Boeing 787: US's Dreamliner or Nightmare-Liner? Who will Ultimately win the Aerospace Race: US, Europe, China, or Russia?

7/28/2019 Boeing 787: US's Dreamliner or Nightmare-Liner? Who will Ultimately win the Aerospace Race: US, Europe, China, or Russia?

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BOEING 787 USS DREAMLINEROR NIGHTMARE-LINER?

Who will Ultimately Win the Aerospace Race:US, Europe, China, or Russia?

Copyright 2013 Exolus. All rights reserved..


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1

Contents

Dreamliner 787 Overly Globalized? Outsourced?

Boeings Evolution of Globalization/Outsourcing Aircraft

Dreamliner 787: Over-Globalization of Frame Production? Boeings Aggressive Global Sourcing Strategy Illustrative China Case

Highly Complex Global Supply Chain Leads to Major Challenges

2

3

45

11

Airbus Globalization

Airbus 350XWB Globalization Strategy

Airbus A350XWB - Frame Production Concentrated in Europe

Airbus 350XWB: Globalization of Supply Chain

17

18

19

22

China and Russias Unique Models: Glocal-ization Strategies

China Market: Foreign Investors: hunger for China Opportunity

Road Forward: China Focusing Initially on Single-Aisle & Regional Jets

Chinas GlocalizationStrategy

29

30

41

42

China / Russia Partnership for Aircraft Development/Production? The Ilyushin Il-96

4546

Considerations for the Future of Aircraft Production

Competition in the Global Supply Chain Immense USD100 billion

48

49


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2Copyright 2013 Exolus. All rights reserved..

Dreamliner 787 Overly Globalized? Outsourced?


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1. Boeings Evolution of Globalization/Outsourcing Aircraft Production/Development

Parts built by the IAM union of Boeing workers

1967 (737 Class ic)

1969 (747 Series)

2009 (787 Dream liner )

Source: A Wing and a Prayer Outsourcing at Boeing, Reuters


5/574Copyright 2013 Exolus. All rights reserved..

1.1 Frame Production: Overly-Globalized? Overextended?

Numbers of engineers are projections for the end of 2005 made by Boeings first-tier partners, and may not include all engineering specialties. Production workers are not included.

CHINA SOUTH KOREA JAPAN

CANADA

AUSTRALIA

ENGLAND

FRANCE

COMPANY ENGINEERS

Chengdu Aircraft

Industrial Group: NA

ITALY

Rudder

Shenyang

Aircraft Group: NA

Vertical fin

Leading edge

Hafei Aviation

Industries: NA

Wing to body

Fairing panels

COMPANY ENGINEERS

Korean Air NA

Wing tips

Movabletrailing edges

Tail Cone

COMPANY ENGINEERS

Boeings Hawker

De Haviland unit 80

COMPANY ENGINEERS

Kawasaki Heavy

Industries: 190

Inboard flaps

COMPANY ENGINEERS

Messier Dowty 30

Main landing gear

Nose landing gear

Midfuselagesection

Fixed trailing edge

Centerwing boxfuselage section

wing box

Fuji Heavy Industries: 130

Mitsubishi Heavy

Industries: 250

Total Engineers: 250

COMPANY ENGINEERS

Boeing Canada (Wing-peg): 60

Wing to body fairingassembly

Aft pylon fairings

Wing to bodyfairings

Main landing gear

doors (body)

Main landing geardoors (wing)

COMPANY ENGINEERS

Latecoere NA

Aft passenger doors

Forward

passenger doors

UNITED STATESCOMPANY ENGINEERS

Spirit Aerosystems (Wichita, Tulsa): 670

Nose section

(Wichita, Kan)

Engine pylons

(Wichlta)

Fixed leading edges (Tulsa, Okla.)

Movable leading edges (Tulsa)

Vought (Charleston): 100(Dallas): 300

Rear fuselage sections(Chovlestan, S.C)

Goodrich Aerostructures: 160

Nacelles (Chuta Wista, Caly)

Boeing: 95

Vertical fin

SWEDEN

COMPANY ENGINEERS

Saab 30

Aft cargo door

Forward cargo door

(Boeing Everett plant):

TOTAL ENGINEERS: 4,925Plus 200 support staff (Everett)

COMPANY ENGINEERSAlenia 770

Midfuselage

sections

Horizontal

stabilizer

Source: Boeing



1.1 Systems Development/Production: Overextended Risk Sharing Partnerships?

Highly Diverse Group of Partners Integrated in 787 Collaborative Development

Source: Boeing website

SYSTEMS

Air Conditioning /Pressurization

Autoflight

Communications

Electrical Power

Equipment/Furnishings

Fire Protection

Flight Controls

Fuel

Hydraulic Power

Ice and Rain Protection

Indicating/Recording Systems

Landing Gear

Lights

Navigation

Oxygen

Pneumatic

Vacuum

Water/Waste Diagnostic and Maintenance

Information Systems

Nitrogen

Auxiliary Power

Cargo and Accessory

Compartments



Beijing

Shanghai

Shenyang

Xian

Chengdu

Shanghai

AviationIndustry Co.

Hanzhong

Hongdu

Aviation

Industry

Nanchang

Illustrative Boeing China Sourcing Activity*

1.1 Global Sourcing: Overextended? Overly-Globalized?

JingdezhenChanghe

Aircraft

Company

Harbin

AircraftIndustriesBaoji Group Ltd.

Titanium ingot, plate & sheet

Hong Yuan Aviation Forging &Casting Industry Company747 titanium forgings since 1984

Xian Aircraft Company

737 Next Generation vertical fin747 trailing edge ribs, floor beams,detailed parts, and subassemblies747-8 trailing edge flaps

Chengdu Aircraft Industries737 forward entry and over-wing exitdoors (a subcontract from VoughtAerospace, USA)747-8 ailerons and spoilers, singlesource; horizontal stabilizer parts andsubassemblies (a subcontract fromVought Aerospace, USA)787 rudder, single source (soleprovider of this assembly)

Southwest Aluminum747 aluminum forgings

Taikoo Ai rc ra f t Engineer ing Company

Ltd. (TAECO)

747 parts, subassemblies747 boeing converted Freightermodification program

BHA Aero Comp os i tes Company , Ltd.

