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BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race:  US, Europe, China or Russia?
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BOEING 787 US's Dreamliner Or Nightmare-Liner? Who will Ultimately Win the Aerospace Race: US, Europe, China or Russia?

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Who will Ultimately Win the Aerospace Race: US, Europe, China or Russia? Who will Ultimately Win the Aerospace Race: US, Europe, China or Russia?

Who will Ultimately Win the Aerospace Race: US, Europe, China or Russia? Who will Ultimately Win the Aerospace Race: US, Europe, China or Russia?

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  • Launch costs of 787 approximately USD13.4 billion (01), again development costs of USD6-7 billion for 777A380 launch cost of USD10 – 12 billion, which in some estimates could be under by USD3-5 billion.Given that 2 models are being built, the launch costs will be covered by subsidies and/or Boeing's risk-sharing partners.Multiple bidders against each other
  • Boeing Actions• Second FAL encouraged by customers, but real bottleneck is supply chainBoeing had to ultimately buy Voigt and Alenia united States to take control of the significant operational problems in frames productionThey set up identical labs for engineers at the various companies.Cultural training, sensitivity, etc.Supplier InitiativesAlenia, Hawker de Havilland• Investing in second autoclave and further equipment to support production ramp-up.Kawasaki• Investing in new factory and production equipmentSpirit, Vought, Global Aeronautica• No investment in facilities or equipment, preparing for more gradual ramp-up• Spirit unilaterally shut down the production of CFRP fuselage barrels in January 2008. Production was slated to restart in 3Q 2008
  • Break from the past:-Pre-installed systems/completed subassembliesFew people 800 to 1,200Leaner assembly lineLower inventoryHigher timeJapanese now account for 35% of work share, first time Japanese have taken a lead role in mass production of subcontractors supported and funded by the Japanese government.
  • Break from the past:-Pre-installed systems/completed subassembliesFew people 800 to 1,200Leaner assembly lineLower inventoryHigher timeJapanese now account for 35% of work share, first time Japanese have taken a lead role in mass production of subcontractors supported and funded by the Japanese government.
  • Ergo: Eventually, Western airlines will find it hard to ignore Chinese aircraft that are fully FAA/JAA compliant – especially if they sell at a fraction of the cost of Western alternatives.Recent estimates have the C919 launch investment pegged between USD6.5 and 7.7 billion, which could have the prototype built by 2015.C919 is intended to be direct competitor to Boeing’s 737 and Airbus’s A320 models
  • Ergo: Eventually, Western airlines will find it hard to ignore Chinese aircraft that are fully FAA/JAA compliant – especially if they sell at a fraction of the cost of Western alternatives.Recent estimates have the C919 launch investment pegged between USD6.5 and 7.7 billion, which could have the prototype built by 2015.C919 is intended to be direct competitor to Boeing’s 737 and Airbus’s A320 models
  • Ergo: Eventually, Western airlines will find it hard to ignore Chinese aircraft that are fully FAA/JAA compliant – especially if they sell at a fraction of the cost of Western alternatives.Recent estimates have the C919 launch investment pegged between USD6.5 and 7.7 billion, which could have the prototype built by 2015.C919 is intended to be direct competitor to Boeing’s 737 and Airbus’s A320 models
  • Transcript

    • 1. BOEING 787 – US’S DREAMLINER OR NIGHTMARE-LINER? Who will Ultimately Win the Aerospace Race: US, Europe, China, or Russia?Copyright © 2013 Exolus. All rights reserved..
    • 2. Contents  Dreamliner 787 – Overly Globalized? Outsourced? 2  Boeing’s Evolution of Globalization/Outsourcing Aircraft 3  Dreamliner 787: Over-Globalization of Frame Production? 4  Boeing’s Aggressive Global Sourcing Strategy – Illustrative China Case 5  Highly Complex Global Supply Chain Leads to Major Challenges 11  Airbus Globalization 17  Airbus 350XWB – Globalization Strategy 18  Airbus A350XWB - Frame Production Concentrated in Europe 19  Airbus 350XWB: Globalization of Supply Chain 22  China and Russia’s Unique Models: “Glocal-ization” Strategies 29  China Market: Foreign Investors: … hunger for China Opportunity 30  Road Forward: China Focusing Initially on Single-Aisle & Regional Jets 41  China’s “Glocalization” Strategy 42  China / Russia Partnership for Aircraft Development/Production? 45  The Ilyushin Il-96 46  Considerations for the Future of Aircraft Production 48  Competition in the Global Supply Chain Immense – USD100 billion 49 1
    • 3. Dreamliner 787 – Overly Globalized? Outsourced?Copyright © 2013 Exolus. All rights reserved.. 2
    • 4. 1. Boeing’s Evolution of Globalization/Outsourcing Aircraft Production/Development Parts built by the IAM union of Boeing workers 1967 – (737 Classic) 2009 – (787 Dreamliner) 1969 – (747 Series)Copyright © 2013 Exolus. All rights reserved.. Source: A Wing and a Prayer Outsourcing at Boeing, Reuters 3
    • 5. 1.1 Frame Production: Overly-Globalized? Overextended? CHINA SOUTH KOREA JAPAN UNITED STATES COMPANY ENGINEERS COMPANY ENGINEERS COMPANY ENGINEERS COMPANY ENGINEERS Chengdu Aircraft Korean Air: NA Kawasaki Heavy Spirit Aerosystems (Wichita, Tulsa): 670 Industrial Group: NA Industries: 190 Nose section Rudder Wing tips Midfuselage (Wichita, Kan) section Tail Cone Engine pylons (Wichlta) Fixed trailing edge Fixed leading edges (Tulsa, Okla.) Shenyang AUSTRALIA Aircraft Group: NA COMPANY ENGINEERS Movable leading edges (Tulsa) Fuji Heavy Industries: 130 Vertical fin Boeing’s Hawker Leading edge De Haviland unit: 80 Vought (Charleston): 100 Center “wing box” (Dallas): 300 fuselage section Hafei Aviation Movable trailing edges Rear fuselage sections Industries: NA Mitsubishi Heavy (Chovlestan, S.C) Industries: 250 Wing to body Fairing panels Goodrich Aerostructures: 160 Inboard flaps Nacelles (Chuta Wista, Caly) CANADA Boeing: 95 ENGLAND wing box COMPANY ENGINEERS COMPANY ENGINEERS Vertical fin Boeing Canada (Wing-peg): 60 Messier Dowty: 30 (Boeing Everett plant): Wing to body fairing Total Engineers: 250 TOTAL ENGINEERS: 4,925 assembly Main landing gear Plus 200 support staff (Everett) Aft pylon fairings FRANCE Nose landing gear ITALY COMPANY ENGINEERS COMPANY ENGINEERS Wing to body Latecoere: NA Alenia: 770 fairings SWEDEN COMPANY ENGINEERS Midfuselage Main landing gear Aft passenger doors Saab: 30 sections doors (body) Aft cargo door Forward Forward cargo door passenger doors Horizontal Main landing gear stabilizer doors (wing) Numbers of engineers are projections for the end of 2005 made by Boeing’s first-tier partners, and may not include all engineering specialties. Production workers are not included.Copyright © 2013 Exolus. All rights reserved.. Source: Boeing 4
