The Impact on Aerospace Leadership - A Perspective Based on a global Heidrick & Struggles and Team SAI joint Survey Presentation To: AVIATION Week\'s Eighth MRO Asia Event By: Torbjorn Karlsson October 15, 2008

1. The Threat of Globalization
The Impact on Aerospace Leadership - A Perspective Based on a
global Heidrick & Struggles and Team SAI joint Survey
Presentation To: AVIATION Week's Eighth MRO Asia Event
By: Torbjorn Karlsson
October 15, 2008
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2. Setting the Scene – Continued MRO Growth
► $45.1B industry will grow to $68.6B over 10-year
forecast period
► Global growth is expected to maintain a 4.3%
CAGR through 2018, with very strong growth
expected in Asia Pacific, China, and India
― North America, Western Europe, and Asia
Pacific will remain largest markets
► Worldwide economic downturn will limit growth in
short term (1 to 2 years) as airlines reduce
capacity, but long-term demand remains positive
► North America and Europe will likely be impacted
most by downturn; emerging markets in Asia
expected to rebound quickly
► MROs that focus on aircraft market for accelerated
retirement will feel the most pain
► Trend of increased globalisation and consolidation
will continue
► As market expands, increased demands will be
placed on the MRO capacity, exacerbating human
resource contraints
Source: TeamSAI
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3. Key Points – Market & Talent
► There is a strong belief in continued globalization and consolidation.
► This globalization and consolidation will be impacted negatively by a shortage in human resources.
► That shortage is considered the single most important issue facing the respondents’ companies and
the industry at large.
► Within the context of the human resource concern, recruiting is thought to be the top HR matter,
particularly among developing regions.
► As evidence of this challenge, MROs are struggling to maintain headcounts,
but seem fairly pleased with the approaches they have at their disposal to
fill open positions. Nevertheless, this is an area of concern, particularly in
the search for operational level employees.
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4. Key Points – Market & Talent
Globalisation
India Middle Less
3% East globalized
3% North Remain the 2%
China
same
8% America -
US 10%
36%
Asia-
North
Pacific
America -
33% More
Canada
Eastern Western 3% globalized
Europe Europe 88%
2% 12%
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5. Key Points – Impact
► Looking forward, the search to fill such positions will increasingly lead companies to other regions of
the world especially for developing regions. It appears that upper level employees will continue to
be imported from overseas, but this will not necessarily correct their shortage for operational level
employees which are less likely to be sourced to foreigners.
► Executives do seem to be involved in addressing this issue, but there is also a concerning level of
distrust with the existing management.
► Given the potential impact to reduce MRO capacity and raise wages, the issue is not expected to be
solved easily.
► Results suggest that shortages of operational level staff (mechanics and technicians) may well drive
the greatest challenges the MRO industry faces in this area.
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6. Key Points – Impact
My company has the right management in place today to cope with the expected growth
and changes.
moderately to
Business disagree agree strongly disagree
Airline (maintenance department) 45% 38% 17%
Airline-owned or -affiliated MRO 26% 43% 30%
Independent MRO 38% 29% 33%
OEM / OEM maintenance division 33% 33% 33%
Other 36% 31% 33%
Grand Total 37% 34% 29%
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7. Key Points – Impact
Impact of human resources shortage on capacity in the next three years
Impact High/ Salary
effecting growth Significant Impact Increase >15%
North America 83% 36% 30%
Latin America and the Caribbean 76% 17% 13%
Western Europe 88% 29% 29%
Eastern Europe 85% 21% 34%
Asia-Pacific 84% 34% 47%
China 73% 31% 56%
India 71% 31% 54%
Middle East 85% 26% 39%
Africa 71% 15% 21%
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8. How to identify and address Leadership Risk and Performance
2. What leadership does 3. What must happen to
1. What leadership does the
the company have in close any gap and keep it
company need to succeed?
place now? closed?
Shareholders demand ever increasing new performance through new strategies at new time horizons
with new relationship expectations. Can the team adapt?
A refocus to understanding and meeting needs of customers will demand new skills, capabilities and
behaviors. Can this be achieved?
With new success comes new opportunities for ongoing growth, diversity and development. Is such
potential, capacity and capability evident in the team today?
Change brings instability and fragility in the senior talents of the company. How stable and secure are
they and are there robust succession plans in place to meet any executive ‘churn’ emerging?
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9. How to identify and address Leadership Risk and Performance
2. What leadership does 3. What must happen to
1. What leadership does the
the company have in close any gap and keep it
company need to succeed?
place now? closed?
As individuals, how are key executives going to respond to the change? How would they benchmark
against other key executives in such roles? Do they have robust successors and are they succession
material themselves? How do they feel about these changes?
As a team, how do they work together? How will they work under changes and new pressures? How
does the behavior of this group impact the wider organization?
