William LeandowskiWilliam LeandowskiV.P. Suppier ManagementV.P. Suppier Management

July 18, 2001July 18, 2001

AgendaAgenda

• State of the IndustryState of the Industry

• AIA IssuesAIA Issues

• What Suppliers FaceWhat Suppliers Face

• AIA Response/SupportAIA Response/Support

• Quality IssuesQuality Issues

U.S. Aerospace Industry SalesU.S. Aerospace Industry Sales

NASA/OtherNASA/OtherGov’tGov’t8%8%

OtherOther15%15%

ExportsExports

27%27%

DoDDoD 50%50%

NASA/OtherNASA/OtherGov’tGov’t7%7%

OtherOther23%23%

ExportsExports

42%42%

DoDDoD 28%28%

19198899 ($121B)($121B)

19199999pp

($155B)($155B)

MilitaryMilitary

5%5%MilitaryMilitary

8%8%

2000p ($144B)

Exports41.0%

Defense Dept31.6%

NASAetc

9.0%

OtherOther18.4%18.4%

1990 ($134B)

NASAetc

8.3%

OtherOther17.6%17.6%

Exports29.1%

Defense Dept45.0%

U.S. Aerospace Industry Sales

Trade Balance by Industry, 1998Trade Balance by Industry, 1998

Transportation Equipment Excl. AerospaceTransportation Equipment Excl. AerospaceElectronic Equipment Except ComputersElectronic Equipment Except ComputersApparel and Related ProductsApparel and Related Products

Agriculture, Forestry and FishingAgriculture, Forestry and FishingChemicals and Allied ProductsChemicals and Allied ProductsAerospaceAerospace

-75-75 -65-65-55-55-45-45 -35-35-25-25 -15-15 -5-5 55 1515 2525 3535 4545Billions of DollarsBillions of Dollars

Miscellaneous Manufacturing IndustriesMiscellaneous Manufacturing IndustriesMiningMining

Food and Kindred ProductsFood and Kindred ProductsInstruments et alInstruments et alTobacco ProductsTobacco Products

Aerospace Exports and Trade Surplus

0

10

20

30

40

50

60

70

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

PB

illio

ns

of

Do

llars

Exports Trade Surplus

U.S. Aerospace Industry SalesU.S. Aerospace Industry Sales

$8.0 $7.6 $8.0 $8.7

$30.8 $32.3 $31.1 $32.6

$33.4 $34.1 $35.8 $37.5

$21.9 $24.7 $25.9 $24.9

$37.4$37.4

$49.8$49.8 $54.5$54.5 $45.7$45.7

0

10

20

3040

50

6070

80

90

100

110120

130

140150

160170

1997 1998 1999p 2000e

Bil

lion

s O

f D

olla

rs

Civil AircraftRelated ProductsMilitary AircraftSpaceMissiles

$149$155

$148

$132

Aerospace Sales by Customer

0

20

40

60

80

100

120

140

160

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

P

20

01

EB

illio

ns

of

Do

llars

DoD NASA Other Related Products

Change In Business BaseChange In Business Base

PrimesPrimes SuppliersSuppliers

Pre-Cold War/Cold War Pre-Cold War/Cold War Integrator/Leader = DoDIntegrator/Leader = DoD

Post-Cold WarPost-Cold WarIntegrator/Leader = AIAIntegrator/Leader = AIA

Aerospace Industry SalesAerospace Industry Sales

1919999 9 1919889 9

Aerospace Industry SalesAerospace Industry Sales

Commercial Commercial SpaceSpace

4.6%4.6% CivilCivil AircraftAircraft

35.1%35.1%

Civil Civil AircraftAircraft

18.2%18.2%

Commercial Commercial SpaceSpace

1.3%1.3%

0%0%

5%5%

10%10%

15%15%

20%20%

25%25%

19771977

19801980

19841984

19881988

19921992

19961996

$83 Billion

$56 Billion

Aero%, Total Funding

Aerospace Share Of National R&D FundingAerospace Share Of National R&D Funding

Today’s Trends in Aerospace IndustryToday’s Trends in Aerospace Industry Increasing civil/military integrationIncreasing civil/military integration

Consolidation of companies at multiple levels driven byConsolidation of companies at multiple levels driven by market, world economic situation, need to compete withmarket, world economic situation, need to compete with American giantsAmerican giants

