Ready for Take-Off
It's been a turbulent time for aviation and aerospace of late - but with growth returning there is a new mood of bullishness in the industry. Yet with a shift to the east and aviation supply chains becoming more dispersed than ever, there are challenges ahead for aviation manufacturers, suppliers and logistics providers.
DHL Bahrain Airshow
The biennial Dubai Airshow usually makes trade press headlines. It is, after all, one of the biggest events in the aviation calendar. The 2013 Airshow, however, also made civil aviation history, with a record-breaking order-book bulging to the tune of US$206.1 billion. The biggest deal came from Emirates airline with orders to Boeing and Airbus worth a staggering US$99 billion at list prices, excluding purchase rights - the largest commercial aircraft order ever. At the very least, these figures seem to indicate that the aviation industry is beginning to soar again after five turbulent years. No one orders that amount of planes just to keep them grounded.
It's not quite that simple, of course, because aviation and aerospace has taken a sustained battering since 2008 and the aftershocks are still being felt in some areas of the industry. Cargo remains stubbornly in the doldrums, although a fragile recovery was hinted at in October, fed by stronger business confidence and improving trade flows. Also, on the military side, with the continuing slowdown in Europe and the U.S. government scaling back on its defence spending, demand is expected to remain weak in the near term.
But aviation is now undoubtedly on an upward trend and in the commercial sector, the mood is bullish, with growth being driven by improving global markets and robust passenger demand. The new middle classes in emerging countries have money, and will travel. "Overall, the story is largely positive," explained Tony Tyler, IATA's Director General and CEO in September. "Profitability continues on an improving trajectory." In fact, the next 12 months are expected to be strong for North American carriers as the economy improves; while Middle Eastern carriers - the rising stars of the market, including the rapidly expanding Emirates - are expected to post their highest ever profit at US$2.1 billion. The industry in Latin America is on the up, too. According to the latest Airbus Global Market Forecast (GMF), the Brazilian air travel market will need 1,324 aircraft by 2032 to address the country's rising international and domestic air travel requirements.
Growth of Asia-Pacific
In the long-haul, though, it's Asia-Pacific where the really big news lies. "By 2032, Asia-Pacific will lead the world in traffic overtaking Europe and North America," says John Leahy, Airbus Chief Operating Officer - Customers. "Today on average, a fifth of the population of the emerging markets takes a flight annually and by 2032, this will swell to two thirds. The attraction of air travel means that passenger numbers will more than double from today's 2.9 billion, to 6.7 billion by 2032."
That means a seismic change for the whole sector. Contrary to years past when the U.S. and Europe were the biggest markets for aviation, Asia - and in particular China - has become the focus of the industry with total fleet size and growth shifting east. "Big manufacturers are changing their manufacturing patterns," says Marja-Liisa Turtiainen, VP, Aerospace & Aviation, DHL. "So from that perspective, supply chains are becoming more dispersed, more complex and more fragile. The industry's tight development and production scheduling demands more effective logistics, so flexibility, scalability and visibility are essential when a major aviation manufacturer partners with a logistics service provider."
Main players such as Airbus, Boeing and Bombardier have long established presence in China. Airbus interests include the A320 final assembly line in Tianjin, plus a Beijing-based engineering center and a Beijing support center, stocking some 25,000 spare parts for dispatch to airlines in the Asia-Pacific region. Boeing's sites include a Manufacturing Innovation Center in Beijing, a MRO (Maintenance, Repair and Overhaul) center based in Shanghai and a composites facility in Tianjin; and recently Bombardier announced a facility in Tianjin to support maintenance, repair, and overhaul services. "The industry's center of gravity is moving," says Reg Kenney, President, Engineering & Manufacturing, DHL Customer Solutions & Innovation (CSI). "Extremely strong growth in Asia-Pacific is going to drive demand for manufacturing services and it's going to drive demand for MRO-related support."
Airplane manufacturing is certainly going to increase if the figures are to be believed. The latest Airbus Global Market Forecast to 2032 shows a need for some 29,000 passenger and freighter aircraft. Plus airplane manufacture generally is rising because of the shortened life expectancy of commercial aircraft. "There's an interesting trend now," says Kenney. "In the past, it wasn't unusual to see planes in the air for between 17-20 years. That's currently dropped to below 10 years because technological advances in engine and airplane construction have resulted in increased fuel efficiency, which means a carrier can make big savings by buying new planes more frequently." Naturally, this upswing is good for suppliers, such as engine-makers GE and Rolls-Royce, who have duly poured into the growing Chinese market, making Asia an aviation and aerospace hub.
Yet the aviation story is by no means confined to China. Just as in other industries, manufacturers now source components from an ever-increasing number of suppliers based all over the world. According to an article in the Wall Street Journal in 2012, Boeing's commercial division uses more than 750 million parts provided by 1,200 suppliers operating in 5,400 factories across the globe. Airbus, meanwhile, is to open an assembly line in Mobile, Alabama, U.S., in 2015 to be near to its expanding number of clients in the Americas. Airbus says the benefits of being in close proximity with customers at key locations worldwide has been born out by its experience in China "where the company's presence - including the A320 final assembly operations at Tianjin that started in 2008 - has been accompanied by a more than doubling of its share in the fast-growing Chinese air transport market."
Supply Chain Pressure
Marja-Liisa Turtiainen points out that building a global manufacturing footprint is also a way to manage supply chain risk and mitigate capacity bottlenecks. In recent years, pressures on supply chains due to commodity shortages, natural disasters and supplier failures have focused the minds of supply chain executives in every industry. In the aviation industry, where security and safety are paramount and where delays are hugely expensive, the risks associated with complex and fragile supply chains have the ability to keep managers awake at night.
"Risk is a high priority for virtually all the customers we serve in the aviation sector," says Turtiainen. "In terms of supply chain risk, any sort of blockage in the inbound to manufacturing supply chain that could cause an assembly line slowdown or stoppage has to be avoided at all costs. It's why it's essential for a logistics service provider (LSP) to work closely with the customer to ensure that transit lines for specific shipments are not going to result in delays or shortages. Also, in terms of mitigating compliance risk, it's key for an LSP to facilitate compliance for customers, both from a regulatory as well as a customs perspective, globally." But if risk-reducing flexibility, scalability and visibility are important, so is cost. In a highly competitive business, there will always be an emphasis on improving cost efficiency, lead time efficiency and transit time efficiency on the service side, on an ongoing basis.
Logistics doesn't only play a part in aircraft manufacture. It's also vital in aftersales for maintenance, repair, and overhaul, where highly flexible and efficient supply chains are needed to ensure that airlines are promptly supplied with required spare parts and components. In this market, speed is of the essence. To answer these specific demands, logistics service providers have to ensure close collaboration with customers and demonstrate the ability to leverage global coverage, quickly, with a variety of transport modes. Clearly, depending on the manufacturer or supplier, aviation logistics needs can vary wildly, says Reg Kenney. A company such as Boeing might need to move a fuselage section from one side of the world to the other. A company such as Rolls-Royce may need to do the same with an aircraft engine. Suppliers of overhead switches might need to get a mission-critical part to the next state - or another continent - so that a plane can be met on landing and a fault rectified."
For the big manufacturers it's vital to partner with a logistics provider who can demonstrate an ability to move everything from engines, fuselage sections, wing sections, tail sections, seats and lighting gear - which we at DHL have transported from, let's say, point of manufacture in China to Northern America - right down to the smallest screws and smallest electrical connector from suppliers, on an 'Aircraft on Ground' (AOG) basis. We have the ability to handle it all, whatever the size, routinely. It's that wide variety which makes this such an exciting and challenging sector to work in."