The aerospace and defense industry globally will be facing tough and contradictory burdens in the next few years, as the need to meet an anticipated 25% jump in commercial-aircraft deliveries by 2014 contrasts with further belt-tightening of nations’ defense budgets in the wake of widespread budget deficits – both of which could lead to severe supply-chain pressures. That’s according to a study released today by AlixPartners, the global business-advisory firm.

“While bruised, the aerospace and defense industry emerged from the economic downturn in better shape than most industries, due largely to increased demand in the defense sector, plus some petty vigilant cost-cutting overall,” said David Fitzpatrick, managing director at AlixPartners and co-leader of the firm’s Global Aerospace and Defense Practice. “However, the industry now faces the ‘big squeeze’ – the contradictory challenge of quickly ramping up production for expected growth in the commercial sector coupled with the need to address expected cuts and therefore a sharpened focus on affordability in the defense sector. And those squeezed the most will be the supply chain.”

Commercial Sector

According to the study, the near-term outlook for commercial aircraft is positive due largely to increasing air-traffic demand globally, which is expected to grow 5.5% by 2012 alone. Asia and the Middle East, says the study, will enjoy 35% of all demand increases over the long term. Rising fuel prices and the need for more-efficient aircraft are already causing heightened demand for new aircraft, per the study. It notes that this year, for the first year ever, commercial-aircraft deliveries globally are set to exceed 1,000 and that global aircraft production is expected to increase 30% to 50% over the next three years.

Increasing demand for commercial aircraft, however, does not come without its challenges, and the guide-path to meeting global demand will be bumpy. Original-equipment manufacturers (OEMs) will be forced to ramp up production while simultaneously trying to innovate and develop products to meet demand for more fuel-efficient aircraft. Suppliers – who largely decreased capacity after suffering through the recession – will also face capacity and talent-acquisition constraints as they try to meet demand, which could lead to severe quality issues, according to the AlixPartners study.

There is significant risk, says the study, that commercial-sector suppliers will not be able to keep up with aggressive new manufacturing demands and will be challenged by: capacity constraints of their own (Tier-2 and Tier-3) suppliers that have under-invested in capability development; specialty raw-materials shortages (e.g., carbon fiber and titanium fasteners); and ongoing supply-chain delays and shortages resulting from the disaster in Japan.

“The aerospace supply chain was basically decimated by the economic downturn, as even sold orders were put on hold or otherwise put in a lumpy, stop-and-go mode,” said David Wireman, director in AlixPartners’ Aerospace and Defense Practice. “From all indications, that supply chain is not at all prepared for steep commercial ramp-up curve that lies ahead, and production constraints are a very real possibility.”

Defense Sector

But while demand on the commercial-aircraft side looks strong, defense, globally, looks to be weakening. According to the study, U.S. defense spending is expected to decrease by at least 12.2% by 2013 and by 6.5% by 2016, while defense spending in Europe, already down 2.8% in 2010, is expected to continue to drop sharply in the coming years, led by the U.K.’s recent announcement of an 8% cut by 2015 and promised drops of up to 25% in smaller European nations.

As a result of these expected widespread cuts, says the study, defense priorities will shift toward extending the life of existing equipment, improving communication networks and investing more in weapons systems targeted at supporting today’s more asymmetric warfare. However, says the study, the scale of these new investments will not be enough to make up for cutbacks in major-platform investments such as the F-35 fighter aircraft series built jointly by Lockheed Martin Corp., BAE Systems PLC and Northrop Grumman Corp., which has already experienced significant cuts in planned production numbers. In response to these kinds of cutbacks, the larger defense companies will need to pursue a more diverse business mix that will lead to partnerships, M&A and consolidation among smaller players as larger companies pursue new markets, the study says.

In sum, the study shows that both the commercial-aviation and defense industries face critical challenges that they will need to address. Key economic challenges will come from federal budget uncertainties, volatile fuel prices and new entrants into the few growing sectors of the industry. In particular, the recent volatility of oil prices, coupled with continued sluggish economies in the West, has made it hard to predict future industry trends. These factors are leading many aerospace and defense manufacturers, especially lower-tier suppliers, to delay investments, says the study.

