The commercial aerospace industry continues to grow, having reached new production levels in 2016. Lower oil prices have stimulated air travel, driving projected demand for aftermarket parts and new generation aircraft even higher for 2017. Air traffic and the numbers of passengers are expected to double in the next 15 years as the cost of air travel continues to decline.
While leading indicators predict sustained growth, declining expansion numbers for the global sector reveal challenges to one of the world’s most complex global supply chains. These will require a new wave of trained professionals to help with devising and implementing solutions. Once these challenges are solved, the industry outlook will become even stronger.
Increased Production and Entrance of New Competitors
Low cost of capital and increased use of more efficient aircraft are enabling a reduction in operating costs. The passenger fleet is expected to grow by 109 percent over the next 15 years, while the freighter fleet will expand by 77 percent.
Today’s supply chain must adapt to handle increased production. Systemic problems in parts shortages, re-work, defects, out-of-sequence activity and unplanned overtime are delaying delivery and adding to costs. This is in addition to geopolitical events and natural disasters that already constrain the supply chain. Most suppliers are ill-equipped to scale up and down in order to deal with so many variables. They will need to consolidate and/or make strategic investments in capacity and capability. More proactive risk management is also needed to help identify and address weak links before they cause serious issues.
Flexible Business Models Required
Value has shifted away from airframers and major subsystem providers to their suppliers over the past 15 years. They have the power to recapture some of the lost value, but this requires skill in cost estimation, investing in non-recurring R&D for new aircraft programs, engineers skilled in digital product development, investments in tooling, replacing labor with process automation, and the management and acquisition of lower tier suppliers. The industry is at a crossroads and the suppliers of the future are those who can build economies of scale into their new business models.
Innovation, efficiency and cost savings can also be attained by importing supply chain and logistics expertise from other industries that have seen similar dynamics, including the auto industry.
New Aircraft Deliveries Minimizing Lifecycle Value
Increases in orders for new models are challenging aftermarket equipment providers focused on legacy equipment. The lean operating costs of building new models are shortening the lifecycles of previous-generation aircraft. Average retirement ages for regional aircraft have already been reduced.
Solutions to extend lifecycle values will have to include alternate approaches to supply chain management. Providers may have to expand from spare parts, repair and distribution to integrating new and used serviceable parts. The industry will have to develop tailored solutions with more sophisticated pricing capabilities in consideration of the customers’ usage horizons for each of their purchases.
Specially Trained MBAs Are Needed to Address These Challenges
The Southeastern Oklahoma State University Master of Business Administration with an emphasis in Aerospace Logistics online program was developed to meet the needs of the aerospace industry and prospective leaders within the sector. In addition to a core business curriculum, the program offers two aerospace logistics courses:
Logistical Strategies in Aerospace Administration — Covers various applications of logistics in the U.S. Department of Defense (DoD) and the commercial aviation sectors. Strategies for operations support from acquisition through distribution, sustainment and disposition. Contemporary topics include workforce diversity, lean manufacturing and supply chain management.
Implementing Logistics: Acquisition & Program Management — Experience in the practical applications of systems acquisition. Covers the policies and philosophies used by the DoD and the commercial industry to provide for program management. Teams participate in case study evaluations.
For aspiring aerospace industry leaders, one way to gain a global understanding of these supply chain challenges is through a business education focused squarely on the logistics of this sector.
Learn more about the SOSU online MBA with an emphasis in Aerospace Logistics program.
Sources:
Deloitte: 2016 Global Aerospace and Defense Sector Outlook
Strategy&: Challenges in the Growing Commercial Aircraft Sector
The Manufacturer: Taking Aerospace Supply Chains to New Heights