The Consolidation of the Aerospace Supply Chain

While each industry can be defined by its own defining features and challenges, the aerospace industry stands apart as being particularly unique — and risky.

By 2023, the Airbus Global Market Forecast projects there to be roughly 37,400 passenger and freight aircraft in regular rotation, up from 18,460 in 2014. Despite this growth, however, the pool of suppliers that aircraft OEMs can purchase critical inventory from remains very small, especially as the market continues to consolidate around a select few manufacturers. As of today, there are only six major electronic component suppliers participating in the aerospace field: Eaton, Parker Hannifin, Textron, UTC, Raytheon, and Honeywell. For engines, that number shrinks to only three: Pratt & Whitney, GE, and Rolls Royce.

There are many reasons for this discrepancy, including high cost of market entry, exceptionally long product life cycles (aircraft engines alone have an expected life cycle of approximately 30 years), and long-term service agreements that limit the window potential new suppliers have to introduce OEMs to their brand. In the defense sector, these challenges are only amplified by the stringent authorizations and certifications manufacturers require to be incorporated into the fold.

More recently, top-tier suppliers have consolidated the industry even further by adopting a “one-stop shop” model, offering manufacturing services that stretch all the way down to the component level, largely eliminating the need for OEMs to seek out hundreds of suppliers to complete a new aircraft design. Today, it’s not uncommon for Boeing and Airbus to consult as few as 20 aerospace suppliers.
The effect this trend has had on the industry has been largely positive. Suppliers have thrived in this new model, with the added responsibility resulting in rising profit margins, while OEMs have benefited from the transparency a smaller, consolidated market allows.

Such a transition, however, does not come without risk. As OEMs become increasingly dependent on a select few suppliers, it severely handicaps their ability to adapt should inevitable supply chain disruptions occur. Long-term service agreements can ensure that critical components will be available throughout an aircraft’s life cycle, but they do little to address other unforeseeable issues that could either prevent the OEM from meeting their production schedules, or force it into covering additional inventory carrying costs at the expense of working capital. Consolidation may make such supply chain challenges rare — but their impact when they do occur is exponentially amplified.

For example, should an aerospace supplier fulfill critical inventory ahead of schedule, it is not uncommon for them to charge OEM customers unprepared to take it as much as 15-20 percent the cost of the inventory until they do. Unforeseeable scenarios such as this are proof that aerospace OEMs, now more than ever, must find new ways to ensure that their consolidated supply chain remains not only productive, but financially efficient.

Our Last Time Buy Solution here at Partstat is perfectly positioned to meet these new challenges head-on and turn added risk into added revenue. With our industry-leading ability to purchase 10 years of critical inventory on a customer’s behalf using our own capital, Partstat stands alone as the only AS9120-certified partner capable of matching the long product life cycles that define the aerospace industry. Not only do our customers such as Boeing keep up to 10 years of working capital on their books to use as they see fit, but they also have been proven to save an average of 42 percent on annual inventory carrying costs.

Much like the aircraft they design, aerospace OEMs have historically been slow to maneuver when unforeseen circumstances force their supply chain to a halt. But with Partstat piloting hundreds of customer supply chains across the globe, that industry perception is quickly changing. We anticipate big (and fast!) things from the aerospace sector in the coming years, and we’re honored to play such a vital role in its ongoing success.