South Carolina Finance

Jul 4 2018

Supply Chain Research Insights: Aerospace Industry Trends

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Supply Chain Research Insights: Aerospace Industry Trends

Strong growth from major commercial aircraft sales (excluding BGA, Helicopters) grew significantly over the last year. This strong growth has impacted rest of the industry (engine, component, Tier1-2 suppliers etc.), resulting in robust growth for the entire Aerospace industry. Loss of military spending has made the Original Equipment Manufacturers (OEMs) focus more on the commercial aerospace segment. With Boeing and Airbus reporting significant backlogs over next decade, Aerospace industry demand across manufacturing segments (aircraft, engine and Tier 1 components) is expected to exceed $5.6T over next 20 years.

The Aerospace Industry has applied learnings from the Automotive Supply Chain story. Aerospace OEMs are employing LEAN principles such as Just-in-Time deliveries to their assembly lines, the Kanban system for managing inventory, and point-of-use delivery for kits. Aerospace OEMs are sourcing sub-systems rather than piece parts and thus, reducing the number of suppliers in order to improve their supply chain efficiency. Although currently 80%-90% of raw material inventory is pulled by OEMs, the trend is growing towards Vendor Managed Inventory (VMI), where suppliers own the inventory and are responsible for moves to the OEM fundamentally changing the supply chain equation.

Due to the increased cost-reduction focus (across the supply chain) by Aircraft OEMs, Engine OEMs and Tier-1 suppliers are hard pressed to look for other profitable sources of revenue and profitability. MRO business has traditionally been more profitable than OE business for engine OEMs and Tier-1s. To improve profitability and to gain market share from independent MROs, OEMs are aggressively offering maintenance services charged by flight-hours such as Power by the Hour (PBH), and Minute by the Hour (MBH) rather than Time Material (T M) contracts. In PBH, the OEM/MRO takes care of transportation involved in the maintenance/repair process, while the same is handled by operators in T M contracts. Aircraft OEMs have been taking more control in supply of inventory with major industry players. Major Tier-1s coming together to provide nose-to-tail service (primarily for components and structurals) to compete with large independent MROs. Some OEMs are offering nose-to-tail services.

Low cost airlines are relying heavily on PBH contracts for their engine and component maintenance. In addition to outsourcing their heavy frame maintenance to MROs, some low cost airlines have even started outsourcing their complete line maintenance as some low-cost airlines do not own any spare parts inventory. The MROs who manage their line and heavy maintenance take responsibility for keeping the airline flying.

Whether your business needs to ship a single item overnight to get a plane flying, coordinating the arrival of shipments at an overhaul facility or ensuring a steady supply of parts to a factory, FedEx Aerospace Solutions can meet your needs. Learn more at fedex.com/aerospace.

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