    • 6. 1.1 Systems Development/Production: Overextended Risk Sharing Partnerships? Highly Diverse Group of Partners Integrated in 787 Collaborative Development SYSTEMS  Air Conditioning /Pressurization  Autoflight  Communications  Electrical Power  Equipment/Furnishings  Fire Protection  Flight Controls  Fuel  Hydraulic Power  Ice and Rain Protection  Indicating/Recording Systems  Landing Gear  Lights  Navigation  Oxygen  Pneumatic  Vacuum  Water/Waste  Diagnostic and Maintenance  Information Systems  Nitrogen  Auxiliary Power  Cargo and Accessory CompartmentsCopyright © 2013 Exolus. All rights reserved.. Source: Boeing website 5
    • 7. 1.1 Global Sourcing: Overextended? Overly-Globalized? Illustrative Boeing China Sourcing Activity* Hafei Aircraft Industries 787 upper and lower body panels for wing-to-body fairings, single source; Quick Electronics vertical fin parts •Print hardware, servers in support of Boeing IT hardware Harbin Shenyang Aircraft Company Aircraft •737 aft fuselage subassemblies Baoji Group Ltd. Industries •787 vertical fin leading edge, single •Titanium ingot, plate & sheet source Hong Yuan Aviation Forging & Shenyang BHA Aero Composites Company, Ltd. Casting Industry Company Aircraft Shenyang •737 composite panels and parts •747 titanium forgings since 1984 Industries (flight deck, close out panels, dorsal fin, wing – to – body fairing, cover Xi’an Aircraft Company Beijing panels, wing fixed trailing edge, wing •737 Next Generation vertical fin Shaanxi fixed leading edge, tail cone, interior •747 trailing edge ribs, floor beams, Aircraft Tianjin parts, secondary composite detailed parts, and subassemblies Company structures) •747-8 trailing edge flaps •747 miscellaneous composite parts Hanzhong and structures Xi’an •767 and 777 wing fixed tailing edges Chengdu Aircraft Industries Aircraft Shanghai and dry bay barriers; empennage •737 forward entry and over-wing exit Shanghai panels, interior parts, secondary Company Xi’an Aviation doors (a subcontract from Vought composite structures Aerospace, USA) Chengdu Industry Co. •777 flight deck interior panels •747-8 ailerons and spoilers, single •787 trailing edge panels for the Chengdu Changhe source; horizontal stabilizer parts and Jingdezhen vertical fin, interior parts, secondary subassemblies (a subcontract from Aircraft Chongqing Aircraft composite structures Vought Aerospace, USA) Company Company Nanchang •787 rudder, single source (sole Xiamen provider of this assembly) Shanghai Aviation Industry Company Hongdu •737 horizontal stabilizers Aviation Southwest Aluminum Industry Taikoo Aircraft Engineering Company •747 aluminum forgings Ltd. (TAECO) •747 parts, subassemblies •747 boeing converted Freighter modification program * June 2007Copyright © 2013 Exolus. All rights reserved.. Source: Boeing, “About us: Boeing in China.” 6
    • 8. 1.1 Dreamliner 787: Overly-Globalized and Overly-Outsourced? Problems with 787 Launch Boeing tried to outsource 90% of frame, but … failed to achieve such a high a level of global deployment  “In retrospect, our 787 game plan may have been overly ambitious, incorporating too many first all at once – in the application of new technologies, in revolutionary design-and-build processes, and in increased global sourcing of engineering and manufacturing content” – Boeing CEO Jim McNerney Break in Communication Ling between Chicago HQ and Seattle Operations … and, Within Operations, Outsourced Jobs Results in Loss of Critical Tribal Knowledge  Loss of Tribal Knowledge. Aggressive global outsourcing results in significant reduction of key staff in Final Assembly and enormous loss of Tribal Knowledge. Tribal knowledge is key to producing airplanes. Acquired on job over long time, it is the key ingredient in the development of a new plane. It is the shared method of performing countless daily tasks efficiently and in coordinating with colleagues. In short, it is the grease that cuts frictions through the assembly process.  Broken Communication/Management Link Chicago Headquarter and Seattle Operations. Headquarter moved to Chicago after 85 years in Seattle. Labor unions complain the move drove a wedge between executives in Seattle-are rank and file. But the benefit is being in international city, for sales, hiring and so forth.Copyright © 2013 Exolus. All rights reserved.. Source: Reuters 7
    • 9. 1.2 USD14 billion Launch Costs: Drives Global Subsidies, Global Partnerships Not Possible for Boeing to Finance alone the USD13.6 bn Project Launch Costs Given that 2 models are being built, the launch costs are covered by domestic and foreign subsidies, as well as Boeings risk-sharing partners. Funding Source Amount Form Item Aid Type Washington State $3.2 billion B&O Tax Reduction Final Assembly Production Subsidy Interest Free Bond, 20- Kansas State $200 million Nose & Cockpit Interest Free Bond year States Bidding on Subsidy for retrofitting Production $500 million Production Subsidy FAL 747 to carry planes Transport State of Washington $16 million 787 Rail Barge 787 Rail Barge Production Subsidy Wing &Fuselage Japanese Subsidies and loans to (35% state in $1.6billion Production Subsidy Government MHI, KHI, Fuji frames) Subsidy to Alenia from Rear Fuselage (13% Italian Government $590 million Production Subsidy Italian Government state in frames) International Non-airframe Non-Recurring $3.1 billion Risk-sharing contribution System Suppliers suppliers Costs Boeing Contribution $4.2 billion 787 Launch Funding Self-Financed Total $13.4 billionCopyright © 2013 Exolus. All rights reserved.. Source: Canada-US Trade Center Occasional Paper No. 28 8
