No industry gathering I have attended in recent memory has brought the challenges the supply chain is facing into sharper focus than Aviation Week’s recent Aerospace & Defense Programs conference in Phoenix, Ariz. Even before the two-day event wrapped up, many of the 350 or so attendees expressed a more sobering appreciation for what may be in store for at least the next several years for companies of all sizes.
Orders for new aircraft are mounting rapidly at the same time that it is becoming increasingly clear that spending on defense programs will drop, and not by just a small amount. Barring some catastrophe of generational proportions that might be expected to galvanize broad public support for maintaining the current level of weapons investment, the decline will be severe. How steep still remains uncertain, depending on the Congressional “supercommittee” charged with coming up with a plan to reduce the deficit by $1.5 trillion over 10 years. I'm not optimistic, nor were many of A&D professionals in attendance. Any program that even smells like it could exceed cost targets will be a tempting candidate for cancelation or deferral.
As for the surge in commercial orders, it is not at all clear whether suppliers will be able to handle the ramp-up, particularly at the lower tiers of the supply chain where visibility into business forecasts leaves much to be desired. At current production and order rates, backlog levels by year-end will be at an all-time record. Normally that would seem to be a nice problem, but manufacturers will be under a great deal of pressure from airlines to deliver new equipment on time.
Much of the responsibility for how the industrial base will be rocked will fall to the large systems integrators, or primes. Past cycles offer little encouragement that lessons have been institutionalized. To make matters worse, this is no typical cycle the aerospace/defense industry is entering.
Parts shortages, bottlenecks, deft program management (or the shortage thereof), and profit margins will be just some of the challenges with which suppliers are likely to be wrestling. It would be comforting to know that most suppliers are getting ahead of the curve. But that wasn’t my impression at A&D Programs, despite a heightened awareness.