737 composite panels and parts(flight deck, close out panels, dorsalfin, wing to body fairing, coverpanels, wing fixed trailing edge, wing

fixed leading edge, tail cone, interiorparts, secondary compositestructures)747 miscellaneous composite partsand structures767 and 777 wing fixed tailing edgesand dry bay barriers; empennagepanels, interior parts, secondarycomposite structures777 flight deck interior panels787 trailing edge panels for thevertical fin, interior parts, secondarycomposite structures

Hafei Aircraft Industries

787 upper and lower body panels for

wing-to-body fairings, single source;vertical fin parts

Shanghai Av ia t ion Indus t ry Company

737 horizontal stabilizers

Shenyang Ai rc ra f t Company

737 aft fuselage subassemblies787 vertical fin leading edge, singlesource

Quick ElectronicsPrint hardware, servers in support ofBoeing IT hardware

Tianjin

Chongqing

Xiamen

* June 2007

Source: Boeing, About us: Boeing in China.

Shenyang

AircraftIndustries

ShaanxiAircraft

Company

ChengduAircraft

Company

XianAircraft

Company



1.1 Dreamliner 787: Overly-Globalized and Overly-Outsourced?

Problems with 787 Launch

Boeing tried to outsource 90% of frame, but failed to achieve such a high a level of global deployment

In retrospect, our 787 game plan may have been overly ambitious, incorporating too manyfirst all at once in the application of new technologies, in revolutionary design-and-buildprocesses, and in increased global sourcing of engineering and manufacturing contentBoeing CEO Jim McNerney

Break in Communication Ling between Chicago HQ and Seattle Operations and, Within Operations, Outsourced Jobs Results in Loss of Critical Tribal Knowledge

Loss of Tribal Knowledge. Aggressive global outsourcing results in significant reduction ofkey staff in Final Assembly and enormous loss of Tribal Knowledge. Tribal knowledge is keyto producing airplanes. Acquired on job over long time, it is the key ingredient in thedevelopment of a new plane. It is the shared method of performing countless daily tasksefficiently and in coordinating with colleagues. In short, it is the grease that cuts frictions

through the assembly process. Broken Communication/Management Link Chicago Headquarter and Seattle Operations.

Headquarter moved to Chicago after 85 years in Seattle. Labor unions complain the movedrove a wedge between executives in Seattle-are rank and file. But the benefit is being ininternational city, for sales, hiring and so forth.

Source: Reuters



1.2 USD14 billion Launch Costs: Drives GlobalSubsidies, GlobalPartnerships

Not Possible for Boeing to Finance alone the USD13.6 bn Project Launch Costs

Source: Canada-US Trade Center Occasional Paper No. 28

Given that 2 models are being built, the launch costs are covered by domestic and foreign subsidies,

as well as Boeing's risk-sharing partners.

Funding Source Amount Form Item Aid Type

Washington State $3.2 billion B&O Tax Reduction Final Assembly Production Subsidy

Kansas State $200 millionInterest Free Bond, 20-

yearNose & Cockpit Interest Free Bond

States Bidding on

FAL$500 million

Subsidy for retrofitting

747 to carry planes

Production

TransportProduction Subsidy

State of Washington $16 million 787 Rail Barge 787 Rail Barge Production Subsidy

JapaneseGovernment

$1.6billionSubsidies and loans to

MHI, KHI, Fuji

Wing &Fuselage

(35% state in

frames)Production Subsidy

Italian Government $590 millionSubsidy to Alenia from

Italian Government

Rear Fuselage (13%

state in frames)

Production Subsidy

InternationalSystem Suppliers

$3.1 billion Risk-sharing contributionNon-airframe

suppliers

Non-Recurring

Costs

Boeing Contribution $4.2 billion 787 Launch Funding Self-Financed

Total $13.4 bill i on


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1.2 Challenges and Delays: Increase Costs from USD10 bn to USD13.5 bn

Challenges and Delays add an Additional USD4 USD5 billion in Costs

Delay in 2007 shortage of bolts, flight control software.

Delay in 2008 58 day strike

Later major problems with suppliers in South Carolina

2010 - No availability of Rolls-Royce engines

October of 2010 another two week delay with horizontal stabilizers from Alenia

November 9, 2010 emergency landing on test flight due to a fire due to foreign

debris in electrical cabinets. Electrical systems and power panel are built by

Hamilton Sundstrand.

3 Year of Delays Resulted in an Estimated

Additional Development Costs of

USD 4 - 5 billion

Source: The Seattle Times


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10Copyright 2013 Exolus. All rights reserved.. Source: Bauhaus Luftfahrt

55

50

45

40

35

30

25

20

15

10

5

01965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

737 747767

757737-300

747-400

777

787

A300

A340-600A340A330

A300-600

A321

A310-200

A320-200

A380

A400M

A350XWB

Boeing

Airbus

Other

DC9DC10L1011

MD-80

MD-11 MD-90 ARJ21-700

MRJ

A320B737

SUCCESSOR

Advanced Composites in Aircraft1.3 Aggressive Weight Reduction Strategy: Overly Ambitious?


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Benefits: Lighter More Durable Reduced Corrosion/Fatigue & Maintenance

1.3 Aggressive Weight Reduction Strategy: Overly Ambitious?


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1.3 Carbon Composite Weight Reduction: Nice in Theory, Very Difficult in Practice

Carbon Composite Challenges

According to Spirit, composite material lay-down rates are far below projections

The initial goal was 100 lbs/hr with a single-head machine

Production started at 8-9 lbs/hour

Efficiency gradually increased to 19 lbs/hour

The rate is expected to increase to 30 lbs per hour once a new dual-headmachine on order arrives.

The rate of 100 lbs/hour now is a mid-term goal.

Source: Boeing 787 Lessons Learnt, October 2008, Airbus


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1.4 Hyper-GlobalOutsourcing /Partnerships: Nice in Theory, Possible in Practice?

