Compared with designing and assembling aircraft or engines, supply chain management will never be the sexiest area of aerospace. But the work of its specialist firms – consolidating consignments of fasteners and other tiny parts from dozens of suppliers, and delivering them just in time to final assembly lines of major manufacturers – is essential to the smooth running of aircraft programmes. Although it is a sector with many local providers, three players dominate. Now a Naples-based company believes it has achieved sufficient scale and a reputation for service to compete with them globally.
ALA was founded in the 1980s, and became the major supply chain management provider in Italy when it merged with a competitor in 2009, giving it the ability to serve both the military and commercial markets. Other small acquisitions followed, but by 2015, four-fifths of its business was still with Finmeccanica, says chief executive Roberto Scaramella. He was running regional airline Meridiana at the time and was brought into ALA to spearhead an expansion drive. “The question we had was as a big player serving Italy, could we grow into a global player?” he says.
That year, ALA approached the owners of Stag, a business with operations in the UK and France. While not actively looking to divest, they were not ready to risk investment for major expansion, says Scaramella. After a “long courtship”, Stag’s directors agreed to sell and in May this year the two sites – together with a third in Seattle – became part of ALA. While the acquisition will add €50 million ($56 million) to ALA’s €100 million revenues, it also gave the Italian-focused company, with one procurement office in New York, an international footprint for the first time.
ALA had also just won a contract from GE Aviation, its first significant non-Italian client. “That was our chance to prove we could supply a global company,” says Scaramella. Now, with Stag, he believes ALA can take the group “to the next level”. The company is still some way off punching at the same weight as its big competitors. “The two leaders in this industry generate $1 billion plus, and the third is half a billion, but we are the biggest now of the second tier,” he says. “We can now take our offering to new manufacturers.”
Leap engine producer GE Aviation is among new clients
Airbus
Like other supply chain management specialists, ALA’s business model involves contracting with multiple small suppliers to buy in advance thousands of fasteners and other components qualified on each aircraft programme. Technicians inspect the parts, identify and box them, and, on a schedule agreed with the customer, ALA delivers them to the production line. “We don’t do manufacturing; we do logistics,” says Scaramella. “We say to the customer: ‘You want to have your best people in engineering. I will put my best people in your supply chain.’”
Low risk
Although ALA’s risk in the process lies in it buying the shipments in advance and holding them at its warehouse, Scaramella says his team’s knowledge of programmes means it does not hold stock for long. “These are industrial programmes with a long cycle, so it’s not really speculating,” he says. ALA’s leverage can come from when there are several qualified suppliers for a certain part. “Because I know that such a part is also used on another programme, I can buy in volume, and that creates competition to our advantage,” he says.
Customers also have to have absolute faith in a company like ALA’s ability to deliver, not just on time but with each part having gone through an inspection procedure – at ALA, one consignment in five is quality-checked by an outside laboratory. That make it hard for even well-resourced outside companies to break into the sector. “The entry barrier is very high and a newcomer will not be accepted,” says Scaramella. “However, the beauty is that these are long term-programmes and you can create a stable company. It means we can be competitive without being huge.”
Scaramella says his team's knowledge of programmes keeps it from holding stock for long
ALA
Scaramella’s priority now is integrating what has become a global business, employing around 250 across eight locations. When we visited, managers from all the sites were in the Naples headquarters for their first team meeting. There was almost zero overlap in the Stag and ALA businesses, he says, with the French business bringing in several Safran companies, and the UK operation – based in Walton-on-Thames, just outside London – BAE Systems and Leonardo Helicopters at Yeovil. ALA did not previously have AgustaWestland as a customer.
Eyeing opportunities
Following that, ALA will look at geographical expansion and broadening the global client base, says Scaramella. The company is already establishing a commercial operation in the USA; previously, its stateside arm was focused on procurement. Other areas include Latin America, Asia and the Middle East. While the military industry remains largely US- and European-based, the growth of commercial manufacturers in countries such as Brazil and China mean ALA will be setting its sights on winning new business there, he says.
From a current 60/40 revenue split in favour of Italy versus rest of world, ALA expects to reverse that by the end of the decade. Other medium-term objectives include widening the range ALA offers. “For many years, we were fasteners only. Now fasteners represent just 50%. We will continue to look at new areas,” says Scaramella.
An area for potential expansion is energy, oil and gas – ALA already derives about 5% of its turnover from this market. “Given that turbines often have many of the same parts as a jet engine, this is something we believe we can grow,” he says.
ALA’s new scale means it is outgrowing its offices next to its warehouse on an industrial estate on the outskirts of Naples, and it is looking to establish a headquarters in the city itself. Eventually, the company may look at sourcing capital from the market. “We are fully private at the moment and there is no need to open that up unless we need to look at a major new programme or another acquisition,” says Scaramella. “That is not something that is likely to happen for at least two years from now.”
Source: Flight International
