Covid-19 lessons for the Aerospace & Defence industry

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As international air travel grinds to a halt in the face of the coronavirus pandemic, the global aerospace industry is being pushed to reconsider its future. Record order books are now dwindling as airlines are forced to push back on deliveries or even cancel orders all together.

Significant demand shocks aren’t new to the airline industry. Over the past decade, it had to navigate the fallout from the 9/11 attacks and the SARS pandemic. However, never before has it seen a shock of this magnitude affecting the entire world. The impact of the current halt in aviation on the aerospace industry has raised serious concerns for the overall sector.

With this in mind, here is what is keeping the C-suite up at night

Disrupted supply chain

Commercial airlines have responded to the standstill in demand by cancelling aircraft orders as their fleet remain grounded. The coronavirus pandemic has plunged the global airline industry into a tough situation with the airline bookings plummeting in response to regulation, and business restrictions on travel increase. With the worries surrounding the impact of the virus on health and businesses, the debate is wide open about how traffic will recover following the current situation. As air travel grinds to halt and commercial airlines fight for survival, the deferral of aircraft deliveries has profoundly affected the supply chain. Inevitably, output in the Aircraft, Engine and Parts Manufacturing industry is anticipated to decline as commercial demand crashes. For example, Airbus has had to significantly adapt its global workforce and resize the commercial aircraft activity in response to the pandemic and Boeing temporally halted numerous operations.

To recover from the impact of the pandemic, aerospace players will need to pro-actively look into rebalancing operating models and prioritising what’s needed now, and how to position for what comes next. The industry will now need to pivot more towards digital transformation and leverage smart technologies with the adoption of intelligent solutions.  The rationale being that they need to gain insight into complex and ever evolving situation at the local and global level.

Impact on environment

Aviation industry experts have outlined that COVID-19 could provide a unique opportunity for the industry to reset to a more sustainable model – one that meets the demands of the climate emergency. As a result, the reduction in the demand for travel has caused some airlines to move up retirement dates for their aging aircraft . Older, inefficient aircraft are among those on the chopping block, as airlines turn to next-generation aircraft from airframes from Boeing and Airbus. Airlines will now prioritise long-haul aircraft that have new, more economical engines and thereby have less impact on the environment.

With environmental expectations heightening, the C-suite is being pushed to adopt technologies that can reduce the carbon footprint. For example, many businesses are looking at how predictive maintenance can be accelerated, in order to avoid under-performing aircraft being in operation any longer than necessary before entering the workshop. Many companies are harvesting data from assets (whole aircraft, engines, other systems…) via the Internet of Things (IoT) and using this data to gain operational insights into performance to drive asset management decisions in real time.  The ability for bigger players to make these changes and pivot the focus of their business will be a key factor in their success and/or survival in the short to medium term.

Agility – the need of the hour

COVID-19 has caused unprecedented disruption in supply chain planning, pushing the C-suite to focus on accurate forecasting and visibility. This will need decision makers to be able to be more finely attuned to the variation in demand and then be able to pivot the business in a very short time frame to make sure costs and supply chain remain within control. There is also a heightened need for executives to be reliant on technological systems within the organisation to work with ongoing market dynamics.  This could pose to be a huge challenge for any company in engineering and manufacturing in the Aerospace sector.

Taking learnings from 2008, the C-suite will worry about larger questions like ‘can we withstand disruption in the supply chain? Can we manage with a reversal/lack of cashflow? Can we only bank on the working capital in the reserves tied up more with inventory?

This makes an agile and responsive supply chain planning essential. An agile supply chain means:

  • Digital collaboration. Cloud-based supply chain applications, collaborative platforms and tools enhance information sharing. They also improve the quality and speed of decision making within an organization and with external suppliers in a secure environment. Amid the pandemic, manufacturers need a greater visibility into the supply chains of their suppliers—a practice worth continuing. Leaders are applying automation and robotics to make their supply chain more autonomous and adding suppliers in their home markets to ensure business continuity and supply chain robustness
  • Real-time visibility. Use of digital technologies for the integration of data across the entire supply chain to offer leadership teams real-time visibility. Companies can better calibrate supply with forecast demand by comparing internal production capacity data with real-time demand signals such as weather data
  • Rapid generation of insights. Leadership teams can stay a step ahead of supply chain disruptions by improving their ability to rapidly drive the analysis of internal data and external sources of big data. That means harnessing machine learning and artificial intelligence for predictive and prescriptive analytics.

OT & IT

The data on the shop floor driven out of the convergence of OT & IT, (the surfacing of engineering data through the layers of business to a dashboard layer to aid visibility and decision making), has become more critical than ever. This is data driven from the source and gives insights about products and the supply chain. While adjusting to the new normal, the C-suite will need to work towards a different strategy to be able to integrate systems like product lifecycle management (PLM) systems with the supply chain (typically ERP), and further with business functions like finance and procurement (ERP and SaaS applications). Over the last 20 years, the drive has, by and large, been towards the monolithic ERP instance, but the sheer size and cost of maintaining a single instance for global businesses that may exist in multiple markets is now seen to be an inhibitor to profitability and future growth. Many organisations are looking to ‘shrink the core’ of their systems landscape so that ERP provides a home for central finance and other core functions, with the periphery being made up of line of business Apps – typically cloud based SaaS products. To make this happen, investments in cloud driven SaaS based solutions, moving away from a single large ERP solution will be a step in the right direction.

Conclusion

COVID-19 has presented the Aerospace and Defence industry with unprecedented challenges. From travel restrictions to new working environments, momentous disruptions will mean the industry will never look the same again. However, the industry also has the opportunity to rebuild for the future. C-suite members should be looking to reform their supply chains, unlock value from new data, and adapt to the ‘new norm’ of ways of working – both on the shop floor and for executives working from home.

Author


Steve FreshwaterSteve freshwater

Executive Vice President, Capgemini Invent

 

 

 

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