Poor: Documentation, Oversight, Integration, Supplier Capabilities

Very Poor or Lacking Documentation Production records on deferred work were found to be incomplete or lost in transfer resulting in a

loss of configuration control

Assembly work was found to be completed incorrectly only after assemblies reached the Final Assembly

Lines. Root causes

Oversight not adequate for the high level of outsourcing in assembly and integration

Qualification of low-wage, trained-on-the-job workers that had no previous aerospace experience

Significant amount of change engineering work

Inadequate supplier capabilities in design, e.g. Vought had no engineering department when

selected

Oversight not adequate for the high level of outsourcing in detailed design

Weight growth and subsequent weight saving changes

Late Definition

Boeing admitted responsibility for a shortfall in wiring shipments

Late specification indicated by supplier as root cause



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1.5 Hyper-GlobalSupply Chain: Possible to Manage a Fully Global Supply Chain?

CHINA

Chengdu

Shenyang

Harbin

JAPAN

AUSTRALIA

UNITED

STATES

SWEDEN

FRANCEToulouse

ITALY

ENGLAND

GloucesterDerby

Nagoya

Wichita

Tulsa

Chula VistaCharleston

CANADA

Linkping

Loggia

Grottaglie

Frederickson

Melbourne

FROM ASIAVertical fin leading edge and rubber

Shipped from China to Frederickson

Wing to body fairing panels shipped from China to Winnipeg

Tail cone shipped from

South Korea to Everett

Wings flown from

Japan to Everett

Fixed leading

edges shipped

from Tulsa to

Japan

Vertical fin

assembled in

Frederickson and

trucked to Everett

Nacelles sent from

Chula Vista* to

Everett

Fuselage sections flown

fromJapan to

Charleston

Wing-tip

pieces

shipped

from

South

Korea to

Japan

Movable trailing

edges and inboard

flaps from

Melbourne shipped

to Everett

Nose section assembled in

Wichita and flown to Everett

Engine pylons moved by rail from

Wichita to Everett

Movable leading edges moved by

rail from Tulsa to Everett

Pylon fairing

and main

landing gear

doors moved by

rail to Everett

Wing-to-body

fairing

assembly

moved by railto Charleston

Forward cargo door from Linkping

to Wichita

Nose landing gearfrom Gloucesterto

Wichita

Passenger entry doors

shipped from Toulouse to

Charleston

Mid-and rear-fuselage sections

assembled in Charleston and flown to

Everett

Rear

fuselage

assembled

Mid-fuselage

assembled

Fuselage sections from

Italyflown to

Charleston

Horizontal stabilizer flown

from Italy to Everett

After cargo

door from

Linkping to

Italy

FROM THE MIDWESTFROM THE SOUTHEAST

FROM AUSTRALIA

Main landing gear flown from Derbyto Everett

FROM EUROPE

Wing box

assembled

EverettWinnipeg

Major parts traveling to Everett

Pieces traveling to be assemblies into larger parts

City of

origin

Everet

t

AVIC(Shenyang)

Source: Boeing


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Problems with 787 Launch

Corroborating source believed to be Vought internal (Design News, 1st March 2008)

Ship 2 went to Seattle 2 months late from last schedule change

Several 1000 parts short and no insulation, wrong hardware, no system components, full of FOD

and unworked discrepancies generated by Vought

Stringer wrinkles and delaminating going undetected by Vought quality

No inventory control oversight and accountability

Inability to attract competent technicians to the facility

Novice student inspectors, no competent management organization in-house

Ships 3, 4, 5, and 6 all have more defects than the fatigue model

Delivery delayed 5 weeks due to damage sustained in production at Global Aeronautica

Incorrectly installed fasteners, non-compliance by temp worker

Ad-hoc FAA inspection highlighted FOD issues and workers bringing in their own tools

Spirit S41 structure 100% complete

Center fuselage systems installation targeted to be 50% complete on delivery

Vought aft body section S47/S48 structure 98% complete, systems 87% complete, including THSA as

well as potable and waste water tanks


1.5 Global Supply Chain: Process Riddled with Challenges and Gross Mistakes


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1.6 Summary of Challenges with Hyper-Globalization of Boeing 787

3 Years of Delays USD4 billion overrun FAA stops flying in Jan 2013

Challenges and problems in the 787 model resulted in 3 years of delays, approximately $4

billion additional costs FAA orders Boeing to stop flying the 787 in January, 2013

4 major strikes in the past 2 decades caused loss of 200 days of production. Machinists in South

Carolina, a right-to-work state, voted against IAM representation.

FAA had concerns about the heat dissipation through the composite skins.

Parts shortages: insufficient supply of frames, clips, brackets, and floor beams. Root causes are:

NDI (non-destructive inspection) / QA not supporting production rate demand.

Lack of NDI / QA personnel and equipment at T-2 and T-3 suppliers.

Deferral of NDI testing from T-2 and T-3 to Tier-1 partners to expedite pre-assembly

Repeated NDFastener shortages, primarily affecting but not limited to Mitsubishi. Root causes:

Late changes to sleeved fastener design for lightening strike protection

Alcoa unable to meet demand in time

To tackle the parts shortages Boeing has now taken a consolidated approach to inventory

management across the supply chain.

Rumored that GE GenX and Rolls-Royce Trend 1000 both missed SFC by a 2 4%

I testing at FAL due to all of above

Source: A Wing and a Prayer Outsourcing at Boeing, Reuters


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Airbus Globalization


19/57


2.1 Airbus 350XWB Regionally-Focused Globalization Strategy

Cost Reduction + Risk Sharing Partners

Reducing costs by divesting from non-core to future requirements:

1) Those that make lower level composite component, or

2) Employ older metalbending fuselage assembly technologies

The risk-sharing partners expected to absorb $2.5 billion of the A350 developmentcosts

Critical aspect for risk-sharing partners to be successful: Ensure they have the financialand technical capabilities, along with the engineering workforce available to design andbuild composite structures.

Conditions for risk-sharing partners are that they need to pay for componentdevelopment costs, as well as be completive in terms of recurring costs (production) inUS$ terms.

Looking at 10 potential risk-sharing partners from Europe, Asia, the US and LatinAmerica.

