AerospaceGlobalization2.0 05dec12

AEROSPACE GLOBALIZATION 2.
Presented by:
Dennis Ling
Director Asia Pacific
dennis.ling@icfi.com
5 Dec 2012
icfi.com/aviation | 0
AeroStrategy is Now Part of ICF SH&E, One of the Worlds
Largest and Most Experienced Aviation Consultancies
Airports Airlines Aerospace & MRO Asset Advisory Safety & Security
48 years in business (founded 1963)

80+ professional staff
Dedicated exclusively to aerospace and aviation
Recruited from the industry
Specialized, focused expertise and proprietary knowledge
Broad functional capabilities
More than 6,000 private sector and public sector assignments joined ICF in 2007
Backed by parent company ICF International ($841M revenue)

Global presence six major offices
joined ICF in 2011
Ann Arbor Boston New York London Singapore Beijing
Agenda
Globalization The Next Wave

Engineering and R&D
Manufacturing
Customer Support and MRO
Implications
GLOBALIZATION: THE NEXT WAVE
The Global Aerospace Industry Is Worth ~US$530 Billion
2011 Global Aerospace Industry

Space, Missiles,
Other
15%
Aircraft & Parts

38%
Avionics, aircraft
systems, defense
electronics
11%
~US$530B
Aircraft
maintenance,
training,
simulation
23%
Aircraft engines &
parts
13%
Source: ICF SH&E
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 Inbound Outbound Marketing Service
Logistics Logistics & Sales & MRO Logistics
Operations
Logistics & Sales & MRO
Most manufacturing Engineering and R&D Primary MRO and

in home market with was almost exclusively service parts
selected sourcing of in the home market distribution facilities
complete components in home market, with
from foreign suppliers some secondary
(e.g., components, international service
aeroengines) 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
Engineering / R&D
collaboration tools
Procurement
Inbound
Logistics
Operations
Outbound Marketing Service
Lower trade barriers
Emergence of global
Engineering / R&D
Procurement
Inbound Outbound Marketing Service
service firms
Operations
Logistics Logistics & Sales & MRO
Talent shortage in home

Engineering / R&D
Procurement

Engineering / R&D
Procurement
Inbound
Logistics
Operations
markets
Inbound
Logistics
Operations
Emerging economies
become major
customers
Globalization 1.0 Globalization 2.0

Foreign suppliers of materials, parts; Horizontal specialization OEMs and
Multi-national cooperation to achieve service suppliers tightly integrate functions
scale and critical mass (e.g. EADS/Airbus). across multiple locations on a global basis
Source: ICF SH&E
To Assess the Changing Nature of Globalization, ICF SH&E

Profiled 160+ Leading Aerospace OEMs And MROs
What major investments are

OEMs and MROs 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:
1,500+ investments for 160+
major aerospace firms
Most Investments Were Joint Ventures: Manufacturing

and MRO Were The Most Popular
Engineering Others
/ R&D 6% Training
19% 4%
Organic,
45% Joint
Venture,
55%
MRO /
Manufacture Distribution
32% 39%
TOTAL TOTAL
715 672
MRO/Distribution investments were the most popular (39%),

followed by Manufacturing (32%) and Engineering/R&D (19%)
Joint ventures accounted for 55% of value chain investments;

acquisitions are excluded from the analysis
* Includes joint ventures and organic investments for 160 OEMs and service providers; excludes acquisitions Source: AeroStrategy
And The Pace Of Globalization Accelerated Over The

Past Decade
200
No of investments
180
160
140
120
100
80
60
40
20
* Includes joint ventures and organic investments for over 150 OEMs and service providers; excludes acquisitions
Source: ICF SH&E
Agenda
Engineering and R&D

Manufacturing
Implications
ENGINEERING R&D
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
Engineering/R&D Investments Increased Considerably

Since 2005
25
No. of Investments
20
15
10
Source: ICF SH&E
ENGINEERING R&D
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
ENGINEERING R&D
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 The company, also called Aernnova
engineering talent pools in the world Aerospace S.A., just announced plans
Home of several world-class universities to invest $10 million to open a facility
The firm expects to hire 400 workers
Shrinking automotive industry means
within four to five years and projects
= availability of engineering talent expansion to 600 over a 15-year period.
Could reach 600 employees within 15 years
Source: Aernnova
ENGINEERING R&D
U.S.A, Russia and India Lead in the Number of

