growth from grinding to a complete halt. Like
some time, and order intakes are likely to stay at or around their customers and other industry players, however,
all-time highs for another couple of years. But change is com- aerostructure suppliers must prepare for growth that
ing and growth is slowing. OEMs and aerostructure suppliers could be as much as two thirds lower after 2020. This
alike must use the time to engineer a soft landing. study examines how aircraft OEMs themselves are re-
sponding to this changing scenario, the challenges that
New orders in the commercial aircraft industry doubled will confront aerostructure suppliers as a result, and
between 2010 and 2014. Since then, order books have what the latter can and must do to engineer a soft land-
remained stable at or near to record highs, with roughly ing – or, better still, position themselves to make a flying
13,000 aircraft still in the pipeline. Large commercial start under changed market circumstances.
aircraft (LCA) programs – including the A320 neo and
the Boeing 737 MAX, the A350 and the Boeing 787 – have
driven much of this growth. As of around 2020, however, STUDY METHODOLOGY
current planning figures indicate that the growth curve The analysis and recommendations reproduced in this paper
will flatten (see Figure A). This assumes a production are based on a comprehensive market and competition
rate of 60 aircraft per month for single-aisle programs as model developed by Roland Berger. Figures for growth in the
well as major aircraft programs, which will either slow aerostructure market (in US dollars) are based on estimates
down production (the A380 is a case in point) or stop of the number of aircraft produced and aerostructure value
altogether (like the Boeing 747). Only Airbus' smaller, per aircraft. Aircraft production data was derived from pro-
single-aisle A220 (former C-Series) is forecast to see pro- jected fleet growth and current order backlogs. The aero-
duction increase continually in the years ahead. Other structure value per aircraft was calculated by breaking over-
than that, no major new aircraft programs are sched- all aerostructure value down into individual components
uled to get off the blocks before the middle of the next (such as flaps and side shells).
decade. However, existing programs could see a sub- Based on a thorough understanding of the demand and
stantial increase if the production rate 70 or 80 scenari- supply situation for each of the work packages, we then as-
os materialize for the Airbus A320 neo and Boeing B737 sembled the overall market model. This includes not only the
MAX families. A status quo but also the changes in the demand and supply
With large commercial aircraft constituting by far the situation based on the sourcing strategies of OEMs, strate-
largest segment of the civil aerostructure market (about gies of suppliers as well as as process, technology and ma-
85 to 90% in value terms [in USD]), many tier-1 suppliers terial trends.
in particular have taken good advantage of the favorable This model was backed up and enhanced by the findings
conditions in recent years. As OEMs outsourced the bulk from more than 20 in-depth interviews conducted with key
of aerostructure production, aerostructure tier-1 suppli- aircraft OEMs and aerostructure suppliers in Europe as well
ers specifically built up capacity to accompany the ramp- as the Americas.
up of the above LCA programs. They are still enjoying
market growth rates of around 5%.
