The UK's thousands of small aerospace suppliers are finding their voice as globalisation threatens their position
The UK aerospace industry's small and medium-sized enterprises (SME) are being issued with a call to arms - invest in training and technology, become more efficient and add value at every turn, or lose out to producers in Asia and eastern Europe.
Leading the would-be revolution is a group of regional trade bodies that have developed over the past decade from local talking shops to powerful, well-funded, lobbying, training and marketing organisations determined to tell politicians that it is not good enough to simply look after the national champions; they also need to direct resources to the second and third tier, often family-owned, concerns that are the backbone of the UK aerospace industry.
No special favours
This does not mean special favours, they say; simply an environment that allows small companies to develop the necessary skills, work practices and products to give them an edge over emerging competitors in China or the Czech Republic.
These organisations include the Farnborough Aerospace Consortium (FAC), which represents businesses in the south east of England; the North West Aerospace Alliance (NWAA), which draws members from the region around Manchester; and the West of England Aerospace Forum (WEAF), covering the south west of England. Together, these organisations have 1,800 members. There are also groups representing Scotland and Northern Ireland. All are aligned geographically and work closely with the government's enterprise and development agencies. Together with the Society of British Aerospace Companies and the Department of Trade and Industry they meet under the guise of the UK Aerospace Forum.
The aerospace industry has traditionally, at prime-contractor level, been highly vertically integrated, with primes carrying out much of their subsystem development. What they outsourced was mainly low-value, build-to-print work. But as prime contractors have merged and consolidated in Europe and the USA - and, at the same time, seen civil demand plummet - they have begun to focus more on system integration, shifting much of the responsibility for developing individual systems to the first tier of the supply chain. In turn, first-tier suppliers have sought to move up the value chain by moving lower-value work to contractors and focusing on core activities.
This is good and bad news for SMEs. There are more opportunities at the subsystem manufacturing level, but the downside is that first-tier suppliers are casting their nets wider to find the best deals. Smiths Aerospace is typical of this trend. The motto of the past few years has been "continuous downward pressure on prices from the primes", says group managing director John Ferrie. "There is not a prime in the world not looking for significant pricedowns. We have to pass this requirement down through our supply chain."
World players
Smiths has appointed its first vice-president for supply chain management, tasked to look for efficiencies and economies of scale in procurement across all its businesses on both sides of the Atlantic. At the same time, Smiths is reviewing "what we make and what we buy", says Ferrie. "We are rationalising our facilities into centres of excellence. We are only doing those things that are core to us." The company is prepared to invest in its own facilities in less-expensive countries. In April it opened the first phase of a factory at Suzhou in China to make civil engine parts and sheetmetal airframe components. Ferrie says Smiths is looking at sourcing "engineering, as well as production work" in Costa Rica, India and Mexico.
The NWAA claims - in its former guise as the Consortium of Lancashire Aerospace - to have been the UK's and possibly Europe's first regional aerospace cluster. With 750 members, the NWAA is probably the best-resourced of the UK's aerospace consortia.
UK SMEs offer a "lot of value to the supply chain and this is the main differentiator of UK industry from, say, French industry where you have a handful of big firms", says Dennis Mendoros, NWAA chairman and managing director of engine and auxiliary power unit repair and overhaul specialist Euravia. The NWAA has a five-pronged strategy to ensure its members continue down a technology-driven path, he says.
The first of these covers innovation. The NWAA has backing from the regional development agency for a £30 million ($55 million) project to set up a North West Aerospace Innovation Centre (AIC). With a central design centre and involvement of eight universities, funding would come from charging companies who benefit a licence fee based on the "technology adding value" of the eventual contract. The AIC would also act as a "beacon to connect with other centres of excellence", Mendoros says.
The second priority is to try to "elevate subcontractors to independent service providers producing proprietary technology," says Mendoros. Helping them do that is a third initiative: the NWAA will act as a go-between, putting together mini consortia of between three and 10 members - each offering a complementary technology - to jointly bid for a contract. "These mini consortia will have a consolidated force equivalent to a tier-one contractor," he says. After a pilot last year, when six companies co-operated to supply ground support equipment for Royal Air Force Eurofighter Typhoons to BAE Systems, more schemes are "on the drawing board". Mendoros expects teams to start bidding for contracts in 2005. "We see ourselves as being the facilitator up to the point where the contract is signed or the first product is delivered," he says.
