In recent years, the aerospace industry has witnessed increased orders in the Civil sector, fuelled by a growing demand for air travel and a return to growth in the Defence sector. Advanced wide-body platforms such as the A350 and Boeing 787 are already in production, whilst the 777x and the A330 neo are nearing entry into service – all with significant orders.
However, experts fail to see the downward pressure this trend is likely to exert on profit margins. Original equipment manufacturers (OEMs) have started ramping up production of increasingly advanced platforms. To that end, globalization of engineering solutions has become a reality and, to counter the effects of the cyclical nature of demand in the Aerospace industry, a new agile business model has emerged.
For the leading Aerospace OEMs to zero down on the most preferred Engineering services delivery model, the following factors come into play:
Aerospace OEMs deal with situations that demand design of critical engineering components to improve fuel efficiency, reduce environmental impact and maintain the highest levels of safety. They must achieve all of this with a view to continuous improvement, delivering solutions faster, cheaper and better.
Given the fact that a typical life span of an aircraft spans over 40 years, the latter phase of Engineering efforts in terms of maintenance and overhaul is very important. The asset owner; typically an airline or a lessor, become very focussed on the cost of maintenance and the reliability characteristics of the product. For example, if we take TotalCare, Rolls-Royce’s flagship aftermarket service offering, the engine OEM becomes naturally incentivised to improve reliability and maintenance cost by agreeing a fixed rate per flying hour of engine operation. Rolls-Royce takes on the risk of increased or unexpected cost of product operation in return for a fixed fee throughout the product lifecycle. This concept is now starting to flow down from Aerospace OEM toward its suppliers and is achieved through fully defined work packages with clear deliverables, enabling suppliers to profit from improved performance or lose from poor performance in much the same way as Rolls-Royce (for example) benefits from improved time on wing and the avoidance of any unexpected costs.
The concept is simple, in that a fully integrated work package autonomously delivered will offer greater value for the customer, yet it is often difficult to achieve as OEMs can be reluctant to let go of certain aspects of their supply chain. This is a similar behavioural characteristic that OEMs first observed in their customers when service products such as TotalCare were launched, however now such practice is welcomed and expected by Civil and Defence customers alike. It is therefore expected that such practice will flow down and become more commonplace throughout the Engineering services supply chain such that the risk and reward of meeting product performance expectations is distributed throughout that supply chain. For the Engineering services provider this a welcome development as it should enable the provision of larger, more complex and fully integrated work packages – and thus value is created.