Substantial expansion of single-aisle programs,
boosting production to 70 or even 80 aircraft per month,Challenges and opportunities in the aerostructure supplier industry – Roland Berger Focus 5
A: The end of rapid growth
Development in segments of the aerostructure market,
global market volume 2016-2026 [USD bn]** CAGR *
2016-2026
1.7% [%]
81
79 79 79
76
4 Rate 80 3.0%
4 4 4
4.8% 73 73 2 4
Rate 70 2.5%
2 4 4 4
4 4
0.5%
73
4.1% 71 71 71 71 2
1 69 70
67 2 1 1
1 1 1 2 Rate 60 1.9%
1 2 2 2 2 8
10 2 9 9
2 10 9 8
60 10
60 0 59 1
1 5
2 2 5 5 5 3.7%
2 5 5
8 9 9 5 2 0.2%
4 2 2 2 2 54
2 2
52 51 52 52 52
3 4 2 50
4 48
2 2 2.0%
44 2
42 43
* Compound
annual growth
rate
* * Components
may not sum
to total due to
rounding
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Forecast
UAV Military Regional Aircraft Scenario single-aisle rate 80 Source: CLIENT, Research,
Space Business Jet Large Commercial Aircraft Scenario single-aisle rate 70 Market reports, TEAL, Roland Berger6 Roland Berger Focus – Challenges and opportunities in the aerostructure supplier industry
2. Turbulence ahead
OEMs are looking to cut costs and control the market –
putting serious pressure on suppliers
To cut costs, shore up the global supply chain and gain great- tense pressure from airlines to lower prices. To sharp-
er control of the market, aircraft OEMs are quite happy to clip en their competitive edge and raise profitability, OEMs
the wings of their suppliers, if need be. Aerostructure suppli- are thus moving to cut both internal costs and the cost
ers must thus deal with lower growth, pressure on margins of purchasing products from the supply chain. Airbus,
– and possibly a loss of business. for example, is committed to the Scope+ campaign,
while Boeing's "Partnering for Success 2.0" (PFS 2.0)
As major LCA programs tail off and growth is project- drive likewise targets cost (and hence) price reduc-
ed to flatten as of 2020, aircraft OEMs must naturally tions in the company's major LCA programs.
protect their interests and align with a changed set of In recent decades, the aerospace industry followed
market circumstances. Some of them are less profit- the lead given by the automotive industry: OEMs scaled
able than their suppliers right now, and are under in- back their own vertical integration, allowing suppliers to
advance from build-to-print (BTP) to design-and-build
(D&B) work packages. Of late, however, OEMs have expe-
rienced delivery issues with some suppliers (affecting
B: Downward pressure the A350, Boeing 787, A320 neo and B737 MAX programs,
Evolution of shipset prices based on for instance), which has also been driven by the risk-shar-
the number of units delivered ing partnership model that transferred considerable re-
sponsibility from the OEMs to their supplier firms –
however, the RSP model did not always deliver the
PRICE PER
benefits to the OEMs or supplier firms as intended. Ac-
SHIPSET
[USD] cordingly, and driven by the need to cut costs and have a
more balanced share of industry profit pools, they are
now keen to regain more control of work packages they
see as critical to aircraft performance (pylons and na-
P0 celles, for example) or that command significant after-
market business (such as nacelles again). At the same
time, they are looking to strengthen their bargaining po-
P1
sition and reduce dependency on outside suppliers.
P2 TO MAKE OR TO BUY?
All these considerations are prompting aircraft OEMs to
P3
rethink their make-or-buy strategies and insource activ-
ities that they hitherto farmed out to aerostructure sup-
pliers. Wings for the Boeing 777-X, for example, are now
n0 n1 n2 n3 DELIVERED being produced back in-house at a brand-new, heavily
SHIPSETS [#] automated facility. This trend means that future market
growth will largely end up in-house with the OEMs, not
Source: Roland Berger Contracted shipset price in the hands of tier-1 suppliers.Challenges and opportunities in the aerostructure supplier industry – Roland Berger Focus 7
C: Fighting to remain profitable
Aerostructure (tier-1) EBIT* margins, 2014-2017
Highest 16.6 15.9 16.1
EBIT margin [%] 13.4
Average
8.1
EBIT margin [%] 5.8
4.2 4.1
-0.8
-9.8
Lowest -26.2
EBIT margin [%] -28.1
2014 2015 2016 2017
* Earnings before interest and taxes Source: Roland Berger
For those work packages that will continue to be out- MORE THAN A SPOT OF TURBULENCE FOR