The fourth element of the strategy is training, with the emphasis on "actively engaging" training providers and employers to retrain workers, whose jobs have been made redundant by industrial restructuring, in emerging technologies such as composites, superplastic forming and lasers. "It's wrong," says Mendoros, "to let people like that walk away from our industry. When the orderbook picks up, we need to be in a position to take advantage."
The final strand is international business development. Over the past six months, the NWAA has organised supplier presentations by Airbus, Boeing, Northrop Grumman, Lockheed Martin and Thales. "We want to communicate the message to them where we have emerging technologies available," says Mendoros. "We want to engage them in the AIC, especially the industrial process."
Step change
In the north west of England, the industry is undergoing a step change. Mendoros sees the NWAA's mission as allowing "all SMEs that wish to participate in the change game to have an opportunity". He adds: "If we don't change, we will have lost an opportunity because there are companies in Poland, the Czech Republic and Indonesia that can do it cheaper."
South-west England contains many of the country's biggest aerospace enterprises, including AgustaWestland in Yeovil, Airbus, BAE and Rolls-Royce in Bristol, GKN in Cowes and Messier-Dowty in Gloucester. Like the NWAA, the WEAF has evolved over the past decade from an informal regional grouping to the regional development agency's partner in dispensing a war-chest of £5 million to finance projects promoting lean enterprise, business and technological excellence as well as a graduate development scheme and knowledge-transfer programme.
For executive director Howard Chesterton, the challenge is helping small, entrepreneurial businesses become world-class suppliers. "I'm talking about those companies with 20-30 staff, where the skills you need to launch a company are not the same ones you need to take it to the next stage," he says. The WEAF helps its members fund stands at major industry events, but Chesterton says selling the UK aerospace SME sector involves more than marketing. "If you took these companies to every air show in the world, they would probably not win any contracts. First you need competitive companies. Then you can market them on the world stage," he says.
Chesterton says lack of investment and a failure to recognise the value of aerospace engineers will send work abroad. "If we don't encourage our companies to invest in technology and keep jobs in the UK, we're going to lose our aerospace industry," he says. "At first it might just be the low-value stuff that is farmed out. But then those countries look for higher value added. You have to create a climate where companies invest in the UK because they need to be here. That means an environment where engineers are properly paid to attract the right sort of person. We have to change the perception of engineers not being valued."
The south east of England is represented by the FAC. New executive director Ross Bradley - a BAE veteran who was latterly its managing director for Eurofighter - does not mince words in describing how he viewed the UK supply chain from his former positions. "It was a disaster, with long lead times," he says. When he tried to shake things up at Eurofighter he found "the supply chain did not respond in the way it was meant to". At FAC, he discovered that the main problem was an SME sector that lacked the "bandwidth for investment in skills, training and capital".
Fight to survive
The problem in the south east is that the region has an industry turning over £7 billion a year and employing 44,000 people, "and with a wide diversity of capability, but no distinct specialism, or the halo effect that comes from having a big manufacturer like Airbus or R-R on the doorstep", Bradley says. But it has "the UK's two largest airports, is close to the seat of power and has an ambitious regional development body".
Set up in 1996 as a networking group for suppliers to BAE Systems in Farnborough, the FAC now has more than 300 members. Bradley's appointment gives the group its first high-profile frontman. The SME sector in the UK is "drifting and has been for some time", he says. While its big companies have moved up the value chain to participate directly in global programmes, at the supplier end developing countries are moving in aggressively. "Over the past five years, low-cost environments have been targeting this industry, and not just in tin bashing. They're targeting high-tech work in a very effective way that is frightening."
The FAC is concentrating on certain areas rather than simply trying to defend UK jobs at all costs. "We will see a continued migration [of jobs]. But what are the defensible sectors, where we have long- term global competitiveness?" Bradley asks. In the south east, they are unmanned air vehicles; spaceflight; systems upgrades; advanced systems in the fields of defence and homeland security; composites; and airport technology.
Bradley is passionate about the need to preserve what he calls the UK's last high-tech industry other than pharmaceuticals. "In my lifetime, the UK has lost its position as a world leading platform provider. Now we face losing it at systems level," he says. "We have got to have something where we can take science to sales. What we are doing is fighting for the survival of high-tech, high value-added jobs in the UK."
MURDO MORRISON / LONDON AND MANCHESTER
Source: Flight International