Engineering and R&D Investments
30
No. of Investments
Russia and India have

25 deep engineering
talent pools
20 China also has
significant engineering
15
resourcesbut OEMs
are concerned about
IP protection, and
10
military work is off-
limits for US
5 customers
Source: ICF SH&E
ENGINEERING R&D
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
Source: ICF SH&E
Agenda
Engineering and R&D
Manufacturing
Implications
MANUFACTURING
Investments in Manufacturing Facilities Has Been on an

Upward Trend Since the Late 1990s
35
No. of Investments
30
25
20
15
10
Source: ICF SH&E
MANUFACTURING
Mexico and China Received a Significant Number of

Investments in Manufacturing Facilities
50
No. of Investments
45
40
35
30
25
20
15
10
0
Mexico China USA India Russia Brazil Malaysia Morocco
Source: ICF SH&E Analysis
MANUFACTURING
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
MANUFACTURING
China Now Boasts Plethora Of OEM Investments
Selected Aerospace Investment In China
Broad and deep manufacturing

Harbin: ERJ145 Harbin: EC175 design
Shengyang: Heat Assembly and production capability
shields
Xian: turbine NGVs,
turbine rings, Leveraging comparative
Harbin: A350
compressor seals Xian: Electrical systems
composite parts
advantage in labor
C919
Tianjin: A320 Final
Assembly Line Also has a growing roster
of second and third tier
Xian: Landing gear aerospace suppliers; some
and engine nacelle Tianjin:
components Composites OEMs prefer arms length
manufacturing
relationships with Chinese
suppliers over direct investment
Chengdu: Precision Shanghai: Fuel
sheet metal systems (C919)
Manufacturing and raw material
capabilities will grow as the
Chengdu: Comms
Shanghai: COMAC
indigenous aircraft industry
and Nav for C919
919 manufacture continues to develop
Nanjing: Design and

production of ECS Suzhou: Landing gear Xiamen: Sensors,
Suzhou: Engine parts components valves, nozzles Suzhou:
Shanghai: Wheels Xian: Nacelles Autoclaved
and Brakes (C919) Shanghai: ECS composite parts Source: ICF SH&E
MANUFACTURING
And Completed Its First Major Acquisition Of A

Western Supplier FACC In 2009
Fisher Advanced Composite Components
In December 2009, XAC (an AVIC company)

acquired Fisher Advanced Composite Components
(FACC); AVIC will eventually own 91%
FACC is a Tier I aerostructures supplier with 265.3
million in revenue and nearly 1,600 employees
A supplier on the ARJ21 and many other OEMs;
particularly strong with Airbus.
Addresses Chinas weaknesses in advanced
materials and complex mechanical systems;
should also assist with certification and supply
chain management gaps
Chinas first major acqusition of a western aerospace supplier
Source: ICF SH&E analysis, FACC
MANUFACTURING
China Has Since Followed Through With Three

Aerospace Acquisitions in BGA Since 2010
EPIC AIR (2010)

CONTINENTAL
CIRRUS (2011)
MOTORS (2011)
General aviation kit

aircraft manufacturer
based in Bend, Oregon Iconic GA aircraft OEM
Three aircraft under that delivered nearly 5,000
development including Second largest piston new piston airplanes
piston, turboprop and VLJ aircraft OEM including the best-selling
models Powers many key piston Cirrus SR22 family
Brings composites aircraft models from Gives China piston trainer
capability and FAA Cessna, Beech, Piper, and and personal jet capability
certification experience others (e.g., Cirrus Vision)
Acquired from Teledyne Plans to continue
for $186 million production in North
Dakota facilities
Source: ICF SH&E analysis, Press reports
MANUFACTURING
French OEMs Are Investing in North Africa
Aerospace Investment In Morocco And Algeria