sourced, OEMs are adopting a more granular approach SUPPLIERS: PRESSURE FROM THE OEMS
and also exploring the option of dual sourcing strate- Having upscaled to accommodate the LCA production
gies. If the same work package is split 70-30 between two boom in recent years, aerostructure suppliers now face
different suppliers, say, that again gives the OEM greater the very real threat of being left sitting on overcapacity
negotiating muscle. More than that, it helps them safe- in the years ahead. As programs such as the A380 and
guard a reliable supply chain and remain more flexible the Boeing 747-8 are phased out, suppliers' dedicated
in the event of a production ramp-up. It also forces sup- production equipment will be left standing idle. Growth
pliers to compete with each other. Moreover, developing in the order of 5% is projected to decline to around 2%
work packages in-house and then outsourcing them on as of 2020 (in our base scenario with single-aisle produc-
a build-to-print basis adds greater transparency, limit- tion rates at 60 aircraft per month), partly due to a slow-
ing suppliers' potential to realize attractive margins. er increase in production rates compared to previous8 Roland Berger Focus – Challenges and opportunities in the aerostructure supplier industry
years, and partly due to existing price reduction agree- – India and Saudi Arabia in particular – have launched
ments for the work packages. As suppliers strive to be- ambitious programs to build up their own aerospace
come more efficient, this too will exacerbate the prob- and defense industries. They are doing this on the basis
lem of overcapacity as they can effectively realize the of local content and offset obligations, as well as by en-
same output with less equipment. The capacity situa- gaging with established OEMs and supplier firms in the
tion is made even more complex by the fact that, before form of joint ventures that operate local production in
growth begins to flatten, demand for capacity will spike these countries. This development puts additional pres-
in the short term – for perhaps the next two to four years sure on the supplier firms due to the rise of new suppli-
– on the back of a sharp increase in single-aisle aircraft ers in these emerging markets. In particular, the latter
production (A320 neo and B737 MAX). are often assisted by government funds provided on fa-
On top of flatter growth, OEMs too are putting the vorable terms to cover their investment and non-recur-
squeeze on suppliers' margins. For aerostructure suppli- ring costs. These newcomers thus also reap the benefits
ers, OEMs' insourcing trend effectively reduces the size of of cutting-edge equipment. Although many of these
the accessible market. Dual sourcing policies will likely supplier firms are initially established within the frame-
further reduce even those work packages that they keep. work of defense programs, they very quickly also prog-
Both of these developments will add to the burden of ress to targeting the civil aviation market.
overcapacity for suppliers who potentially have less work At least in the years from 2014-2017, tier-1 suppliers
to do. At the same time, pressure to cut costs will natural- of aerostructures defended their margins fairly success-
ly also be passed on down the line. To take just one exam- fully despite the pressure exerted on them by OEMs.
ple: OEMs typically trade down the price per shipset They did so by streamlining their internal cost base, ex-
(from tier-1 suppliers) after a certain number of shipsets ploiting economies of scale as they ramped up produc-
have been delivered. These price reductions are either al- tion to keep pace with aircraft programs, but also by re-
ready agreed in the initial contract or imposed during the ducing the cost of materials purchased from tier-2
lifetime of the contract (again via Scope+ at Airbus and suppliers and benefiting from favorable exchange rate
PFS at Boeing). At the same time, OEMs are applying dual effects. C
sourcing policies, which implicitly means that suppliers The problem now is that, having already successfully
who didn't do a specific work package for an OEM up to reduced costs within the supply chain in the recent years
now will be asked to do so in the future. B of plenty, it will become increasingly difficult to make
Again with a view to cutting costs, OEMs are also further cutbacks in the comparatively lean years ahead.
