EI-AEROSPACE-ANNUAL-STUDY-060813.pdf

7/28/2019 EI-AEROSPACE-ANNUAL-STUDY-060813.pdf

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2013 AlixPartners, LLP

JUNE 2013

2013 AlxPartr, LLP

Pockt o TurbulcThe 2013 Aerospace & DefenseIndustry Outlook inside

Arl

d

Commrcal Aropac

supply Cha

MRO


2/8

Pockets of Turbulence

2


Th global aropac a (A&d)

utry cotug t growth th wak

o th worlw acal cr, yt t

rma a xtrmly yamc marktplac,

whch om ctor ar boomg a othr ar

xprcg pockt o vr turbulc.

Accorg to thAlixPartners 2013 Aerospace

& Defense Industry Outlook, a pth aaly o

ctor a compay acal a ky macro-

coomc tr, th A&d utry grw by 6.8%

2012. Th wa up rom 2011 al growth o

5.5% but tll ot at prcr growth lvl, whchht 10% 2008. Commrcal aropac compa

rprt prhap th trogt gmt o

th utry: thy lvr mor tha 1,300 jt

worlw 2013a rcor or th utry

a w orr cotu to roll .

Mawhl, cotrat to th growth amog

arl a commrcal arcrat orgal-

qupmt mauacturr (OeM), th

ctor hrkg. ev though om o th

vlopg-markt coutr ar rampg up

pg, th cra ar ot ough to mak

up or a harp cl pg by vlop

ato, prmarly th Ut stat, whch

cotu to ac cal ucrtat.

Accorg to th Outlook, th ctor

wll truggl to mak up or ruc top-l

growth; th commrcal aropac ctor wllbt rom a cra trog lvr

a wll ocu o tralatg that growth to

a bggr har o th prot pool.

Gv th challg, A&d compa to

bcom mor ct a wrg cot out o

thr oprato at all lvl. i th ctor

partcularly, compa mut vry to w,

mor-promg tratoal markt, whr th

rul o gagmt ar alo chagg. Th

utry wll lkly rma hghly compttv or

th orabl utur, yt thr trog growth

pottal om markt, a wll a gratr

prot or compa mbl ough to ty

a xplot tho markt.

Arl: Growth rtur,

but prot tll laguh

Th arl ctor rct th currt goo-w/

ba-w tat o th A&d utry. stay trac

growth5.3% 2012 lag to mprov

rvu, a th arl hav bcom much mor

cpl o capacty tha thy wr th pat.

(Capacty grw 3.9% lat yar.) stll, arl hav

truggl to tralat th mprovmt to th

bottom l, a trog prot rma luv.

Currt projcto call or opratg marg o

jut 3.3% 2013. Oprator ar bg quzo both : hgh ul prc hav ra

opratg cot, a low-cot carrr a w

global compttor hav kpt prur o prcg.

ev ul cot rvrt to htorcal avrag at

om pot, th compttv actor ar lkly hr

to tay. A a rult, th arl ctor ux.

Th ormrly trog europa a Us markt ar

cl, a oprator ar thr rtructurg

(Amrca Arl, sAs scaava, spaar)

or mrgg (AmrcaUs Arway, Cottal-

Ut, itratoal Arl GroupVulg).

A growth matur markt ha att, th

utry ctr o gravty ha h to mor-

raply-growg markt Aa a th Ml


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3


eat, whch how avorabl mographc a

growg ml cla that ar mor a mor

cl to travl by ar. Accorgly, arl th

markt ar bulg up thr t a placg

larg orr (gur 1). ioa Lo Ar, or

xampl, orr 234 A320 March 2013th

bggt commrcal arl orr utry htory.

(ev Arca how 7.2% trac growth 2012,

though amttly rom a mall ba.) By 2031, th

Aa-Pacc rgo wll b th bggt arl markt

th worl, rcvg 31% o all w jt lvr.

Th co ara o ux amog arl opratg mol, a th l btw low-cot

a ull-rvc carrr ha blurr. Tratoal

twork carrr hav ubul thr prcg to

gv pagr lowr ar ovrall, wth a mu o

avalabl a-o. Mawhl, low-cot provr

hav a w rvcor xampl, bu-

cla tckt a log-haul routalog wth

rvc ovato lk lv -ght tlvo.

