Airbus delivered a new company record of 718 aircraft to 85 customers in 2017, its 15th consecutive year of growth. Deliveries were more than 4% higher than the previous record – 688 – in 2016. The 2017 total comprises: 558 A320 family (181 were A320neo – an increase of 166% from 2016); 67 A330s; 78 A350 XWBs (up by nearly 60% from 2016); and 15 A380s. Airbus booked 1,109 net orders from 44 customers. At the end of 2017, Airbus’ overall backlog stood at 7,265 aircraft valued at $1.059 trillion at list prices.
Airbus is on track to achieve a 60-per-month build rate on the A320 family by mid-2019 and 10 per month for the A350 XWB by the end of 2018.
www.airbus.com Airbus 2017 milestones 100th A350 XWB delivery 50th A320 family aircraft delivery from Mobile, Alabama 1st flight of A330neo Certification of A350-1000 1st A321neos delivered with CFM, P&W engines Airbus family formation flight
Embraer delivered 210 jets in 2017: 101 commercial aircraft and 109 executive jets (72 light and 37 large), meeting the year’s delivery outlook of 97 to 102 commercial jets, 70 to 80 light business jets, and 35 to 45 large business jets. At the end of 2017, the firm order backlog was valued at $18.3 billion.
Year-end results for Bombardier were not available at press time, but in its Q3 report, the company expected to reach deliveries of 50 regional jets and turboprops and approximately 135 business jets in 2017. Order backlog stood at 433 commercial aircraft and $14.5 billion worth of business aircraft as of Sept. 30, 2017.
www.bombardier.com Richard Aboulafia Vice President of Analysis, Teal Group
The outlook for the world aircraft market is the best it’s been in six years. Teal Group is expecting deliveries to rise by 9% in 2018, the strongest increase since 2012. Demand is strong, and execution is improving for key programs.
There was a 3% decline in deliveries from 2016, but this softness was due to production issues, particularly with the new Airbus A320neo and Boeing 737MAX single-aisle jetliners. These two programs comprise 25% of total industry output, and as output continues to grow in 2018, they will drive strong topline market growth.
Low interest rates, moderate fuel prices, strong China demand, and positive airline traffic growth will combine to keep the jetliner market growing, with Airbus A350XWB and Boeing 787 deliveries increasing.
The military side of the industry is growing, too. Lockheed Martin’s F-35 is finally seeing positive momentum, with 66 models delivered last year. This should rise to at least 80 planes this year. Generation 4.5 fighters – Eurofighter Typhoon, Rafale, Gripen, F-15, and F/A-18E/F – have been enjoying longer market success than anticipated, with total deliveries remaining stable.
Business jets remain weak, but there is little risk of a further market decline. Regional transports are also weak, although the arrival of the first Embraer E2 this year offers some hope. In twin-aisle jetliners, Boeing’s 777 will remain weak until the 777X arrives in 2020, and Airbus’s A380 will die in the next few years. On the military side, U.S. rotorcraft programs continue to trend downward, and the military transport market remains flat.
However, for the topline market and for the biggest segments, growth looks strong with few risks that could disrupt output increases. The only identifiable risk is that Airbus and Boeing continue to increase single-aisle output beyond their current plans, which could result in overcapacity. Absent that, Teal Group’s forecast now sees topline industry growth through 2020, with no signs of a serious downturn after that.
www.tealgroup.com Robb Hudson CEO, Mitsui Seiki USA Inc.
In the aerospace industry, it’s time to break out the champagne and take an antacid at the same time. Orders for new aircraft programs are increasing at a robust pace,
however the problem – one we’ve been warning about for the last three years – is the lack of capital equipment capacity in the supply chain to fulfill orders on time. There aren’t enough qualified machine tools in the chain to meet order demand for new airliners.
We are doing our best to anticipate orders to get components made in advance and build our inventory to support jet engine and structural parts manufacturing. However, we can only get so far in our production until the specifications for the finished machine are known. With high-precision, dedicated equipment for aerospace parts, some properties simply cannot be rushed, such as hand scraping mating surfaces.
Once delivered, though, the equipment will do the job for years to come with no part quality issues. What could compound the delays further is if manufacturers purchase inferior equipment that might be available off the shelf right now. So, while the overall industry forecast is positive, there will be a delivery lag – and it’s difficult to tell for how long – as manufacturers tool-up with the proper equipment for more production.
Boeing delivered 763 aircraft in 2017 – more commercial airplanes than any manufacturer for the sixth consecutive year – driven by
output of 737 and 787 jets. The company grew its backlog with 71 customers placing 912 net orders valued at $134.8 billion at list prices. The total extends Boeing’s backlog to a record 5,864 airplanes at the end of 2017, equal to about seven years of production.