moving toward giving supplier firms "build-to-print" That said, OEMs' now-stronger bargaining position has
products with similar technologies across different pro- undermined suppliers' ability to resist outside pressure
grams. That is precisely what Boeing has in mind with to realize further savings. As a consequence, tier-1 sup-
its concept of the "focus factory", for example. The aim pliers have been ramping up production in low-cost
in adopting this platform-style approach is to leverage countries and increasing automation. They have also
synergies of scale while also ensuring consistent opera- reorganized their supply chain and are working with
tional excellence. new tier-2 companies, e.g. in Morocco or India. D
Yet another OEM-driven effect on supplier firms is
coming from emerging markets. Some of these marketsChallenges and opportunities in the aerostructure supplier industry – Roland Berger Focus 9
D: Continuous cost-cutting
Impact of pressure from OEMs on suppliers – example of shipset cost evolution
PRICE PER
Step change in production
SHIPSET
costs needed by supplier
[USD]
firm (e.g. new production
Yearly price Price processes/automation,
reductions reduction of new materials, new
of 5 to 10% 20 to 30% design)
P0
P1
P2
P3 Step change in
price reduction
(e.g. stronger
competition)
P3new
P4new
P5new
P6new
n0 n1 n2 n3 n4 n5 n6 n7
DELIVERED
SHIPSETS [#]
Contracted shipset price (existing work packages) Price of produced shipset
Required shipset price to contract new work packages New price of produced shipset Source: Roland Berger10 Roland Berger Focus – Challenges and opportunities in the aerostructure supplier industry
3. Riding the storm
Suppliers must embrace change and reinvent themselves
to become indispensable
Stagnating markets, overcapacity, pressure on margins and ers whose superior inputs will enable them to sell better
customers keen to insource confront aerostructure suppliers products than their competitors – and thereby win new
with a daunting array of challenges. Before today's market orders. In the decades ahead, having innovative materi-
growth begins its descent, they must embrace change and als (e.g. thermoplastics), products (e.g. thanks to addi-
reinvent themselves to become indispensable tomorrow. tive manufacturing) and processes (e.g. resin transfer
molding (RTM)) that others cannot compete with will be
With the question of striking a balance between initial a good way for suppliers to maintain existing contracts
development activities and subsequent production largely and acquire new ones. Suppliers who do so will be well
taken out of their hands by OEMs, aerostructure suppli- positioned to defend their work packages as a single
ers must alter their business model. Above all, they must source, become a preferred second source, pick up
commit to industrial excellence, efficiency and innova- re-sourcing opportunities as they arise, and also be inte-
tion – three levers that affect and depend on each other, grated in new programs going forward, for existing and
and that are key to generating sustainable profits in the new customers alike.
future.
THE ROAD LESS TRAVELED
EXCELLENCE These three levers can and must be flanked by suppli-
OEMs attach great importance to lower costs and reliable ers altering their approach and, to some extent, open-
delivery, even when demand is at an all-time high. "On ing themselves to a different growth trajectory. A good
time, on cost, on quality", or OTOCOQ, sums up what track record in working with a specific client, coupled
OEMs expect of their suppliers, both for existing work with impressive technological capabilities, can be in-
packages and in the development and implementation of strumental in helping suppliers access major work-
new technologies. Living out this doctrine – consistently share packages when new programs (such as Boeing's
delivering operational excellence, in other words – will NMA) come up. In particular, they should be looking to
help aerostructure suppliers stay one step ahead of OEMs' land packages (such as fuselages) where the outsourc-
incessant demands for better service at lower cost. ing ratio is projected to increase in the future. In paral-
lel, proactively approaching Airbus and/or Boeing with
EFFICIENCY attractive proposals can be an excellent way to trigger
To deliver such excellence at the right price and still and win major re-sourcing opportunities. The same
make a profit, aerostructure suppliers must obviously strategy can also be used to acquire dual sourcing op-
also improve their internal performance. This will criti- portunities (by being involved in the ramp-up of the
cally involve investing in automation and innovative A320 neo, the B737 MAX and the A350, for example). Be-
production processes as they seek to shed the overca- yond these activities, supplier firms should also consid-
pacity described above and significantly reduce their er exploring work packages that are non-core business
own cost base. for the OEMs, or that the suppliers can provide more
efficiently either as BtP or D&B* packages (e.g. supply-
INNOVATION ing ready-equipped and/or integrated structures). This
With the market forecast to stagnate, makers of large too can be a way of proactively creating and benefiting
commercial aircraft are increasingly looking for suppli- from outsourcing opportunities. E
*BtP: Build-to-Print; D&B: Design & BuildChallenges and opportunities in the aerostructure supplier industry – Roland Berger Focus 11
E: Innovation to shape the future
Impact of new technologies on capabilities and efficiency
High
Additive New bonding
manufacturing concepts
Thermoplastics
NEW
CAPABILITIES/
INNOVATIONS
OFFERED
TO OEM RTM
Automation/
Industry 4.0
Low
Low RATIONALIZATION/INCREASED EFFICIENCY High
Source: Roland Berger
The following areas of innovation (selected examples) hancements: While greater automation is favored for
can all help aerostructure suppliers position them- many reasons (including safety, quality and cost), it
selves to profitably service the changing demands of sometimes necessitates the redesign of aircraft parts
their industry: (which must be "designed for automation"). This,
though, very quickly becomes a matter of economics, i.e.