MOUs are already in place for China, South Korea, and Russia.

Source: Strategic Destruction of the North American and European Commercial Aircraft Industry: Implications of the System Integration

Business Model by David Pritchard and Alan MacPherson


20/57


Pylon

Airbus France

Toulouse | France

2.2 Airbus A350XWB - Frame Production Largely Concentrated in Europe

CHINA

ENGLAND

FRANCE

UNITED STATES

GERMANY

SPAIN

AUSTRIA

Center Fuselage

Spirit Aerosystems

Kinston | US

Rudder

Harbin Hafei Airbus

Harbin | China

Horizontal Tail plane

Aernnova

Getafe | Spain

Horizontal StabilizerRockwell Collins

Cedar Rapids | US

Landing Gear

Messier-Dowty

Kinston | US

Nacelle

Goodrich

Chula Vista, US

winglets

FACC

Ried | Austria

Aft Fuselage

Airbus Deutschland

Stade | Germany

Forward Fuselage

Premium Aerotech

Nordenham | Germany

Movable Leading edge

GKN Aerospace De

Munich | Germany

Vertical Tailplane

Airbus Deutschland

Stade | Germany

Rear Fuselage

Airbus Spain

GetafeSpain

Tailcone

Airbus Spain

Getafe | Spain

Nose Section

Aerolia

Meauite | France

Keel Beam

Air France

Nantes | France

Wing Box

Air France

Nantes | France

Fixed Trailing Edge

GKN UK

Filton | UK

Fixed Leading Edge

Spirit Aerosystems Europe

St Nazaire | France

Source: Airbus


21/57


Harbin

CHINA

Meauite

Toulouse

Nantes

St Nazaire

Hamburg

Nordenham

Stade

Broughton

Filton

Getafe

Illescas

FRANCE

GERMANY

SPAIN

UK

AUSTRIA

Nose: Meauite

Nazaire

Front fuselage assembly and equipping: forward fuselage and

nose

After fuselage assembly and

equipping: U/L shells and Tailcone

Tailcone: Getafe

Hamburg

Bremen

2

3

Wing cover: State

Broughton

Wing cover:Getafe Broughton

4 5

Gloucester

Wing leading edge: St Nazaire Broughton

Ried

Winglets/wing spoiler: Ried Broughton

Forward fuselage1(equipping in

Hamburg)

Wing box assembly in

Broughton, equipping in

Bremen

1. Forward fuselage: Nordenham Hamburg

2. Upper/lower shells: Stade Hamburg

3. Center wing box and keel beam: Nantes St Nazaire

4. Fixed trailing edge: Filton Broughton

5. Landing gear: Gloucester Filton

US

Kinston

Corona

Center fuselage: Kinston St Nazaire

Doors (MLG/Nose): Corona St Nazaire

Belly fairing: Harbin St Nazaire

Rudder: Harbin St Nazaire

VerticalTail planeassemblyandequipping

Toulouse, France

Final assembly line

produce Pylon.

Chula Vista

Nacelle: Chula Vista Toulouse

Cedar Rapids

Horizontal Stabilizer: Cedar Rapids Getafe

St Nazaire, France

Sub assembly line for

front fuselage and

centre fuselage

Hamburg, Germany


aft fuselage

Bremen, Germany


wing

MunichInboard & Outboard landing flaps: Munich

Broughton

2.2 Airbus 350XWB: Supply Chain Largely Focused on Europe

Source: Airbus


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Airbus Key Systems Suppliers

2.2 Systems Development/Production: US/European Risk Sharing Partnerships

Source: Airbus

SYSTEMS


Autoflight

Communications

Electrical Power


Fire Protection

Flight Controls

Fuel

Hydraulic Power Ice and Rain Protection


Landing Gear

Lights

Navigation

Oxygen

Pneumatic

Vacuum

Water/Waste Diagnostic and Maintenance

Information Systems

Nitrogen

Auxiliary Power

Cargo and Accessory

Compartments


23/57

22Copyright 2013 Exolus. All rights reserved.. Source: Airbus S.A.S., Airbus in China; Airbus S.A.S., Airbus in China: Milestones

Shanghai

Shenyang

Xian

Chengdu

ShenyangAircraft

Industries

XianAircraft

CompanyChengdu

AircraftCompany

Shanghai

AviationIndustry Co.

Hanzhong

Shaanxi

Aircraft

Company

Hongdu

Aviation

Industry

Nanchang

Airbus Strategic Sourcing in China*

Changhe

AircraftCompany

Harbin

AircraftIndustriesHong Yuan Av ia t ion Forg ing & Cast ing

Titanium forging parts

Xian Aircraft Industry Company

Access doors for wide-bodied aircraftWing fixed trailing edgesMedium air ducts

Chengdu Ai rc ra f t Indus t r ia l Company

A320 rear passenger doors

Hafei Aviat ion Industry Co., Ltd.

HTP leading edge ribs andtorsion box

Shenyang Ai rc ra f t Company

Produces and assembles emergency

exit doorsManufactures:-Fixed leading wing edges and ribs-A320 cargo doors-Skin plates

* July 2007

2.2 Global Sourcing: Globalized, but Less than Boeing

Harbin

Guizhou

Guizhou Aviation Industrial Group

Maintenance jigs and tools


24/57


2.2 Yet A Great Leap Forward: Airbus Moves Final Assembly of A320s to China

Migration of Assembly Functions to China

Company: Airbus

Total Investment:

USD1.2 - 1.5 billion

Labor Force

1,000 employees

Functions:

Final Assembly for A320

Investment Site and Joint Venture Partners:

Tianjin. Three-party joint venture with Tianjin Free

Trade Zone and Aviation Industry Corporation of

China (AVIC).

