Today Asia Pacific represents more than one-third of global composites manufacturing work. Countries in this region have increased their share in the global aerospace manufacturing market and the figure is expected to reach up to half of the total revenues by 2013.
The aerospace industry across the value chain can look forward to recovery and plan for better days ahead from 2010 onwards. Aerospace manufacturing was slightly shielded from the global meltdown, and the outlook is that it is poised for high growth trajectory soon.
The effect of the recession and the path to recovery had differing degrees of impact and therefore calls for different approaches for the future across the aerospace manufacturing supply chain. The effect would also be different for the manufacturers across segments.
The performance of the aerospace manufacturing industry in APAC clearly shows that the engine and the component manufacturing businesses hold the maximum share of the revenues. Engine manufacturing would continue to drive growth. The demand for greener, more fuel efficient engines due to the extreme pressure on the environmental impact posed by jet emissions would keep 'research constantly on' in that segment, thus relatively buffering it from major impacts due to recession.
According to Frost & Sullivan's Asia Pacific Consultant of Aerospace & Defense Practice Kunal Sinha, several countries in the Asia Pacific region have developed high expertise in the engine manufacturing segment. "Countries such as Singapore, China, and Japan are already in the top rung of the OEM ladder. Hence, more focus should be laid toward this segment to enhance the competitiveness of the aerospace manufacturing industry in Asia Pacific" he says.
Kunal says, different manufacturers were affected differently by the recession. "The original equipment manufacturers (OEM) were not as affected as the Tier I & II manufacturers and had shown lesser volatility in terms of fall in reported revenue. This is because most of the orders of the OEMs are long term in nature.
In spite of a reduction in revenue, the cash position of the OEMs was affected as payment was deferred by the customers. There was also widespread cancellation of orders. These conditions are expected to reverse beginning year 2010 as the year promises to be better in terms of larger orders for the OEMs as well as better cash cycles" he explains.
"The year 2010 would continue to be difficult for the Tier I & II suppliers, and small parts manufacturers for the MRO houses. This is because there has been a huge inventory buildup of small part replacement parts with the Airlines and the MROs due to deferred maintenance activities of the aircrafts by the Airlines. The value of this inventory is around USD40 billion, which is greater than the total MRO expenditure" Kunal elaborates. He adds that this would mean there would be less demand for small parts and equipment in the year 2010.
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 catch up. Over the following ten year time frame, Frost & Sullivan forecasts that the commercial aviation manufacturing sector would grow at a slightly higher rate of 5.5%, compared to military aviation manufacturing which would grow around 5.2%. Engine manufacturing would continue to be the main thrust sector.
Aerospace manufacturing would get more high-tech in the coming years. This would require more investments in the sector. However, in order for the market to stay healthily profitable for potential investors, there has to be huge numbers of consolidation in the market. At present, there is the presence of a large number of small-scale manufacturers. "Once the market consolidates, the manufacturers would be able to reach economies of scale and scope and thus reduce their costs in providing this high technology manufacturing solutions. It is a foregone conclusion that the next generation aircraft systems would be more electrical, and employ less pneumatics, less mechanics and less hydraulics" Kunal explains.
In terms of operation of the manufacturers, manufacturing costs are constantly heading upwards and costs structures will need to be re-examined in order to deal with stronger competition. Competition will drive the industry to strategically re-align their business model in order to sustain in the long term, both regionally and globally. "Lean manufacturing today has already become more important for most OEMs, and as such, right sizing of their operations is imperative. 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" states Kunal.
He continues, "Many OEM integrators such as Airbus and Boeing are in the process of shifting their production facility to low labor cost countries in Asia Pacific. Attracted by low labor costs, global aerospace and defense manufacturers and contractors are shifting their manufacturing activities to China, India, Malaysia, Singapore and other Asian countries. Even after accounting for transportation and others costs associated with managing the supply chain, total savings of 20 to 30 percent can still be achieved."
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.
While other industries are cutting down manpower, the demand for manpower in Aerospace Manufacturing in Asia Pacific due to expansions and issues with labour shortage is rising. Shortage of skilled labor would drive cost up further.
"Investments in training are also a good opportunity in the aerospace manufacturing sector. In all, 2010 promises growth and investment opportunities for the entire aerospace manufacturing industry across the value chain, Kunal concludes.
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