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Monday, April 14, 2014

'De-risk' Needed in Airframe Supply Chain, Deloitte Says

Woodrow Bellamy III 

[Aviation Today April 14, 2014] Suppliers for major commercial airframe manufacturers Boeing and Airbus are facing capacity and capability difficulties in the face of increased rates of aircraft production in recent years, according to a new analysis from Deloitte. 

According to the new analysis, aircraft production levels in 2013 were up 31 percent from 2010, and were also more than double the production levels that existed 10 years ago. The analysis also indicates that last year total production output was 1,274 aircraft with net sales of 2,858 orders and a nearly eight-year backlog leading to revenues totaling nearly $105 billion. 
Increased demand for commercial airframes has come from emerging markets such as the Middle East, India and China, where operators and airlines are adding aircraft to their commercial fleets to keep up with increased demand for travel. Airlines are also looking to replace their older passenger jets with newer aircraft from Boeing and Airbus, which are more fuel-efficient. 
While that has lead to record revenues for the industry's two biggest companies, their suppliers are finding it difficult to keep up with the increased production rates, Deloitte says. The production rate increases are causing the manufacturers to lean on their suppliers for cost concessions to offset their investments into new technologies and personnel that enhances their production process and enables the increased rates.
Deloitte believes that Original Equipment Manufacturers (OEMs) such as Boeing and Airbus are passing on the costs of investments they're making into their production capabilities by requesting cost concessions from their suppliers.
"Over the last decade, the supplier business model has changed from a 'build to print' approach to a 'risk-sharing' relationship with the OEMs, in which suppliers take on more financial risks and design authority," said Tom Captain, vice chairman and U.S. aerospace and defense leader for Deloitte.
"In this scenario, suppliers are also responsible for larger supply base and workforce that includes their own supply chain management personnel as well as subcontractors – all while managing to OEM-directed delivery schedules, volume demands and cost pressures.  Should suppliers struggle to control such risks, OEMs may find themselves in a difficult position: either bail out certain suppliers, or absorb the impact of those who fail financially," Captain added.

According to Captain, some OEMs are helping to de-risk the supply base by drawing the design authority back in-house and implementing supplier development and surveillance programs. 

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