Th uamtal mag or arl that th

prouct thy otbly ll o logr mr

traportato. Wh that prouct wa a

commotya at that tak pagr rom

pot A to pot Barl coul rtat

ba oly o prc a chul. Toay, thy ca

rtat ug mrchag a marktg.

Thy ca vlop ovatv prouct a rvc

org that ta apart rom th comptto.

A thy ca u tat-o-th-art marktg to

ur that thr bra clar th markt.

d: A paul cotractoa a h to th eat

Th ctor xprcg a mlar ht

rom matur Wtr marktwhr cut

bugt hav ma bu ar mor

challggto atr-growg rgo, Aa.

Global pg cra 2012 or

th rt tm c 1998, to $1.7 trllo. That

clu 3 to 4% cut mot o th majorWtr markt (5.8% th Ut stat, th

largt markt worlw). Aa coutr

outpt europa nATO coutr or th rt

tma wll cotu to o o (gur 2).

Compoug th trato, two o th largt

vlopg-markt prCha a Rua

ar ctvly o-lmt or out cotractor.

Ch pg projct to cra

at a compou aual growth rat o 18.5% or th

xt ca. Th trmou growth that

Wtr cotractor caot tap. (By 2016, Cha

a Rua wll accout or 32% o all

pg amog th top v markt worlw,

up rom oly 17% 2011.) d mauacturr

ar ow ghtg to captur th arablSource: International Air Transport Association Forecasts Feb 2013;ASK = available seat kilometers; RPK = revenue passenger kilometers

FIGURE 1: YEAR-OVER-YEAR GROWTH IN GLOBALPASSENGER TRAFFIC AND CAPACITY (%, 2012)

7.2%

6.0%

5.1%

9.5%

15.2%

1.1%

5.3%

6.5%

5.2%

2.9%

7.5%

12.4%

0.1%

3.9%

Africa AsiaPacific

Europe LatinAmerica

MiddleEast

NorthAmerica

TotalMarket

RPK ASK


4/8


4


ubgmt o vlopg marktprmarly

ia, Brazl, a sau Arabav a Rua

a Ch cotractor cra thr xport

to tho markt a wll.

Th u ar ot lkly to chag oo.

Cotractor that ll to th Ut stat wll b

xpo to a coluc o actor, clug

qutrato a a rawow mltary actvty

oc Us orc lav Aghata 2014. Th

tuato wll hav varyg ct pg o a

mauacturr org a gographc ocu.

supplr that hav arly vr portolo

mmz thr xpour to cut pcc

program. May OeM, howvr, ar vulrabl:

our rarch cat that 80% ar rlat o

a 75% ar pt o Us a

europa markt. smlarly, compa that

p o aual appropratouch a hp

rpar a th upply o opratoal coumabl

lk ammuto a protct vhclar

rctly xpo to th mpact o qutrato,

whch rqur hort-trm cut.

Amog europa rm, th thrat ar v mor

r. A major program lk combat arcrat a

hpbulg ramp ow, europa cotractor

ar ow trugglg to uta ovato a

utral capacty. i th abc o a major w

tatv to racally rtructur europa

capacty, th utry agrouly

clo to a pot o o rtur. Th tuato ot

yt o or , but t clarly o or cl.

To ucc th vromt,

compa mut:

Continuetoreducecosts.Compa

to mprov thr valu propoto to

cutomr othr wor, aorablty ha to

bcom a ralty, ot jut rma a buzzwor

a cra thr rtur to harholr.

Focusoninternationalmarkets.

Comptto or major program ar crag

wr-tak-all arragmt, uch a combat

arcra vlopg markt; a OeM mut

aapt thr org accorgly. Pur ot

al ar yg; mot o th vlopg-markt

buyr ma trar o tchology, al

ambly l, or local upplr.

Rebalanceportfolios.A ht rom bg bt

o major program to a mor balac

portoloclug, ay, lctroc a

cybrmay alo hlp mtgat xpour tourthr cut.

ConsolidateinEurope.exc capacty

combat ar, lctroc, a

hpbulg currtly uutaabl,

rqurg a major ort wth trog

govrmt larhp.