Several SAFRAN businesses
have invested in Morocco for
Labinal (Safran) in EADS/Mubadala JV in manufacturing, engineering
Rabat (aircraft wiring Algiers (composites
manufacturing) manufacturing) and MRO activities
Aerolia (an EADS
Safran in
subsidiary) in
Tunisia (aero EADS and Mubadala (a UAE
Casablanca
(Teuchos Maroc;
structures
manufacturing)
investment company) are
Aeronautics developing composites
Engineering)
manufacturing capability in
Algeria
Snecma/Royal Air
Maroc JV in
The motivation for European
Casablanca (MRO) OEMs to invest North Africa
is similar to North American
OEMs investing in Mexico
Safran in Casablanca Boeing/Royal Air
geographic proximity, cultural
(Aircelle Maroc; Maroc/Safran JV in ties and reduced tariffs; an
nacelle Casablanca (MATIS; aircraft
manufacturing) wiring manufacturing) EU-Mediterranean free trade
area (planned for 2010)
Source: ICF SH&E
MANUFACTURING
Developed Nations Continue To Retain A Comparative

Advantage: Highly Developed Talent/Skills
Focus is on harnessing
science & technology and
local knowledge to
maximize manufacturing
efficiency in order to
compete against lower-
wage countries
Better IP protection in
developed countries
However, battle for talent
is escalating, and
emerging markets like
India, China are churning
out armies of engineers
which could narrow the
talent/skills gap between
developed and emerging
economies
Source: WSJ.com
Globalization 2.0 Is Driving New Aerospace
Manufacturing Clusters In The South
Global Aerospace Manufacturing Clusters
Aerospace suppliers concentrated

In North America and Europe
United Russia
Kingdom Germany
Quebec
Connecticut France Eastern
Washington Central US
Spain Europe
Southern China Japan
California India
Southeast
US North Malaysia
Mexico Africa
UAE
Singapore
Brazil
and Production is shifting South

Established Clusters
Emerging Clusters
Source: ICF SH&E
Agenda
Engineering and R&D
Manufacturing

Implications
CUSTOMER SUPPORT & MRO
Maintenance, Repair and Overhaul (MRO) Includes Five

Major Categories Of Activities
Globalization Of MRO Is Shaped By Different Cost

Structures Of Different Maintenance Activities
Typical MRO Cost Structure
Engine Airframe Components Line
100%
Labor
Typical MRO Cost Breakdown
90% 20%
80%
Labor
45% Labor
70%
Labor 85%
60%
80%
50%
40%
Materials &
Parts Materials
30%
Repair & Parts
20%
80% Repair
10% Materials Materials
55%
0%
20% 15%
Source: ICF SH&E

Note: Varies by region of the world and fleet age
MRO and Distribution Center Investments Surged

in 2007, 2008 And 2009 Before Ebbing In Recent Years
45
No. of Investments
40
35
Market down cycle
30 leads to reduced
capital investment?
25
20
15
10
Source: ICF SH&E
The U.S.A., China and Singapore Saw the Most MRO

and Distribution Investments
USA volume led by

business jet OEMs
60
No. of Investments
establishing their
support networks in the
50 1990s/2000s boom
40 OEMs invest in China

for market access,
30
labor intensive MRO
activities, and to get
behind the tariff wall
20
and customs, which is
inconsistent
10
Singapore is favored
0 for capital intensive
MRO activities, service
parts distribution, and
MRO-related R&D
Source: ICF SH&E
The UAE is Attracting a Broad Base of Investors

Aerospace Investment In UAE
The broad-based initiative of

Chromalloy/ B/E Aerospace in Dubai Bombardier/ExecuJet the UAE to become an
Masaood JV in Dubai (MRO/ Distribution) JV in Dubai (Service aerospace cluster is bearing
(MRO) Centre/Spare parts
depot) fruit; Mubadala is an
important catalyst
Goodrich in
Dubai and Abu Partnered Transworld
Dhabi (MRO) Aviation Several leading OEMs have
distribution/MRO
made MRO investments;
Moog in Dubai market clusters are
(Distribution)
Aerostructures plant emerging
Composites manufacturing
Sikorsky/
Thales/GAMCO
capability is a key focus area
Mubadala in Abu
Dhabi (military JV in Abu Dhabi
aviation MRO) (MRO) The key challenge for the
UAE is human resources;
most firms are heavily
EADS/Mubadala JV in
Finmeccanica/ Rolls Royce/ GE/Mubadala
Mubadala JV in Abu Mubadala JV in
Abu Dhabi
JV in Abu Dhabi
dependent on expensive
(composites
Dhabi (composites Abu Dhabi (MRO)
manufacturing); JV
(MRO) expatriate labor
manufacturing)
with Tawazun (alloys)
Source: ICF SH&E
Malaysia Has Also Attracted Numerous Investments
Bukit Kayu Hitam:

