In the 20 years that Counterpoint has been analysing the aerospace industry, the aerostructures market has seen consistently lower profitability compared with the rest of the supply chain.
The problem appears most acute at the top of the aerostructures sector. Historically, the industry has had several “super tier one” suppliers that can design and build large integrated aerostructures. That business model appears to be broken: Spirit AeroSystems seems likely to be acquired by Boeing; Triumph exited the aerostructures business entirely; Leonardo’s aerostructures business has experienced heavy losses for years; and GKN has moved away from producing large integrated structures.
Only the Japanese “heavies” – Kawasaki, Mitsubishi and Subaru – appear to want to stay the course. As OEMs bring more work in-house, we expect the outsourced aerostructures market will shrink at the tier one level.
All aerospace has suffered over the past few years, but the unique characteristics of the aerostructures market made profitability elusive well before the pandemic began.
Aerostructures has little aftermarket demand, which often provides higher margins and smooths production peaks. Intellectual property is not as pronounced as in sectors like avionics and engines, which lowers barriers to entry. Economies of scale are limited, and rationalisation is difficult. Know-how that works for aerostructures often does not translate to other industries.
Contract profitability, therefore, depends on achieving learning curve reductions in unit cost. Spirit has found this challenging with its composite programmes, telling investors in 2023 that the company “never really achieved the learning curve to come down in terms of cost historically”.
The market appears to be getting tougher. OEMs continue to move more of their aerostructures businesses in-house. This strategic shift allows the airframers to control key technologies while providing better oversight of the most critical parts in their supply chain. It also puts OEMs in a position of strength when negotiating with outside aerostructures suppliers.
How might aerostructures companies respond, and what does this mean for the future of the industry?
STRATEGIC SOLUTIONS
No single strategy leads to profitability in aerostructures. Fundamentals like cost control and favourable contracts are clearly essential. Yet beyond the basics, we see a few strategies that have allowed companies to carve out their own niche.
Specialisation: on its own, this does not ensure profitability. The key is the combination of differentiated technology and the ability to drive down costs at scale. We see this employed with Standex’s Spincraft business and with Ducommun’s expertise in titanium parts.
Automation: this capability has become more important, particularly due to the loss of talent during the pandemic and the need to respond to higher production rates. After a period of cuts, we have seen aerostructures companies reinvesting. Effective automation involves not just machinery, but the tools to enable a less skilled workforce to perform effectively. We have seen impressive examples with US firm Orizon and Spirit’s Prestwick facility.
Research and development: advancing technologies – whether to drive down cost or improve manufacturability – can allow companies to develop IP for next-generation platforms. The Airbus Wing of Tomorrow programme involves several aerostructures companies.
Vertical integration: this can offer efficiencies where many complex pieces join together, allowing easier resolution of compatibility issues. Airbus Atlantic has had some success with this strategy.
These trends have clear consequences for the industry. We anticipate greater in-sourcing and more specialised suppliers carving out niche positions in the industry. Those changes bring opportunities for re-shaping and create challenges for incumbent players.
More than ever, the aircraft OEMs still need technologically advanced and financially sound aerostructures suppliers but, even so, it is likely to remain a tough business.
Collin Heller is vice-president and Richard Apps is director at Counterpoint Market Intelligence, a provider of market research for the aerospace and defence sectors.
