Aerospace Globalization 2.0

Langkawi International Maritime &
Aerospace Exhibition 2009
Ann Arbor, Michigan Amersham, United Kingdom Singapore

GLOBALIZATION THE NEXT WAVE
www.AeroStrategy.com
AGENDA
Globalization The Next Wave
Engineering and R&D
Manufacturing
Customer Support and MRO

Implications
2009 AeroStrategy | 2
The Concept of Globalization Is Complex,

Controversial, Elusive
An accelerating set of processes involving flows that

encompass ever-greater numbers of the worlds
spaces and that lead to increasing integration and
interconnectivity among those spaces.
Prof George Ritzer, Sociologist,
University of Maryland, College Park
Aerospace OEMs Have Traditionally Conducted

Most Value-Added Activities In Their Home Market
The Value Chain

Human Resources / Infrastructure
Engineering / R&D
Procurement

Engineering / R&D
Procurement
Inbound
Outbound Marketing Service
Operations
Logistics
Logistics & Sales & MRO
Most manufacturing
in home market with
selected sourcing of
complete components
from foreign suppliers
(e.g., components,
aeroengines)
Engineering and R&D

was almost exclusively
in the home market
Inbound
Operations
Logistics
Outbound Marketing
Logistics
& Sales
Service
& MRO
Primary MRO and

service parts
distribution facilities
in home market, with
some secondary
international service
centers
Source: adapted from Porter (1985)

The New Paradigm Is To Manage Value Chain

Processes Across Dispersed Geographies
New Paradigm:
Globally Dispersed Aerospace Value Chains
End of Cold War

Falling
communications &
transport costs
New digital online
collaboration tools

Engineering / R&D
Lower trade barriers
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
& MRO
Engineering / R&D
Engineering / R&D
Procurement
Inbound
Logistics
Operations
Procurement
Outbound
Logistics
Marketing
& Sales
Service
& MRO
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
& MRO
Emergence of global
service firms

Engineering / R&D
Talent shortage in
home markets
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
& MRO

Engineering / R&D
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Service
& MRO
Globalization 1.0
Foreign suppliers of materials, parts;
Multi-national cooperation to achieve scale
and critical mass (e.g. EADS/Airbus).
Emerging economies
become major
customers
Globalization 2.0
Horizontal specialization OEMs and
service suppliers tightly integrate functions
across multiple locations on a global basis
Source: AeroStrategy
AeroStrategy Profiled 121 Leading Aerospace OEMs To

Assess The Changing Nature Of Globalization
What major investments are

OEMs making in their value
chains?
What is the motivation for these
investments?
Which value chain investments
are most popular and why?
Which locations are receiving

the most investments?
Globalization database:
1000+ investments for 121 major
aerospace firms
Most Investments Were Joint Ventures:

Manufacturing And MRO Were The Most Popular
Major Value Chain Investments By 121 Aerospace OEMs*
1990 2009**
Others, 17
Training, 17
Manufacturing,
178
Engineering /
R&D, 97
Organic,
41%
MRO, 222
TOTAL
531
Joint
Venture,
59%
TOTAL
531
MRO investments were the most popular (42%), followed by manufacturing (34%) and
engineering/R&D (18%)
Joint ventures accounted for 59% of value chain investments; acquisitions are excluded
from the analysis
* Includes joint ventures and organic investments for 120 largest OEMs; excludes acquisitions
** 2009 data is as at 31 August 2009
The Pace Of Globalization Is Accelerating
AGENDA
Engineering and R&D
Manufacturing

Implications
Boeings Technical Research Center In Moscow Was A

Harbinger Of Aerospace Engineering Globalization
The Boeing Technical Research
Center in Moscow opened in
1993 with 10 engineers
In 1998, Boeing created its
Moscow-based Engineering
Design Center (EDC); the first
project was to redesign the
B777s center bin arches
Today, the EDC employs more
than 1,500 engineers; projects
include detail design for the
B787, tooling and support, and
third-party projects
The EDC also produced nearly
one-third of the structures
drawings for the 747 Large
Cargo Freighter
Source: Boeing
Engineering/R&D Investments Increased

Considerably Since 2005
14
12
10
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
One Reason Is Significant OEM Investments