Operational Commencement

September 2008

2010 Production Output/Sales

37 A320 planes for eight Chinese airlines

2011 Assembly (Planned)

36 A320 planes

Source: All Publically Available Information; Tianjin Economic Development Area (TEDA), Company Website


25/57


75 7368 67

61

19

4 7 15 1822

53

5 5 6

6

514

13 129 7

5 6

33 3 2 2 4

8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

A300 A310-100 A320-200 A340 A380 A350 XWB

Aluminium Composites Titanium Steel GLARE Miscellaneous

Source: Airbus: Metal Materials in Airbus A380

2.3 Aggressive Weight Reduction Strategy: Equal to Boeing - Overly Ambitious?


26/57


1980 1990 2000 2010

A310-300Fin, Rudder, Elevator

A320+HTP, Flaps, Ailerons,

Spoilers

A330/340+ HTP as Fuel Tank

A340-600

+ Rear Pressure Bulkhead,Keel Beam

A380+ Rear Fuselage, Center Wing

Box, Wing Ribs

A350 XWB+ Outer Wing, Fuselage

Within primary structuresComposites Introduction

Source: Airbus: Composite in Airbus:A Long Story of Innovations and Experiences

2.3 Aggressive Weight Reduction Strategy: Airbus Composite Evolution


27/57

26Copyright 2011 Exolus. All rights reserved.. Source: Airbus: Composite in Airbus:A Long Story of Innovations and Experiences

2.3 Aggressive Weight Reduction Strategy: A350 XWB Structures

2 l S l Ch O d d d d l
http://www.exolus.com/


28/57


2.4 Regional Supply Chain: Outsourced and Integrated Logistics Model

Airbus Outsourced Integrated Logistics

Transformation Plan during implementation (i.e Toulouse)KUEHNE+NAGEL

September 2008BLAGNAC

JLL

ST ELOI

SEOR

TIT

CLEMENT ADER

L. BREGUET ATHOS

HARDWARD & FASTENERS

7P2 BOOKING

EUROCENTRE

Take over of over 360 employees (providers & AIRBUS) in one year with 4 different collectives agreement and 5

different HR policies

Smooth transition with 0 day of work stoppage

September 2008BLAGNAC

JLL

ST ELOI

SEOR

TIT

CLEMENT ADER

L. BREGUET ATHOS

HARDWARD & FASTENERS

7P2 BOOKING

EUROCENTRE

Source: Kuehne+Nagel AIRBUS Case Study, Paris 2010

2 4 R i l S l Ch i O t d d I t t d L i ti M d l
http://www.exolus.com/http://www.exolus.com/


29/57


2.4 Regional Supply Chain: Outsourced and Integrated Logistics Model

Airbus Flight Hour Services & Total Support Package

Maintenance & Eng ineer ing domains

Airframemaintenance

Engineering

Componentrepair

Componentspare partsand logistics

Engine

maintenance

FHS Airbus vendor:

Component stock, pool access, logisticsAnd repair for Airbus LRUs only

FHS Component:

Component stock,Pool access, logistics andRepair for all components

Including Airbus LRUS

FHS TSP:

Line & light maintenanceFleet engineering

IT and engineering servicesAirbus FHS full component

Airlines outsourcing policyIn-House Outsourced

Source: Airbus: Airbus Material, Logistics and Suppliers,, MOR Conference in Dallas, 2009


30/57


China and Russias Unique Models: Glocal-ization Strategies

3 1 China Market: Foreign Investors Hunger for the China Market


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3.1 China Market: Foreign Investors Hunger for the China Market

230% Increase in Aircraft Needed in China by 2028

6,567

1,383826 702 423 447 387 507 544 479

5,000

3,165

1,150 1,100 1,050 1,000600 550 500 480

0

2,000

4,000

6,000

8,000

10,000

12,000

US China UK Germany India Russia Ireland Australia Japan Brazil

Existing Fleet 2010

New Deliveries 2028

Existing Fleet and New Deliveries (2010 - 2028)

Aircraft(un

its)

Source: Airfleets, COMAC, Boeing, EIU

3 1 Driven by: Growth Spike in Chinas Travel Volume


32/57


China Worlds 3rd Highest Traffic Volume by 2020

0

25

50

75

100

125

150

175

200

225

250

Outbound, Chinese Inbound, Foreign

Foreign Inbound & Chinese Outbound Travel Volume

3.1 Driven by: Growth Spike in China s Travel Volume

237

1321

51

CAGR 11.8%69

167 millionTravelerIncrease

USD

millions

Source: China National Tourism Association (CTNA); World Tourism Organization (UNWTO)

3 2 China: also hungers for Opportunity However


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Boeing53%

Airbus36%

ChinaDomestic

Planes1%

Other ForeignAircraft, 10%

China Civil Aircraft Fleet

(2010)

3.2 China: also hungers for Opportunity, However

China Fleet 99% Foreign Airplanes

Source: All Publically Available Information , Company Website

China Aircraft Fleet

Boeing 736

Airbus 500

Other 133

Domestic 14

Total Aircraft 1,383

3 3 Therefore: China developing own Suite of Domestic Aircraft


34/57


3.3 Therefore: China developing own Suite of Domestic Aircraft

Source: Chinese Aerospace Market Research

Stage 2 Single Aisle (2016): C919 Aircraft Type: Single-Aisle Narrow Body (156 Seat, 168 Seat and 180 Seat)

Development: COMAC and joint ventures with foreign suppliers to jointly research and

develop the platform systems

Schedule: First Flight in 2014 and In- Service in 2016

2016

Stage 2 Single Aisle (2013): C-series

Aircraft Type110/130 , Single-aisle - Twin-Turbofan Development: : Fuselage Build by AVICs, Shenyang Aircraft Industries Group ,

Bombardier


2013

Stage 2 Single Aisle (201X): CS2010 Aircraft Type: 150-200 Seat- Single-aisle - Twin Turbofan

Development: Guangdong Prosperous Airline

Schedule: First Flight in 20xx and In- Service in 20xx

20XX

Stage 1 Regional Jet (2010): ARJ21 Aircraft Type: 70 to 90 Seat Twin Turbo-Fan

Development: CIVIC drawing on foreign suppliers for nearly all research and

development, production for sub-systems, local partner providing facility, sub-contracting

Schedule: First Flight - November 2008 and in-service 2010/11

2010

Stage 1 Regional Jet (2010): MA 700 Aircraft Type: 60- 70 seats

Development: Xian Aircraft Corporation

Schedule: Launch 2009 and in-service 2015

2015

3 4 Road Forward: China Focusing Initially on Single-Aisle & Regional Jets


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3.4 Road Forward: China Focusing Initially on Single Aisle & Regional Jets