Boeing raised production on the 737 program to 47 airplanes a month during the year, delivering 529, including 74 of the new 737 MAX. On the 787 Dreamliner program, Boeing continued building at the highest production rate for a twin-aisle jet, leading to 136 deliveries for the year.
www.boeing.com Alan Hallmann North American Sales Manager, MC Machinery Systems Inc.
Year-over-year sales volumes for most products gained in 2017. Service, parts, and consumable activity
remains strong, so we know customers are staying busy. Job shops still make up most consumption, and 2017 machinery utilization grew for many of these companies.The highest growth areas were automation, 5-axis machining, additive manufacturing, large molding, and aerospace. Automation sales have grown 30% each year for the last 2 years.
In 2018, 2017’s trends should continue. Positive news such as re-shoring keeps us excited about our future. Unemployment remains low, so skilled labor remains hard to find. Automation, smart manufacturing tools, training, and turnkey projects allow customers to grow their businesses with fewer people and greater support. Anywhere we can demonstrate fewer setups and more unmanned productivity improves our chances of winning business.
We look forward to September 2018 and the International Machine Tool Show (IMTS) in Chicago where we all put our best technology and innovative ideas into action.
www.mcmachinery.com Rob Stallard Aerospace and Defense Analyst, Vertical Research Partners
Will Spirit AeroSystems acquire GKN Aerospace? We think the chances have increased since we first wrote about it in September 2017, given the continued strength in the critical single-aisle market for Spirit.
GKN issued a profit warning in October, with a change in senior management. Then came an unsolicited approach from British-based investment company Melrose Industries. By contrast, Spirit posted
third quarter results in line with estimates, with management again expressing interest in a merger/acquisition that would diversify the company beyond Boeing’s 737 – Spirit’s largest program.
The strategic drivers of the deal remain compelling – adding more Airbus and defense exposure to Spirit’s
portfolio, while combining two aerostructures companies in the face of price pressure from original equipment manufacturers. GKN’s management is under pressure and has already announced plans to separate the company into aero and auto. So, selling GKN Aero to Spirit could thwart unwelcome advances from Melrose. We think the chances of nothing happening are now zero, so this presents a real opportunity for Spirit to enhance its strategic and financial position. www.verticalresearchpartners.com Andrew Carolus and Adam Oakley Managing Directors, Mesirow Financial
Merger and acquisition (M&A) activity within the aerospace supply chain’s top tiers remained strong in 2017, with more large transactions and fewer deals.
Deal activity total value was up due to several large transactions: United Technologies Corp. – Rockwell Collins Inc. (pending) Safran – Zodiac Aerospace (pending) Rockwell Collins – B/E Aerospace (closed April 2017)
Private equity firms continue to invest heavily in the commercial aerospace supply chain, with firms executing buy-and-build strategies in precision machining, composites, and advanced materials. Valuation multiples for private transactions remained strong in 2017 and are near historical benchmarks.
Recent consolidation within aerospace Tier 1s will continue to influence M&A activity in 2018 and beyond. However, the companies listed above will likely reduce M&A activity following their transformational deals. Less-active large suppliers may pursue mid-tier suppliers, while smaller suppliers could join forces to increase scale. Recent consolidations are also likely to spur divestitures either mandated by the Department of Justice or through strategic portfolio review.
Acquirers continue to focus on companies with content on platforms with strong production rates (Boeing 737, 787; Airbus A320, A350). Also highly sought after are companies with significant aftermarket business in parts and service, given the high margin and recurring nature of such revenue.
Cabin lighting, in-flight connectivity hardware, sensors, composites/engineered materials, and precision machining segments are attractive for M&A as aerospace supply chain participants seek to optimize technology and capabilities to best
service the original equipment manufacturers. www.mesirowfinancial.com At the 2017 Paris Air Show, United Airlines converted 100 737 MAX orders into 737 MAX 10s, becoming the largest 737 MAX 10 customer. Ajay Chavali Managing Director, North America Aerospace & Defense Lead, Product Engineering & Lifecycle Services, Accenture
Aerospace and defense (A&D) companies must master the digital thread: the flow of data fueling the digital insights behind customer-centric experiences.
Digital twin – a digital representation of a physical product, such as an aircraft engine or cabin component – incorporates product specifications, CAD models, material properties, and simulation information. In a recent survey, 97% of aerospace and defense executives say they use digital twin for existing and/or new products and services.