How does this leadership capacity, behavior and potential benchmark against other institutions and
against the intended direction for the company now?
What are the objective strengths, weaknesses, opportunities and threats apparent in this team of
leaders?
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10. How to identify and address Leadership Risk and Performance
2. What leadership does 3. What must happen to
1. What leadership does the
the company have in close any gap and keep it
company need to succeed?
place now? closed?
What individual development can be rapidly introduced to maximize the success and engagement of
each executive?
What group or team development must be achieved in order that we maximize the impact and
effectiveness (both internally and externally) of this team?
What can we learn about the relationship between the Board and executives in terms of where to focus
support and manage risk?
If we need to introduce new talent then what is needed, what is the definition of fit and how do we
manage this?
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11. What can a leader do
Any change in strategic direction, culture and stakeholders demands significant reflection and
preparation in a leaders behaviours, skills and intentions. We can provide the CEO and their teams with
a highly tailored integrated program of support that will best focus their priorities and agendas in
leading the organisation towards new performance and change. We can work with them to best ‘fine
tune’ their leadership capability and behaviours to create success and provide a discrete channel of
support in roles that are often fundamentally isolated.
What leadership is How am I tracking What can I do to
demanded of me? against this today? maximize my success?
► Dialogue to draw understanding of the challenges being faced
► Exploring the leadership behaviors, techniques and competencies that will best meet these
challenges successfully
► Sharing and supporting the CEO or senior leaders to more forensically look at their own team and
define unique leadership strategies for each member
► Supporting and sharing techniques for the CEO to question the organization to establish its
leadership readiness and capacity
► Due diligence on the corporate strategy and vision against this preparedness
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12. What can a leader do
Any change in strategic direction, culture and stakeholders demands significant reflection and
preparation in a leaders behaviours, skills and intentions. We can provide the CEO and their teams with
a highly tailored integrated program of support that will best focus their priorities and agendas in
leading the organisation towards new performance and change. We can work with them to best ‘fine
tune’ their leadership capability and behaviours to create success and provide a discrete channel of
support in roles that are often fundamentally isolated.
What leadership is How am I tracking What can I do to
demanded of me? against this today? maximize my success?
► Highly tailored and discrete personal self review for participants – a leadership ‘health check’ that
will provide tangible and objective insights into how best to leverage their leadership style and skill
into the needs of their team and their organization
► Normally includes 360 degree referencing, interviewing and profiling
► Detailed forensic reporting provided to participants and the organization on how to best support
and deploy this leader
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13. What can a leader do
Any change in strategic direction, culture and stakeholders demands significant reflection and
preparation in a leaders behaviours, skills and intentions. We can provide the CEO and their teams with
a highly tailored integrated program of support that will best focus their priorities and agendas in
leading the organisation towards new performance and change. We can work with them to best ‘fine
tune’ their leadership capability and behaviours to create success and provide a discrete channel of
support in roles that are often fundamentally isolated.
What leadership is How am I tracking What can I do to
demanded of me? against this today? maximize my success?
► High impact coaching against the development areas identified
► Sharing of techniques and tactics to optimize the leadership impact on the team and the
organization
► Climate leadership models and techniques shared to reinforce the corporate culture being
demanded.
► Heidrick & Struggles onboarding support – readings, case lessons and peer mentoring as required.
► Exploration of succession planning risks and demands
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14. Conclusion
Its an industry problem - we ► The AirAsia paradox: “Now everyone can fly” – Airlines are no
no longer attract the best longer the only avenue to a global life
and brightest:
► Engineering is not attractive, the “NASA years” are over
► Industry pay has only recently started to become attractive
but still lags alternative professions like legal, medical and
finance
Long term leadership ► Aerospace needs to embrace globalization at all levels, not
development is a senior just blue-collar
change management
► It requires the full attention and explicit and continuous
program and should be
support of the CEO
treated as such:
► HR Needs to be professionalized with strong focus on training
and development, succession planning, retention and career
development, complementation and benefits
► A need to move to competency based hiring: identify global
best practices and bring in talent from other industries
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15. Survey High Lights
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16. Introduction
► With growth and cost demands on the rise and a generation of the workforce
approaching retirement, locating and retaining the skilled talent necessary to
effectively support the MRO business is an emerging issue.
► Given the concern that the need for qualified individuals at every level is
outpacing the supply of talent, with the potential of constraining growth if
countermeasures are not taken to correct the dilemma, this survey was
developed to gather industry insights.
► In order to clearly identify human resource issues within the MRO space and
assess the implications, the two organizations jointly developed a survey
instrument to gage staffing and leadership issues facing the MRO industry today
and in the coming years.
► The survey was administered in a web-based format and delivered to 2,800
individuals (valid and unique email addresses) across the world and representing
a range of responsibilities within the MRO and aviation industry.
