Becoming a tier one in the aerospace supply chain is a tough business, and the 21-year rise of Dema from $2 million-turnover boutique design house to one of Italy’s foremost aerostructures players has not been without growing pains. Alongside a succession of acquisitions and investment in facilities and equipment have been financial wobbles, as delays to two key programmes – the Boeing 787 and Bombardier CSeries – forced a restructure and put the brakes on its bullish revenue projections.
However, with 787 production ramping up – Dema this year won its first direct contract with Boeing – the CSeries flying again, and contract wins on other programmes, including the new Pratt & Whitney PW800 engine, chairman, chief executive and main shareholder Vincenzo Starace believes the company has been through the pain barrier. Turnover, he says, should more than double to €130 million ($163 million) over the next few years without further major investment.
Naples-based Dema – short for Design Manufacturing – was formed in 1993 to carry out engineering projects for the country’s domestic airframers, including the then-Alenia Aeronautica and AgustaWestland. For its first decade or so, it did this with modest success. However, it changed strategic tack around 2005 when it moved into production with the target of becoming a tier one and a private equity fund bought into its stock, providing the impetus for a growth spurt.
Dema
At the time, Alenia – one of Boeing’s main tier-one partners on the new 787 Dreamliner – was gearing up for production, and putting its own beefed-up supply chain in place. Dema had just won a build-to-print contract for work on the section 44 fuselage. To meet demands from Alenia and push for work from other manufacturers, Dema doubled the size of a metal fabrication factory it had acquired in Somma Vesuviana, near Naples, and bought another nearby precision engineering firm.
Continuing work from other parts of the Finmeccanica group led it to set up a production plant in Brindisi, southeast Italy, to assemble helicopter cabins for AgustaWestland. And as part of a strategy to expand its customer base outside Italy, Dema began establishing an overseas footprint, opening with a local investor a joint venture in 2010 in Tunis – called Dema Tunisia or Demat – to build composite products for Alenia.
Dema had already made a move into Canada in 2004, with an engineering facility in Montreal to tap Bell Helicopter, Pratt & Whitney Canada and Bombardier. That commitment was rewarded in 2008 with its first direct contract from Bombardier, to produce parts for the CRJ1000 regional jet. A year later, it was asked to build the cockpit on the CSeries, and last year added the cockpit of the Learjet 85 and the Global 7000/8000 to its growing portfolio with the Canadian airframer.
These wins, together with lower-tier contracts with Sogerma of Belgium and Czech firm Aero Vodochody, have helped Dema broaden its customer base and push towards its ambition of having half of its business from non-Italian customers. “We have a very young relationship with these new companies, so 60% is still from Italy,” says Starace. “But as the 787, CSeries, Globals and Pratt programmes ramp up, we should achieve our business strategy of a 50:50 split.”
Dema
Dema employs 900 staff, including 200 graduate engineers, and last year its turnover was €60 million. However, this is considerably less than the €100 million-plus turnover it had been projecting for now four years ago. At that time, Dema had been anticipating a much faster return on the tens of millions of euros in investment it had made in the CSeries and 787, and last year the board was forced into a debt restructuring with its creditors.
“We decided to resolve the financial tension and presented the bank with a strong business plan,” says Starace. Out-of-court agreements were reached with creditors – which ranged from the tax and social security authorities to financial institutions and suppliers – to settle 60% of its debts, with the plan approved by Italy’s bankruptcy court in March this year. It meant Dema could clear its crippling liabilities and focus on delivering its programmes.
Starace insists Dema followed the only path it could. “Were we right? If we hadn’t invested [in the 787], we wouldn’t be here,” he says. Now Dema is “up to speed” with the programme, producing 13 shipsets a month for the -8 and -9 variants. He is proud of Dema’s relationship with Seattle. Boeing began talking about Dema becoming a direct supplier at the end of 2013 – on work previously carried out by Alenia Aermacchi. Dema signed its first contract in March and a second in July.
The CSeries presents a different challenge. With certification now slated for late 2015 and production unlikely to start seriously gearing up until well into 2016, Bombardier and its supply chain have a long wait for revenue from the programme to start coming in. However, once the CSeries starts being assembled, says Starace, a “different problem” emerges, with suppliers having to meet a fast ramp-up as impatient customers demand their aircraft.
Fortunately, Dema also has a number of mature programmes that it has been able to rely on throughout its recent turmoil. This includes production on AgustaWestland helicopters, the horizontal stabiliser for ATR 72s – Dema produces 10 a month for ATR co-owner Alenia Aermacchi – and some 13 shipsets a month of floor sections for the Airbus A321. “We have been very fortunate to have this stable work,” Starace admits.
Helping Starace manage the ramp-up is one of Italy’s most experienced programme and corporate managers. Massimo Lucchesini joined Dema in March after a 42-year career with Finmeccanica companies, latterly as chief operating officer of Alenia Aermacchi. The 67-year-old admits that Dema has a “very demanding plan for the next three years with revenues increasing 15-20% a year”, but says both Boeing and Bombardier have confidence that Dema can make “a very good tier one”.
For Starace, the next few years will be ones of consolidation and focusing on core business. The company, he says, will be cautious about taking on contracts as it concentrates on delivery. Dema has achieved its strategy of moving up the value chain and contracting directly with some of the industry’s biggest names. However, this sort of transformation is never easy, he admits. “Being tier one is an honour, but also a risk,” he says. “You have to be able to cope with the ramp-up.”
Source: Flight International
