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Home » Aerospace Supply Chain Faces Harsh Reality of Having to Deliver Huge Backlog of Orders

Aerospace Supply Chain Faces Harsh Reality of Having to Deliver Huge Backlog of Orders

July 10, 2012
AlixPartners

Looking at the aerospace and defense industry as a whole, the study finds that it is in better shape than last year. The commercial aircraft sector has rebounded, driven by approximately 5-percent growth in airline and cargo traffic globally and the acceleration of old-aircraft replacement with fuel-efficient alternatives.

However, the future profitability of the airline industry remains uncertain, says the AlixPartners study, with fuel price instability (despite some stabilization of late) and degrading economic drivers weighing on outlook. The study found that net profits for the airline industry globally have been squeezed to an all-time industry average low of 0.5 percent of revenues - due to fierce competition, overcapacity-related revenue pressures and rising operating costs.

The study also shows a real contrast in the growth rates globally between OEMs and suppliers, with the former lagging by nearly five percentage points on average - and this gap looks set to widen. In 2011, suppliers globally saw average sales growth of 10.4 percent, compared to just 1.0 percent on average for OEMs.

In the business jet market, while there is no significant upturn as yet, China remains an untapped opportunity with significant under-representation, says the study. In the defense sector, while sovereign spending cuts have received significant attention this year, AlixPartners predicts continued impacts going forward on the industry in the U.S. and Europe, mitigated somewhat by growth in the BRIC countries and other emerging markets.

Eric Bernardini, managing director at AlixPartners and head of the firm's global Aerospace & Defense Practice, said: "Right now, beneath the surface, every level of the aerospace and defense supply chain is scrambling to accelerate in terms of performance, on-time delivery and service levels. The success of more fuel-efficient commercial aircraft by Airbus and Boeing will eventually drive increased financial performance. In the meantime, however, supply chain pressures may drive a period of further consolidation amongst Tier 2 and Tier 3 suppliers, especially in segments where fragmentation is still high, such as aerostructures components. The other side of the coin is that some "super-Tier 1" suppliers may have become so big that they represent a risk which needs to be addressed by the OEMs by getting "under the hood" of all their suppliers, and their suppliers' suppliers. Companies need to ask a lot of questions in order to make sure they are in total control of the ramp-up and have the insight to anticipate any issues."

The complete report is available from AlixPartners.

Source: AlixPartners

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KEYWORDS Aerospace & Defense Forecasting & Demand Planning Global Supply Chain Management outlook for aviation manufacturing Pharmaceutical/Biotech Regulation & Compliance Sales & Operations Planning supply chain Supply Chain Analysis & Consulting Supply Chain Management Supply Chain Planning Technology
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