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The original equipment manufacturers (OEM) are not affected as much the Tier I & II manufacturers and had shown lesser volatility in terms of fall in reported revenue because most of the orders of the OEMs are long term in nature.
However the same cannot be said on the cash position of the OEMs as payment was deferred due to the credit crunch. 2010 promises to be better in terms of larger orders for the OEMs and a better cash cycle for them.
According to Frost & Sullivan's Asia Pacific Consultant of Aerospace & Defense Practice Soumyajyoti Basu, the effect on the Tier I & II suppliers, and small parts manufacturers for the MRO houses however would continue adversely going into 2010. There has been a huge inventory build up with the Airlines and the MROs due to deferred maintenance activities of the aircrafts by the Airlines.
He continues, "This would mean there would be less demand of small parts and equipments in the year 2010. Frost & Sullivan expects this market to continue with negative growth in the year 2010."
"However, manufacturing in the military aircraft segment is not affected as much as the civil aircraft segment. The long term bet on commercial aviation means that growth in the coming years would be higher in order to do the catch up," he says.
Frost & Sullivan believes that the commercial aviation manufacturing sector will grow at a slightly higher rate 5.5% compared to military aviation manufacturing which will be around 5.2%, in the next ten years. Engine manufacturing will continue to be the main thrust sector.
In terms of industry specifics, aerospace manufacturing will get more high-tech in the coming years. This would require more investments in the sector. In order for the market to look profitable for potential investors, there has to be a huge amount of consolidation in the market. At present, there are a large number of small scale manufacturers in the market.
"Once the market is consolidated, the manufacturers will be able to reach economies of scale and thus reduce their costs in providing this high technology manufacturing solutions. It is a foregone conclusion that the next generation aircraft systems will be more electrical, less pneumatic, less mechanical and less hydraulics," says Basu.
In terms of operation of the manufacturers, as manufacturing costs is heading high, costs structures will need to be re-examined to face stronger competition. Competition drives the industry to strategically re-align their business model to be able to sustain in the long term regionally and globally.
According to Basu, "Lean manufacturing today has already become more important for most OEMs with right sizing of their operations. A lot of OEMs have adopted Six Sigma, Kanban, Kaizen, JIT, Performance Based Logistics and any other best practices to reduce cost of operations and increase their efficiencies."
"Many OEMs integrators such as Airbus and Boeing are in the process of shifting their production facility to low labor cost countries in Asia Pacific. OEMs are also actively seeking ways to reduce manufacturing costs by outsourcing more 'design to build' packages rather than just 'build to print' to Tier 1 OEMs. This has lead to Tier 1 OEMs to be responsible for the maintenance programs for assemblies and parts that they design and manufactures," he continues.
While other industries are cutting down manpower, the demand for manpower in the Asia Pacific aerospace manufacturing industry is going up, due to expansion and shortage of labor.
"Shortage of skilled labor would drive cost further up. Investments in training are also a good opportunity in the aerospace manufacturing sector," Basu adds.
About Frost & Sullivan
Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation and implementation of powerful growth strategies. Frost & Sullivan leverages over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from 40 offices on six continents.
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