Future Global Aircraft Deliveries

(2009 2028)

Source: Airbus, Airbus Global Market Forecast, von Tronchin, March 2010, other Public Sources

Chinas 3,165 New Aircraft = 12% of Future Global Demand

Single-Aisle ,16,977

Regional Jet,1,500

Large Aircraft,1,729

Twin-Aisle ,6,250

26,500New Aircraft

by 2028

China % of FutureAircraft Demand

(2009 2028)

Global Demand 26,500

China Portion 3,165

China = 12% of Global Demand

3.5 Chinas Glocalization Strategy: Frame Production / Assembly in China


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Shanghai

Shenyang

Xian

Chengdu

Hongdu

AVIC: Harbin

Aerostructure:

Wing/body fairing

HarbinAVIC: Shenyang

Aerostructure:

AFT fuselage

Engine nacelles

Tail fin

AVIC: Xian

Aerostructure:

Wing box

Aileron

Trailing edge flap

Leading edge slat

Center fuselage

AVIC: Chengdu

Aerostructure:

Nose

AVIC: Shanghai

Aerostructure;

Sub-assembly line

final assembly line

AVIC: Hongdu

Aerostructure:

Forward fuselage

AVIC: Nanchang

Aerostructure:

Trailing edge flap

Leading edge slat

Nanchang

3.5 China s Glocalization Strategy: Frame Production / Assembly in China

China Aircraft: C919

Source: COMAC

3. 5 Chinas GlocalizationStrategy: Foreign Joint Ventures Set Up in China


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Suppliers for Chinas C919

gy g p

C919 Largely Based on Joint Sino-Foreign Research & Development

Source: Airframers, January 2011; Various Public Sources

Liebherr Oxygen Equipment

Parker Flight Deck Panel Assemblies

Rockwell Collins Interior Components

CFM International Engines

Eaton Corporation Lighting Equipment

Hamilton Sundstrand Electric Power System

Eaton Corporation Primary Flight Control

Kidde Aerospace Fire Protection

Liebherr AMS, Landing Gear

Honeywell Auxiliary Power Unit Door System

Parker Aerospace Fuel, Hydraulic, Flight Controls

Rockwell Collins Avionics

Eaton Corporation Flight Deck Control Suite

Albany Engineered

CompositeEngine Interface Control System

C919

3.5 Chinas GlocalizationStrategy: Frame Production / Assembly in China


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Shanghai

Shenyang

Xian

Chengdu

AVIC: Shenyang

Rudder

Vertical leading edge

Rear fuselage

Tail cone

pylon

AVIC: Xian

Forward fuselage

Center fuselage

Aft fuselage

Wings

Nacelles

AVIC: Chengdu

Nose

AVIC: Shanghai

Sub-assembly line

final assembly line

Vertical stabilizer

Horizontal leading edge

gy / y

China Aircraft: ARJ21

Source: COMAC

3.5 Chinas GlocalizationStrategy: Focus on Technology Transfer to China


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Suppliers for Chinas ARJ21

g g

2010: ARJ21 Largely Based on Foreign Research & Development

ROSEMOUNTAEROSPACE

ARJ21

BE Aerospace Oxygen Equipment

Eaton Aerospace Flight Deck Panel Assemblies

Fisher Advanced Composites Interior Components

General Electric Engines

Goodrich Hella Aerospace Lighting Equipment

Hamilton Sundstrand Electric Power System

Honeywell Primary Flight Control

Kidde Aerospace Fire Protection

Liebherr AMS, Landing Gear

MPC Products Corporation Auxiliary Power Unit Door System

Parker Aerospace Fuel, Hydraulic, Flight Controls

Rockwell Collins Avionics

Rosemount Aerospace Wiper System, Windshield Heater System

Sagem Flight Deck Control SuiteSaint Gobain Windshields and Window Openers

Vibro-Meter Engine Interface Control System

Zodiac-Air Cruisers Crew Seats

Source: Baidu Encyclopedia, Various Public Sources

3.6 Foreign Systems Vendors: Driving Development Aerospace Industry in China


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Investment Footprint largely aligned with China Aviation Structure/Clusters

Beijing

Tianjin

Shanghai

Harbin

Shenyang

XiAn

Chengdu

Turbine NGVs, turbinerings, compressor seals

Landing gear & enginenacelle components

Precision sheet metal

A350 composite parts

Heat shields

A320 Final Assembly Line

Composites manufacturing

COMAC C919 Production

Design & Production of ECS

Autoclaved composite parts

Engine parts

Landing gear components

Nanjing

Suzhou

Xiamen

Source: AeroStrategy, 2010

Sensors, valves, nozzles

EC175 design & production

ERJ145 Assembly

3.6 Foreign Aircraft OEMs: Driving Development Aerospace Industry in China


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Embraer Diamond

Training O O O

Engineering OManufacturing /

Assembly O O O

Sourcing O O O O O O

Service O O O

Sales O O O O O O

Source: Company Information pages, EIU

Aerospace OEMs Functional Deployments in China

Wide Variance in Strategies employed by Major Aerospace OEMs

3.7 Paving the Road for the Future: Chinas Twin-Aisle and Jumbo Jets
http://upload.wikimedia.org/wikipedia/en/6/62/EmbraerLogo2.gifhttp://upload.wikimedia.org/wikipedia/en/8/89/DiamondAirLogo.pnghttp://upload.wikimedia.org/wikipedia/en/b/b9/Cessna_Logo.svghttp://upload.wikimedia.org/wikipedia/en/8/80/Airbus_logo.pnghttp://upload.wikimedia.org/wikipedia/en/b/b5/Boeing-Logo.svghttp://upload.wikimedia.org/wikipedia/en/6/62/EmbraerLogo2.gifhttp://upload.wikimedia.org/wikipedia/en/8/89/DiamondAirLogo.pnghttp://upload.wikimedia.org/wikipedia/commons/6/69/Bombardier.svg


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Chinas Future Aircraft

(2020 2030)

Develop Homegrown China Aircraft > Compete with Boeing, Airbus, Embraer

Stage 3 Twin-Aisle (2020 2025)?: C919 Extensions? Aircraft Type: Extensions of C919, possible Twin-Aisle version

Development: : COMAC and joint ventures withforeign suppliers to jointly research and


In- Service: 2020 - 2025

?

