Klaus Richter · Johannes Walther Editors Supply Chain Integration Challenges in Commercial Aerospace A Comprehensive Perspective on the Aviation Value Chain Supply Chain Integration Challenges in Commercial Aerospace Klaus Richter (cid:129) Johannes Walther Editors Supply Chain Integration Challenges in Commercial Aerospace A Comprehensive Perspective on the Aviation Value Chain Editors KlausRichter JohannesWalther AirbusGroup IPMAG BlagnacCedex,France Hannover,Germany ISBN978-3-319-46154-0 ISBN978-3-319-46155-7 (eBook) DOI10.1007/978-3-319-46155-7 LibraryofCongressControlNumber:2016961240 ©SpringerInternationalPublishingAG2017 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodologynowknownorhereafterdeveloped. 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Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Contents Introduction:SupplyChainIntegrationChallengesintheCommercial AviationIndustry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 KlausRichterandNilsWitt PartI ProductDevelopment Aviation’sFutureIsasBrightasItsPast. . . . . . . . . . . . . . . . . . . . . . . . 19 AndrewGordon CabinDensification:SpaceFlex2andBeyond. . . . . . . . . . . . . . . . . . . . . 31 ScottSavian InnovationChallengesintheHigh-Tech,Long-CycleJetEngine Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 AlanH.Epstein OpenInnovationintheAviationSector. . . . . . . . . . . . . . . . . . . . . . . . . 57 JohannesWaltherandDanielWa¨ldchen DisruptiveInnovationThrough3DPrinting. . . . . . . . . . . . . . . . . . . . . 73 ReinhartPoprawe,ChristianHinke,WilhelmMeiners,JohannesSchrage, SebastianBremen,JeroenRisse,andSimonMerkt PartII ConfigurationandDemand FulfilCustomerOrderProcess:CustomizationofCommercial Aircraft. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 GabrielOehme End-to-EndDemandManagementfortheAerospaceIndustry. . . . . . . 105 AvinashGore´ andAlexanderNathaus MainDifferencesandCommonalitiesBetweentheAircraftandthe AutomotiveIndustry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 HorstWildemannandFlorianHojak v vi Contents PartIII ComponentManufacturing TrendsintheCommercialAerospaceIndustry. . . . . . . . . . . . . . . . . . . 141 GernotStrube,KarelEloot,NadineGriessmann,RajatDhawan, andSreeRamaswamy SuccessThroughCustomerCo-Development,GlobalFootprintandthe ProcessesIn-LinewiththeCustomer. . . . . . . . . . . . . . . . . . . . . . . . . . . 161 MarkC.HillerandJoachimLey VerticalIntegration:TitaniumProductsfortheAircraftIndustry. . . . 177 OlegLeder PartIV AssemblyandIntegration QualityGates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 IsabelleSciannamea LeanComplexityThroughTailoredBusinessStreams. . . . . . . . . . . . . . 209 RichardHauser,Hans-J€orgKutschera,andBenoitRomac DrivingtheDigitalEnterpriseintheAerospaceIndustry. . . . . . . . . . . 221 HelmuthLudwigandAlastairOrchard PartV LifeCycleBusinessModelsandAftermarket TheAero-EngineBusinessModel:Rolls-Royce’sPerspective. . . . . . . . 237 PeterJohnston TheMaterialValueChainServicesinCommercialAviation. . . . . . . . . 249 J€orgRissiekandMikkelBardram PredictiveMaintenance:HowBigDataAnalysisCanImprove Maintenance.. . . . . . . . . .. . . . . . . . . . .. . . . . . . . . .. . . . . . . . . . .. . . 267 JimDailyandJeffPeterson Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 StefanBerndes Introduction: Supply Chain Integration Challenges in the Commercial Aviation Industry KlausRichterandNilsWitt Abstract Airlines, aircraft OEMs and their suppliers were affected by numerous changesinthecommercialaviationsectoroverthelastdecades. Since the 1970s, airlines have seen a significant increase in air traffic and seat mile cost pressure due to regulatory changes, shift of traffic towards developing countries, especially Asia, and emergence of new business models such as Low CostCarriers. OntheOEMandsupplierside,thebusinessfocuschangedfromdefencetocivil and the manufacturing base went through a phase of consolidation. Furthermore, increased demand for new aircraft and cost pressure from the airlines triggered a transitionfromjobshopproductiontosmallseriesproduction. This development fostered associated changes in aircraft technology such as enhanced cabin space efficiency and new engine technology. It requires a supply chainthatisabletocopewiththechallengesofairlinespecificcustomization,while delivering into a serial production process. Cost pressure and competition from emerging countries have led to a shift in the manufacturing base, while the assembly processes have seen the adaptation of automotive concepts such as LeanProduction.Additionally,theaftermarkettodayoffersnewbusinessopportu- nitiesandwillpotentiallybenefitfromrevolutionaryconceptsinthenearfuturedue toincreaseduseofdigitalizationtechnology. 