Petaling Jaya:
Subang:
Subang is the hub for MRO
MTU/Lufthansa Technik JV Subang: Sabena/MAE
Boeing/Hexcel JV (Engine repair workshop)
Manufacture
composites JV (Component repair activities in Malaysia;
(Manufacture, sell and
distribute composite subassemblies and overhaul) [MoU]
MAEs main facility is at
parts for secondary
structures for Boeing Subang so co-location
commercial aircraft) Subang: P&W/MAE JV
(Composite repair and
makes sense
overhaul of engine
Perai: Avionics
nacelles)
Subang is also a key hub
integrated supply for business aviation &
chain activities Subang: Hawker
Pacific/ExecuJet JV
rotary wing
(Full handling
services, VIP lounge
Klang: Hamilton and fuel provision) Penang is a major
Sundstrand/MAS JV
(Overhaul and repair electronics manufacturing
of aircraft air
management systems) Subang: Jet hub in the region; Kedah
Aviation/AIROD JV (FBO,
line maintenance, AOG and and Melaka has seen some
Subang: AAR/AIROD
tenant services to local
and regional aircraft
success in composites
JV (Landing gear operators) manufacturing
MRO)
Subang: EADS Malaysia has comparative

Subang: Sales and
distribution centre of
SECA/MAE JV (PW100
engines MRO)
advantages in availability of
Subang: Full-fledged
regional hub for
EC products; and MRO Subang: GE/MAS JV land, good infrastructure
service centre (Repairs and overhauls for
maintenance and
servicing GE, CFM56, and PW4000 Melaka: CTLA:
and lower labour costs
engines for MAS and other CTRM/CTL JV
Asia-Pacific airlines (Composites testing)
Source: ICF SH&E
Globally, There Are Several Emerging MRO Clusters

That Are Challenging Existing Concentrations
United
Quebec Kingdom Germany
France Eastern
Central US Europe Eastern
Southern China
California
South
Florida Malaysia
Mexico
North UAE
Africa
Central
America Singapore
Brazil
Established Clusters Emerging Clusters
Agenda
Engineering and R&D
Manufacturing
Implications
IMPLICATIONS
The USA Remains As The Largest Aerospace Industry
250
200
150
100
50
0
USA France China UK Germany Canada Japan Russia
Source: ICF SH&E
IMPLICATIONS
The World Map By Size Of National Aerospace Industry

Highlights The Importance Of The Top Six Countries
2011 Global Aerospace Market Size*
Total = $530B
$23B $38B $60B $36B

87,000 employees 100,000 employees 143,000 employees 97,000 employees
$220B $39B
624,000 employees 625,000 employees
Source: National Industry Associations / Secondary Research / ICF SH&E analysis * Size of country proportional to aerospace market size and land area
IMPLICATIONS
Despite the Increased Pace of Globalization, Aerospace

is Inherently Political and is Not Flat
Important Factors Shaping Aerospace Globalization
Negative
National security/
Positive ITAR* restrictions
Enhanced Protection of IP
productivity / lower Political backlash
labor costs to globalization
Currency risk and offshoring
hedge Increased
Access to broader execution risk
pool of suppliers Tom Friedman may say
and resources that the world is flat,
Market access but aerospace isn't!
* International Traffic in Arms Regulations
IMPLICATIONS
Political Backlash to Offshoring Could Slow Down the Pace

Of Globalization in the Near Term
Sources: ARSA, Washington Post; CBC, The Guardian, TWU
IMPLICATIONS
Has This Wave Of Aerospace Globalization Reached

its Zenith?
100
No. of Investments
90 Reduce cost base to

offset down cycle
80
Ensure access to
70 emerging economies
Tap global human
60 resource pool
50
40
Politics
30 Down cycle =
reduced capital
20
investment
10 Less access to credit
IMPLICATIONS
Globalization Has Important Implications For Suppliers