“The aerospace and defense industry faces a very challenging next few years,” said Fitzpatrick. “The simultaneous need for near flawless execution on the commercial side and belt-tightening on the defense side, plus the need to deal with supply-chain challenges across the board while also seizing M&A opportunities will push management capabilities to the extreme.”

M&A Outlook

Driven by supply-chain pressures in commercial and budget cuts in defense, the pace of mergers and acquisitions in the aerospace industry is expected to rebound in the next few years. In addition, it finds, low valuations today across the industry, with multiples generally below 10 times earnings before depreciation and taxes, have made deals look far more palatable.

On the defense side, the study suggests that smaller companies will be in play as larger players look to encroach on new markets and make strategic, “bolt-on” acquisitions.

“The larger companies will be looking at these smaller participants that have new technologies, new products or complementary systems that can be easily and profitably integrated,” said Wireman. “Across the industry, valuation multiples are down 45% since 2008. To us, that sounds like the makings of a ripe deal environment.”

Business Jets

According to the study, the global business-jet sector, which suffered a 38% decline in deliveries between 2008 and 2010, will see some degree of recovery but will not experience a significant upturn before 2012 – with expected a compound-annual-growth-rate (CAGR) increase of 17% between 2010 and 2012. Recovery in business jets is expected to be limited largely by an only slowly improving global economy. Demand, it finds, will also continue to suffer from a large pre-owned product overhang (about 14% of the total market) and due to lingering negative public perceptions and media scrutiny about the use of private jets in a time when unemployment remains high and layoffs continue.

MRO

After two years of lost growth, the maintenance, repair and operations (MRO) market is expected to recover by the end of 2012 with 3.7% annual growth, leading to an expected global value of $61 billion by 2020, says the study. MRO growth will be fuelled by the engine, components and modifications segments, and will be driven by demand in developing and emerging markets. North America and Europe, on the other hand, will experience smaller-scale growth of 0.7% to 1.6% CAGR, respectively.

Profitability

According to the study, overall profitability is up and earnings-before-income-taxes (EBIT) margins have now reached levels not seen since 2006. Moreover, the findings show that in 2010 European companies’ profitability, which historically lagged those of North America, now trails North American companies by just 1.0%.

“Achieving sustained profitability through greater efficiencies and greater innovation remains the name of the game in aerospace, and it’s a game OEMs, suppliers and owners, including private-equity firms, will all have a key role in going forward,” said Fitzpatrick. “To successfully navigate the paradoxical challenges ahead, the aerospace industry will have to change in ways it has never changed before.”

Article  from PCB007

Although plenty of part numbers go through our shop which are classified and their end use is unclear, it is still quite possible to recognize the end users and the importance of performing quality work.  Products, processes, and chains are only as strong as their weakest link; and narrowing our focus too far on one spot in the product development cycle can have catastrophic consequences.  Our company, Cirexx International, does a fair bit of work within the defense industry.  For this reason, I will use the following hypothetical example as a reference.

“Although PN xxxxxxx is a simple 6 layer rigid-flex, it plays a critical role within a hand-held communications device our warfighters in Iraq rely on and expect to be functioning regardless of extreme conditions.  It’s failure, delamination, improper design could mean life or death for a whole troop.  And we all know who our military serves… us.”

If we focus on and remember who our end user is, the technical nature of our boards, our workplace morale, and our general business practices will all be affected.

Technical
If we were to keep in mind the big picture of who we serve with our products, many technical aspects of our products would be affected.  Most notable, I believe quality and quality assurance would improve.  Technicians, managers, suppliers, etc would all hold themselves to a high moral standard above and beyond their ISO or corporate quality mandate.  Responsiveness to issues and concerns on the part of the customer would increase.  Recognizing that each delay in the product life-cycle keeps a potentially life-saving product out of production and out of the hands of our soldier, nurse, pilot, etc for a greater period of time.  Paperwork and voicemails will have less likelihood of being put off until the afternoon, the end of the week, etc.  And lastly, collaboration will improve.  Although it is not necessarily the job of the lamination technician to determine proper materials for use in the final product, they may have some knowledge of past performance that the designers did not.  Whether it’s that they heard from a colleague that a particular thickness of laminate has been having issues in extreme temperatures, or in humidity.  Knowing that the board will be in a product in use in the rain forest may happen to be a huge help.

