At the ADS CEO Briefing, held recently, the leadership panel debated the key issues affecting aerospace companies. Taking part were Scott McLarty, VP UK & Malaysia, Spirit AeroSystems; Colin Smith, Chairman of the Aerospace Growth Partnership & President, ADS; and Paul Everitt, CEO, ADS. One of the big topics was the current state of the aerospace market, especially in the UK.
Figures from ADS show that in the UK, the aerospace industry saw productivity growth of 19% from 2010 to 2016, compared to 3% in the general UK economy. Six out of ten companies in the sector said they expected growth and the industry employs 120,000 people – 3% of those are apprentices. On paper, things look good. What about back in the real world, with issues such as Brexit, cost pressures and new competition looming?
ADS’s Paul Everitt said: “I think if we take a step back, the global aerospace market is growing and growing strongly. This year we’ll have produced, collectively, the highest number of large aircraft we’ve ever produced. Each year goes by, each year it’s a new record. So that global market is growing and that’s good news for the UK.”
However, he cautioned, competitive pressures are intensifying and those fall in a number of areas.
“There’s no doubt that our customers, whether those are airlines or passengers using airlines, are increasingly price-conscious and everyone wants a slightly better deal, so whilst volumes are growing, margins are always under pressure,” Everitt said. “That means from a UK point of view we have to feel like our benchmark is not the productivity improvement in the UK; it has to be the productivity improvement in some of our nearest competitors, and I would say that that gives us a bit of a hurdle still to reach.”
He added: “There’s competition from some of the growing markets. China, Southeast Asia want to buy aircraft, but in return their governments are expecting some level of aerospace activity. They covet the high-value, long-term jobs that sectors like ours provide, so if we want to sell things to them, there’s a kind of quid pro quo – the OEMs have to put some work in those locations and we’re seeing, certainly from both Airbus and Boeing, the globalisation of their own production facilities as well.”
“We can’t afford to sit on our laurels,” Everitt said.
As well as companies such as Airbus and Boeing setting up operations in China, the country is also developing its own aerospace industry with aircraft such as COMAC’s C919. Growth is also re-emerging in Russia.
Spirit’s Scott McLarty commented: “I think it’s both a threat and obviously a huge opportunity – 25% of all aircraft going forward will be sold in China, as an example. That’s the number that’s being quoted. You could argue you’re losing market share to China, but arguably the rate increases are coming from that area anyway, so you really have to be part of that game and I think it’s important to have a strategic plan to not necessarily be in China, but to be helping to deliver what I’d call off-set industrial participation for our customers.”
Four ways to stay ahead
McLarty outlined four ways that UK aerospace companies can grow:
- Price: As customers sell more aeroplanes they’re looking for price point and they expect your product to become cheaper As the rate increases, it absolutely needs to be cheaper.
- Quality: If you’re a supplier that cannot deliver the right quality, then forget it. I’m seeing quality becoming more of a pressure than delivery. Even some of our customers would rather have it a day late, but right, than on time, so that’s a significant cultural shift I think the UK needs to think about.
- R&D: I’ve never seen the need for R&D to be so high. We’ve certainly quadrupled our R&D spend on materials, technology, etc. It is the way to stay ahead of the competition
- Bring it together: Technology, quality, off-set – all of that needs to come together. If you can’t do those three things it’s really difficult to grow. You won’t just do it on price; you have to do it on investment in the product and helping your customer put that product in the places it needs to have some of that work done. And for me, you’ve got to have a model that does all of that.
Colin Smith, ADS and Aerospace Growth Partnership, agreed, adding: “We have to use the Toyota metric: Every day, you’ve got to try and lean your operation a little bit more. And without quality, you’re dead in the water. Nobody will accept a widget that goes on a £150 million aeroplane if it’s going to stop it. I mean, ringing up the boss of Qatar saying, ‘Sorry your aeroplane didn’t go, my bolt broke,’ really isn’t a fun conversation, so your quality has got to be great. And then price; it’s just about competition.”
Help at hand
Everitt concluded, saying: “The good thing about the UK at the moment is that there are industry and government schemes that are designed to help companies get to that place or at least on the journey, whether that’s helping them with establishing their own innovation and technology development activity, being part of the big collaborative programmes that the likes of Rolls-Royce and Airbus are running on some of the wing and engines of the future, or helping with that productivity and competitiveness challenge.”
“It’s not like anyone has to do this on their own,” he said.
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