And 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?
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
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 Canadian
suppliersand 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
Thanks and Q&A
BACKUP SLIDES
Annual Aircraft Production Is Projected To Increase From
4,200 to Over 5,000 Units By 2017
Aggregate Production Market
Units
2011-2021, By Market Segment
6,000
Market, CAGR
5,000
Military Fixed Wing, -4.6%

4,000
Business & Gen Aviation;
3,000 5.2%
Rotary Wing; 3.4%
2,000
Air Transport; 2.9%
1,000
- Total CAGR = 2.9%

2011 2013 2015 2017 2019 2021
Source: ICF SH&E
Air Transport Production Will Increase From 1,200 To Over
1,600 By 2021, Led By Boeing and Airbus
Air Transport Production Market
Units
2011-2021*, By OEM
1,800
Other
1,600 Embraer
1,400 Bombardier
1,200
1,000 Boeing
Transition to
800 A320neo & B737MAX
600
400
Airbus
200
-
2011 2013 2015 2017 2019 2021 Total CAGR = 2.9%
* Drop in production rates from 2014 to 2016 is due to a change in orders, shifting from legacy aircraft to next generationsee following page
The Transition to Next Generation Aircraft Will
Have Significant Influence On The Supply Chain
Air Transport Production Forecast
Narrowbody (Units) Widebody (Units)

500 160
450 140
A320 A330
400
A320 120 A350
350 NEO A380
B737NG 100
300 B747-8
B737MAX 80 B767
250
C919 B777
200 60 B777-X
150 C-Series B787
40
100 MS-21
20
50
0 0
Aggregate production levels likely to fall in
Source: ICF SH&E

transition to next generation aircraft
Annual Aero-Engine Production Should Exceed 11,000
Units By 2021
Aero-Engine Production Market*
2011-2021, By OEM
Units
14,000
OEM, CAGR
12,000
Others; -1.2%
10,000
Rolls Royce; 3.9%
8,000
Turbomeca; -2.3%
6,000
CFM International; 2.4%
4,000
General Electric; 0.3%
2,000 Pratt & Whitney; 7.4%
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
* Includes Spares
Source: ICF SH&E
Aircraft OEM Tier 1 Supply Chain Strategies Are Also
Facilitating Ongoing Consolidation
Number of Suppliers
500 450
400
400
400 350 350
300
300
250
250
200
200 140
4 risk 16 risk 150
sharing sharing
suppliers suppliers 100 75
100 < 50
38 50
0 0
RB211-524 Trent 500 Trent 900 Trent 1000 Trent XWB
EMB 145 EMB (1977) (2002) (2004) (2008) (2013)
(1999) 170/190
(2004)
Source: ICF SH&E
As Suppliers Strive To Create Complete Systems
Solutions
Meggitts Integrated Fire Detection
And Suppression Systems
Meggitts 2011 acquisition of Pacific
Scientific brought together two key
fire detection subsystem
capabilities
- Detection
- Suppression
Meggitt can now offer an integrated

system with improved value for
both airlines and downstream
customers (aircraft and engine
OEMs)
Source: ICF SH&E

Which Means That Future Tier 1 M&A Activity Must
Focus On Other Value Creation Levers
Value Creation Levers Tier I Consolidation
Share complimentary
technologies and R&D
Create global aftermarket
support network
Leverage customer
relationships/market channels
Create complete system
solutions
Redefine system architectures
and change the rules
Improved purchasing integration
Utilize global low cost
manufacturing sources
Despite Tier I Consolidation, Vigorous Competition Exists
In Most Equipment Segments
Market Share Top Two Suppliers
Supplier 1 Supplier 2 Other Suppliers
Aerostructures
Flight Controls
Avionics & Defense Electronics

