The aerospace market has taken a major upturn and is expected to be strong for several years to come, and more than ever before, prime aerospace contractors are outsourcing almost all of their regular machining and are actively looking for qualified shops to do that work.
The U.S. aerospace industry did $184 billion in sales in 2006, up more than 8 percent from 2005, and expects an increase of at least 6 percent in 2007 and similar increases each year through 2011, according to the Aerospace Industries Association (AIA) (www.aia-aerospace.org). Commercial aircraft sales were 21 percent higher in 2006 than in 2005, and demand continues to increase. In 2005, the Boeing Company (www.boeing.com) built 290 aircraft. In 2006, Boeing built 398, and this year, Boeing is expected to build nearly 445 aircraft. Industry analysts predict Boeing will build nearly 520 aircraft in 2008.
"In 1986, we said that we are focusing on large-scale integration, design, testing, delivery and servicing of our products," Cris McHugh, a spokesman for Boeing, said. "In March of 2003, we decided to place more stable work with our suppliers so that we could internally focus our machining efforts on the complex, emergent and new product development type work. We still have what may be some of the largest machining operations in the U.S. with facilities in Auburn, Wash., Portland, Ore., Salt Lake City, Utah and Oak Ridge, Tenn., but we are outsourcing our stable production machining more than ever before."
Boeing is outsourcing nearly 70 percent of all parts for new aircraft. Some of that outsourcing is offshore, such as to a partnership with Russian titanium supplier VSMPOAVISMA, which rough machines titanium forgings in Verkhnaya Salda, Russia. By rough machining the parts in Russia, Boeing is leaving the chips nearer to the facility that will recycle them, and the parts will be finished at Boeing's Portland, Ore., facility.
However, most of the machining is going to U.S. machine shops that can meet Boeing's strict quality requirements.
At a recent aerospace conference, a Lockheed Martin Corp. (www.lockheedmartin.com) representative said that Lockheed's current in-house machining capacity is only 55 percent of what the company needs. He added that, rather than buying more machines, Lockheed is looking to outsource its machining and is concerned that there may not be enough capacity available in the United States to meet its needs.
Large aircraft assemblers are not the only aerospace companies that are increasing their outsourcing of parts. "We have a situation with the war going on where there is a high demand for helicopters and spare parts," Mitch Schneider, a senior vice president at Bell Helicopters (www.bellhelicopter.textron.com), said. "Also, the oil boom is creating a high demand for our new and existing commercial helicopters. We can't keep up with it all so we have to get outside help. We concentrate on our core competencies such as the transmissions and blades, but we outsource most of the rest. In the last two or three years we have brought in a lot of new 4 and 5-axis machines and are always upgrading our technology, but we still have to offload a lot of work to keep up with the demand for our products."
And, shops such as H.M Dunn (www.hmdunn.com) in Euless, Texas, are taking advantage of that situation.
"We have taken on a tremendous amount of work from Lockheed and Bell, and we are gearing up to take on more of it," Jon Polliard, senior manufacturing engineer, said. "We bought 10 5-axis machines last year, and we will probably buy another 10 this year because we are growing as fast as we can. We buy better technology whenever we can find it. We bought a Makino MAG machine (www.makino.com) because we were able to reduce the run time on a part from 2.5 hours down to 40 minutes. We spent $1.5 million on a Giddings & Lewis (www.giddings.com) boring mill just to run a titanium part for the Lockheed F-22. It was a multiyear contract that paid for the mill long before the contract was over. To be competitive in this business, you have to stay on top of the technology, and that costs time and money. We are successful because we constantly work to stay on top of the technology. Just buying new machines isn't enough. You usually have to learn a whole new way of working. There were two companies a few blocks from us that bought new machines but didn't learn how to use them properly. They used the new machines like they did their old machines, and that was like buying a Ferrari to plow a field."