Emergence of competing sectors for capitalEmergence of competing sectors for capital

Strong erosion of government-sponsored researchStrong erosion of government-sponsored research

Misconception regarding the government’s ability Misconception regarding the government’s ability to implement reformto implement reform

Primes become systems designers, integrators, finalPrimes become systems designers, integrators, final assemblers and after-market supportersassemblers and after-market supporters

AgendaAgenda

• State of the IndustryState of the Industry

• AIA IssuesAIA Issues

• What Suppliers FaceWhat Suppliers Face

• AIA Response/SupportAIA Response/Support

• Support the Presidential Commission on the Future of the U.S. Aerospace Industry

• Support Global Implementation of Commercial Aviation Safety Team Recommendations

• Establish International Consensus to Reduce Airplane Noise and Emissions Through ICAO

• Continue Reform of Export Laws, Regulations, & Their Administration

• Adequately Fund Aerospace Procurement and R&D

• Continue Reform of Government/Industry Business Practices

• Facilitate an Integrated E-Business Environment Among Suppliers, Customers, and Business Partners

• Examine Multilateral Actions to Reduce Offsets

• Develop a National Plan to Support the Commercial Space Industry

• Reduce United States/European Union Aerospace Trade Tensions

AIA 2001 Top Ten Issues AIA 2001 Top Ten Issues

SMC Input Into the Process

• Acquisition Reform for Suppliers

• Electronic Commerce

• Engineering/Tech Talent Attraction & Retention

Commission

Purpose: Make recommendations to help

maintain a “Robust” aerospace industry• R&D funding• general acquisition process• government pay policy for contracts• trade regulation & export controls• tax laws on international competitiveness• national space launch infrastructure• loss of technical talent in science & engineering

AgendaAgenda

• State of the IndustryState of the Industry

• AIA IssuesAIA Issues

• What Suppliers FaceWhat Suppliers Face

• AIA Response/SupportAIA Response/Support

SupplierSupplier

Certified SupplierCertified Supplier

Preferred SupplierPreferred Supplier

Long Term SupplierLong Term Supplier

Key SupplierKey Supplier

Strategic PartnerStrategic Partner

Joint VentureJoint Venture

AmountAmount

ofofSubcontractSubcontract

WorkWork

100 100 %%

00

Supplier Preferred Joint Venture

Acquisition ReformAcquisition Reform

• Performance BasedPerformance Based

Design TeamDesign Team

• Sustained PerformanceSustained Performance

• Lean/SigmaLean/Sigma

• Reduced Cost ProjectionsReduced Cost Projections

• Share Risk/RewardShare Risk/RewardTechnology/CapitalTechnology/Capital

ProfitProfit

100100

Quality, Cost, Delivery, Quality, Cost, Delivery, ResponsivenessResponsiveness

Every prime and major subcontractor is reducing the supply base

Electronic Data Interchange…new technology, new business practicesElectronic Data Interchange…new technology, new business practices

Electronic CommerceElectronic CommerceChanging the Way We Do BusinessChanging the Way We Do Business

Reverse Auction

Extensible Markup Language

Exostar.com Raytheon

BoeingBAE

Lockheed Martin

MyAircraft.comUTC

HoneywellBEGoodrich

IndependentAvolo

PartsbaseAeroMatchTradeAirRotableILSmartAerospan

B2B Sites & Marketplace

Portals for Procurement

Challenge…More Work OutsourcedChallenge…More Work Outsourced

100-100- 75-75-50-50- ** ** ** **

**(50%)(50%)

(60%)(60%) (65%)(65%)(70%)(70%) (80%)(80%)

* Percent Outsourced* Percent Outsourced

Prime/OEMPrime/OEMLarge & SmallLarge & Small

Systems Integration, Systems Integration, ManufacturingManufacturing

1970’s - 1990’s1970’s - 1990’s

SubcontractorsSubcontractorsSystems,Systems,

Manufacturing,Manufacturing,ComponentsComponents

SuppliersSuppliersSubcomponentsSubcomponents

PartsParts

Large Systems IntegrationsLarge Systems Integrations

Small Systems IntegrationSmall Systems IntegrationManufacturingManufacturing

SystemsSystems

Components, ManufacturingComponents, Manufacturing

Subcomponents, PartsSubcomponents, Parts

1990’s - 2010’s1990’s - 2010’s

SuppliersSuppliers

Move upMove up

SupplySupply

ChainChain

Suppliers NeedSuppliers Need

• Add capabilityAdd capability• Be acquiredBe acquired• Go out of businessGo out of business1970s 1980s 1990s 2000s 2010s

AgendaAgenda

• State of the IndustryState of the Industry

• AIA IssuesAIA Issues

• What Suppliers FaceWhat Suppliers Face

• AIA Response/SupportAIA Response/Support

Challenges of AIA’s Challenges of AIA’s Supplier Management CouncilSupplier Management Council

Continue to be a...Continue to be a...