New automation solutions/Industry 4.0 a financial decision. Given this situation, a solid busi-
Automated riveting is just one example of many solu- ness case and convincing arguments must be presented
tions that will increase flexibility, reduce costs and ac- to the OEMs. Players who successfully rise to this dual
celerate production, resulting in higher quality, greater challenge will give themselves an edge over their rivals
reliability and traceability. However, suppliers need to – and will stand to realize the full benefits of the new
understand the technical aspects of automation en- hope that is dawning for the industry.12 Roland Berger Focus – Challenges and opportunities in the aerostructure supplier industry
Resin transfer molding (RTM) aerostructures segment, major applications in the short
Resin transfer molding lets suppliers avoid the heavy to medium term will be for spare parts (to ease obsoles-
outlay of acquiring both automated fiber placement cence management) and rapid prototyping.
(AFP) machines and autoclaves – one of the major draw-
backs in the current carbon fiber reinforced polymer
(CFRP) production process. Dry fiber layups are placed
into molds that are then infused with liquid resin. SPECIALIZATION? OR GENERALIZATION?
Out-of-autoclave (OOA) curing, as the name suggests, Embracing innovative production processes and materials in
then eliminates the need to invest in autoclaves. this way is already helping some tier-1 suppliers develop ca-
pabilities and technologies that will strengthen their position
Thermoplastics at early (upstream) links in the value chain. Caution is ad-
Thermoplastics can be heated and returned to their vised, however. Each supplier must think carefully about its
initial form after an impact, for example – a property strategy for the future: Do you want to specialize in certain
that can yield significant savings on maintenance and narrowly defined technologies in which you foster a unique
repair costs. Right now, these polymers are used most- depth of expertise (like Boeing's "focus factory" concept)? Or
ly for secondary parts (such as brackets on the A350 would you prefer to cultivate a broad spectrum of capabili-
and the wing-leading edge on the A380). In the future, ties across various materials and manufacturing techniques?
however, new welding and co-molding techniques will The new technologies that are now becoming available can
increase their importance for complex structural as- help suppliers improve their internal efficiency, deliver new
semblies too. capabilities and innovative products to OEMs, or perhaps
even do both. For lack of a clear strategy, however, the dan-
New bonding concepts ger is that many existing suppliers may end up stuck in the
These concepts can slash costs by reducing the volume middle, with neither the depth nor the breadth of expertise
of manual work, the number of assembly steps and the they need to stay competitive in the long term.
need for riveting, for instance. They can also facilitate
less weight-intensive parts and even allow large mono-
lithic structures (such as composite/CRFP doors) to be
made "in one shot". In many areas, current composite
parts and modules are still rooted in traditional design
concepts (with composite panels riveted together, for
example), so this field opens up vast streamlining po-
tential.
