On the face of it, our new ranking of the world’s largest aerospace businesses shows a sector cruising along comfortably and little changed in composition from the previous 12 months. All but one of last year’s 100 highest flyers retained their status in the elite club and – while revenues grew less than 1% during the 2016-2017 financial year – the Top 100 notched up on average an enviable 17% increase in operating profits.
But a shake-up could be on the way. Our 100 businesses range in size from Boeing – on track to become the first aerospace company with a 12-figure turnover in a few years – to a bottom third with revenues of between roughly $250 million and $1 billion. The 20 biggest companies account for four-fifths of the overall revenue and profits, and it is they – particularly the airframers and engine manufacturers – that are applying pressure for consolidation among smaller Top 100 companies, many of which are their key suppliers.
Aerostructures is perhaps longest overdue for a merger and acquisition spree. The past two years have seen the coming together of GKN and Fokker as well as Sonaca and LMI. Others such as Figeac Aéro have been buying up smaller players. Airline cabin interiors – a highly fragmented industry of niche suppliers – has seen consolidation of a different kind, with two of the leading players, the USA’s B/E Aerospace and France’s Zodiac Aerospace, swallowed up by larger, more diversified entities, Rockwell Collins and Safran, respectively.
There are many reasons companies buy other businesses – market access, synergistic competencies, increased purchasing power, and so on. By and large, airframers favour consolidation among their supply chain. It means they have fewer contracts to deal with; bigger suppliers can also take on more complex work packages and manage their own supply base. But it works both ways: larger contractors with fewer competitors have more muscle in negotiations. And risk is higher if crucial components are single-sourced.
Size and scale are not everything in the supply chain: witness the problems both Spirit AeroSystems and Triumph had when they tried to grow too quickly without imposing the right sort of management disciplines. However, in general, further consolidation in the supply chain is inevitable as the pluses – for both customer and supplier – outweigh the disadvantages. Expect several of the industry’s biggest 100 companies – United Technologies, for one – to become much bigger before the decade is out.