Aerospace & Defense Market Perspective

The Aerospace and Defense industry has been on a steady growth path since its low point in 2003.  In 2005 total sales increased 9.2 percent to a record $170 billion mostly fueled by the strong resurgence in the Civil Aircraft sector.  2005,  in particular, was a record year for both Boeing and Airbus, each capturing a recording number of new orders exceeding 1000 aircraft. 

AIA forecasts “2006 sales will increase another $14 billion with accelerating growth in civil aircraft sales and increasing sales in nearly every other major product group.” Whilst, Defense spending is increasing and Civil is projecting 40 percent growth, the industry faces increasing operational and financial risk that could dramatically impact earnings if not actively managed.

Raw material supply issues pose a serious challenge for The Aerospace & Defense Industry, and manufacturing companies across industries.  Surging demand for critical materials such titanium alloys, nickel alloys, and composites is driving intense competition to secure capacity commitments throughout the supply chain. Tightening supplies of key inputs such as Titanium Sponge as well as limited upstream finishing capacities for products such as heavy Aluminum Plate have severely constrained availability, exponentially extended lead times and driven pricing to historic levels.

Material volatility is only part of the challenge.  With a gradual shift in manufacturing strategy over the past decade, the volume of outsourced production parts, components & assemblies has increased significantly.  The important trade off of this strategy is loss of control, leverage, access to important material data that can typically represent as much 70 percent cost driver of finished part cost. Critical sourcing decisions affecting price, availability and delivery [once controlled by the OEM], have been delegated to part suppliers and their sub-tier networks.  Success for the assemblers of the finished product (such as the Airframe or Engine manufacturers), is heavily dependent on the performance of their suppliers, and how well they manage the interdependencies between the tiers of supply that are no longer visible to the OEMs.

To be successful Aerospace OEM’s will need to actively coordinate, influence and negotiate supply & critical constraints on behalf of their value chain”

      -John Baron, VP Business Development, Newview Technologies.

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