The following posting can be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.
During the past few months, in the Kinaxis expert community and on the Supply Chain Matters Blog, I have been sharing commentaries regarding the evolving new era of aircraft manufacturing which has had such a strong dependence on an outsourced supply chain of suppliers and partners, a dependence model that still exhibits needs for improved coordination in product innovation and material flows. The time has come to comment on a third potential player, one that presents a threat from a different perspective of the supply chain.
Most everyone is aware of the continuous setbacks that have occurred with Boeing and its 787 Dreamliner program. The latest setback occurred just a few weeks ago with an unfortunate in-flight electrical fire causing one of the test aircraft to make an emergency landing. The Dreamliner’s scheduled first customer ship scheduled for Q1-2011 remains in jeopardy, and is now over two years late. We also commented on Bombardier’s C-Series program, a single aisle aircraft that is the cornerstone of that company’s plan to compete head-on with likes of Boeing and Airbus. The C-Series also has a high dependence on a globally outsourced supply chain including major component assemblies sourced in China, Ireland, Italy and Germany.
Both of these programs are a high-stakes gamble for competitiveness and attraction among global based airline customers, especially those in the emerging markets. Success is keyed on who can best coordinate and integrate the most breakthrough innovative technology with the most cost-efficient, global-based supply chain. Is the case of aerospace, sourcing equates to innovation, cost, and access to a potential growth market that has political dimensions of presence.
The third player, Commercial Aircraft Corporation (COMAC), is now coming into broader visibility. COMAC is a China based, state-owned aerospace manufacturer who has embarked on its own program of innovation and cost. The C919 (not to be confused with Bombardier C-Series) is a single-aisle aircraft being designed to carry up to 150 passengers. It is also being designed to be an alternative to the Boeing 737 or Airbus A320.
A recent Bloomberg Businessweek article notes that some key suppliers that supply both Boeing and Airbus, such as General Electric and United Technologies, are also working with COMAC. They are hitching their wagons to all major aerospace players in the overall game of global competitiveness and who will become ultimate winners. The reasons are fairly obvious; suppliers want to insure access to China’s and other very large aircraft markets that will unfold in the coming years. Bloomberg points out that China alone accounts for 22 percent of Airbus’s 2010 orders and 15 percent of Boeing’s. Thus far, COMAC has received orders from three Chinese airlines and two leasing companies, all state-owned, for a total of 90 C919’s, even though the maiden flight is not scheduled until 2014. That situation alone provides one key advantage that the company has in terms of China’s airline market, its influence as being China owned and resident.
Much has been written of late about China’s high speed rail market, and how quickly China’s state-owned railway was able to master world-class technology in such a short period of time. China’s railway is now competing for large-scale rail projects not only within China proper, but in other global regions, including the United States. The major high speed rail OEM’s from Japan, Germany and France were all compelled to form joint-partnership arrangements in China in order to assure market access. Now, some of these providers believe that their technology may have been compromised.
There is no doubt that in the coming months and years, product design, innovation, reliability and supply chain sourcing will all be primary factors as to which aircraft ultimately succeeds as favored by global carriers. The Bloomberg article summarizes the bottom line of its article as noting that China’s commercial aircraft industry is getting help from Western aerospace companies who wish to branch out beyond today’s major industry players. By being resident in China, CMOC may already have a cost advantage, but has a strong reliance on product innovation and engineering. It will be interesting for all of us to observe how a low-cost producer can overcome innovation and intellectual property barriers.
The stakes are even higher and a lot can be learned from the current episodes in high-speed rail. We could possibly read business case studies ten years from today that outline the circular trend in commercial aircraft component sourcing, moving from a past one nation, one contiguous resident supply chain, to multiple nation component supply chains, and back again to one predominant resident supply chain, which could include China.
In any case, don’t be terribly surprised if in the next five years, you find yourself traveling on a Chinese commercial aircraft, especially if you are traveling between Chinese cities.