US

UK

FIGURE 2: GROWTH IN DEFENSE SPENDING

(HISTORICAL AND FORECAST)

10%

5%

5%

10%

15%

20%

25%

5% 5% 10% 15% 20% 25%

CAGR 20072011

CAGR20112016

China

India

Russia

Saudi

Arabia

Brazil

Italy

France

Germany

Japan


5/8


5


Commrcal aropac:

Boomg wth w prouct

Th trogt ctor wth th A&d utry lat

yar wa commrcal aropac, whch ot oly

xpa but alo acclrat t growth,

partcularly amog OeM. Bog rvu grw

18.9% 2012, a eAds by 12.7%. Currt

projcto call or that growth to cotu, u

largly to a hug backlog o orr ($390 bllo

or Bog a 638 bllo or eAds at lt prc,

a total o mor tha 9,000 arcra). W xpct that

by 2017, th workloa volum o OeM ma

commrcal program wll hav ramp up by 45%

a wll clu a gcat urg major w

program, wth urthr cra o th horzo.

At th am tm, both OeM a upplr ar

tralatg tho ga to mprov arg

bor trt a tax (eBiT). supplr

gmtclug propulo, cab tror,

a compot a matralbult o threBiT momtum rom arlr yar, wth trog

prormr uch a Prco Catpart, sara,

Roll-Royc, UTC, Parkr Ha, a Zoac.

Amog OeM, eAds ha how gcat

growth eBiT; othr compttor ar tll lowly

rturg to 2007 lvl. Ovrall, upplr

rma mor protabl tha OeM by a gap o

arly v prctag pot (gur 3).

That a, othr cator how that th gap

acal prormac btw OeM a

upplr tartg to clo. For xampl, OeM

rvu growth ow acclratgrom 1.6%

2011 to 6.7% 2012a upplr growth m

to b lowg ow: rom 10.2% 2011 to 6.6%

2012. smlarly, a aaly o cah rtur o

captal vt (CROCi) how that upplr havtr owwar c 2007, whra OeM

hav mprov thr CROCi prormac. i part,

th bcau th backlog orr ha allow

OeM to bul up trogr cah poto.

Movg orwar, th commrcal aropac prot

pool wll cotu to grow at a rat o 5% pr

yar, rv part by both arram a g

mauacturr w tcholog t to

mprov arcrat opratg ccy. Arcrat

lvr wll cra 2.3% a yar or th xt

ca. A th prot pool gt largr,

commrcal arcrat OeM wll ght to cra

thr har, by vlopg w arcrat g

a rampg up proucto or both arrow-

boy a w-boy arcrat.

ppt = percentage point

Sources: Capital IQ, AlixPartners analysis

FIGURE 3: EBIT MARGIN GROWTH (%, 2005-2012)

8.8%

2006

7.6%

2005

7.7% 7.4%

2008

8.8%

2007 2012

9.2%

2011

8.7%

2010

8.6%

2009

2012

11.3%

7.6%

2011

11.0%

7.0%

2010

10.3%

7.4%

2009

9.6%

5.9%

2008

9.6%8.2%

2007

10.7%

7.5%

2006

9.8%

6.3%

2005

9.0%

6.7%

OEMs Suppliers

+0.8 ppt 1.4 ppt

+ 1.8 ppt


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6


supply cha: Challg

o th horzo

Th comg cra al volum a potv

g, but t wll crat gcat challg or

A&d upply cha. A ot arlr, w projct a

45% ramp-up workloa by 2017, wth w

program lk th A320o, Bog 737 MAX,

a Bombarr C sr that wll tax grg

a utral rvc ucto. Th w

program alo volv mor-tchologcally-

complx g am at crag arcrat

opratg ccy by 15 to 20%. such avac

clu compot matral, ul-ct

g, a w ytm, clug avoc,

ul, brakg, a lctrc ytm.

Th currt utry upply cha ot alway

ray or th ual challg o lvrg a

greater volume omore-sophisticated arcrat.

i act, thr a ral a growg rk o upply

cha rupto. Crta upplr hav oly

lmt xprt a mot grg

capablt or mplmtg a utag

vral program, pcally th tal-part

a arotructur gmt. som upplr

a OeM hav tak arly tp to hal tho

lmtatoor xampl, by mor rctly

volvg a cloly motorg tr 1

arotructur upplr w programbuttho maur rprt a w rk-harg

mol or whch thr yt matur

ough to mplmt a motor.