In India, Which Is Now A Major Engineering Hub
Major Aerospace Engineering Centers In
Bangalore, India
Established in 1994 with six people
for offshore software
Today has 5,500 employees with
complete engineering capabilities
with operations in India, China, USA,
and Czech Republic
Inaugurated in 2000; now has

735,000 square feet and 3,000
employees
Supports many GE businesses,
including aircraft engines
Opened in 2007
Part of the EADS Technology
Centre, which has plans to hire
2,000 employees
Source: Company websites

The Globalization Of Engineering Also Creates

New Opportunities In Developed Economies
Aernnova launches
aerospace cluster in Ann
Arbor
September 20, 2007
One key component of Spanish
aerospace firm Grupo Aernnova's
decision to open a $10 million
engineering operation in Pittsfield
Township was the lack of competitors in
the region.
Aernnova executives said that other
aerospace firms may follow them to Ann
Arbor.
Leverages one of the largest mechanical

engineering talent pools in the world
Home of several world-class universities
Shrinking automotive industry means =
availability of engineering talent
Could reach 600 employees within 15 years
The company, also called Aernnova

Aerospace S.A., just announced plans to
invest $10 million to open a facility .
The firm expects to hire 400 workers
within four to five years and projects
expansion to 600 over a 15-year period.
Source: AAernnova
Russia, U.S.A And India Lead In The Number Of

Engineering And R&D Investments
Russia and India
have deep
engineering talent
pools
China also has
significant
engineering
resourcesbut
OEMs are
concerned about IP
protection, and
military work is offlimits for US
customers
20
18
16
14
12
10
8
6
4
2
0
Russia
USA
India
Singapore
Korea
Mexico
China
Japan
Brazil
OEMs Can Also Harness Globalization By

Working With Major Engineering Services Firms
Major Aerospace Engineering Services Firms
Like OEMs, engineering services firms are globalizing

Indian firms have become major players in a relatively short period of time
Outsourcing of complete work packages is growing in popularity
EADS alone spends more 2B per year on engineering services
AGENDA
Engineering and R&D
Manufacturing

Implications
Investments In Offshore Manufacturing Facilities

Jumped In 2005 And Have Been Consistent Since
20
18
16
14
12
10
8
6
4
2
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Overall, Mexico Had The Most Manufacturing

Investments Of Any Country For The Survey Sample
35
30
25
20
15
10
Mexico
China
USA
Russia
India
Poland
Malaysia
Japan
Morocco
Mexico Has Created A Robust Aerospace

Manufacturing Cluster Over The Last Decade
Selected Aerospace Investment In Mexico
Mexico has more than 186

aerospace firms with exports in
excess of $3 billion and total
employment of more than
20,000 as of 2008
2008 investment of nearly $1
billion
Recent investments by
Bombardier, Cessna, and
Aernnova
Aided by proximity to major US
OEMs, NAFTA, and Bilateral
Aviation Safety Agreement
Government investing $50
million in a National Public Aero
Trade School
Source: MRO Management, MexicoNow

China Is Also A Very Popular

Manufacturing Destination
Aerospace Investment In China
Broad and deep manufacturing

capability and comparative
advantage in labor
The second most popular
destination for OEMs to
establish JVs or new
manufacturing facilities
Also has a growing roster of
second and third tier aerospace
suppliers; some OEMs prefer
arms length relationships with
Chinese suppliers over direct
investment
Manufacturing and raw material
capabilities will grow as the
indigenous aircraft industry
continues to develop
French OEMs Are Investing In North Africa

Aerospace Investment In Morocco And Algeria
Labinal (Safran) in
Rabat (aircraft wiring
manufacturing)
EADS/Mubadala JV in
Algiers (composites
manufacturing)
Aerolia (an EADS
subsidiary) in
Tunisia (aero
structures
manufacturing)
Safran in
Casablanca
(Teuchos Maroc;
Aeronautics
Engineering)
Snecma/Royal Air
Maroc JV in
Casablanca (MRO)
Safran in Casablanca
(Aircelle Maroc;
nacelle
manufacturing)
Boeing/Royal Air
Maroc/Safran JV in
Casablanca (MATIS; aircraft
wiring manufacturing)
Several SAFRAN businesses

have invested in Morocco for
manufacturing, engineering and
MRO activities
EADS and Mubadala (a UAE

investment company) are
developing composites
manufacturing capability in
Algeria
The motivation for European
OEMs to invest North Africa is
similar to North American OEMs
investing in Mexico
geographic proximity, cultural
ties and reduced tariffs; an EUMediterranean free trade area
(planned for 2010)
AGENDA
Engineering and R&D
Manufacturing