    • 10. 1.2 Challenges and Delays: Increase Costs from USD10 bn to USD13.5 bn Challenges and Delays add an Additional USD4 – USD5 billion in Costs Delay in 2007 – shortage of bolts, flight control software. Delay in 2008 – 58 day strike Later – major problems with suppliers in South Carolina 2010 - No availability of Rolls-Royce engines October of 2010 – another two week delay with horizontal stabilizers from Alenia November 9, 2010 – emergency landing on test flight due to a fire due to foreign debris in electrical cabinets. Electrical systems and power panel are built by Hamilton Sundstrand. 3 Year of Delays Resulted in an Estimated Additional Development Costs of USD 4 - 5 billionCopyright © 2013 Exolus. All rights reserved.. Source: The Seattle Times 9
    • 11. 1.3 Aggressive Weight Reduction Strategy: Overly Ambitious? Advanced Composites in Aircraft 55 787 A350XWB 50 Boeing Airbus 45 A320 40 Other B737 A400M SUCCESSOR 35 30 MRJ A380 25 20 A321 15 A340 A340-600 A320-200 A330 10 A310-200 777 MD-11 MD-90 ARJ21-700 A300 A300-600 5 767 737 747 MD-80 757 747-400 DC10 737-300 0 DC9 L1011 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025Copyright © 2013 Exolus. All rights reserved.. Source: Bauhaus Luftfahrt 10
    • 12. 1.3 Aggressive Weight Reduction Strategy: Overly Ambitious? Benefits: Lighter … More Durable … Reduced Corrosion/Fatigue & MaintenanceCopyright © 2011 Exolus. All rights reserved.. 11
    • 13. 1.3 Carbon Composite Weight Reduction: Nice in Theory, Very Difficult in Practice Carbon Composite Challenges According to Spirit, composite material lay-down rates are far below projections • The initial goal was 100 lbs/hr with a single-head machine • Production started at 8-9 lbs/hour • Efficiency gradually increased to 19 lbs/hour • The rate is expected to increase to 30 lbs per hour once a new dual-head machine on order arrives. • The rate of 100 lbs/hour now is a mid-term goal.Copyright © 2013 Exolus. All rights reserved.. Source: Boeing 787 Lessons Learnt, October 2008, Airbus 12
    • 14. 1.4 Hyper-Global Outsourcing /Partnerships: Nice in Theory, Possible in Practice? Poor: Documentation, Oversight, Integration, Supplier Capabilities Very Poor or Lacking Documentation • Production records on deferred work were found to be incomplete or lost in transfer resulting in a loss of configuration control Assembly work was found to be completed incorrectly only after assemblies reached the Final Assembly Lines. Root causes … • Oversight not adequate for the high level of outsourcing in assembly and integration • Qualification of low-wage, trained-on-the-job workers that had no previous aerospace experience • Significant amount of change engineering work • Inadequate supplier capabilities in design, e.g. Vought had no engineering department when selected • Oversight not adequate for the high level of outsourcing in detailed design • Weight growth and subsequent weight saving changes • Late Definition • Boeing admitted responsibility for a shortfall in wiring shipments • Late specification indicated by supplier as root causeCopyright © 2013 Exolus. All rights reserved.. Source: Boeing 787 Lessons Learnt, October 2008, Airbus 13
    • 15. 1.5 Hyper-Global Supply Chain: Possible to Manage a Fully Global Supply Chain? Major parts traveling to Everett City of Everet origin t Pieces traveling to be assemblies into larger parts FROM ASIA FROM EUROPE Vertical fin leading edge and rubber Horizontal stabilizer flown Shipped from China to Frederickson from Italy to Everett Wing to body fairing panels shipped from China to Winnipeg Main landing gear flown from Derby to Everett AVIC (Shenyang) Tail cone shipped from South Korea to Everett SWEDEN CANADA Forward cargo door from Linköping Pylon fairing to Wichita Linköping and main landing gear Wing-to-body Wings flown from doors moved by fairing ENGLAND Derby After cargo Gloucester door from Japan to Everett Everett rail to Everett assembly Nose landing gear Linköping to Winnipeg moved by rail FRANCE Italy to Charleston from Gloucester to Toulouse Harbin Wing box Vertical fin Frederickson Wichita ITALY assembled UNITED Loggia assembled in Passenger entry doors Shenyang STATES Wichita Frederickson and Grottaglie JAPAN shipped from Toulouse to trucked to Everett Tulsa Charleston Nagoya Fixed leading Chengdu Nacelles sent from Chula Vista Charleston edges shipped Chula Vista* to Fuselage sections from CHINA Wing-tip from Tulsa to Everett FROM THE SOUTHEAST Italy flown to pieces Japan FROM THE MIDWEST Charleston shipped Mid-and rear-fuselage sections from Nose section assembled in assembled in Charleston and flown to South Wichita and flown to Everett Everett Korea to Rear – Engine pylons moved by rail from fuselage Japan assembled Wichita to Everett Mid-fuselage assembled Movable leading edges moved by Fuselage sections flown rail from Tulsa to Everett from Japan to Charleston FROM AUSTRALIA AUSTRALIA Movable trailing edges and inboard Melbourne flaps from Melbourne shipped to EverettCopyright © 2013 Exolus. All rights reserved.. Source: Boeing 14
    • 16. 1.5 Global Supply Chain: Process Riddled with Challenges and Gross Mistakes Problems with 787 Launch Corroborating source believed to be Vought internal (Design News, 1st March 2008) • “Ship 2 went to Seattle 2 months late from last schedule change” • “Several 1000 parts short and no insulation, wrong hardware, no system components, full of FOD and unworked discrepancies generated by Vought” • “Stringer wrinkles and delaminating going undetected by Vought quality” • “No inventory control oversight and accountability” • “Inability to attract competent technicians to the facility” • “Novice student inspectors, no competent management organization in-house” • “Ships 3, 4, 5, and 6 all have more defects than the fatigue model“ Delivery delayed 5 weeks due to damage sustained in production at Global Aeronautica • Incorrectly installed fasteners, non-compliance by temp worker • Ad-hoc FAA inspection highlighted FOD issues and workers bringing in their own tools • Spirit S41 structure 100% complete • Center fuselage systems installation targeted to be 50% complete on delivery • Vought aft body section S47/S48 structure 98% complete, systems 87% complete, including THSA as well as potable and waste water tanksCopyright © 2013 Exolus. All rights reserved.. Source: Boeing 787 Lessons Learnt, October 2008, Airbus 15
