Published in Manufacturing

West Michigan’s ‘sleeping giant’: Region’s aerospace supply chain braces for growth amid strong global demand

BY Sunday, April 15, 2018 08:24pm

With the automotive industry headed for a period of plateauing sales and a potential slowdown, manufacturers could find opportunities to diversify by supplying Michigan’s aerospace sector. 

Amid increased demand from consumers domestically and overseas, industry sales could reach 41,030 commercial aircrafts valued at $6.1 trillion globally over the next 20 years, according to a forecast from aerospace manufacturer Boeing. 

For Toni Vernaci, president of the Rochester, Mich.-based Aerospace Industry Association of Michigan, that growth potential portends more opportunities ahead for the aerospace supply chain in West Michigan. 

Particularly, the local supply base is poised to do well as the industry capitalizes on strong demands to replace and maintain an “aging global fleet” of aircraft. If enough manufacturers take advantage of the opportunities in the aerospace supply chain, it could help them avoid pressures caused by any slowdown in the automotive industry, he said.

“If you are making a bracket for a car, you can make a bracket for an airplane,” Vernaci told MiBiz. “(The aerospace industry) is a sleeping giant for the state of Michigan. We are not building from nothing; we are trying to build from the wonderful assets we have. There is no place better in the world to find the automotive industry and aerospace industry than in the state of Michigan.” 

Other resources also suggest Michigan is poised to capitalize on the growing aerospace sector.

According to a report from global consulting firm PricewaterhouseCoopers LLP (PwC), Michigan improved its standing in a national ranking of aerospace manufacturing attractiveness from eighth in 2016 to second last year. 

The improvement in the ranking hinged on the state’s economy, which compared well in terms of Consumer Price Index, exports and manufacturing output; infrastructure, specifically in the quality of its electricity supply; and costs as measured by labor productivity and materials. 

That’s all good news for the aerospace and defense industry supply chain in West Michigan, experts say. According to data from The Right Place Inc., a regional economic development organization based in Grand Rapids, the sector employs more than 9,800 people across the region at 312 establishments. 

Local aerospace and defense manufacturers have also added jobs at a rate more than double their national peers, growing employment 15.3 percent from 2013 to 2017, per data from The Right Place. Nationally, companies in the sector grew employment by 6.5 percent over the same period. 

Aerospace industry suppliers in West Michigan include Arconic Inc., a maker of super-alloy airfoils for jet engines and industrial gas turbines that includes the former Alcoa Howmet operations in Whitehall; GE Aviation Systems Inc., a provider of electrical power systems, avionics, actuation and landing gear, aerostructures and propeller systems; Woodward FST, a manufacturer of fuel control systems; Jedco Inc., a fabricator of gas turbine engines and various aerospace components; as well as companies ranging from Pratt & Whitney Component Solutions, Eaton Corp. and Parker Hannifin

CROSSING INDUSTRY LINES

As the aerospace sector expands, the region’s legacy automotive suppliers have increasingly eyed the industry, often as a diversification play to stave off cyclical pressures inherent in the light vehicle manufacturing supply chain. 

In other cases, automotive suppliers are partnering with aerospace OEMs to remove key manufacturing roadblocks in their supply chains. That was the case for automotive seating maker Adient plc, which announced a joint venture with Boeing in January to develop seating for the aerospace industry. Adient, which spun off from Johnson Controls Inc., operates plants in Holland and Battle Creek. 

The joint venture is aimed at eliminating delays for aircraft interiors, a persistent challenge for the industry that costs manufacturers $100,000 per day, according to a Reuters report. 

Boeing CFO and Executive Vice President Gregory Smith said the company would continue to expand its partnerships to help improve the efficiency of its supply chain. 

“[W]e continue to look for opportunities to partner with other industry players and investments that accelerate our lifecycle value strategy and vertical content, as we demonstrated by the recent joint venture with Adient for seats,” Smith said in a quarterly conference call with brokerage analysts on Jan. 31. 

George Kiefer, vice president and general manager of avionics with GE Aviation in Grand Rapids, said he’s noticed a renewed interest in supplying the aerospace sector, as well as the transition of some automotive suppliers to serve the industry. 

“We are seeing more companies that are interested in (aerospace),” Kiefer told MiBiz. “In the industry, because of the increase in (production) rates, and because of the push on affordability, (aircraft manufacturers) are really trying to make sure that from an inventory standpoint, everybody is delivering on time and of the highest quality.”

Kiefer, who also serves on the board of directors at AIAM, said the automotive and aerospace sectors share operational similarities. 

While production runs for the aerospace industry are much smaller than many automotive suppliers are used to, large aircraft manufacturers like Boeing and Airbus still expect a similar “high volume (output) and having a high quality in order to keep the lines progressing,” Kiefer said, noting that Michigan’s strong automotive supply base is well-positioned “to transfer over to the aerospace sector.”

INDUSTRY BOOMING

With projections for strong demand for commercial aircraft, executives at aerospace suppliers are feeling bullish on the sector’s future. 

Among them is Bill Hoyer, president of the Wayland-based Precision Aerospace Corp. He’s not experienced an expansionary period like the current environment in his 28 years in the industry. 

However, OEMs have started to take a page out of the automotive industry’s play book by demanding regular price reductions, which can cause strain for many smaller suppliers, he said. 

“We are in a really good position in terms of growth opportunity, but the pressure from the primes — Boeing and Airbus, Bombardier and Embraer — are pushing through the … Tier 1s and that’s going to bring incredible price-down pressure,” Hoyer said. 

This pressure includes longer payment terms and holding inventory for longer than they did previously, he added.

Those dynamics are causing a wave of consolidation activity in the highly fractured aerospace supply chain, including at Precision Aerospace. Last month, private equity-backed Tribus Aerospace Inc. of San Diego, Calif. acquired Precision as a platform company to consolidate smaller shops across the Midwest. (See story on page 6.)

Increasingly, smaller aerospace manufacturers must partner to find the resources needed to keep up with the growing demands from within the sector, Hoyer said. 

“It’s putting a lot of pressure on consolidation because a small shop — say a $3 million or $4 million revenue enterprise — really (struggles) to have … the cash flow,” he said. “Our inventory has almost doubled in the last five years and our sales have only gone up about 30 percent. (The OEMs) are putting it on our shoulders, and you have to have pretty deep pockets to fund all of that.” 

OPPORTUNITIES AHEAD

Despite those cost pressures, the aerospace supply chain has its share of opportunities as long as companies are positioned to act on them, according to executives.  In particular, GE Aviation’s Kiefer has been watching closely as Boeing scales up its production of 737s from 47 per month to 52 per month over this year. 

GE Aviation, which has plants in Grand Rapids and Muskegon, also is continuing to develop components for new models. For example, the company developed the “common core system” or computing “brain” for Boeing’s 787 Dreamliner, which also is being deployed on the upcoming 777X widebody aircraft. 

“Boeing is trying to capitalize on that, and so as they try to move that into production … then that will be that much more content that we have to deliver to them,” Kiefer said. 

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