Makino, Mazak (www.mazak.com) and other machine tool builders servicing the aerospace industry are all seeing strong sales to that sector, and almost all of it is going to smaller companies. "We're seeing an increase in sales for capacity reasons," Alan Hollatz, of Makino's aerospace proposal group, said. "Ten years ago we were primarily selling big machines to Lockheed and Boeing, but now we are selling those machines to tier 1 and tier 2 companies. It is very similar to what happened in the automotive industry where the prime contractors offloaded almost all of their machining capacity to suppliers." Hollatz added that becoming an aerospace parts supplier takes a lot more than buying the right equipment. "Since the consequences of part failure can be so disastrous there is a lot of quality assurance infrastructure required of the part suppliers. There is a lot of overhead needed to supply parts to the aerospace industry that is just an unprofitable burden when supplying parts to less demanding industries. Probably 90 percent of our aerospace customers are supplying 100 percent of their parts to aerospace, and that other 10 percent usually divide their business into two different divisions in order to be competitive in other markets," said Hollatz.
"Getting ISO certified isn't easy, but neither is staying on top of the technology," Jon Polliard said. "We started out 30 years ago with gantry mills at 5,000 rpm, and when we bought our first 12,000-rpm mills, there was a learning curve. You had to program differently, buy different work holders, different cutters, fix your parts differently... it was a transition to a new way of doing business. Now we're using those Makino MAGs at 33,000 rpm and 1,200 ipm, and it's another whole new learning process. At 33,000 rpm, you get into harmonics, different horsepower curves, different acceleration and deceleration, and all of your programs have to be rethought because you can't slam into a corner at 1,000 ipm when your running at 33,000 rpm." Polliard noted that the machine vendors help with the learning, and can connect you to other companies using the same machines that are willing to share tips, but in the end there is still a lot of trial and error needed to get into full production.
While there are hurdles to overcome in order to get into the aerospace parts supplier business, large companies like Boeing are willing to reach out and help potential suppliers as much as possible because it is in their own best long-term interests to do so. To get started, a company can go to the Boeing website and click on "suppliers" to read the section on "Doing Business with Boeing." The potential supplier tells Boeing what they can do, Boeing will respond telling the potential supplier what Boeing is looking for, and if there is a possible match, they start a dialog. Another approach is to get business though Boeing's strategic sourcing teams. These teams are made up of representatives from all over the country and tasked with finding and sharing information on suppliers and potential suppliers.
If Boeing thinks you would make a good supplier, it is likely to give you small orders for parts to begin with and increase those orders as the supplier demonstrates the ability to consistently supplier quality parts on schedule. Quality is a mandatory prerequisite for any supplier hoping to do business with any of the aerospace companies. Those companies used to do source inspection but now rely primarily on getting the suppliers ISO certified and then periodically reviewing quality procedures and standards. Part inspection becomes the burden of the part supplier.
Another factor that contractors are concerned with is financial stability and health of the supplier. It makes no sense to develop a relationship with a company only to have that company be forced to close its doors for financial reasons.
There is money to be made supplying parts to aerospace contractors, and those contractors are willing to reach out to potential suppliers that show promise for long-term support. Small shops have just as much potential for getting a share of all the outsourcing going on as larger shops do, perhaps even more potential because defense department contracts usually have a clause requiring contractors to make a good faith effort to find smaller shops for at least some of their parts acquisitions. Smaller shops also offer major contractors a level of flexibility that the larger contractors could never have depending on their own resources.
Altogether, aerospace is an attractive and growing market for American shops.
There is, however, a "but" to keep in mind. Until recently, more than 90 percent of all the material that went into building an aircraft was metal, so there was a substantial need for metal machining. However, the major contractors are going to use composite materials on new aircraft. Forty percent of the Airbus A380's structural weight is composite materials, as is a significant percentage of Boeing's new 787 aircraft. This presents traditional metal-cutting machinists with a problem and an opportunity.
The increasing amount of composite materials used on aircraft is increasing the amount of composite machining that must be done, and that presents challenges in machining because of the complexities of composites and toxic dust that can be generated when composites are machined. The complexities of machining composites include the fact that these materials are highly abrasive and cause a great deal of wear on cutting tools, and composites tend to delaminate if they are not manufactured properly or if they are not machined correctly.
Aside from that, Boeing also is increasing its use of titanium on its new airframes and expects to have huge increases in its need for outside machining over the next five year.
Thirty years ago when the automotive industry began its move toward outsourcing instead of making parts in-house, it transformed the automotive parts industry. Some of the major suppliers of that day are gone, and in their place is a whole new list of parts suppliers. The same is likely to happen in the aerospace industry, making this time of change a golden opportunity to some and a fatal curse to others.