FIGURE 4: SUPPLY CHAIN EVOLUTION

Raw

materials

Make-to-print

parts

Large-scale

integration

Aircra

assembly

Small-scale

integration

Value-added parts

and assemblies

OEMs

OEMs

Current

OEMs

FuturePast

Many supply paths Many direct suppliers Limited role for integrators Some role for value-adding

suppliers

Fewer supply paths Far fewer direct suppliers Extensive role for integrators Still-larger role for value-

adding parts suppliers

Few risk-sharing partners Unbundling of modules

and systems by OEMs Tier 2/tier 3 supplier

nomination by OEMs Small supplier base in each

segment

Reduced supplier base managed by OEM and tier 1


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7


Mor a mor, OeM wll hav to la

opratoal mprovmt program at thr ky

upplr, a tr 1 upplr wll hav to vlop

mlar maur urthr ow th upply cha. A

tr 1 rpoblty h to clu ot oly

ull-ytm but ubytm pc a tgrato,

OeM wll hav to work wth tho pc a that

tgrato to ur th OeM hav th uct

comptc plac. i ato, OeM wll

hav to cotu tramlg thr upply cha

through rtructurg a tgrato ort (gur

4). Coolato pcally th

tal-part-upplr gmt, a OeM mutactuat that proc.

MRO: sol growth a a

hufg o compttor

Worlw, th matac, rpar, a

oprato (MRO) markt grw 11% 2012, rom

$50.9 bllo to $56.8 bllo.

Th cvl ar traport lt, clug rgoal jt

a turboprop, currtly at about 26,000

arcrat, a that umbr wll grow harply th

comg ca: 15 yar, th -rvc lt

wll b about twc a larg a toay. That

growth wll lur w trat to th MRO l

a ralg th compttv lacap, a w

ar alray g vc o th hulg. For

xampl, Goorch mrg wth Hamlto

2012 to orm UTAs, a mgaplayr th

compot lght-hour-rvc (FHs) l, wth a

trog tllctual proprty poto o vral

w platorm lk th Bog 787. i othr ht,

th Us markt aw vral bakruptc, a th

compot MRO bu o Avo wa tak

ovr by A J Waltr Avato.

W xpct that arl wll cotu to outourc

thr matac gmt gratr volum,

uch a Far al wth sR Tchc, a

Amrca outourcg o t 757 a w-boy

matac.

Mor broaly, arcra OeM ar xtg thr

rach to th MRO bu. Arbu FHs a

Bog eg coul bcom major playr th

gmt th xt thr to v yar. Th two

compa ca bul o thr uqu acc to

arl a ca challg compot OeM uch

a cab qupmt mauacturr by mplmtgmajor w program a platorm.

Aothr tr actg th MRO bu that

xt-grato arcrat a g mply

rqur l matac. For xampl, th

Bog 787 rqur C a d chck at hal th

rqucy o th 767. A prot rma luv:

oly a w prmum playr ca rach a eBiT

marg o 10%.

i um, thr a clar growth opportuty th

MRO gmt, but to w, oprator wll hav to

avgat a yamc markt. Ky rqurmt wll

b acc to captal, wllg to vt log trm,

a a ootprt wth oprato clo to th t o

tomorrow, clug trog covrag Aa.

Thrvg a utabl markt

Th compoug ct o th growg markt

Aa a th Ml eat, raply volvg

tcholog, a cal tra o matur markt

europ a th Ut stat wll lkly la to

tablty or th A&d utry ovr th comg

yar. succul compa th utry wll


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8


ocu o vral prort. Frt, protablty a

ogog challg, a compa mut

roubl thr ort to ruc cot. Tho that

ca achv mor-ct oprato a gratr

eBiT marg ca gv thmlv th ha room

to puru utur opportuta ur

utur owtur.

sco, compa houl acclrat thr

vrcato to w a atr-growth

markt. Th tal mor tha a mr

gographc chagwth th hrt upply

cha challga volv th talorg o

prouct a rvc or cutomr gmt

wth varyg prort a rqurmt.

Lat, ovato a major thm acro all

gmt. Th ablty to ty a atcpat

ma or w prouct a rvcot

rv by w tchologwll b a clar

rtator A&d compa.

Th ar zabl challg, yt thy alo pot

to clar opportut. A&d oprator that ca

gt th thr ara rght ca gv thmlv a

clar, compttv g a volatl utry.

FOR MORE INFORMATION, PLEASE CONTACT:

erc Bra

Maagg drctor

[email protected]

+33 1 76 74 72 06

dav Ftzpatrck

Maagg drctor

[email protected]

+1 (415) 848-0307

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EI-AEROSPACE-ANNUAL-STUDY-060813.pdf