Implications
MRO And Distribution Center Investments

Surged In 2007 And 2008
40
35
30
Market down cycle

leads to reduced
capital investment?
25
20
15
10
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
The U.S.A., China and Singapore Saw The Most

MRO And Distribution Investments
45
40
35
30
25
20
15
10
USA volume led by

business jet OEMs
establishing their
support networks in
the 1990s/2000s
boom
OEMs invest in China
for market access,
labor intensive MRO
activities, and to get
behind the tariff wall
and customs, which is
inconsistent
Singapore is favored
for capital intensive
MRO activities,
service parts
distribution, and MROrelated R&D
USA
China
Singapore
UAE
Brazil
UK
Malaysia
India
Germany
The UAE Is Attracting A Broad Base Of

Investors
Aerospace Investment In UAE
Chromalloy/
Masaood JV in Dubai
(MRO)
B/E Aerospace in Dubai Bombardier/ExecuJet

(MRO/ Distribution)
JV in Dubai (Service
Centre/Spare parts
depot)
Several leading OEMs have

made MRO investments;
market clusters are emerging
Goodrich in
Dubai (MRO)
Composites manufacturing
capability is a key focus area
Moog in Dubai
(Distribution)
Sikorsky/
Mubadala in Abu
Dhabi (military
aviation MRO)
Finmeccanica/
Mubadala JV in Abu
Dhabi (composites
manufacturing)
The broad-based initiative of the

UAE to become an aerospace
cluster is bearing fruit;
Mubadala is an important
catalyst
Thales/GAMCO
JV in Abu Dhabi
(MRO)
Rolls Royce/
Mubadala JV in
Abu Dhabi (MRO)
EADS/Mubadala
JV in Abu Dhabi
(composites
manufacturing)
The key challenge for the UAE

is human resources; most firms
are heavily dependent on
expensive expatriate labor
GE/Mubadala
JV in Abu Dhabi
(MRO)
Globally, There Are Several Emerging MRO Clusters

That Are Challenging Existing Concentrations
Global Aerospace MRO Clusters
Quebec
United
Kingdom
Germany
Eastern
Europe
France
Central US
Eastern
China
Southern
California
South
Florida
Mexico
Malaysia
North
Africa
Central
America
UAE
Singapore
Brazil
Established Clusters
Emerging Clusters
AGENDA
Engineering and R&D
Manufacturing

Implications
The Changing Nature Of Globalization Has Important

Implications For SuppliersAnd Governments
Where to locate key activities to underpin strategy and desired competitive positioning?
How to collaboratively manage value chain on global basis?
Make vs. buy: which core competencies should be kept in house?
How to leverage globalization to improve market access? To address human resource
challenges?
How to improve productivity without compromising IP protection?
What is the proper balance of in-house versus outsourced activities?

Where to locate key activities to underpin strategy and desired competitive positioning?
How to leverage low cost poles?
To what extent should investments follow those made by key customers?
How to manage global supply chains and human resource pools?
How to fend off threats from new competitors in low cost regions?
Which aerospace market segments and/or value chain activities to target?