    • 17. 1.6 Summary of Challenges with Hyper-Globalization of Boeing 787 3 Years of Delays … USD4 billion overrun … FAA stops flying in Jan 2013 Challenges and problems in the 787 model resulted in 3 years of delays, approximately $4 billion additional costs … FAA orders Boeing to stop flying the 787 in January, 2013 4 major strikes in the past 2 decades caused loss of 200 days of production. Machinists in South Carolina, a right-to-work state, voted against IAM representation. FAA had concerns about the heat dissipation through the composite skins. Parts shortages: insufficient supply of frames, clips, brackets, and floor beams. Root causes are: NDI (non-destructive inspection) / QA not supporting production rate demand. Lack of NDI / QA personnel and equipment at T-2 and T-3 suppliers. Deferral of NDI testing from T-2 and T-3 to Tier-1 partners to expedite pre-assembly Repeated NDFastener shortages, primarily affecting but not limited to Mitsubishi. Root causes: Late changes to sleeved fastener design for lightening strike protection Alcoa unable to meet demand in time To tackle the parts shortages Boeing has now taken a consolidated approach to inventory management across the supply chain. Rumored that GE GenX and Rolls-Royce Trend 1000 both missed SFC by a 2 – 4% I testing at FAL due to all of aboveCopyright © 2013 Exolus. All rights reserved.. Source: A Wing and a Prayer Outsourcing at Boeing, Reuters 16
    • 18. Airbus GlobalizationCopyright © 2013 Exolus. All rights reserved.. 17
    • 19. 2.1 Airbus 350XWB – Regionally-Focused Globalization Strategy Cost Reduction + Risk Sharing Partners Reducing costs by divesting from non-core to future requirements: 1) Those that make lower level composite component, or 2) Employ older “metal bending” fuselage assembly technologies The risk-sharing partners expected to absorb $2.5 billion of the A350 development costs Critical aspect for risk-sharing partners to be successful: Ensure they have the financial and technical capabilities, along with the engineering workforce available to design and build composite structures. Conditions for risk-sharing partners are that they need to pay for component development costs, as well as be completive in terms of recurring costs (production) in US$ terms. Looking at 10 potential risk-sharing partners from Europe, Asia, the US and Latin America. MOUs are already in place for China, South Korea, and Russia. Source: Strategic Destruction of the North American and European Commercial Aircraft Industry: Implications of the System IntegrationCopyright © 2013 Exolus. All rights reserved.. Business Model by David Pritchard and Alan MacPherson 18
    • 20. 2.2 Airbus A350XWB - Frame Production Largely Concentrated in Europe CHINA GERMANY FRANCE Rudder Aft Fuselage Harbin Hafei Airbus Airbus Deutschland Fixed Leading Edge Harbin | China Stade | Germany Spirit Aerosystems Europe St Nazaire | France Forward Fuselage UNITED STATES Premium Aerotech Nose Section Nordenham | Germany Aerolia Center Fuselage Meauite | France Spirit Aerosystems Kinston | US Movable Leading edge GKN Aerospace De Pylon Munich | Germany Airbus France Toulouse | France Horizontal Stabilizer Rockwell Collins Vertical Tailplane Cedar Rapids | US Keel Beam Airbus Deutschland Air France Stade | Germany Nantes | France Wing Box Landing Gear Nacelle Messier-Dowty Goodrich SPAIN Air France Nantes | France Kinston | US Chula Vista, US Horizontal Tail plane Aernnova Getafe | Spain AUSTRIA ENGLAND winglets Fixed Trailing Edge FACC Rear Fuselage Tailcone Airbus Spain Airbus Spain GKN UK Ried | Austria Getafe|Spain Getafe | Spain Filton | UKCopyright © 2013 Exolus. All rights reserved.. Source: Airbus 19
    • 21. 2.2 Airbus 350XWB: Supply Chain Largely Focused on Europe Hamburg, Germany Sub assembly line for UK aft fuselage Rudder: Harbin → St Nazaire 2 Belly fairing: Harbin → St Nazaire Wing cover: State → Broughton Nordenham Broughton 1 Wing leading edge: St Nazaire Forward fuselage Hamburg (equipping in Harbin → Broughton Winglets/wing spoiler: Ried → Broughton Stade Hamburg) Wing cover: Getafe → Broughton Gloucester Bremen Vertical Wing box assembly in Tail plane CHINA 4 5 Bremen, Germany assembly Broughton, equipping in and Filton Bremen Sub assembly line for equipping wing GERMANY MeauiteNose: Meauite → 3 Nazaire Munich Inboard & Outboard landing flaps: Munich → Nantes Broughton AUSTRIA Ried Doors (MLG/Nose): Corona → St Nazaire St Nazaire St Nazaire, France Front fuselage assembly and equipping: forward fuselage and Sub assembly line for nose front fuselage and centre fuselage FRANCE Center fuselage: Kinston → St Nazaire After fuselage assembly and US Toulouse equipping: U/L shells and Tailcone Corona Cedar Rapids Chula Vista Toulouse, France Kinston •Final assembly line SPAIN •produce Pylon. Nacelle: Chula Vista → Toulouse Tailcone: Getafe → Getafe Hamburg Illescas Horizontal Stabilizer: Cedar Rapids → Getafe 1. Forward fuselage: Nordenham → Hamburg 2. Upper/lower shells: Stade → Hamburg 3. Center wing box and keel beam: Nantes → St Nazaire 4. Fixed trailing edge: Filton → Broughton 5. Landing gear: Gloucester → FiltonCopyright © 2013 Exolus. All rights reserved.. Source: Airbus 20
    • 22. 2.2 Systems Development/Production: US/European Risk Sharing Partnerships Airbus Key Systems Suppliers SYSTEMS  Air Conditioning /Pressurization  Autoflight  Communications  Electrical Power  Equipment/Furnishings  Fire Protection  Flight Controls  Fuel  Hydraulic Power  Ice and Rain Protection  Indicating/Recording Systems  Landing Gear  Lights  Navigation  Oxygen  Pneumatic  Vacuum  Water/Waste  Diagnostic and Maintenance  Information Systems  Nitrogen  Auxiliary Power  Cargo and Accessory CompartmentsCopyright © 2013 Exolus. All rights reserved.. Source: Airbus 21
    • 23. 2.2 Global Sourcing: Globalized, but Less than Boeing Airbus Strategic Sourcing in China* Harbin Aircraft Hafei Aviation Industry Co., Ltd. Hong Yuan Aviation Forging & Casting Industries •HTP leading edge ribs and •Titanium forging parts Harbin torsion box Xi’an Aircraft Industry Company •Access doors for wide-bodied aircraft Shenyang Shenyang •Wing fixed trailing edges Aircraft •Medium air ducts Industries Shenyang Aircraft Company •Produces and assembles emergency Shaanxi exit doors Aircraft •Manufactures: Company -Fixed leading wing edges and ribs -A320 cargo doors Hanzhong -Skin plates Xi’an Aircraft Shanghai Shanghai Company Xi’an Aviation Chengdu Industry Co. Aircraft Company Chengdu Guizhou Changhe Aircraft Company Nanchang Chengdu Aircraft Industrial Company •A320 rear passenger doors Hongdu Aviation Industry Guizhou Aviation Industrial Group •Maintenance jigs and tools * July 2007Copyright © 2013 Exolus. All rights reserved.. Source: Airbus S.A.S., “Airbus in China;” Airbus S.A.S., “ Airbus in China: Milestones” 22
