Formación Arqueros

Governments play a significant role in the aerospace industry; both as major buyers of military aerospace equipment and as funding providers for aircraft development

9 _{As a comparison, over a twenty-two-year period from 1990 to 2012, there was a total of 25,000}

programmes. Governments are known to wield influence over the size, structure, conduct and performance of their respective local aerospace industries (Braddorn & Hartley, 2007).

Country-based reports on the aerospace industry often apply the United Nation’s International Standard Industrial Classification (ISIC) Revision 3.1, which covers the manufacture of aircraft and spacecraft (OECD, 2007). In industry parlance, “manufacture of aircraft” concerns the actual airframe manufacturing of fuselages and wings, but is understood to include final assembly of other components and systems such as aircraft engines and avionics (which is short for aviation electronics) (Todd & Simpson, 1986; p1).

Historically, OEMs such as Airbus and Boeing control the entire process of implementing in-house manufacturing of components and parts, as well as the final assembly of complete aircrafts. These activities are typically carried out in conjunction with coordination of work by third parties including the purchase of raw materials and parts inventory, as well as testing for quality and safety requirements (Bales, et. al., 2004). However, this sole control position at the OEM level has undergone gradual transformation, especially in the last two decades. This is mainly due to the increased financial risks attributed to lengthy development lead time of new aircraft development programmes.

The aerospace industry is reliant on subcontractors for the production of goods and services. Approximately 60 to 80 percent of the output value consists of intermediate goods (Monnoyer & Zuliani, 2007). For instance, Boeing transformed itself into a systems integrator through the outsourcing of approximately 80 percent of the manufacturing activities for the recent B787 Dreamliner programme, compared to only 10 percent outsourcing of the B737 Classic series in the 1980s (Manyika et al., 2012).

The aerospace industry demands precision to satisfy its safety-critical and quality- focused environment. The industry has benefited from the incremental nature of technological advancements in defence aerospace which had evolved over the last six decades (Francis & Pevzner, 2006). Today, these needs are at the core of the certification procedures required by three main parties in the aerospace industry;

the regulator, the operator, and the OEMs (Breuer, 2016). Regulators such as the European Aviation Safety Agency (EASA) in Europe and the Federal Aviation Administration (FAA) in the US, are responsible for specifying type certification of a new aircraft. They work in tandem with the aviation authorities such as Civil Aviation Authority (CAA) in the UK, to ensure compliance with safety and environmental standards.

Meanwhile, the operator, typically the airlines; expect their aircraft performance requirements to be fulfilled by the OEMs. These are often demands for enhanced aircraft performance and operational characteristics, customisation and associated response time, acquisition costs, operating and maintenance costs (Pardessus, 2004). In fulfilling the airline requirements, OEMs are required to demonstrate compliance to all the rules and standards issued by the regulators; often through testing and certification of systems and components. The compliance to the regulators’ rules and standards are delegated accordingly to OEM’s subcontractors, that is, the relevant manufacturers selected for particular aircraft programmes.

Table 1-1 offers a summary of the characteristics of the aerospace manufacturing industry.

Based on Table 1-1, the aerospace industry is characterised by its extensive network of aerospace manufacturers and service providers (Rose-Anderssen, Baldwin, & Ridgway, 2011), high capital investment requirement, long development cycle (Esposito, 2004; Pritchard, 2002), as well as strict national and international certification and regulatory standards (Rasheed & Manarvi, 2008). These characteristics imply a high barrier to entry into an exclusive community of industry participants that have sustained their presence and capabilities over time.

The industry’s composition of “complex systems of firms, practices, technologies, and strategies” (Rose‐Anderssen et al., 2011; p67) requires that firms collaborate. The requirements of various aircraft development programmes and the corresponding aircraft development period often intertwine with specific manufacturing capabilities. As such, firms often find themselves collaborating in one programme and competing in another (Bales et al., 2004).

Key Industry

Characteristics Description Authors

Participants collaborate and compete

“Complex systems of firms, systems, practices, technologies, and strategies”.

Rose‐Anderssen et al., 2011; p67 Firms may participate in different supply networks

of specific aircraft development programmes, often interacting with other firms both as collaborators and competitors.

Bales et al., 2004

Flexible network hierarchy where prime contractors may also manage work as second or third tier suppliers.

Haywood & Peck, 2003

High capital investment requirement

No single firm can sustain a development period of 10 to 15 years without government intervention in funding.

Pritchard, 2002

Long development cycle

Influenced by technology selection and available expertise.

Esposito, 2004

As technology adoption increases, the cost of aircraft development will increase too.

Ward, et. al., 2012

Regulatory and industry certification requirements

All aspects of a commercial aircraft are subjected to rigorous testing and compliance to international regulator and industry certification processes prior to delivery.

Klueber & O’Keefe, 2013

High safety standards are embedded in every step of the process, from concept to final assembly.

Muir & Thomas, 2004

Table 1-1: Highlights of the characteristics of the global aerospace industry

A prominent characteristic of the aerospace industry, which also poses as a perennial challenge, is the requirement for a significant amount of capital investment. As mentioned earlier in this section, this is often the role undertaken by governments. Historically, no single firm had been able to sustain an aircraft development programme over a period of 10 to 15 years without government funding assistance (Pritchard, 2002). This challenge is compounded by the need to ensure technology readiness to support the long life cycles of aircrafts and their systems (Hallstedt et al., 2015). For instance, substantial cost allocation is required to determine the technology readiness of tools, components, systems, and machines before they are incorporated into the manufacturing process or in the final assembly. The length of the development cycle is also affected by the selection of available technologies and the availability of corresponding expertise (Esposito, 2004).

Inevitably, the cost of the aircraft development programme often increases exponentially (Ward, et. al., 2012).

The high development cost is also contributed by requirements for equipment and process commonality, and increased economies of scale (Francis & Pevzner, 2006). Furthermore, because the industry is also identified by its relative low rates of production and small total outputs, it contributes to the equally lengthy timeframe for returns on investment (Lorell et al., 2000).

As highlighted earlier, aerospace manufacturers must undergo stringent and demanding certification procedures set by industry regulators and OEMs. High quality and safety standards are embedded in every step of the process, from concept to final assembly (Muir & Thomas, 2004). For instance, all parts and components of a commercial aircraft must undergo rigorous testing and compliance to international regulatory and industry certification processes over a period of time, before a complete aircraft is certified for delivery to the airline customer (Klueber & O’Keefe, 2013).