How to develop elements of a cluster ecosystem?
Desired mix of indigenous suppliers versus foreign direct investment?
Appropriate regulatory and taxation policies?
What is the required infrastructure? Human resources and education?
For existing clusters: how to maintain competitiveness in light of emerging clusters in low
cost regions?
Despite The Increased Pace Of Globalization,

Aerospace Is Inherently Political And Is Not Flat
Important Factors Shaping Aerospace Globalization
Negative
Positive
Enhanced
productivity / lower
labor costs
Currency risk
hedge
Access to broader
pool of suppliers
and resources
Market access
National security /
ITAR restrictions
Protection of IP
Political backlash
to globalization
and offshoring
Increased
execution risk
Tom Friedman may say

that the world is flat,
but aerospace isn't!
Political Backlash To Offshoring Could Slow

Down The Pace Of Globalization In The Near Term
Sources: ARSA, Washington Post 29 January

2009; CBC 13 February 2009, The Guardian
Has This Wave Of Aerospace Globalization

Reached Its Zenith?
70
Reduce cost base to

offset down cycle
Ensure access to
emerging economies
Tap global human
resource pool
60
50
40
Politics
Down cycle = reduced
capital investment
Less access to credit
30
20
10
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Key Messages
The nature of aerospace globalization is changing as OEMs

experiment with new ways to manage and integrate their
value chains across widely dispersed global geographies;
The pace of globalization accelerated in recent years
(2007/08/09);
Several countries are emerging as new aerospace clusters
including Malaysia, Mexico, Brazil, UAE, and Morocco;
The changing nature of aerospace globalization creates
opportunities and challenges for OEMsand governments;
Despite the increased pace of globalization, the aerospace
industry is inherently political and is not flat, but
globalization will continue in the long term.
Thank You For Your Attention!
AeroStrategy is a specialist management consulting firm

devoted to aviation and aerospace sectors with offices in
Ann Arbor, Michigan (USA), Amersham (U.K.), and
Singapore
To learn more about AeroStrategy, visit www.aerostrategy.com or
contact:
David Stewart, Partner and Head of UK and Singapore Offices
Ph: +44 1494 431 600
dstewart@aerostrategy.com
Kevin Michaels, Partner and Head of US Office
Ph: +1 734 821 0220
kmichaels@aerostrategy.com
Hal Chrisman, Principal
Ph: +1 734 821 0227
hchrisman@aerostrategy.com

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Langkawi International Maritime &

Aerospace Exhibition 2009

Ann Arbor, Michigan Amersham, United Kingdom Singapore

Customer Support and MRO

GLOBALIZATION THE NEXT WAVE

The Concept of Globalization Is Complex,

An accelerating set of processes involving flows that

GLOBALIZATION THE NEXT WAVE

Aerospace OEMs Have Traditionally Conducted

The Value Chain

Human Resources / Infrastructure

Engineering and R&D

Primary MRO and

Source: adapted from Porter (1985)

The New Paradigm Is To Manage Value Chain

End of Cold War

Human Resources / Infrastructure

Lower trade barriers

Human Resources / Infrastructure

Human Resources / Infrastructure

Human Resources / Infrastructure

Human Resources / Infrastructure

AeroStrategy Profiled 121 Leading Aerospace OEMs To

What major investments are

Which locations are receiving

GLOBALIZATION THE NEXT WAVE

Most Investments Were Joint Ventures:

The Pace Of Globalization Is Accelerating

Customer Support and MRO

GLOBALIZATION THE NEXT WAVE

Boeings Technical Research Center In Moscow Was A

Engineering/R&D Investments Increased

One Reason Is Significant OEM Investments

Inaugurated in 2000; now has

Source: Company websites

The Globalization Of Engineering Also Creates

Leverages one of the largest mechanical

The company, also called Aernnova

Russia, U.S.A And India Lead In The Number Of

OEMs Can Also Harness Globalization By

Like OEMs, engineering services firms are globalizing

GLOBALIZATION THE NEXT WAVE

Customer Support and MRO

GLOBALIZATION THE NEXT WAVE

Investments In Offshore Manufacturing Facilities

Overall, Mexico Had The Most Manufacturing

Mexico Has Created A Robust Aerospace

Mexico has more than 186

Source: MRO Management, MexicoNow

China Is Also A Very Popular

Broad and deep manufacturing

French OEMs Are Investing In North Africa

Several SAFRAN businesses

EADS and Mubadala (a UAE

Customer Support and MRO

GLOBALIZATION THE NEXT WAVE

MRO And Distribution Center Investments

Market down cycle

The U.S.A., China and Singapore Saw The Most

USA volume led by

The UAE Is Attracting A Broad Base Of

B/E Aerospace in Dubai Bombardier/ExecuJet

Several leading OEMs have

The broad-based initiative of the