As the COVID-19 pandemic continues around the world, many global aerospace and defence industry companies are feeling the impact during this uncertain time. In commercial aviation, companies are experiencing disruption in production and slowing demand as workers go home, passengers stop travelling and customers defer delivery of new aircraft. Demand for spare parts is also down since less maintenance is currently required. Aircraft manufacturers are capital intensive by nature, thus raising short-term concerns about cash flow and liquidity. On the defence side, contractors are better positioned since they will not feel the impact of COVID-19 in the short to mid-term. While production may slow down for the same reasons as in aircraft manufacturing, demand over the next two years is unlikely to be affected since budgets for these projects had been allocated prior to the pandemic and they are critical to national defence.
Facets affecting air traffic growth
The aerospace industry is broad, complex and deeply tiered, and at the bottom, it depends on thousands of small suppliers, often referred to as tier 3 & 4, many of which are privately owned. Although the industry has been through many crises – economic shocks, wars, the September 11, 2001, terrorist attacks, SARS, self-induced program delays, etc – the impact of COVID-19 will be more severe and extensive than any previous downturn. Airlines have far too many aircrafts and have grounded most of their fleets, forcing aircraft OEMs to lower production rates and shut down capacity. Oil prices and leasing rates have plummeted, further dampening demand for new airplanes. As the pain trickles down, the lower tiers of the supply chain will be hit especially hard. While most analysis points to a recovery time frame is of 18 months to three years, they ignore several variables that could have a much deeper effect on the future air traffic growth trajectory, like —
Increased environmental pressure – Will governments impose sustainability covenants on airlines as a condition for their aid?
Consumer behaviour – Will consumers travel as much, as far & with the same level of tolerance for ‘poor’ service as before?
Airline business models – Will low cost airlines continue to push the sector toward commoditisation or will there be a revival of a highly differentiated market? Will smaller business aircrafts and jets, with limited seated capacity, be a more preferred mode of transportation as opposed to larger aircrafts? Will people prefer helicopters for shorter duration flights?
Such variables could reverse the shape of the air traffic growth curve from convex to concave as the long-term growth rate slows down significantly. With a market possibly shrinking by as much as 40% in the medium-term, the time has come for all OEMs to reset their supply chain strategy and footprint.
This ebb tide has exposed the dated technology chains in our industry, and these are not just information technology systems. Every company operates on technology chains — a combined set of approaches to deliver customer value. Look at three important technology-chain elements – digital transformation, supply chain and workforce of the future.
Digital transformation: It has been said that ‘data is the new oil’, and yet the aerospace industry, as a whole, has been slow to get the memo. Certainly, there have been some advancements, including the widespread use of 3D Printing, but overall, it has been slow to invest in digital transformations. One area ripe for a digital upgrade is design and development of new aircrafts. The industry should significantly reduce the time to design a new aircraft by adopting enhanced data analytics and Artificial Intelligence. There should also be increased investment in greater automation and analytics in operations, factory production, assembly and Maintenance Repair and Overhaul (MRO).
Supply chain & Maintenance Repair and Overhaul (MRO): The aerospace supply chain lacks speed, agility and visibility. True lead times are often in years. We have seen how this lack of agility hindered the recent production ramp-up by extending the schedule and creating bottlenecks. These dynamics create challenges in scaling down and then ramping back up. For supply chain management, blockchain is a promising technology creating visibility through the entire ecosystem and thereby, validating authenticity and identifying bottlenecks in real-time. Blockchain also creates an individual digital twin of each aircraft, including the life history of all its components. The technology can help the industry steepen its technology chain curve by improving predictive maintenance, safety & reliability and improving MRO cost and performance.
Workforce: A digital value chain requires a digital workforce. Companies should invest in accelerating the workforce of the future by creating a digital culture and training. The entire workforce is affected by digital transformation and requires new skills. COVID-19 will undoubtedly add layers of expense around the workforce, including work continuity issues, medical costs and implementation of health testing. To counter these costs, productivity will need to increase. This degree of change can be daunting and requires deliberate change in management practices to create a pervasive and lasting digital culture.
Steps to monetise on data
While industry leaders tackle this problem at a macro level, several steps can be taken immediately to capitalise on the one piece of the puzzle that’s readily available – data.
Smart data and manufacturing
The dynamics for aerospace manufacturing companies are being transformed with the explosive forces of data, robotics, automation and Artificial Intelligence among others. Manufacturers and OEMs are producing more sophisticated machines now with sensors that help in monitoring the performance of these machines. Although there is a plethora of use cases that can be readily deployed to adopt smart manufacturing in the industry, the top contenders are:
Fault prediction & preventive maintenance
Predictive maintenance is recognised by 66% of the airlines as one of the most prominent new technologies to have entered the market by 2020. Also, Big Data analytics is being used by 54% of the airlines to enhance MRO systems and almost 92% plan to use their fleet data to improve health monitoring & predictive MRO. Within aviation maintenance and engineering, the aim of predictive maintenance is first to predict when a component failure might occur and secondly, to prevent the occurrence of the failure by performing maintenance. Monitoring for future failure allows maintenance to be planned before the failure occurs, thus it reduces unscheduled removals and avoids Aircraft-on-Ground (AOG).
Demand forecasting and inventory management
Delivering a customer order on time is a priority for aerospace manufacturers. Most of them depend on data science for the demand and delivery of the products. Orders are now based on strict timelines and supply chains, after the introduction of just-in-time (JIT) manufacturing. Data collected is now used by the manufacturers to manage their inventories, optimise the supply chain, ensure the timely delivery of goods and avoid errors in the form of over-inventory and overproduction of goods.
Supply chain optimisation
Managing the supply chain is complicated when compared to the other risks. The data collected is used to manage various data points like tariffs, shipping costs, fuel, pricing differences, local weather, market scarcity, etc. By making use of the data science models, manufacturers can predict market changes and reduce associated risks & also turn high costs into savings.
Robotics, automation and smart factory design
Pushing for automation means huge investments. System integrators make use of data collected to create the right path and ensure that the manufacturer’s investment is put to good use. Data scientists work meticulously with engineers to find the right means for cost savings. Manufacturers will be investing millions in robotics and automation expecting an ROI, which means they will implement Industry 4.0 technology without any doubt.
Smart data for optimised manufacturing
Aerospace manufacturing is undergoing a sea of changes with the pandemic forcing organisations to look at transforming themselves at a rapid pace. Apart from foreseeing risks, market demands and requirements, data analytics will ensure maintaining the quality standards and metrics. Making use of smart data techniques in manufacturing will help in predicting waste and unforeseen problems. Analysing data will help in achieving the business goals of aerospace manufacturers by spending lesser time and money when compared to the past.