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17. Introduction
Airline (maintenance
Other department)
15% 18%
Senior
Other
Executive
32% Airline-owned
Officer
39% or affiliated MRO
8%
Director/ Other
Manager Corporate Independent MRO
42% Officer 19%
OEM/
4% OEM maintenance
division
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18. Continued Globalization
Across the board—by geography, company type and job functions and titles —there is a very
strong belief in continued globalization.
► 88% of the respondents feel the industry will be more globalized in the next three years.
There is also strong belief in continued consolidation
► 79% of respondents believe in more consolidation vs. the 21% that believe a plateau has been
reached.
► Interestingly, executives are the least bullish about increased consolidation with 67%, but an
additional 30% of the executives think it will at least hold steady..
Globalization Consolidation
Less
Globalized
Remain the 2%
same Remain the
10% same More
21% Consolidation
More
79%
Globalized
88%
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19. Continued Growth Opportunities
Future Growth Opportunities by World Region
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
North North Latin Western Eastern Asia- China India Middle Africa
America America America & Europe Europe Pacific East
US Canada the
Caribbean
Organic/internal Mergers/acquisitions
Joint ventures/alliances Private equity/leveraged buy-outs
Off-shoring Other
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20. Challenges
In the face of continued globalization and consolidation, respondents considered the human resource
shortage as their companies’ greatest challenge. 41% ranked a human resource shortage as their top
concern amongst possible challenges.
Looking at the impact of recruiting, the vast majority of respondents feel it is a significant or
moderate issue for the MRO industry at large this year.
It is expected to become an even more important issue just three years into the future, as evidenced
by a stated shift toward considering the issue more “significant” than “moderate” (68%/30%
significant/moderate in 2011 vs. 45%/50% significant/moderate in 2008).
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21. Challenges
Challenge Ranking #1 #2 #3
Human resource shortage 41% 30% 13%
Qualified leadership shortage 31% 30% 20%
Adequate training 4% 18% 26%
Parts and materials / supply chain issues 9% 13% 22%
Marketing and business development 13% 10% 20%
Other 3% 1% 1%
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22. Recruiting Impact
► Looking at the impact of recruiting across all employment levels 40-60% of respondents agree that
recruiting will be a real (moderate to significant) challenge for each level in 2008 and that this will
have an impact on the business.
► As companies consider their future employment needs, it was noted that there is a general trend
that suggests there will be an increased reliance on other regions of the world to fill those needs.
► Airline-owned or -affiliated MROs are expected to be the most reliant on foreigners for support staff
(27%), but will be among the lowest (13%) for operational staff. The Middle East is expected to
maintain a strong demand for technicians and mechanics, but China's demand appears like it may
fall (27% vs. 9%), perhaps due to improved skill development within their borders as regions
develop. A very similar trend is expected for support staff in these two regions. The trend in China
is reversed or flat for the upper employment levels, suggesting they will have a continued demand
for managers and executives from outside the region.
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23. Leadership
► Over one-third (37%) of all MRO organizations do not believe their organization has the right
management in place to deal with expected growth and changes.
► Independent MROs and OEM maintenance divisions have the most confidence in their leadership.
Airline maintenance departments have the least trust in their management (45%).
► Interestingly, when looking at this issue through the lens of the respondent’s title (see Figure 18), it
was noted that senior executives were the most confident (45% feeling moderately to strongly that
their company had the right management in place). Confidence at this level fell to 20% amongst
the director/manager types.
► Perhaps most concerning was the 17% confidence at the moderate to strong level amongst the
other members of the C-suite (other corporate officers); however, 67% were more confident than
not amongst these individuals. The numbers are not necessarily unexpected, but they do suggest
there is some level of concern about the leadership.
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24. Impact
► From a worldwide perspective, 80% of the respondents feel that the human resource shortage will
have some impact on the MRO capacity available.
― Some 28% of the respondents believe this impact will be high or significant in nature.
― The shortage is predicted by more than a third (37%) of the respondents to drive a 15% or
more salary increase worldwide.
► Growth is clearly expected to be affected with greatest (high or significant) impact in North America
(36%), Asia-Pacific (34%), China (31%), and India (31%).
► Overall, all business segments expect salaries in China and India to increase by 15% or more over
the next three years. Other regions are expected to see salary increases of less than 15%.
