Addressing supply chain issues through consolidation
“You talk to virtually anyone…
Hazel King speaks to David Stewart, partner, Oliver Wyman, about labour and materials supply chain challenges, and the role of consolidation in addressing these issues
“You talk to virtually anyone in supply chain – whether that’s airlines, manufacturers or MROs – and the ability to recruit and retain people is in the top three of their agenda,” David Stewart says. “That is because we lost many of people over Covid – airlines cut back and offered redundancy packages to some staff or laid off or furloughed others – and with the comeback they’ve not been able to ramp that back up as quickly as they were able to downsize.”
Stewart suggests the issue could be down to increased competition from other sectors that may appear more favourable than aviation. “The aviation industry for some could be viewed as fairly volatile, especially with Covid still in the rear-view mirror,” he explains. “In addition to that, we now have the environmentally friendly argument as a challenge. Gone are the days when you can put an airplane on a job advert and get a ton of applications – it’s not got the same connotations anymore. So overall the circumstances have got a lot tougher, and it is harder to attract people into our industry, especially the younger generation.”
A collaborative approach
So, what does the industry need to do to attract those younger people into the aerospace sector – more collaboration, increased government support, or perhaps getting into educational settings earlier? “All three really,” says Stewart. “As an industry we need to promote that employee value proposition really well, and I’m sure we could do better. I think individual aviation firms are promoting themselves, but we need to look at how we can collaborate better as an industry rather than one on one.”
He continues, “At a very high level, we need to communicate better on what we are doing on sustainability and emissions. Yes, we account for 2% of global [greenhouse gas] emissions and we recognise that emissions are increasing at a higher rate than some other industries. However, it is still only 2% and we need to tell a better story of the huge progress made to date and how the journey forward will be even more exciting from a technology perspective.”
For Stewart, industry events such as Paris Air Show are great platforms to enable the promotion of the industry to a wider audience, as well as an enabler for industry figures to address the trends and challenges of the sector. He adds, “When all the CTOs of all the big OEMs get together and reinforce sustainability is in the top three of their priorities, it’s meaningful. Obviously, the businesses need to follow through, but having that platform is very important.”
Supply chain management
When it comes to the material supply chain, Covid also caused and exaggerated issues which are still being remedied. “For efficiency and productivity purposes, the industry had moved to more of a ‘just in time’ concept – not quite as finely tuned as automotive but the same dynamic,” Stewart explains. “We’d also been moving to a global supply chain over many years, moving some of the production to lower-labour cost locations such as Mexico and others. And then suddenly, moving things around wasn’t so easy and certain goods – particularly on certain electronics and raw materials – weren’t as readily available.
“Add the labour challenges to that and suddenly your ability to deliver parts to a ramping up production line and support a sudden increase in airline flying has been severely compromised.”
To overcome these challenges, the industry needs to improve its demand forecasting capabilities, whether you’re a maintenance company, an airline or an OEM, according to Stewart. “Then you need to work very closely and transparently with your supply base – if you can provide them with predictable demand, it eases their planning. Airlines and OEMs’ ability to give stable demand forecasts to their supply base is an area for real improvement. It is about working together and communicating better.”
At a recent conference session hosted by Stewart, attendees were asked when they thought supply chain challenges in terms of materials would end. “Most predicted the end of 2024, but about 15% said not until 2025,” he says.
Industry consolidation
For Stewart, some of these supply chain issues may be addressed through increased consolidation in the industry. This coincides with a broader trend that is seeing a renewed interest in mergers and acquisitions as the industry recovers post-Covid.
“Private equity [PE] has been interested in the aerospace sector for a long time because we had such high levels of growth pre-Covid, during which many investments were made. Then Covid hit and those that were expecting to sell an asset – whether privately or PE owned – couldn’t. Now they’ve come out of Covid and survived it, so there is a backlog of companies who are ready and willing to sell, and at the same time we’ve got industry recovery and some private equity firms with money to spend for the right asset,” explains Stewart.
“We’ve yet to see many deals close because there is maybe a gap between the price companies are willing to buy or sell at, but there is plenty of interest. The fragmented market is driving consolidation – people up the chain are looking for fewer suppliers to choose from, so if you’ve got more scale, you can offer more products and be more attractive to people up the chain,” Stewart continues.
Continued innovation
But could this increased consolidation reduce the amount of innovation in the aerospace sector? Stewart doesn’t think so. “As an industry, we’re pretty good at prioritising investment in innovation and technology,” he explains. “To some extent, consolidation is a natural maturing of innovation – look at the electric/eVTOL market. A few years ago, there were up to 200 emerging platforms, but we all know there won’t be that many survivors. You’ll end up with 5-10 big players. You’re going to get a aggregation of technologies, but that still encourages the innovators because you still have those entrepreneurs and innovators who get bought into by some of the bigger players because their technology is of value.
“Increasingly, firms will have innovation labs and I think as an industry we’re quite good at encouraging that. The airshow is seen as a particularly good place for demonstrating innovation as well,” Stewart concludes.
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