1 Development of the Aviation Industry Over the Last Decades The entire commercial aviation industry has gone through a series of significant changesinthelasthalfcenturyaffectingairlines,aircraftOEMsandsuppliers. K.Richter•N.Witt(*) Airbus,BlagnacCedex,France e-mail:[email protected] ©SpringerInternationalPublishingAG2017 1 K.Richter,J.Walther(eds.),SupplyChainIntegrationChallengesinCommercial Aerospace,DOI10.1007/978-3-319-46155-7_1 2 K.RichterandN.Witt 1.1 Airlines Ontheairlineside,thebusinessmodelevolvedfrombeingdrivenbytightauthority regulationandstate-ownedflagcarriersintoamodelbased onfierceinternational competition. In the 1970s, the U.S. and Europe were by far the most important markets in terms of revenue passenger kilometers and accounted together for 76% of world airlinetraffic(includingroutestoCanadaandJapan).Atthesametime,thesetwo marketsweretightlyregulated(AirbusGMF2011). IntheU.S.,forinstance,priortotheAirlineDeregulationActof1978,fareson domesticroutesweresetbythegovernmentagencyCivilAeronauticsBoard(CAB) and airlines were only allowed to operate routes after prior approval. The only U.S. airline, for example, that was granted permission to operate transatlantic flights to Europe was PanAM. This only changed in 1979 when the International Air Transport Competition Act also allowed American competitors to offer inter- nationalroutes(Pompl2007). At the same time, in European countries many state-owned so called “flag- carriers”existed.MajorplayerssuchasAirFrance,LufthansaandBritishAirways hadcontrollingpublicownershipuntil1984,whenBritishAirwaysbecamethefirst of the trio to be fully privatized. Even today, some countries maintain partial ownership of their national airlines [e.g. the French state maintains a minority share in Air France (Air France KLM 2016). Landing rights were essentially allocated in a tit-for-tat mode between the European countries and the U.S.(Cento2009). Whilethissetuphelpedthegovernmentstoguaranteeacertainlevelofaccessto airtravel,italsokeptcompetitionatbay.Priceswereessentiallycalculatedusinga costplusapproach,guaranteeingthecompanies’financialhealth(Pompl2007). In 2008, the transatlantic market of airline traffic was liberalized through the OpenSkiesAgreementbetweenEuropeandtheU.S.Inaddition,theemergenceof LowCostCarriers(LCC)andconsolidationofthebigFullServiceCarriers(FSC) ledtoachangeinthemechanicsofairtrafficandunitcostbecamemoreandmore important. Inaddition,followingthetremendousGDPandpopulationgrowthinotherparts of the world, the center of gravity of global air traffic moved more and more eastwards. While the non-Western world accounted for only 24% of Revenue PassengerKilometers(RPK)in1970(AirbusGMF2011),justAsiaandtheMiddle East alone represented 31.4% and 8.9% respectively in 2014 (ICAO Annual Report2016). Allinall,airtraffichasdoubledevery15yearscausingacorrespondingrisein demand for capacity and therefore a significant increase in aircraft sales and production. Nevertheless, competition and high volatility in demand, linked to economic developments, oil price volatility and catastrophic events like 9/11, SARS and armed conflicts, have globally caused limited airline profitability. On Introduction:SupplyChainIntegrationChallengesintheCommercialAviation... 3 average, Airlines only reached break-even between 1990 and 2012 and only bouncedbacktoanaverageEBITmarginof7.7%in2015(Pearce2015). 