Additive manufacturing/3D printing
Long touted as the next big thing, market forces and
greater technological maturity mean that 3D printing is
now genuinely on the verge of a wholesale breakthrough,
though certification issues remain to be resolved. In theChallenges and opportunities in the aerostructure supplier industry – Roland Berger Focus 13
4. Into the future with a flying start
A proactive role in shaping consolidation will keep aerostructure suppliers
on the winning side
Lower growth/stagnation, dwindling market shares and the 1. O
n what level of work package integration do we want
need to streamline operations and innovate will also prompt to position ourselves? Do we want to deliver fully inte-
a wave of consolidation in the market for aerostructures. grated assemblies or focus on specific sub-assemblies
Suppliers must make sure they end up where the business is or components?
and the profits are. 2. D
o we also want to target additional OEMs?
3. W
ho are those OEMs?
Past waves of consolidation in the supply chain created 4. B
ased on these criteria, who is the most
a few dominant players but left the vast majority of the suitable partner?
aerostructure market heavily fragmented. The top five
players today account for about 50% of the market, the BENEFITS OF VERTICAL CONSOLIDATION
top ten players for 65% and the top 20 players for 75%. On the other hand, vertical consolidation can give sup-
The aerostructure supply chain breaks down into four plier firms streamlined interfaces to important lower-ti-
main segments: wings, fuselage, empennage and engine er suppliers. This in turn can give them access to (new)
support. Wings and fuselage are the largest segments. technologies that set them apart, increase their control
But even here, the degree of fragmentation is clearly over costs, quality and delivery, and also enlarge their
visible as individual players typically focus on specific footprint. In similar fashion, suppliers targeting vertical
segments. F integration must ask themselves four questions:
This time around, both horizontal and vertical con- 1. I n light of current aerospace trends, what position do
solidation can take suppliers to the next level of value we want to occupy in terms of work packages and the
creation. The point became abundantly clear in the new- material mix?
est version of our yearly Roland Berger Aerospace & De- 2. W hat core competencies will we need in the future?
fense Issues Radar, which drew on the expert opinions 3. Of those core competencies that are currently avail-
of more than 200 senior executives. Of these, 85% expect able, which ones can we develop organically and
further consolidation among tier-1 suppliers. The pivot- which ones will require a vertical partnership?
al question for suppliers is: Which way to go? 4. Again, based on these criteria, who is the most suit-
able partner?
BENEFITS OF HORIZONTAL CONSOLIDATION
Horizontal consolidation – essentially, acquiring or CHOOSING THE RIGHT BUSINESS MODEL
otherwise merging with direct competitors – can obvi- Consolidation in the aerostructure industry can lead
ously enable suppliers to broaden their customer port- suppliers down one of four roads: G
folio. At the same time, it can streamline their asset
base, facilitate economies of scale to improve profit Centers of excellence possess in-depth expertise in pro-
margins, give them access to certain technologies by duction technology but do not have a strong focus on
buying firms that master or are developing them, en- R&D integration. Suppliers in this category typically
large their own footprint and, at the same time, trim concentrate on technologies and products, operational
down the competitive undergrowth. Suppliers keen on excellence and striking a healthy balance between low-
treading this path need to answer four key questions cost and high-cost production footprint in order to opti-
for themselves: mize their overall cost base.14 Roland Berger Focus – Challenges and opportunities in the aerostructure supplier industry
F: Fragmented competition
Suppliers in the global aerostructure market, 2016 [USD bn; %]
Engine
Wing Fuselage Empennage support
Market size [USD bn] 22.8 22.2 7.2 8.1
Number of main players 12 13 13 10
AERnnova
Premium Aerotec
Aerospace Industrial Development Corporation
AIRBUS
BOEING
BOMBARDIER
FUJI Heavy Industries
GE Aviation
GKN Aerospace
Kawasaki
LEONARDO
Lockheed Martin
MAGELLAN
Mitsubishi Heavy Industries
Northrop Grumman
