Diversification into Aerospace

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• Diversification into Aerospace
• Opportunities and Challenges for Michigan
  Manufacturers

Prepared for Michigan Economic Development Corp.
January 21, 2009
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Mission of MAMA

• To provide the global aerospace industry with
  state of the art technology, vertically
  integrated manufacturing disciplines and
  extensive manufacturing capacity.

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• 2008 Industry Statistics
• 203 Billion in Sales
• 19 Billion in Profits
• 830,000 direct employees, 2M indirect
• 400 Billion backlog
• 30,000 Suppliers across 50 states
• 1.5 of GDP

Source Aerospace Industries Association
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Aerospace Demand Forecast
Source Airbus Global Market Forecast, 2007
Boeing Market Outlook, 2007 the Airline Monitor,
Jan/Feb 2008, Boeing Current Market Outlook 2008
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The Aerospace Manufacturing Industry is currently
valued at 118b annually and will grow to 140b
by 2015. Commercial Aircraft represent the
largest portion of this industry.
Aerospace Production History and Forecast 2006
USB
As OEMs begin to outsource 50-70 of their
manufacturing needs, the potential market for
aerospace suppliers could approach 60b annually
Source Aerostrategy, the Boeing Company 60b
annual figure assumes 60 of the industry value
is in manufacturing costs, 70 of which will be
outsourced by 2015
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MAMA will drive significant value into the
Michigan manufacturing industry by capitalizing
on the recent trends in aerospace supply chain
management.

• Boeing will outsource approximately 70 of all
  parts new aircraft
• Airbus is outsourcing 50 of the new A350
  production
• Lockheed Martin Corporations in-house machining
  capacity meets only 55 of the companys needs,
  and rather than adding more in-house machines,
  are looking to outsource the balance of the work.
• According to Flight International, three quarters
  of airlines will not be fitting replacement
  aircraft parts from OEMs, but will be using
  outsourced parts

Source International Political Economy Zone,
American Machinist, The Wall Street Journal
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• 2008 Breakdown By State
• STATE JOBS REVENUES
• MI 7,420 434 Million
• CA 119,000 7 Billion
• OH 18,000 3.5 Billion
• TX 55,000 5 Billion
• WA 82,000 41 Billion
• KS 42,000 3.5 Billion
• FL 33,000 3 Billion

Source Aerospace Industries Association
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• Industry Embraces MAMA Model
• December, 2008
• Informed by HW division purchased by MM that
  MAMA will now be sole supplier for over 200 part
  numbers for MM as well.
• Displacing MM current suppliers because of
  superior pricing, quality, lead time, etc.
• Total value of MM volume could be up to 4
  million on top of HW 2 million
• Validation of MAMAs model acceptance by
  industry.
• NOTE In 2008 MAMAs suppliers had 0 PPM

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• Challenges and Opportunities for Michigan
  Automotive Manufacturers in Their Diversification
  Efforts

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The Michigan manufacturing sector faces numerous
challenges entering the aerospace marketplace..

• New certifications (e.g. AS-9100, NADCAP)
• Discovering how capabilities of manufacturing
  firms translate into providing solutions for
  aerospace industry needs
• Adapting to lower volumes when compared to
  automotive
• Fears of labor relation issues (e.g. American
  Axle)
• New terminology
• Unfamiliarity with aerospace metals and
  treatments when purchasing and manufacturing
• Understanding and embracing aerospace culture

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The Michigan manufacturing sector faces numerous
opportunities entering the aerospace
marketplace..

• Engage in a thriving manufacturing marketplace
  that typically possesses higher margins than
  other manufacturing industries
• Long term contracts (e.g. 3-7 year contracts are
  commonplace)
• Substantial available capacity
• Geographic advantages over Low Cost Countries
• Shorter Lead Time
• Kanban Mentality with min/max capabilities
• Exceptional quality control acquired in the
  automotive industry meets or exceeds those
  currently in place in the aerospace industry
• Accessibility to highly qualified suppliers in a
  variety of manufacturing capabilities who are
  diversifying from automotive to aerospace

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How MAMA assists manufacturers in their
diversification efforts

• Introduction of members to global aerospace firms
  to identify opportunities
• Both during visits to industry firm campuses as
  well as site visits at member facilities
• Assist manufacturers in their understanding of
• Advanced Quality Management Systems (e.g.
  AS-9100, NADCAP)
• Advanced metals and treatments commonly required
• Sources for material and treatments (sub-supplier
  network)
• Provide a launching point for manufacturers to
  begin efforts to enter
• Aerospace industry
• Partnering with Venture Capital firms seeking to
  invest in aerospace manufacturing companies
• Partnering with Financial Institutions seeking to
  lend to aerospace manufacturing companies

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Knowledge of Lean Manufacturing Processes would
enable Michigan suppliers to position themselves
as potential top tier 2 suppliers in the short
run and as top tier 1 contractors if the local
sector turns into a full fledged industry
Contractors
Entry Timeframe in The Market as a Given Player
Immediate
Long Term
Manufacturing of Components. Not only dedicated
to the Aerospace Industry Michigan Suppliers are
already there Forming Treating, Machining,
Tool and Die
Suppliers
Weight in the Value Chain
Manufacturer Assembler
Top Tier 3
Michigan Suppliers have started getting the role
as assemblers on some parts
Top Tier 2
Not in direct contact with the OEM., but have
integrator capabilities and responsibilities
Align business processes, provides parts directly
to the OEM. Integrator
Top Tier 1
The recent slowdown of the automotive industry
and experience acquired by the players in this
sector could turn more suppliers with high
capabilities towards the aerospace industry and
position them as key players in the middle and
long term future
Source Aerostrategy, MAMA
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• Thank you.
• Gavin Brown Craig Wolff
• President Vice President
• 549 Ottawa Avenue
• Suite 307
• Grand Rapids, MI 49503
• 616.726.6770
• www.michman.org