• Robust, effective industry forum for improving relationshipsRobust, effective industry forum for improving relationships between suppliers and customersbetween suppliers and customers

• Stronger voice for national consensus because…Stronger voice for national consensus because…

• Suppliers’ views must be heard in venues asSuppliers’ views must be heard in venues as important part of industryimportant part of industry

• Suppliers are most vulnerable to global competitionSuppliers are most vulnerable to global competition

• Suppliers need access to research dollarsSuppliers need access to research dollars

When change occurs, suppliers are the most vulnerable!When change occurs, suppliers are the most vulnerable!

AIA GoalAIA GoalSupplier Access to Global MarketplaceSupplier Access to Global Marketplace

• Foreign Airshow SupportForeign Airshow Support

• FarnboroughFarnborough• ParisParis

• Participation in AIA issuesParticipation in AIA issues

• White House meeting on export control processWhite House meeting on export control process

• Telecon Lecture SeriesTelecon Lecture Series

• Export licensingExport licensing

• Individual Member SupportIndividual Member Support

• AIA action on specific issuesAIA action on specific issues

Supplier - Customer RelationshipSupplier - Customer Relationship

CUSTOMERCUSTOMER

DESIGN/ SUPPLIER PLAN CONTRACTS DELIVERMAKE

• IPT’S/ IPT’S/ DESIGN DESIGN TEAMSTEAMS

•FLOW DOWN FLOW DOWN CLAUSESCLAUSES

•EDI/ECEDI/EC•LONG TERM LONG TERM RELATIONSHIPSRELATIONSHIPS

•ERPERP•6 6 (sigma)(sigma)

•LEANLEAN

•SUPPLIER SUPPLIER SPISPI

•MEASURING MEASURING SUPPLIER SUPPLIER PERFORMANCEPERFORMANCE

• Streamlined Relationship

• Lower Cost• Globally

Competitive

•GREEN GREEN MFGMFG

•CERTIFICATION CERTIFICATION PROGRAMSPROGRAMS

•QMSQMS

SMC ResolutionsWorking Hard For You

Reduce number & length of time for supplier quality management surveys.

Resolve to...

Allow supplier baseto benefit from DoD acquisition reform through single process initiatives.

Resolve to...

Ensure fairness & accuracy of supplier measurement systems. Reduce administrative burden.

Resolve to...

Implement one EDI system industry wide.

Resolve to...

Making Sense of Making Sense of Electronic CommerceElectronic Commerce

IndustryB2B Exchanges

AIAAIA

SMC EC Working Group

DoDIntegrated Digital

Environment

UnderstandingUnderstanding

KnowledgeKnowledge

IDE Working Group

Aerospace SuppliersAerospace SuppliersTypical ProfileTypical Profile

Long TermLong Term

• CooperativeCooperative• DelegatesDelegates• BenchmarksBenchmarks• External awarenessExternal awareness• Strategic thinkerStrategic thinker• Expands business & capabilityExpands business & capability• Leverages resources/informationLeverages resources/information• Acts quickly when external awareness,Acts quickly when external awareness, benchmarking, cooperation, strategic benchmarking, cooperation, strategic thinking dictatethinking dictate

TypicalTypical

• EntrepreneurialEntrepreneurial• Hard to delegateHard to delegate• Not invented hereNot invented here• Internal focusInternal focus• Tactical thinkerTactical thinker• Quid Pro QuoQuid Pro Quo• Resource limitedResource limited• CautiousCautious

Advanced Quality

• ISO 9001:2000• DOD• NASA• Customer Companies• Process Audits• NADCAP• Survey-Reduction of QMS• ISO vs AS• AAQG & IAQG Ties & Cooperation