    • 24. 2.2 Yet … A Great Leap Forward: Airbus Moves Final Assembly of A320’s to China Migration of Assembly Functions to China Company: Airbus Total Investment: • USD1.2 - 1.5 billion Labor Force • 1,000 employees Functions: • Final Assembly for A320 Investment Site and Joint Venture Partners: • Tianjin. Three-party joint venture with Tianjin Free Trade Zone and Aviation Industry Corporation of China (AVIC). Operational Commencement • September 2008 2010 Production Output/Sales • 37 A320 planes for eight Chinese airlines 2011 Assembly (Planned) • 36 A320 planes Copyright © 2013 Exolus. All rights reserved.. Source: All Publically Available Information; Tianjin Economic Development Area (TEDA), Company Website 23
    • 25. 2.3 Aggressive Weight Reduction Strategy: Equal to Boeing - Overly Ambitious? 100% 3 3 2 2 4 7 3 8 9 90% 13 12 5 6 6 6 5 5 5 80% 14 4 7 15 18 70% 22 60% 50% 53 40% 75 73 68 67 30% 61 20% 10% 19 0% A300 A310-100 A320-200 A340 A380 A350 XWB Aluminium Composites Titanium Steel GLARE MiscellaneousCopyright © 2011 Exolus. All rights reserved.. Source: Airbus: Metal Materials in Airbus A380 24
    • 26. 2.3 Aggressive Weight Reduction Strategy: Airbus Composite Evolution Within primary structures Composites Introduction A350 XWB + Outer Wing, Fuselage A380 + Rear Fuselage, Center Wing Box, Wing Ribs A340-600 + Rear Pressure Bulkhead, A330/340 Keel Beam + HTP as Fuel Tank A320 +HTP, Flaps, Ailerons, Spoilers A310-300 Fin, Rudder, Elevator 1980 1990 2000 2010Copyright © 2013 Exolus. All rights reserved.. Source: Airbus: Composite in Airbus: A Long Story of Innovations and Experiences 25
    • 27. 2.3 Aggressive Weight Reduction Strategy: A350 XWB StructuresCopyright © 2011 Exolus. All rights reserved.. Source: Airbus: Composite in Airbus: A Long Story of Innovations and Experiences 26
    • 28. 2.4 Regional Supply Chain: Outsourced and Integrated Logistics Model Airbus Outsourced Integrated Logistics KUEHNE+NAGEL Transformation Plan during implementation (i.e Toulouse) September 2008 September 2008 BLAGNAC BLAGNAC JLL JLL ST ELOI ST ELOI SEOR SEOR TIT TIT CLEMENT ADER CLEMENT ADER L. BREGUET ATHOS L. BREGUET ATHOS HARDWARD & FASTENERS HARDWARD & FASTENERS 7P2 BOOKING 7P2 BOOKING EUROCENTRE EUROCENTRE Take over of over 360 employees (providers & AIRBUS) in one year with 4 different collectives agreement and 5 different HR policies Smooth transition with 0 day of work stoppageCopyright © 2011 Exolus. All rights reserved.. Source: Kuehne+Nagel AIRBUS Case Study, Paris 2010 27
    • 29. 2.4 Regional Supply Chain: Outsourced and Integrated Logistics Model Airbus Flight Hour Services & Total Support Package Maintenance & Engineering domains Airframe FHS – TSP: maintenance Line & light maintenance Fleet engineering IT and engineering services Engineering Airbus FHS full component Component FHS Component: repair FHS Airbus vendor: Component stock, Pool access, logistics and Component Component stock, pool access, logistics Repair for all components spare parts And repair for Airbus LRUs only Including Airbus LRUS and logistics Engine maintenance In-House Airline’s outsourcing policy OutsourcedCopyright © 2011 Exolus. All rights reserved.. Source: Airbus: Airbus Material, Logistics and Suppliers,, MOR Conference in Dallas, 2009 28
    • 30. China and Russia’s Unique Models: “Glocal-ization Strategies”Copyright © 2013 Exolus. All rights reserved.. 29
    • 31. 3.1 China Market: Foreign Investors … Hunger for the China Market 230% Increase in Aircraft Needed in China by 2028 New Deliveries 2028 Existing Fleet 2010 Existing Fleet and New Deliveries (2010 - 2028) 12,000 10,000 5,000 8,000 Aircraft (units) 6,000 4,000 6,567 3,165 2,000 1,150 1,100 1,050 1,000 550 500 480 1,383 826 600 702 423 447 387 507 544 479 0 US China UK Germany India Russia Ireland Australia Japan BrazilCopyright © 2013 Exolus. All rights reserved.. Source: Airfleets, COMAC, Boeing, EIU 30
    • 32. 3.1 Driven by: Growth Spike in China’s Travel Volume China World’s 3rd Highest Traffic Volume by 2020 Foreign Inbound & Chinese Outbound Travel Volume 250 237 Inbound, Foreign Outbound, Chinese 225 200 167 million 175 Traveler USD millions Increase 150 125 100 69 75 CAGR 11.8% 51 50 21 25 13 0Copyright © 2013 Exolus. All rights reserved.. Source: China National Tourism Association (CTNA); World Tourism Organization (UNWTO) 31
    • 33. 3.2 China: … also hungers for Opportunity, However China Fleet 99% Foreign Airplanes China Civil Aircraft Fleet China Aircraft Fleet (2010) Boeing 736 Airbus 500 China Other Foreign Other 133 Aircraft, 10% Domestic Domestic 14 Planes Total Aircraft 1,383 1% Airbus 36% Boeing 53%Copyright © 2013 Exolus. All rights reserved.. Source: All Publically Available Information , Company Website 32
    • 34. 3.3 Therefore: … China developing own Suite of Domestic Aircraft 2010 Stage 1 – Regional Jet (2010): ARJ21 • Aircraft Type: 70 to 90 Seat Twin Turbo-Fan • Development: CIVIC drawing on foreign suppliers for nearly all research and development, production for sub-systems, local partner providing facility, sub-contracting • Schedule: First Flight - November 2008 and in-service 2010/11 2015 Stage 1 – Regional Jet (2010): MA 700 • Aircraft Type: 60- 70 seats • Development: Xian Aircraft Corporation • Schedule: Launch 2009 and in-service 2015 2013 Stage 2 – Single Aisle (2013): C-series • Aircraft Type110/130 , Single-aisle - Twin-Turbofan • Development: : Fuselage Build by AVIC’s, Shenyang Aircraft Industries Group , Bombardier • Schedule: First Flight in 2011 and In- Service in 2013 2016 Stage 2 – Single Aisle (2016): C919 • Aircraft Type: Single-Aisle Narrow Body (156 Seat, 168 Seat and 180 Seat) • Development: COMAC and joint ventures with foreign suppliers to jointly research and develop the platform systems • Schedule: First Flight in 2014 and In- Service in 2016 20XX Stage 2 – Single Aisle (201X): CS2010 • Aircraft Type: 150-200 Seat- Single-aisle - Twin Turbofan • Development: Guangdong Prosperous Airline • Schedule: First Flight in 20xx and In- Service in 20xxCopyright © 2013 Exolus. All rights reserved.. Source: Chinese Aerospace Market Research 33
    • 35. 3.4 Road Forward: China Focusing Initially on Single-Aisle & Regional Jets China’s 3,165 New Aircraft = 12% of Future Global Demand Future Global Aircraft Deliveries China % of Future Aircraft Demand (2009 – 2028) (2009 – 2028) Global Demand 26,500 China Portion 3,165 Twin-Aisle , 6,250 China = 12% of Global Demand 26,500 Large New Aircraft Aircraft, 1,729 by 2028 Regional Single-Aisle Jet, 1,500 , 16,977Copyright © 2013 Exolus. All rights reserved.. Source: Airbus, “Airbus Global Market Forecast, von Tronchin, March 2010, other Public Sources 34