Workplace Morale
Not only will the technical integrity of your boards increase, but also workplace morale and spirit.  Employee sense of ownership and duty will grow when their understanding of the big picture increases and the tunnelvision we often fall susceptible to is countered.  This will lead to increased attention to detail, greater job satisfaction, and a greater sense of community within your organization and between organizations.

Business Practices
Lastly, recognition of the true impact your company’s product has will lead to changes in how your business operates.  Customer service and support will take greater precedence.  Also, capital improvements and research/development will take greater priority.  Recognition of the ways we need to remain competitive, and provide the most cutting edge products to our customers will occur when we step back and think about the importance we play in the lives of so many people.

Who are your customers?  Your real customers… probably people who have never and will never hear of you.  Yet it is them who you serve, it is for them that we work day and night, providing the highest quality products with the best customer support and responsive attitudes possible.

What other improvements do you feel would occur if we were to all continually remind ourselves of these things?  Feel free to comment below.

Blackjack II

As the keys begin to stick on my Samsung Blackjack II, and I think about how the navigation wheel used to spin freely, I remember the days of my Siemens M56. That little phone was built like a tiny brick, and it withstood the harshest abuse. Whether we were swimming in saltwater or it was falling off the top of my moving car, my little phone never complained, remained tough, and always worked. It was a sad day when, after three and a half years, I had to “upgrade” to a Motorola Razr.

M56

While the M56 was tough, it was never tested or designed as a “rugged” device. I was very fortunate it survived, but for those whose lives rely upon the dependability of their electronics, chance does not satisfy. Many manufacturers have recognized the need for electronics able to withstand the harshest of environments, and have designed “rugged” products for use in situations as diverse as the battle field to deep freezers.

But how rugged is the “rugged” classification? Please comment below if you feel that I am far off…

What I have found has not surprised me. It seems that just as I can tell you I am really strong; unless you ask me how much I can bench-press, you really have no idea how true my claims of strength are. And even if I tell you how much I can lift, you are not sure if I am telling the truth. The same seems true for the classification of “rugged” within the electronics industry. Many have self-certified their products as rugged, or have developed internal testing procedures under which they qualify their products. So how do you know what you are getting, and how do you know which rugged product to buy? Let’s dig further.

The very first step you should complete is to determine exactly in what environment your product will be operating. Some of the various standards/tests include: low pressure altitude testing, high and low temperatures, rain (freezing and penetrating), various forms of shock (both while in operation and while off), humidity, growths (fungus, algae, rust), sand and dust, accelerations, explosions, and various types of vibration. As you can imagine, every product will meet different standard within each of these categories. And while phone A may be “rugged” when it relates to salt-water, phone B may be “rugged” as it relates to extreme temperatures.

Fortunately there are various standards in place for the testing of products as it relates to rugged use. The MIL-STD-810 (Department of Defense Test Method Standard for Environmental Engineering Considerations and Laboratory Tests) is a 500+ page document
(open at your own risk, it’s big) outlining the chamber test methods necessary to use when certifying a product to be rugged in a particular application for military use. This standard can be tailored for commercial use, and many products advertise that they meet MIL-STD-810 standards in various settings. For example, you will notice that the Olympus Stylus-Tough 8000 is MIL-STD-810 certified to certain levels as it relates to shock and temperature. But just because it’s rated as rugged does not mean you should take it onto the water slide (although in this case you can… see the video on this page).

Some companies certify themselves to the MIL-STD-810 standards, while others use outside auditing organizations to confirm their claims. If it were me, I would always require an external auditing organization to confirm the claims made (especially if the product is protecting the life of someone). Some companies have developed and branded their own systems of rugged classification. For instance, Sonim cell phones adhere to the “Rugged Performance Standards” set in place by Sonim. Take a look at the video. It is pretty neat. Though again, always make sure that an outside agency has substantiated the claims made by the manufacturer.

So just as I will tell you that I am very strong, and you would ask me to qualify my statements; so too should you always seek to qualify the statements made in regards to the rugged nature of various electronics. What do you need it to withstand? What standards does it claim to adhere to? Have those claims been substantiated by an outside agent?

Enjoy!