Stage 4 Jumbo Jets (2020 2025)?: ? Aircraft Type: Jumbo Jet

Development: COMAC and joint ventures with local domestic suppliers to jointly research and


In- Service: 2020 2030

?

2020?

2020?

Source: Chinese Aerospace Market Research

Stage 1Regional Jet (2010): ARJ21 Aircraft Type: 70 to 90 Seat Twin Turbo-Fan

Development: CIVIC drawing onforeign suppliers for nearly all research and development,

production for sub-systems, local partner providing facility, sub-contracting

Schedule: First Flight - November 2008 and in-service 2010/11

2010

Stage 2Single Aisle (2016): C919 Aircraft Type: Single-Aisle Narrow Body (156 Seat, 168 Seat and 180 Seat)

Development: COMAC and joint ventures withforeign suppliers to jointly research and developthe platform systems


2016

3.8 Chinas Unique Path in Building its Glocalized Aerospace Sector


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China Strategy Cost Competitive FAA/JAA Compliant A/C

Airframe Production in China: Technology Acquisition through Offsets and Acquisitions (FACC)

Chinas labor costs are at least 4 times lower than those that prevail in Europe and North America

important in light of the labor-intensive nature of certain aspects of the airframe production process

Western components are readily available to install on Chinese airframes engines, avionics, hydraulics,

fly-by-wire systems. Result is that Chinese aircraft that are endowed with proven Western and/or

Russian systems, cheap Chinese airframes, and performance characteristics that match US FAA and EU

JAA technical and safety standards.

China starting production effort with state-of-the-art machine tools and fixtures, new materials handling

processes, Western design software, and advanced engineering procedures. As such, they will

technologically leapfrog the west.

Chinese government has the investment capital and political determination required for massive and

sustained industry support.

China will be able to pump-prime its domestic aerospace industry by mandating the purchasing

behavior of Chinese airlines. This is non-tariff trade barrier of immense significance at the global level.

Source: The emergence of a new international competitor in the commercial aircraft sector: The China syndrome by Alan MacPherson

4.1 Russias GlocalStrategy: Local Frame Production/Assembly in Russia


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Nose section

Forward Fuselage

Aft Fuselage

Empennages: vertical and

horizontal tail surfaces

Novosibirsk

(NAPO)

VoronezhVASO

Komsomolsk-

on-Amur

(KnAAPO)

Center fuselage

Centre wing fuselage

Aircraft parts made of

composite materials

About 40% of SSJ 100 are

manufactured in NAPO.

Source: Komsomolsk-on-Amur Aircraft Production Association

SSJ100

4.2 Russia GlocalStrategy: International Partnerships with System Suppliers


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SSJ100 Key Systems Suppliers

Source: Komsomolsk-on-Amur Aircraft Production Association

SYSTEMS


Autoflight

Communications

Electrical Power


Fire Protection

Flight Controls

Fuel

Hydraulic Power

Ice and Rain Protection


Landing Gear

Lights

Navigation

Oxygen

Pneumatic

Vacuum

Water/Waste

Diagnostic and Maintenance Information Systems

Nitrogen

Auxiliary Power

Cargo and Accessory

Compartments


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China / Russia Partnership for Aircraft Development/Production?

5. Russia and China: Joint-Venture for new Long-Range Aircraft?


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Beijing is putting the money upfront, while Russia is supplying the know-how

Cost Competitive FAA/JAA Compliant A/C

Source: (Avionews 2013)

Beijing, China - (WAPA) - "Vedomosti" published today some declarations by Russia's

United Aviation Corp and China's Commerical Aircraft Corp about a joint-venture whichaims to develop and produce a new long-haul aircraft based on the airframe of the Ilyushin

Il-96 aircraft.

The agreement is going to be sealed during Vladimir Putin's visit to China next month. The

joint-venture headquarters will be in China, that will fund the programme. Russia is

expected to provide technology.

"Vedomosti" also reported that separately, Russia's Rosoboronexport agreed with China to

supply aircraft engines in a contract valued more than 700 million dollars. No more details

are available since the agency quoted a person it did not identify.

The Ilyushin Il-96 is a modern long-range civil aircraft and the first Russian-made wide-

body. It is equipped with fly-by-wire controls and modern technologies. Only 29 exemplars

were built, most of them purchased by Aeroflot.

The airplane boosts the title of one of the most secure aircraft worldwide, as since its first

deployment during the 1990s, it has never suffered any kind of accident.

5. Russia and China: Joint-Venture for new Long-Range Aircraft?


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Beijing is putting the money upfront, while Russia is supplying the know-how

Cost Competitive FAA/JAA Compliant A/C

Source: (Avionews 2013)


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Considerations for the Future of

Aircraft Production

6.1 Competition in the Global Supply Chain Immense USD100 billion


50/57


Up-Front Investments Required for New Projects Globally: $100 billion

Heavy Competition in Global Supply Chain for Resources and Financing

Source: Exolus

Company New or Proposed Programs Country / Region

Bombardier C Series Single Aisle Canada

COMAC C919 Single Aisle China

UAC MS21 Single Aisle Russia

Embraer KC 390 Cargo Aircraft Brazil

Boeing 737 Replacement Single Aisle US

Boeing Next Gen Tanker US

Airbus A320 Replacement Single Aisle Europe

Airbus NSR Europe

Mitsubishi MRJ Japan

Kawasaki YPX Japan

6.2 Considerations for Future of Aircraft Production


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New Airplane Considerations to be Competitive

Financing and technology. Next generation of LCAs will rely heavily on compositematerials, advanced avionics, radically improved engines, and new airframe designs.

New entrants face established, fiscally strong brands with global support infrastructure inplace. The provision of Boeing and Airbus of training, spare parts and managerial support toairlines and to other aircraft manufacturers contributes to their strong market reputation.New entrants must consider providing these functions in addition to building andsupporting a competitive product.