1.2 Aircraft Makers and Suppliers Inthe1960s,theworldwasinthemidstofthecoldwarandespeciallyinEurope, aerospacewasfirstandforemostakeyindustryinthearmsrace.Therefore,many companies in this sector were focused on state-funded defense projects (Schmitt and Gollnick 2016). Even commercial aviation projects such as the Caravelle in France or the VFW 614 in Germany were at least to some degree made possible through state support. While the sales of civil aircraft were dominated by U.S. companies, even these made a large part of their business through defense projects(Wittmeretal.2011). InordertoovercometheU.S.dominanceinthecivilaircraftmarket,Franceand Germany joined forces in 1969 and formed the Airbus consortium which was officially set up in 1970. While the partner-companies remained independent legalentities,theypursuedacommonaircraftproject,theA300.Thejointproject was governed by work-share agreements, somewhat similar to what had already been done in trans-national defense projects such as the Transall. A small central entity, called ‘Airbus Industrie’ was at that point in time in charge of the overall coordinationaswellassalesandcustomerservice(Airbus2016). Over the years, further aircraft types such as the A310, A320 and A330/A340 were added and sales climbed due to the growing market as described above but alsoduetotheincreaseinmarketshareforAirbus.In2000,AerospatialeofFrance, GermanDASAandSpanishCASA,mergedintoEADS.Thisnewcompanyowned 80% of Airbus S.A.S. while British BAE SYSTEMS held the remaining 20% (Airbus2016).ThenamechangetoAirbusGroupalongsideasignificantreduction of political influence in 2013 was the last step in European aircraft manufacturer consolidationascanbeseeninFig.1. The American manufacturers of large civil aircraft also went through a long consolidationphase.WhenLockheeddecidedtoexitthelargecivilaircraftmarket in 1981 after the commercial failure of the Tristar, only two American manufac- turers remained. These two, McDonnell Douglas and Boeing finally merged in 1997atatimewhereDouglas’marketsharehadfallenbelow20%intheU.S.,so that only Boeing commercial aircraft remained. Russian manufacturers could not matchthecompetitivenessoftheWesternmanufacturersaftertheendoftheCold Waranddisappearanceoftheprotectedcommunistmarkets(SchmittandGollnick 2016). Airbusmanagedtosecureasignificantportionofthecommercialaircraftmarket andtodayholdsamarketshareofapproximately50%,whichcanbeseenasatrue European success story. In parallel, aircraft production rates increased consider- ably, causing a change from job shop production to small series production. The A300, for example, reached its maximum annual output in 1982 at 46 deliveries, 4 K.RichterandN.Witt Aircraft Manufacturers Fusions in Europe (Status 2013) Saab Saab Hawker Siddeley British Aerospace BAE Systems De Havilland Hunting Marconi Electronic Systems Bristol SIA Marchetti Selenia Aeritalia Alenia Finmeccanica EFIM (incl. Augusta) Aermacchi Dassault Dassault Matra Aerospatiale Matra Aerospatiale EADS / Airbus Airbus Group MBB DASA Dornier MTU MTU TST Fokker CASA CASA Fig.1 ConsolidationofEuropeanaircraftmanufacturers(SchmittandGollnick2016) whiletheA320Familytodayismovingtoamonthlyproductionrateof60aircraft by2019.Thisalsohadsignificantinfluenceonthesupplychain,sinceitneededto copewith notonlyanincreasednumberofshipsets butalsoamoreindustrialized setup.Atthesametime,aircraftOEMsreducedtheirdegreeofverticalintegration, requiring suppliers to take over larger work packages and also to enter into risk- sharing agreements including their own design responsibility, which further supportedtheconsolidationofthesupplierbase(SchmittandGollnick2016). The challenges in the airline world described in the beginning of this chapter result as well in cost pressure on aircraft OEMs and subsequently suppliers. This furtherfostersthetransformationtoamoreindustrializedsetupthatleveragesscale efficiencies. 1.3 Motivation for This Book The idea of the book is to describe the challenges for the commercial aviation supplychainalongtheentireproductvaluechaininordertoallowaholisticview on the drivers for transformation and the changes that have either been implementedalreadyorwillprobablyneedtobeimplementedinthenearfuture. In order to get a complete overview, the book is composed of a set of articles written by experts and practitioners from academia, suppliers, consulting compa- niesandAirbus.