    • 36. 3.5 China’s “Glocalization” Strategy: Frame Production / Assembly in China China Aircraft: C919 AVIC: Harbin Aerostructure: •Wing/body fairing AVIC: Shenyang Harbin Aerostructure: •AFT fuselage AVIC: Shanghai •Engine nacelles Shenyang •Tail fin Aerostructure; •Sub-assembly line •final assembly line AVIC: Xi’an AVIC: Nanchang Aerostructure: •Wing box Aerostructure: •Aileron Shanghai Xi’an •Trailing edge flap •Trailing edge flap •Leading edge slat •Leading edge slat Chengdu Nanchang •Center fuselage AVIC: Hongdu Hongdu AVIC: Chengdu Aerostructure: Aerostructure: •Forward fuselage •NoseCopyright © 2013 Exolus. All rights reserved.. Source: COMAC 35
    • 37. 3. 5 China’s “Glocalization” Strategy: Foreign Joint Ventures Set Up in China C919 Largely Based on Joint Sino-Foreign Research & Development Suppliers for China’s C919 Liebherr Oxygen Equipment Parker Flight Deck Panel Assemblies Rockwell Collins Interior Components CFM International Engines Eaton Corporation Lighting Equipment C919 Hamilton Sundstrand Electric Power System Eaton Corporation Primary Flight Control Kidde Aerospace Fire Protection Liebherr AMS, Landing Gear Honeywell Auxiliary Power Unit Door System Parker Aerospace Fuel, Hydraulic, Flight Controls Rockwell Collins Avionics Eaton Corporation Flight Deck Control Suite Albany Engineered Engine Interface Control System CompositeCopyright © 2013 Exolus. All rights reserved.. Source: Airframers, January 2011; Various Public Sources 36
    • 38. 3.5 China’s “Glocalization” Strategy: Frame Production / Assembly in China China Aircraft: ARJ21 AVIC: Shenyang •Rudder •Vertical leading edge •Rear fuselage AVIC: Shanghai •Tail cone Shenyang •pylon •Sub-assembly line •final assembly line •Vertical stabilizer •Horizontal leading edge AVIC: Xi’an •Forward fuselage •Center fuselage •Aft fuselage Shanghai Xi’an •Wings •Nacelles Chengdu AVIC: Chengdu •NoseCopyright © 2013 Exolus. All rights reserved.. Source: COMAC 37
    • 39. 3.5 China’s “Glocalization” Strategy: Focus on Technology Transfer to China 2010: ARJ21 Largely Based on Foreign Research & Development Suppliers for China’s ARJ21 BE Aerospace Oxygen Equipment Eaton Aerospace Flight Deck Panel Assemblies Fisher Advanced Composites Interior Components General Electric Engines Goodrich Hella Aerospace Lighting Equipment Hamilton Sundstrand Electric Power System ARJ21 Honeywell Primary Flight Control Kidde Aerospace Fire Protection Liebherr AMS, Landing Gear MPC Products Corporation Auxiliary Power Unit Door System Parker Aerospace Fuel, Hydraulic, Flight Controls Rockwell Collins Avionics ROSEMOUNT AEROSPACE Rosemount Aerospace Wiper System, Windshield Heater System Sagem Flight Deck Control Suite Saint Gobain Windshields and Window Openers Vibro-Meter Engine Interface Control System Zodiac-Air Cruisers Crew SeatsCopyright © 2013 Exolus. All rights reserved.. Source: Baidu Encyclopedia, Various Public Sources 38
    • 40. 3.6 Foreign Systems Vendors: Driving Development Aerospace Industry in China Investment Footprint largely aligned with China Aviation Structure/Clusters ERJ145 Assembly EC175 design & production Harbin A350 composite parts Turbine NGVs, turbine rings, compressor seals Heat shields Beijing Shenyang Landing gear & engine A320 Final Assembly Line nacelle components Tianjin Composites manufacturing Xi’An Design & Production of ECS Nanjing Shanghai Chengdu Suzhou COMAC C919 Production Precision sheet metal Autoclaved composite parts Xiamen Engine parts Landing gear components Sensors, valves, nozzlesCopyright © 2013 Exolus. All rights reserved.. Source: AeroStrategy, 2010 39
    • 41. 3.6 Foreign Aircraft OEM’s: Driving Development Aerospace Industry in China Wide Variance in Strategies employed by Major Aerospace OEM’s Aerospace OEM’s Functional Deployments in China Embraer Diamond Training O O O Engineering O Manufacturing / Assembly O O O Sourcing O O O O O O Service O O O Sales O O O O O OCopyright © 2013 Exolus. All rights reserved.. Source: Company Information pages, EIU 40
    • 42. 3.7 Paving the Road for the Future: China’s Twin-Aisle and Jumbo Jets … Develop Homegrown China Aircraft –> Compete with Boeing, Airbus, Embraer China’s Future Aircraft (2020 – 2030) 2010 Stage 1 – Regional Jet (2010): ARJ21 • Aircraft Type: 70 to 90 Seat Twin Turbo-Fan • Development: CIVIC drawing on foreign suppliers for nearly all research and development, production for sub-systems, local partner providing facility, sub-contracting • Schedule: First Flight - November 2008 and in-service 2010/11 2016 Stage 2 – Single Aisle (2016): C919 • Aircraft Type: Single-Aisle Narrow Body (156 Seat, 168 Seat and 180 Seat) • Development: COMAC and joint ventures with foreign suppliers to jointly research and develop the platform systems • Schedule: First Flight in 2014 and In- Service in 2016 2020? Stage 3 – Twin-Aisle (2020 – 2025)?: C919 – Extensions? • Aircraft Type: Extensions of C919, possible Twin-Aisle version ? • Development: : COMAC and joint ventures with foreign suppliers to jointly research and develop the platform systems • In- Service: 2020 - 2025 2020? Stage 4 – Jumbo Jets (2020 – 2025)?: ? • Aircraft Type: Jumbo Jet ? • Development: COMAC and joint ventures with local domestic suppliers to jointly research and develop the platform systems • In- Service: 2020 – 2030Copyright © 2013 Exolus. All rights reserved.. Source: Chinese Aerospace Market Research 41
    • 43. 3.8 China’s Unique Path in Building its Glocalized Aerospace Sector China Strategy – Cost Competitive FAA/JAA Compliant A/C Airframe Production in China: Technology Acquisition through Offsets and Acquisitions (FACC) China’s labor costs are at least 4 times lower than those that prevail in Europe and North America … important in light of the labor-intensive nature of certain aspects of the airframe production process Western components are readily available to install on Chinese airframes – engines, avionics, hydraulics, fly-by-wire systems. Result is that Chinese aircraft that are endowed with proven Western and/or Russian systems, cheap Chinese airframes, and performance characteristics that match US FAA and EU JAA technical and safety standards. China starting production effort with state-of-the-art machine tools and fixtures, new materials handling processes, Western design software, and advanced engineering procedures. As such, they will technologically leapfrog the west. Chinese government has the investment capital and political determination required for massive and sustained industry support. China will be able to pump-prime its domestic aerospace industry by mandating the purchasing behavior of Chinese airlines. This is non-tariff trade barrier of immense significance at the global level.Copyright © 2013 Exolus. All rights reserved.. Source: The emergence of a new international competitor in the commercial aircraft sector: The China syndrome by Alan MacPherson 42