AVIC SHENYANG Aircraft Corporation
SAFRAN
SPIRIT Aerosystems
STELIA
Triumph Group
United Technologies
Others
Source: Market reports, Interviews, Roland Berger Market share: 0-5% 5-10% 10-15% 15-20% >20%
Vertically integrated players are also strong on production Engineering service providers have little knowledge of pro-
technology but at the same time cultivate a sharp focus duction technology but a keen focus on R&D integra-
on R&D integration. These players interlock deeply with tion. Their R&D capabilities are impressive, and they can
OEMs' R&D activities and are thus able to deliver inte- effectively support either OEMs or suppliers on other
grated, end-to-end systems. tiers across the entire development cycle.Challenges and opportunities in the aerostructure supplier industry – Roland Berger Focus 15
Commoditized suppliers neither have much production
technology that differentiates them, nor are they partic- G: Choosing a business model
ularly focused on R&D integration. This group typically Different types of aerostructure suppliers
devotes itself to high-volume products with low value and business models
added. They are able to leverage automation and econo-
mies of scale in production. However, they also face the
highest risks, as OEMs can quite easily either force sup- PR O D U C TI O N TECH N O LO GY
CENTER OF VERTICALLY
D I FFE R E NTI ATO R
pliers to compete based on a dual sourcing strategy or EXCELLENCE INTEGRATED PLAYER
transfer the entire work package to another supplier firm. Technology focus Complete system delivery
Operational with high level of R&D
excellence integration with OEM
Once the fundamental strategy and target position have
Efficient cost base
been mapped out, a proven five-step approach can help
suppliers tackle consolidation head on and successfully
establish their new or modified organization: COMMODITIZED ENGINEERING
SUPPLIERS SERVICE PROVIDER
> Analyze the current organization and capabilities of
Low added value High level of R&D
both firms, as well as the way they work. products with capabilities
> Define exactly what you want the integrated organiza- high volume
tion/company to be. No R&D involvement
> Plot a clear transformation path that will lead two sep-
arate companies from independence to integration.
> Prepare a detailed master plan for post-merger inte- Source: Roland Berger R&D I NTEG R ATI O N
gration, specifying the actions needed and identifying
critical paths.
> Monitor and follow up implementation strictly, paying CONCLUSION
especially close attention to change management and The future is not what it used to be, as Paul Valéry fa-
communication. mously wrote. Players in the aircraft industry are no
strangers to change. Yet the changes and challenges de-
Aerostructure suppliers that plot a clear strategy and scribed by this study require different approaches, dif-
proactively shape the wave of consolidation ahead can ferent strategies, different business models to those ad-
turn the coming changes to their own advantage. They opted in response to past changes. In particular,
can steal a march on their rivals and occupy one of the advances in automation and new technologies now cre-
"sweet spots" in the future market constellation, suc- ate opportunities to disrupt the existing market order,
cessfully positioning themselves as a center of excel- create entirely new organizations – and reap the benefits
lence, a vertically integrated player or an engineering of excellence, efficiency and innovation for yourself.
service provider, for example. Done properly, any of Those aerostructure suppliers that put themselves in
these strategic orientations will avoid the trap of com- the pilot's seat for change will ultimately be the ones
moditization and should lead to sustainable and profit- who are cleared for take-off to a sustainable, profitable
able business. business future.WE WELCOME YOUR QUESTIONS, COMMENTS
AND SUGGESTIONS
AUTHORS PUBLISHER
Dr. Stephan Baur Roland Berger GmbH
Principal Sederanger 1
Aerospace & Defense 80538 Munich
+49 89 9230-8041 Germany
stephan.baur@rolandberger.com +49 89 9230-0
www.rolandberger.com
Manfred Hader
Senior Partner
Global Co-Head Aerospace & Defense
+49 40 37631-4327
manfred.hader@rolandberger.com
Dominique Gautier
Senior Partner
Aerospace & Defense
+1 514 875 2000-212
dominique.gautier@rolandberger.com
More information to be found here:
www.rolandberger.com
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