* Production volumes must grow 45 pct to meet demand
* Bank financing still hard to find
* Consolidation seen among smaller suppliers
By Victoria Bryan and Karen Jacobs
FARNBOROUGH, England, July 11 While planemakers
are vaunting record order backlogs to draw attention from the
dearth of new deals at the Farnborough Airshow, their ability to
meet the demand on time rests on their suppliers, and it is far
from certain they will be able to cope.
U.S.-based Boeing and European rival Airbus
have orders for over 8,000 aircraft, enough to keep them busy
for the next six years, even without any new deals, and analysts
predict the industry must increase production rates by a huge 45
percent in volume by 2015 to cope with the demand.
Whether suppliers can put the necessary processes in place
and what planemakers can do to help has been one of the main
topics of discussion at an industry event that has failed to
deliver headline-grabbing orders.
"I am hearing much more about the discussions between the
suppliers, the supply chain concerns and how companies are
positioning to demonstrate that they are ready to invest in
future capacity," said Accenture aerospace and defence expert
He said the risk was accentuated because a large number of
suppliers serve all the manufacturers.
"When one of your customers is increasing production rate
and asking you for more you may cope with it. But when all your
customers are asking you to increase outcome and production
output by 10-15 percent, then suddenly you have to grow 40-50
percent and it's another story."
Airbus and Boeing have already suffered embarrassing delays
on flagship programmes such as their A380 and 787 Dreamliner
planes and will be keen to avoid delays related to supply chain.
Aerospace specialist Stefan Ohl from consultancy Alix
Partners said the original equipment manufacturers (OEMs) must
monitor suppliers closely, sending in taskforces if needed.
"Not all, but some, maybe even many, suppliers are reaching
capacity, whether in terms of production, management or cash,"
David Hess, president of Pratt & Whitney, a United
Technologies unit, said his company checks with
suppliers rigorously on training, headcount capability and
systems to make sure they are prepared when production of the
company's geared turbofan engine ramps up.
"We haven't seen any capacity limitations yet, but we really
start to see our volumes ramp sharply in 2015 and 2016," he
said, adding the company was bringing in people who'd been
involved with the Pratt Canada production rampup in the early
part of the decade to help.
Stan Deal, Boeing vice president and general manager, supply
chain management, said the U.S. planemaker learned during the
development of the Dreamliner, which had more than a three-year
delay in the face of production and design issues, that
attention to details with suppliers can help ward off problems.
"Attention to detail early really can help make the
difference between making a plan and missing a plan," Deal said.
CASH AND CONSOLIDATION
It's the smaller companies further down the supply chain,
referred to as Tier 2 and 3, which are likely to struggle most
to expand production.
"In the UK, many small companies aren't up for it," said
Robin Southwell, CEO of EADS UK, referring to the need for those
smaller companies to stump up the cash to invest in expansion.
He said the government should do more to emulate Germany,
which is teeming with small, family-run companies with strong
British business secretary Vince Cable said the government
was looking at encouraging non-bank financing.
"The situation got so bad some are just avoiding banks
altogether," he said, saying that peer to peer lending and
asset-based financing were becoming more common as a result.
After Airbus had to step in and buy some suppliers, the
funding constraints could also lead to more consolidation
between smaller suppliers.
"I think if we're going to continue at current production
rates there will be no choice but to have consolidation in the
second and third tier," said David Baxt, the global head of
aerospace and defence investment banking at Jefferies.