It is unclear to what extent, the private sector will control aircraft design and production inChina and Russia. Both governments have allocated funds for the creation of integratedaircraft manufacturing centers; China allocated nearly $3 billion for its program, while it isour preliminary understanding that Russia has spent $1 billion to create a design andmanufacturing center near Moscow. Their LCA plans likely will provide an opportunity toconsolidate fragmented manufacturing capabilities and develop R&D and sales and supportcapabilities.

In China, the FAA has opened a new office to support the FAA certification of the ARJ21,even though no US airline has purchased the aircraft.

Source: New entrants face established, fiscally strong brands with global support infrastructure in place by Peder Andersen, April 2009



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Offset Agreements and Risk-Sharing Agreements

Industrial offset agreements are typically designed to provide importers with a negotiated production

share for the final product, usually in return for guaranteed sales. For example, most of the Boeing 747s

operated by Chinas state-owned airlines fly with wing leading edges and various other sub-assembliesthat were manufactured in China.

Major industrial offsets are possible only under regulatory conditions where the importing nation has

public control over the end customer (e.g, and airline or other state-owned industry). If Airbus

negotiated offset agreements with Chinese manufacturers, then the Chinese government ensures that

domestic airlines will buy Airbus products. This type of arrangement becomes more complex when the

end-user is not closely regulated or controlled by the state. A further factor that complicates matters is

that industrial offsets involving technology transfer are usually regulated by the government of the

exporting nation to ensure that sensitive or critical expertise is not internationally diffused.

For systems integrators such as Boeing and Airbus, major industrial offsets at the international level have

increasingly been accompanied by risk-sharing agreements. China has yet to become a significant risk-

sharing partner in any of the aircraft programs of these two companies, but things may soon change in

this regard. Systems integration is a cost-driven strategy that involves extensive subcontracting for parts

production. The SI has minimal involved in manufacturing, but instead acts as a kit builder (e.g, final

assembly). Under risk sharing in the commercial aircraft sector, the systems integrator no longer

subcontracts on a build-to-print arrangement. Rather, the risk-sharing partner is expected to design,develop and manufacture the sub-assembly in question using its own funds. This is clear strategy

because it dramatically reduces launch cost for the new aircraft programs among system integrators. The

downside is that risk-sharing partners must receive infusions of tacit knowledge form the prime

contractors, expertise often referred to as tribalknowledge.


Off d i k Sh i



53/57


Offset Agreements and Risk-Sharing Agreements

Airbus is copying many of Boeings tactics to secure international sales. IN last 6 years, Airbus has

shifted its compensatory state emphasis from an indirect offset mode to a direct offset position, and is

now employing a business development model that closely mirrors the approach initially pioneered by

Embraer (but recently perfected by Boeing). Under the indirect offset mode, Airbus secured foreign

sales by granting market concessions such as landing rights to busy EU airports. These types of

concessions are still part of the Airbus marketing package, but direct offset are becoming important too.



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For a Comparative Perspective with the other BRIC CountriesPlease Refer to the Following Research Reports

Found on Slideshare @

http://www.slideshare.net/Exolus/china-2010-2020-v58slideshare

http://www.slideshare.net/Exolus/india-2020-what-india-will-look-like-in-the-future

http://www.slideshare.net/Exolus/brazil-2020-what-will-brazil-look-like-in-the-future

http://www.slideshare.net/Exolus/russia-2020-what-will-russia-look-like-in-the-future

Download Reports @

www.exolus.com/en/knowledge/research.html

India 2020 Brazil 2020 Russia 2020China 2020
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Global Expansion Strategy &

Cross-Border Investment Execution(Greenfield, M&A, Joint Ventures, Outsourcing)

About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work withmanagement teams in the development of their global expansion strategies, across the range of investment

formats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies by

providing program management across all phases of cross-border investment projects, from candidate

searches and evaluation, through investment structuring and negotiations.

The founders of Exolushave spent the past two decades in the global service space and have directexperience operating in nearly all of the major investment destinations in the world (40+ countries). The team

has served clients of all sizes, both public and private, on projects that ranged in investment size from USD10

million to greater than USD1 billion. We have served clients across all of the following industry segments: Life

Sciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector.

Follow Exolus at: www.exolus.com

Need Further Information: [email protected]

Want Copies of our Reports: www.exolus.com/en/knowledge/research.html

Disclaimer
http://www.exolus.com/mailto:[email protected]://www.exolus.com/en/knowledge/research.htmlhttp://www.exolus.com/http://www.exolus.com/en/knowledge/research.htmlmailto:[email protected]://www.exolus.com/


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In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our own

contributions to the market of ideas. As well, we are always tremendously grateful for the many, often selfless,

contributions that are availed in the process.

The opinions represented herein were prepared for information purposes only, at the time of publication. Theinformation represented herein is believed to be reliable, at the time of publication, and was obtained by

various public sources also believed to be reliable. The opinions were considered to be accurate at the point of

creation, and further, any views, forecasts, or estimates contained herein may be subject to change at anytime

without notice. The opinions expressed or implied herein may not be the opinions of the author, also Exolus, or

any associated affiliates.

This report and the information contained herein collectively, is not offered as, and should not be regarded as,

used or relied upon as advice on any matter. It shall not constitute or be construed as a recommendation or

solicitation on behalf of the author, and no legal commitment or obligation shall arise by reason of thisdocument. Thus, the reader shall make an independent assessment of opinions stated herein that shall not be

considered a substitute for obtaining advise from the readers advisors.

The author shall not accept responsibility, express or implied, with regards to the accuracy and completeness

of the information herein, and the author shall not be liable whatsoever and howsoever arising in connection to

this publication. The author shall not accept, and hereby disclaim, all responsibility and liability to all persons,

entities, or organizations for all consequences arising out of any use or reliance on the whole or any part of this

publication.

This publication should not be reproduced or distributed without the authors consent and is not intended for

distribution in any jurisdiction in which this would be prohibited.


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France Houdard

Managing [email protected]

January 2013

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