However, 74% of A&D company execs agree or strongly agree that they’re now inundated with operational data. Only 27% of firms reported sharing digital assets across business and information technology (IT) functions, and just 7% have fully integrated digital threads across multiple teams. Of all the enterprise systems and processes, this is an area where a true symbiotic commitment is fundamental.
Using digital twin technology should drive greater efficiency, while the digital thread will enable growth. This strategic focus requires a solid commitment from the business and IT to work together to manage the challenge of data collaboration as partners.
Only 9% of A&D companies report they are successfully achieving operational efficiency and new business growth. A&D organizations that successfully weave the transformational digital thread first will gain
significant competitive advantage. www.accenture.com Mark Martin Director, Commercial Aviation Product Line, Aviation & Defense Business Unit, IFS
Four major technological developments will help airlines cut maintenance, repair, and overhaul (MRO) costs through 2018.
Digital twin – A virtual replica of a physical asset – can tell engineers on the ground how an engine is running on an aircraft, reporting temperature, pressure, and airflow rate. Engineers can compare real-world data to its digital twin. If the two data sets don’t match, the engine may require servicing.
Companies that invest in digital twins can see a 30% improvement in maintenance process cycle times.
Artificial Intelligence (AI) – Predictive analytics can reduce routine maintenance needs, triggering repairs only when needed. AI uses data from in-service aircraft to create algorithms that learn to predict faults, allowing MRO organizations to avoid them. Software-as-a-service (SaaS) – Cloud-based mobile solutions are driving efficiencies into line maintenance planning and execution by eliminating IT hardware purchases and maintenance. Conventional commercial aircraft visual inspections can take up to six hours. Drones (unmanned aerial vehicles) could cut this time, offer greater accuracy, reduce maintenance costs, and improve safety. Drone inspections –
Visual processing algorithms combined with enterprise IT systems allow drones to send work orders to the maintenance crew as soon as a fault is identified.
www.ifsworld.com Craig Gottlieb Innovation Lead for Aerospace and Defense, Accenture
Aerospace and defense (A&D) executives surveyed by Accenture cite blockchain as a top emerging technology that could support greater growth and efficiency. Blockchain, an immutable transactional record, maintains and records data in a way that allows multiple stakeholders to share access to the same information securely.
in accurate, auditable, and secure record-keeping among investors in virtual crypto-currencies translates well to A&D, which requires reliable, auditable records and highly values security. While blockchain technology and standards are still maturing, A&D companies can use it alongside enterprise resource planning (ERP) and product lifecycle management (PLM).
Blockchain should be applied
with specific goals, growth objectives, and its ability to unlock trapped value. Blockchain’s use for payment processing and financial reconciliation apply to A&D.
In examples such as tracking individuals certified to perform complex tasks, understanding the authenticity of items in the supply chain, or combining blockchain with Industrial Internet of Things (IIoT) devices, some A&D companies are targeting specific proofs-of-concept to get started with blockchain.
www.accenture.com Ben Mund Senior Market Analyst, CNC Software Inc. (Mastercam)
We’re expecting stronger overall manufacturing output in 2018’s first half than its second, but there are good signs that certain industries will remain exceptionally strong for the foreseeable future. Western-built commercial aircraft, medical devices, and automotive should deliver steady, sustained growth.
Shops facing manufacturing slowdowns or issues from sustained growth want their business to grow stronger. Here are some guidelines enhancing your business and capturing growth, regardless of the equipment and technology used. Some of the ideas may seem simple, but the payoff comes from plotting a course, following through, evaluating, and revising:
1. Assess your strengths and weaknesses. Invest in technology that will be powerful and flexible to take advantage of the equipment you have or plan to buy. Enlist the support of vendors and trusted advisors to maximize equipment and manpower resources. 2. Encourage your workforce to embrace the idea of Post-and-Go manufacturing. When anyone in the plant sees idle equipment, they should also see an opportunity to improve spindle uptime to obtain a competitive advantage. Fine-tune posts so that little is left to do at the machine except set it up and run the part program. 3. Embrace new technology and the engineers, programmers, and machinists who use it. Good people can adapt quickly to change and take advantage of what new technology has to offer. 4. Training enhances the value of the technology. Some training is initially expensive but provides rapid payback. Others cost almost nothing and help deliver incremental improvements year after year. Investigate training options and implement them regularly. 5. Equipment, tooling, and software developers constantly improve their products, but many advances go unused. Shops that discover and implement these capabilities can make discernible advances in manufacturing efficiency and reduce costs.
