A panel of senior executives from AIA member companies discussed aerospace and supplier issues at the association's Board of Governors meeting at Williamsburg in May 2005.
Taking part were Paul Graziani, president and chief executive officer, Analytical Graphics Inc.; John Wilander, chairman and president, B&E Precision Aircraft Components; George Yohrling, president and chief executive officer, Curtiss-Wright Corporation; Bill McCabe, director, DuPont Aviation, DuPont Company; Bradley Morton, president, Eaton Aerospace LLC; and Vickie Wessel, president, Spirit Electronics Inc.
The roundtable was moderated by AIA President John W. Douglass.
Here is a digest of the discussion.
DOUGLASS: What barriers exist to workforce levels and can AIA help?
WILANDER: I've taken a look at our facility and asked how many people do we need just to stay current and what are we going to need to grow? We've found that 20 percent of our people are over 55 years old and our local school is graduating 15 kids a year. That's not going to supply what I need. So we've gone out and developed our own apprentice program.
YOHRLING: Like everyone else, we're finding that our workforce is aging, particularly engineers. There have been many instances, fortunately, where our most talented engineers don't like full retirement and we've been able to bring them back on a contract to help train new, younger employees. We've also established scholarships at three engineering schools close to our major manufacturing sites. This is getting us exposure and a recruiting edge. We're looking at extending that to internships where students would come in and work hands-on with our senior people.
GRAZIANI: We could take a look at things like AIA's rocket contest as a great grass roots thing, getting kids stimulated in science, math and engineering. There are programs already going that are directly relevant to our business. The Civil Air Patrol has about 60,000 cadets, all exposed to specific education programs such as aerospace and space systems engineering. There's another organization being formed, the Federation of Galaxy Explorers. The essential theme is space exploration. There's nothing cooler to a kid than what we all do. There's a great opportunity if we can keep that interest in our programs.
DOUGLASS: Metal and special alloy prices are increasing dramatically and availability decreasing. What can be done?
YOHRLING: We're finding in specialty steel, such as carbon and stainless, increases of 25 percent. The impact is compounded dramatically because producers have now increased lead times from 44 to 48 weeks - outside the lead time that we have with our principal customers. We're looking at a 35 percent increase in raw material to make sure we can make the delivery schedules. This may be an area we have to look at lead times change. I'm concerned about it escalating to bearings and other things. It's going to get worse before it gets better, and it obviously is putting a crimp on our profitability and cash flow.
MORTON: We've seen it at Eaton Aerospace in a couple of ways. One is lead time and the way we've structured long-term agreements. We're getting pinched between some very dramatically escalating material costs and lead time extensions. Second, we're seeing overlapping requirements where we have dual source situations. It's difficult for us not only to predict our share, but to account for the inaccuracies of the fundamental schedules at hand. So, long lead time is just compounding things and is probably a bigger impact to our overall costs than even the material price escalation.
McCABE: It's always a challenge how the supply chain works for a company where aerospace is not necessarily a strategic part of what we do, but our enabling technologies are very important for the industry. It calls for dialogues like this where people from the OEM level down to assembly and materials have a better understanding of the challenges.
DOUGLASS: AIA has been working the export control issues as a priority. What are your experiences in these areas?
MORTON: We continue to see major barriers to international business. We've had multiple times where our competitiveness has been hindered by approval of something as simple as a hydraulic pump. We're seeing more complexity of restrictions around import/export controls, requiring more due diligence in cost and managing between commercial and defense products.
Some of the regulations are absolutely ridiculous with regard to what constitutes a technology that cannot be exported to China, for instance. We have simple hoses for landing gear, and just changing the length of the hose makes it the same part as a military hose and, therefore, the commercial product isn't exportable. Families of products are being scrutinized on an import/export basis. And that makes it very difficult and very painful for us.
WESSEL: We've had some issues regarding ITAR control. We sell a lot of QPL [Qualified Products List] products, and much of it is made abroad. We also have ITAR control drawings where the actual manufacturing of the product is not done within the United States. When we have manufacturers and their quality engineers conference call with some of our customers and their manufacturing engineers, and they find out that they've got a manufacturing engineer from Mexico or Canada, for instance, they terminate the phone call.
YOHRLING: We don't get into it a lot, but when we do, they really tie us up in knots. It makes us a whole lot less competitive. We have operations in seven countries and some very interesting technology in those activities. True, they're not American-based, but that technology is owned by an American company. It's great technology. The rest of the world is using the technology, but it takes us forever to get approvals to bring that technology to the U.S. defense industry. Here we are trying to improve profitability for American companies, pay more taxes, and bring more jobs to the U.S. - and we're getting tied in knots.
DOUGLASS: Industry sales and profits are increasing, and there's a sense industry is prospering. Is this prosperity enjoyed at the supplier level?
WESSEL: There have been big changes in the way services have been procured. For instance, very large companies have begun to outsource a lot of their non-core competencies. We've seen some big moves to supplier-managed inventory programs, which have allowed some big companies to reduce inventory.
But there have been a couple of disturbing trends happening to the sub-tier contract level - pushing out of payment terms, for instance. We're seeing a real push from the upper levels to extend payment terms where a lot of smaller contractors are carrying extended terms for a lot of the primes, 45 to 60 day payment terms, which I think is hurting the smaller companies in the supply base.
MORTON: I absolutely agree, but there's a fundamental shift underway in aerospace that's going to require a change in our pricing models involving OEMs, airlines, and the military as we shift to performance-based logistics. Under a performance-based logistics contract, as reliability of our products improves above guaranteed levels, we as suppliers take advantage of the reduced support costs.
It aligns our business model with the end-user business model, and that's great. But we need to recognize that the current model is built around an after-market business based on parts sales, as opposed to an after-market business based on performance. We can no longer sell OEM products at a loss and recover it in the after-market through higher spare part sales.
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Paul Graziani, President & Chief Executive Officer, Analytical Graphics, Inc.
John Wilander, Chairman & President, B & E Precision Aircraft Components
George Yohrling, President and Chief Executive Officer, Curtiss-Wright Corporation
Bill McCabe, Director, DuPont Aviation, DuPont Company
Bradley Morton, President, Eaton Aerospace LLC
Vickie Wessel, President, Spirit Electronics Inc.
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