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25. Impact
Region Impact effecting High/ Significant Salary increase
growth impact >15%
North America 83% 36% 30%
Latin America & the Caribbean 76% 17% 13%
Western Europe 88% 29% 29%
Eastern Europe 85% 21% 34%
Asia-Pacific 84% 34% 47%
China 73% 31% 56%
India 71% 31% 54%
Middle East 85% 26% 39%
Africa 71% 15% 21%
Worldwide 80% 28% 37%
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26. The War for Talent
Appendix
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27. The War for Talent – A Global Issue
All over the world we are facing a shortage of talented people who have the transferable
technical skills to compete in global business
► Today, only 20% of Americans have passports, yet American companies are looking to aggressively
expand into Europe and Asia
► Meanwhile European businesses are searching for footholds in Asia and also further expansion in
North America
► The Japanese, for the first time in 15 years, given their economic upturn, are looking to expand
outside of their borders yet are finding they don’t have the senior management to get them there
► Chinese companies are following this trend and are increasingly committed to gaining a place on
the international stage. In particular, Chinese organizations which were once state owned want to
know if they have the same talent to compete against a General Electric, a Pepsi Cola, a Dell
► Indian companies are rapidly going global and as seen in their airlines,
among other industries, are rapidly tapping into the global talent pool
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28. The War for Talent – Going Forward
In industrial nations the shortage of talent will worsen
► Japan alone will lose up to 60 million people over the next 30 years
► In 30 years there will be 70-80 million fewer Europeans
than there are today
► 50% of the top people in US companies will leave in the
next 3 years
We know the situation in China and India is different.
Yet, in spite of the population wealth, the talent problem in
China is just as pressing
► The talent pool in China is shallow
► Exacerbated by the Cultural Revolution which affected a large group of individuals who would be in
management position now
► In China, just as in the rest of the world, there is a severe shortage in globally experienced senior
management
► A recent report by Business Week showed there is shortage of 70,000 globally experienced Chinese
managers and by 2010, McKinsey predicts India will face a shortfall of 500,000 staff capable of
doing work for multinationals
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29. An Engineering Perspective
► The shortage of top executive and engineering talent is just starting to be noticed.
► In the United States a presidential commission was established in 2003 and predicted a
“devastating loss of skill, experience and intellectual capital”.
► According to a study by Bain & Co. and Deloitte Consulting only half of the 68,000 military
engineers due to retire by 2010 can be replaced.
► According to a study by McKinsey Global Institute, young engineers coming forward in China may
not be enough to meet even local demand. The number who are considered suitable for work in
multi-nationals is just 160,000 – about the same number as are available in Britain.
► The supply of graduates isn’t the only problem. It is the depth of experience that is lacking, as well
as exposure to new and developing technologies.
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30. The challenge is in finding talent…
So how does all this help attract and retain talent in this region and globally?
► If you want to look like heroes, if not to your board, but potentially to your successor, you have to
invest in human capital
► That means making a decision to send high potential individuals abroad where they can gain the
technical skill sets, organisational know-how and experience that will help your company grow, long
term
► The mistake most organisations make is that they send their Chinese nationals abroad for a short
period of time, not allowing them to reap the benefits of this experience
► …the other mistake is that they only send a couple
► It’s a long term investment – you need to operate a talent pipeline with employees
continually being sent abroad, to return a few years later
► Human Capital is the oil of tomorrow – it’s in high demand and is often
hard to find
In addition, most organisations think that once the talent has been acquired the hard
work is over
The acquisition itself may not be easy but the retention and on-boarding is just as critical
Currently 40% of senior hires globally leave their firm or are fired within 18 months of
joining
It is in all of our best interests to decrease this percentage
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31. Heidrick & Struggles and Team SAI have combined their industry experience and resources to focus
attention on this critical challenge facing the global aviation community.
Torbjorn Karlsson
Torbjorn Karlsson joined Heidrick & Struggles in 2006 to lead the Aviation, Aerospace and Defence
practice in Asia. He is also involved in the transportation and supply chain sectors. Torbjorn has spent
many years in aerospace industry in consulting, airports, aviation equipment sales and aircraft trading.
Based in Singapore, he can be reached at tkarlsson@heidrick.com or
+65 6332 5001. www.heidrick.com
About Heidrick & Struggles International, Inc.
Heidrick & Struggles International, Inc. is the world’s premier provider of senior-level executive search
and leadership consulting services, including talent management board building, executive on-boarding
and M&A effectiveness. For more than 50 years, we have focused on quality service and built strong
leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick &
Struggles leadership experts operate from principal business centers in North America, Latin America,
Europe and Asia Pacific. For more information about Heidrick & Struggles,
TeamSAI is a Denver based practice of strategic & tactical management and operations consulting,
serving all aspects of the aviation community including airlines, airports, manufacturers, MROs, and
corporate/fractional operations. TeamSAI also produces the annual World MRO Forecast, and is a
partner with McGraw-Hill’s Aviation Week Group in their new MRO Prospector web based market
development tool for the MRO industry. TeamSAI, providing better direction through Strategy, Action
& Insight. Additional information about TeamSAI is available at www.teamsai.com
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