Evaluate your strengths, weaknesses, and opportunities, and develop a plan that will keep you moving forward confidently. This will help make sure you are prepared to take advantage of strong
growth, and be confident during slower times. www.mastercam.com Sean Holt President, Sales Area Americas, Sandvik Coromant
Keeping up with demand will be the name of the game in aerospace in 2018. Solid growth is expected in the United States in single-aisle commercial airplanes, unmanned aircraft, and defense contracts.
Takeaways for 2018: Reprocessing: Crucial to improve throughput with new tools and techniques Process security: The No. 1 goal; cannot be compromised Optimized tooling: Aero-specific end mills offer higher metal removal rates Collaboration: Problem-solving with machine tool builders, original equipment manufacturers, suppliers Investment: R&D to solve the machining challenges of tomorrow
We work with supply chain partners to decrease processing time for components through new tools and techniques. Switching to solid carbide for roughing applications improves metal removal, allowing suppliers to instantly improve results. Aerospace-specific end mills will be available in Q1 to speed up machining of titanium and heat resistant super alloys (HRSAs).
Collaborating with OEMs, machine tool builders, and suppliers, we will implement our tools and optimize secure tool paths, taking advantage of our global engineering centers for networking and
problem solving. www.sandvik.coromant.com/en-us David Suica President, Fastems LLC
As newer providers learn what it takes to make critical components for aircraft structures and engines, learning sometimes happens after the capital investments have been made.
We advise people not to let fear of missing out distract them into making quick capital investments they may regret when they discover a pallet pool, robot, or machine-tool control won’t play well with what’s added later.
We try to convey to suppliers to take time to craft a strategic automation plan, making sure that whatever is purchased provides a return on investment and offers great spindle utilization and connectivity with everything else – even if it may not be in place for several years.
www.fastems.com Embraer’s next-generation E190-E2 narrow-body jet. Diogenis Papiomytis Aerospace & Defense Director, Frost & Sullivan
Airbus and Boeing are expected to ramp-up production in 2018 and 2019, putting further pressure on their suppliers to meet ambitious delivery schedules. We expect further consolidation among the supply chain, as well as
launch of new start-ups in competitive manufacturing segments such as cabin interiors.
The regional and business aviation markets will continue to struggle until the beginning of the next decade when new aircraft platforms from Mitsubishi (the MRJ) and United Aircraft Corp. (UAC) of Russia (SSJ130 and MC-21) will have a positive impact.
In 2018, we also see a major push by aircraft integrators and original equipment manufacturers (OEMs) into services and information technology (IT) tools using powerful data platforms to take advantage of aerospace Industrial Internet of Things (
IIoT). Services by Airbus, Boeing Global Services, and Embraer Services & Support are diversifying their business models and competing with suppliers in maintenance, repair, and overhaul (MRO), IT, training, and logistics. This will solidify the positioning of aircraft integrators and OEMs as direct competitors to the likes of IBM and Sabre.
Additive manufacturing equipment, parts, and services continue to grow rapidly, expected to more than double in value during the next 4 years. In 2017, the value of metal additive manufacturing is estimated at more than $1 billion, expected to reach $2.2 billion by 2021. About 68% of this market is the value of equipment and materials with 32% services such as contract manufacturing, maintenance, and training.
www.frost.com Bombardier’s CS300 in AirBaltic colors at Dubai, October 2017.
Mike Stengel Associate, AeroDynamic Advisory
While maintenance accounts for only 5% to 10% of airline expenses, the aftermarket is a strong generator of material and labor demand. Demand for maintenance, repair, & overhaul (MRO) services reached $74 billion in 2016 and is expected to grow ~3.9% annually through 2026.
Low fuel prices, strong travel demand, and refined business practices have resulted in record airline profitability, spurring investment. Many airlines have elected to refit their fleets with new seats, larger overhead bins, in-flight entertainment (IFE), and Wi-Fi.
Airlines are increasingly bundling MRO services with a single provider that manages repairs and uses a shared inventory, so they don’t have to carry inventory on their balance sheets. Airlines also are accepting more surplus material derived from aircraft teardowns and excess inventory, which can lower costs by 60% compared to OEM new parts.
Aircraft OEMs also are growing their services businesses. Boeing’s Global Services division has a sales goal of $50 billion by 2026, up from $15 billion today. Airbus wants to grow services revenue in areas such as interior
retrofits, and has created a Services by Airbus business unit.
Engine OEMs are adding more lifecycle-based programs with menus of services for older engines. Many of these value propositions incorporate Big Data and health management services to increase reliability.
Strong air travel demand, coupled with low fuel prices, should continue a streak of robust MRO demand.