Vigorous competition
Environmental Control Systems
remains in most
Wheels & Brakes
equipment segments
Electrical Power & Distribution
Nacelles & Thrust Reversers
Engines
Interiors
Landing Gear
APU
0% 20% 40% 60% 80% 100%
Source: ICF SH&E
Tier I Consolidation Will Primarily Impact Aerostructures
And Aircraft Systems, Comprising 50% Of Aircraft Value
Aircraft Production Value Breakdown
OEM final
Aerostructures
assembly,
$37B
margins, NRE
$47B
2011 Market
~$137B
Interiors
~$5B
Aircraft systems, avionics
& defense electronics
Aeroengines ~$23B
~$25B
Source: ICF SH&E
Consolidation Amongst Tier 4 Material And Process
Suppliers Is Also Gaining Momentum
The Aerospace Manufacturing Supply Chain
Leading raw
material suppliers
and process
suppliers are
repositioning via
vertical integration
and consolidation
This includes
forging, casting
and machining
process
suppliers
The upshot:
increases
bargaining power
vs. customers
Current Aerospace Supply Chain Trends Have Important
Implications For Aerospace Manufacturers
AIRCRAFT & ENGINE OEMS
Carefully manage consolidating Tier I
supplier base
Expanding revenue from services
Emergence of IPS paradigm
TIER I SUPPLIERS
More consolidation in wake of UTX-
Goodrich
Build value around Tier I systems
solutions
TIER 2 SUPPLIERS
Monitor make-buy decisions of Tier 1s
Need IP, low cost, or both
Key decision: global or local?
TIER 3 SUPPLIERS
Increased competitive intensity more
supply from low cost regions TIER 4 SUPPLIERS
Incumbents must audit business Ongoing consolidation & vertical integration
models More capacity in emerging aerospace clusters

AerospaceGlobalization2.0 05dec12

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

AerospaceGlobalization2.0 05dec12

Uploaded by

Copyright:

Available Formats

AEROSPACE GLOBALIZATION 2.

48 years in business (founded 1963)

Backed by parent company ICF International ($841M revenue)

Globalization The Next Wave

Customer Support and MRO

The Global Aerospace Industry Is Worth ~US$530 Billion

2011 Global Aerospace Industry

Aircraft & Parts

Source: ICF SH&E

Aerospace OEMs Have Traditionally Conducted Most

The Value Chain

Inbound Outbound Marketing Service

Most manufacturing Engineering and R&D Primary MRO and

Source: adapted from Porter (1985)

The New Paradigm is to Manage Value Chain Processes

Inbound Outbound Marketing Service

Human Resources / Infrastructure

Talent shortage in home

Human Resources / Infrastructure

Globalization 1.0 Globalization 2.0

To Assess the Changing Nature of Globalization, ICF SH&E

What major investments are

Most Investments Were Joint Ventures: Manufacturing

MRO/Distribution investments were the most popular (39%),

Joint ventures accounted for 55% of value chain investments;

And The Pace Of Globalization Accelerated Over The

Globalization The Next Wave

Engineering and R&D

Customer Support and MRO

Boeings Technical Research Center In Moscow Was a

The Boeing Technical Research Center

In 1998, Boeing created its Moscow-

Today, the EDC employs more than

The EDC also produced nearly one-third

Engineering/R&D Investments Increased Considerably

One Reason is Significant OEM Investments

Inaugurated in 2000; now has

Source: Company websites

The Globalization of Engineering Also Creates New

Aernnova launches aerospace

U.S.A, Russia and India Lead in the Number of

Russia and India have

OEMs Can Also Harness Globalization By Working With

Like OEMs, engineering services firms are globalizing

Source: ICF SH&E

Globalization The Next Wave

Engineering and R&D

Investments in Manufacturing Facilities Has Been on an

Mexico and China Received a Significant Number of

Mexico Has Created a Robust Aerospace Manufacturing

2008 investment of nearly $1 billion

Recent investments by Bombardier,

Aided by proximity to major US

Government investing $50 million in

Source: MRO Management, MexicoNow

China Now Boasts Plethora Of OEM Investments

Selected Aerospace Investment In China

Broad and deep manufacturing

Nanjing: Design and

And Completed Its First Major Acquisition Of A

In December 2009, XAC (an AVIC company)

Chinas first major acqusition of a western aerospace supplier

Source: ICF SH&E analysis, FACC