Supply Chain Matters has often commented on the extensive supply chain outsourcing profile of today’s Aerospace industry, and the implications that has brought in terms of time-to-market and other considerations.
Now there is news of the first initial signs of major supplier re-structuring.
Spirit AeroSystems, a spin-off from Boeing in 2005, and one of largest suppliers of aircraft sub-structures for both Boeing and Airbus, yesterday announced plans to sell off certain parts of its aircraft components business. It further announced that the company will postpone its fiscal second quarter earnings release and the filing its quarterly report on Form 10-Q because the company’s auditors have not completed their review.
A new CEO recently assumed leadership of the company in April and immediately initiated a strategic review of existing businesses. That review included contracts assumed during the 2005-2007 period to produce aircraft wing structures for business and other aircraft. According to reporting by the Wall Street Journal, certain component structure businesses have run-up more than $1 billion in potential charges.
Spirit has now decided that two facilities located in Tulsa and McAlister Oklahoma that produce wing structures for GulfStream Aerospace, a unit of General Dynamics, as well as parts of Airbus and Boeing aircraft, will be put up for sale. Both facilities are reported to currently employ upwards of 3000 people.
In its reporting, the WSJ was quick to point out: “Spirit’s move highlights the challenges created by plane makers outsourcing large parts of their manufacturing in an effort to share risks and costs, with Airbus and Boeing facing potential upheaval at one of their largest suppliers just as they look to boost production rates and pursue cheaper contracts to cut their own costs.”
Obviously, this trending of passing financial risk down the supply chain, while demanding lots of ramp-up production capacity has drawn its first blood. While the business potential of the industry giants Airbus and Boeing will prevail, Supply Chain Matters believes that other smaller OEM’s and aircraft providers such as Gulfstream will bear the initial brunt. Consider the fact that Bombardier, Cessna, COMAC and others do not have the volume potential of the industry big two. While product innovation plans call for lighter, composite wing and other aircraft structures, a lot of the development and production process burden was placed with a supplier such as Spirit. The supply chain teams at these firms now have to potentially initiate back-up sourcing and or in-house production plans, depending on the outcome of Spirit’s business decision.
Then again, this may not be the only major aerospace components provider to initiate a financial re-structuring in the coming months. Innovation comes with risk and reward. Rewards need to be shared when the burden of risk is assumed by a major supplier.