The past year has been one of the most difficult in recent history for aerospace and defence (A&D) companies. Commercial financing, a major source of capital for the industry, is down between 20-40% for 2009 according to Credit Suisse, a financial services company. In addition, the Aerospace Industry Association predicts that global air traffic will fall by 3-5% in the short-term.
With slowing growth, financial challenges, globalisation and an impending shortage of critical talent, there is little doubt that the industry has entered an era of volatility. To thrive in such turbulent times, A&D companies must transform by becoming more innovative, diverse and nimble. Doing so will position companies to achieve dramatic improvements in time to market efficiency and market responsiveness.
This transformation consists of five steps:
A&D companies should understand the changes necessary to help capitalise on opportunities with emerging market and cost conscious customers. Building a global supply chain, tailoring products and services to address regional needs, and adapting aftermath services, including maintenance, repair and overhaul (MRO) to help alleviate growing cost pressure on end products, are all crucial elements for building a successful, high performance business.
Another way to bolster market position and focus is by taking advantage of merger or acquisition opportunities to add strategic assets, products, services or customers that can help build or cement a leadership position. Instead of developing an asset from scratch, a better option is often an acquisition or merger with another entity to complement an existing portfolio while filling strategic gaps.
A deep understanding of customers and how to most effectively meet their needs is key. The ability to complement products with regular support and service is invaluable for helping companies manage more effectively through a slow economy, as well as periods of robust growth. By charging customers a regular fee for maintenance and services, A&D companies can lock in a highly profitable revenue stream for an extended period of time.
New, innovative platforms are also crucial for A&D companies pursuing high performance. The high cost of production and need to reduce manufacturing time require original equipment manufacturers to become highly adept at creating and orchestrating networks of suppliers to speed and optimise the production process. Despite the challenges inherent in directing a manufacturing consortium, the ambitious use of suppliers to perform more subassembly work is a major step toward a more collaborative and streamlined approach to developing and building aircraft.
As the A&D industries continue to globalise, manufacturers will need a more diverse mix of products and services tailored to the specific needs of customers in developing and emerging markets. A global sustained supply chain that optimises both supply and demand is another critical capability for achieving high performance.
One final word
There is no doubt that the A&D industry is in a high state of flux. For industry players to survive and prosper, they must change the way they do business. They must continue to capitalise on opportunities to acquire important capabilities and assets, invest in innovation regardless of the economic downturn, and become more efficient, flexible, and customer focused. Those who are not willing to make these necessary changes, could end up sitting on the sidelines as their competitors pass them on the road to high performance, leveraging growth through innovation.
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