    • 44. 4.1 Russia’s “Glocal” Strategy: Local Frame Production/Assembly in Russia SSJ100 •Nose section •Center fuselage •Forward Fuselage •Centre wing fuselage •Aft Fuselage Aircraft parts made of •Empennages: vertical and composite materials horizontal tail surfaces About 40% of SSJ 100 are manufactured in NAPO. Komsomolsk- on-Amur (KnAAPO) Voronezh(VASO) Novosibirsk (NAPO)Copyright © 2013 Exolus. All rights reserved.. Source: Komsomolsk-on-Amur Aircraft Production Association 43
    • 45. 4.2 Russia “Glocal” Strategy: International Partnerships with System Suppliers SSJ100 Key Systems Suppliers SYSTEMS  Air Conditioning /Pressurization  Autoflight  Communications  Electrical Power  Equipment/Furnishings  Fire Protection  Flight Controls  Fuel  Hydraulic Power  Ice and Rain Protection  Indicating/Recording Systems  Landing Gear  Lights  Navigation  Oxygen  Pneumatic  Vacuum  Water/Waste  Diagnostic and Maintenance  Information Systems  Nitrogen  Auxiliary Power  Cargo and Accessory CompartmentsCopyright © 2013 Exolus. All rights reserved.. Source: Komsomolsk-on-Amur Aircraft Production Association 44
    • 46. China / Russia Partnership for Aircraft Development/Production?Copyright © 2013 Exolus. All rights reserved.. 45
    • 47. 5. Russia and China: Joint-Venture for new Long-Range Aircraft? Beijing is putting the money upfront, while Russia is supplying the know-how – Cost Competitive FAA/JAA Compliant A/C Beijing, China - (WAPA) - "Vedomosti" published today some declarations by Russias United Aviation Corp and Chinas Commerical Aircraft Corp about a joint-venture which aims to develop and produce a new long-haul aircraft based on the airframe of the Ilyushin Il-96 aircraft. The agreement is going to be sealed during Vladimir Putins visit to China next month. The joint-venture headquarters will be in China, that will fund the programme. Russia is expected to provide technology. "Vedomosti" also reported that separately, Russias Rosoboronexport agreed with China to supply aircraft engines in a contract valued more than 700 million dollars. No more details are available since the agency quoted a person it did not identify. The Ilyushin Il-96 is a modern long-range civil aircraft and the first Russian-made wide- body. It is equipped with fly-by-wire controls and modern technologies. Only 29 exemplars were built, most of them purchased by Aeroflot. The airplane boosts the title of one of the most secure aircraft worldwide, as since its first deployment during the 1990s, it has never suffered any kind of accident.Copyright © 2013 Exolus. All rights reserved.. Source: (Avionews 2013) 46
    • 48. 5. Russia and China: Joint-Venture for new Long-Range Aircraft? Beijing is putting the money upfront, while Russia is supplying the know-how – Cost Competitive FAA/JAA Compliant A/CCopyright © 2013 Exolus. All rights reserved.. Source: (Avionews 2013) 47
    • 49. Considerations for the Future of Aircraft ProductionCopyright © 2013 Exolus. All rights reserved.. 48
    • 50. 6.1 Competition in the Global Supply Chain Immense – USD100 billion Up-Front Investments Required for New Projects Globally: $100 billion Heavy Competition in Global Supply Chain for Resources and Financing Company New or Proposed Programs Country / Region Bombardier C Series Single Aisle Canada COMAC C919 Single Aisle China UAC MS21 Single Aisle Russia Embraer KC 390 Cargo Aircraft Brazil Boeing 737 Replacement Single Aisle US Boeing Next Gen Tanker US Airbus A320 Replacement Single Aisle Europe Airbus NSR Europe Mitsubishi MRJ Japan Kawasaki YPX JapanCopyright © 2013 Exolus. All rights reserved.. Source: Exolus 49
    • 51. 6.2 Considerations for Future of Aircraft Production New Airplane Considerations to be Competitive Financing – and technology. Next generation of LCAs will rely heavily on composite materials, advanced avionics, radically improved engines, and new airframe designs. New entrants face established, fiscally strong brands with global support infrastructure in place. The provision of Boeing and Airbus of training, spare parts and managerial support to airlines and to other aircraft manufacturers contributes to their strong market reputation. New entrants must consider providing these functions in addition to building and supporting a competitive product. It is unclear to what extent, the private sector will control aircraft design and production in China and Russia. Both governments have allocated funds for the creation of integrated aircraft manufacturing centers; China allocated nearly $3 billion for its program, while it is our preliminary understanding that Russia has spent $1 billion to create a design and manufacturing center near Moscow. Their LCA plans likely will provide an opportunity to consolidate fragmented manufacturing capabilities and develop R&D and sales and support capabilities. In China, the FAA has opened a new office to support the FAA certification of the ARJ21, even though no US airline has purchased the aircraft.Copyright © 2013 Exolus. All rights reserved.. Source: New entrants face established, fiscally strong brands with global support infrastructure in place by Peder Andersen, April 2009 50
