New Leaders Emerge as A&D Industry Enters Turbulence
An aerospace market driven recently by defense-related spending is plotting a new course piloted by the commercial sector. Uncertain economic times have companies focusing on increased productivity in core competencies and growth in more familiar domestic markets by way of existing product extensions.
These are among the findings revealed in a study of aerospace and defense (A&D) industry decision makers conducted by CSC and Aviation Week & Space Technology magazine. Key findings of the 2012 A&D Market Survey, include:
- Large-body commercial aviation is poised for a banner year. Contractors dependant on defense and government spending are preparing for sequestration and sharp spending reductions.
- Companies are increasingly being forced to achieve lead-time requirements that are stretched over a diverse and complex supply chain.
- Growth opportunities are focused on domestic markets and products versus prior years' focus on services and international expansion.
- Continued investment in engineering and research and development is seen as a path to new markets and innovation.
“Companies are focusing on what they know and do well as they simultaneously ramp up in one business segment and prepare for the possibility of massive budget cuts and layoffs in another,” says Tim Ellis, vice president of CSC’s Aerospace and Defense Group. “In an uncertain global economy the industry is bolstering its focus on core competencies to meet rapid changes in product mix and demand.”
Themes surfacing in the A&D industry include:
Strategy and Growth
Strategically, the pendulum and growth emphasis have swung away from government procurement and toward providing goods and services for the commercial market with an emphasis on the design and production of innovative products and increased productivity.
Percentage of responses indicating that the objective is either the highest (1) or second highest (2) strategic objective over the next one to two years:
Maintenance, Repair, Overhaul and Sustainment
Aftermarket support and performance-based logistics (PBL) are still seen as a source of continued revenue and margin, but growth is constrained. Firms providing PBL continue to increase their offerings and business, especially in the commercial market where PBL is now as prevalent as it is in government business. Those not offering PBL have no immediate plans to get into the business, citing a lack of demand, a lack of knowledge in the area and the perception that PBL is not a particularly profitable business.
For companies providing PBL, utilization is evenly distributed around a mean of 60% with about 18% of the companies reporting utilization in excess of 90% and a similar percentage reporting utilization lower than 20%. For these companies, the focus is on reducing turnaround time and improving quality and reliability.
What is the current capacity utilization for your maintenance, repair and overhaul operations?
In the technology-driven A&D industry, engineering is cited as the area of highest potential. When asked in which areas of business changes would have the greatest positive impact on the bottom line, respondents cited engineering, operations and supplier/supply-chain collaboration — in that order.
Similarly, engineering is seen as a source of competitive advantage that enables business systems and processes as opposed to IT, which is more often seen as a cost to be controlled, or supply chain management, which is viewed as neither an enabler nor a deterrent to growth and diversification.
Percentage of responses indicating that the functional area has the highest (1) or second highest (2) potential for positively impacting bottom line results:
For the complete results, download the 2012 A&D Market Survey (PDF).