    • 52. 6.2 Considerations for Future of Aircraft Production Offset Agreements and Risk-Sharing Agreements Industrial offset agreements are typically designed to provide importers with a negotiated production share for the final product, usually in return for guaranteed sales. For example, most of the Boeing 747s operated by China’s state-owned airlines fly with wing leading edges and various other sub-assemblies that were manufactured in China. Major industrial offsets are possible only under regulatory conditions where the importing nation has public control over the end customer (e.g, and airline or other state-owned industry). If Airbus negotiated offset agreements with Chinese manufacturers, then the Chinese government ensures that domestic airlines will buy Airbus products. This type of arrangement becomes more complex when the end-user is not closely regulated or controlled by the state. A further factor that complicates matters is that industrial offsets involving technology transfer are usually regulated by the government of the exporting nation to ensure that sensitive or critical expertise is not internationally diffused. For systems integrators such as Boeing and Airbus, major industrial offsets at the international level have increasingly been accompanied by risk-sharing agreements. China has yet to become a significant risk- sharing partner in any of the aircraft programs of these two companies, but things may soon change in this regard. Systems integration is a cost-driven strategy that involves extensive subcontracting for parts production. The SI has minimal involved in manufacturing, but instead acts as a kit builder (e.g, final assembly). Under risk sharing in the commercial aircraft sector, the systems integrator no longer subcontracts on a build-to-print arrangement. Rather, the risk-sharing partner is expected to design, develop and manufacture the sub-assembly in question – using its own funds. This is clear strategy because it dramatically reduces launch cost for the new aircraft programs among system integrators. The downside is that risk-sharing partners must receive infusions of tacit knowledge form the prime contractors, expertise often referred to as “tribal knowledge”.Copyright © 2013 Exolus. All rights reserved.. Source: New entrants face established, fiscally strong brands with global support infrastructure in place by Peder Andersen, April 2009 51
    • 53. 6.2 Considerations for Future of Aircraft Production Offset Agreements and Risk-Sharing Agreements Airbus is copying many of Boeing’s tactics to secure international sales. IN last 6 years, Airbus has shifted its compensatory state emphasis from an indirect offset mode to a direct offset position, and is now employing a business development model that closely mirrors the approach initially pioneered by Embraer (but recently perfected by Boeing). Under the indirect offset mode, Airbus secured foreign sales by granting market concessions such as landing rights to busy EU airports. These types of concessions are still part of the Airbus marketing package, but direct offset are becoming important too.Copyright © 2013 Exolus. All rights reserved.. Source: New entrants face established, fiscally strong brands with global support infrastructure in place by Peder Andersen, April 2009 52
    • 54. For a Comparative Perspective with the other BRIC Countries Please Refer to the Following Research Reports China 2020 India 2020 Brazil 2020 Russia 2020 Found on Slideshare @ http://www.slideshare.net/Exolus/india-2020-what-india-will-look-like-in-the-future http://www.slideshare.net/Exolus/india-2020-what-india-will-look-like-in-the-future http://www.slideshare.net/Exolus/brazil-2020-what-will-brazil-look-like-in-the-future http://www.slideshare.net/Exolus/russia-2020-what-will-russia-look-like-in-the-future Download Reports @ www.exolus.com/en/knowledge/research.htmlCopyright © 2013 Exolus. All rights reserved.. 53
    • 55. Global Expansion Strategy & Cross-Border Investment Execution (Greenfield, M&A, Joint Ventures, Outsourcing) About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work with management teams in the development of their global expansion strategies, across the range of investment formats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies by providing program management across all phases of cross-border investment projects, from candidate searches and evaluation, through investment structuring and negotiations. The founders of Exolus have spent the past two decades in the global service space and have direct experience operating in nearly all of the major investment destinations in the world (40+ countries). The team has served clients of all sizes, both public and private, on projects that ranged in investment size from USD10 million to greater than USD1 billion. We have served clients across all of the following industry segments: Life Sciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector. Follow Exolus at: www.exolus.com Need Further Information: info@exolus.com Want Copies of our Reports: www.exolus.com/en/knowledge/research.htmlCopyright © 2013 Exolus. All rights reserved.. 54
    • 56. Disclaimer In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our own contributions to the market of ideas. As well, we are always tremendously grateful for the many, often selfless, contributions that are availed in the process. The opinions represented herein were prepared for information purposes only, at the time of publication. The information represented herein is believed to be reliable, at the time of publication, and was obtained by various public sources also believed to be reliable. The opinions were considered to be accurate at the point of creation, and further, any views, forecasts, or estimates contained herein may be subject to change at anytime without notice. The opinions expressed or implied herein may not be the opinions of the author, also Exolus, or any associated affiliates. This report and the information contained herein collectively, is not offered as, and should not be regarded as, used or relied upon as advice on any matter. It shall not constitute or be construed as a recommendation or solicitation on behalf of the author, and no legal commitment or obligation shall arise by reason of this document. Thus, the reader shall make an independent assessment of opinion’s stated herein that shall not be considered a substitute for obtaining advise from the readers’ advisors. The author shall not accept responsibility, express or implied, with regards to the accuracy and completeness of the information herein, and the author shall not be liable whatsoever and howsoever arising in connection to this publication. The author shall not accept, and hereby disclaim, all responsibility and liability to all persons, entities, or organizations for all consequences arising out of any use or reliance on the whole or any part of this publication. This publication should not be reproduced or distributed without the author’s consent and is not intended for distribution in any jurisdiction in which this would be prohibited.Copyright © 2013 Exolus. All rights reserved.. 55
    • 57. France Houdard Managing Director france.houdard@exolus.com January 2013Copyright © 2013 Exolus. All rights reserved.. 56

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