Presentation Aerospace Forging

A forging supplier strategy focusing on consolidation and diversification of offerings to address the turbulences in the aerospace industry

Rémy LORIOZ

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TABLE OF CONTENT

Introduction

The Forging Industry

A Strategy to Face the Downturn

Conclusion

1

2

3

4

5

Supplying the Aerospace Industry

Page 3

Study environment

Industry


Sales 2008

$70,840,007 Up 18% from 2007

95+% Aerospace

Markets

The XXX Group at a Glance

Employees

Approximately 180

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LOCATION

XXX, XXX, U.S.A.

Study environment

The XXX Group at a Glance

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TABLE OF CONTENT

Introduction



Conclusion

1

2

3

4

5


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Vertical Relationship in the Aerospace Industry

Structure of the Supply Chain

Row material

Assembly

Engine

Avionics & equipment

Airframe

Various parts and components

Supply-type Supplying

Specialization-type Supplying

Prime integrator

Tier 1 Supplier

Tier 2 Supplier

Tier 3 Supplier

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XXX’s Position in the Supply Chain

Prime Integrator 1 : Boeing

Tier 1 Supplier : Rolls-Royce

Tier 2 Supplier : Machining

XXX

Prime Integrator 2 : Sikorsky

Prime Integrator 3 : Bombardier

: Orders: Parts

Definition

Effect on XXX

Value gain

Consolidation trend

The Machining Issue

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Value Chain Integration

Speed to market

Collaboration

Rapid Innovation

Advantages

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Globalization of the supply chain

Globalization Forces XXX’s Limited Risk Exposure

Overcapacities of production in highly industrialized countries

Significant advantages of labor costs on less industrialized countries

Availability of worldwide information networks that connect firms information systems

The emergence of extended markets areas

Very low to low volume

High flexibility

Ability to forge a high number of different alloys

High quality aerospace forgings

International Traffic in Arms Regulation (ITAR)

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Internationalization of Horizontal Relationships

1960s: From the old piston engine to the jet engine

1985s: New materials (Ultralight alloys, carbon fiber), new propulsion system with high by-pass ratio, massive use of electronics.

Two revolutions

Technological Barrier

Financial Barrier

Market Barrier

Three Barriers

Internationalization

F-22

U.S. Tanker Fleet

Supply Chain Structure

Value Chain Integration

Several Consequences

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Mergers and Acquisitions

Lack of leverage

Regulators

Low activity ahead

2008 Turnover :EADS $62,7 billionsThe Boeing company $60.9 billionsLockheed Martin $42.7 billionsBAE Systems $30.5 billionsNorthrop Grumman $33.9 billionsRaytheon $23.2 billions

Internationalization of Horizontal Relationships

0

50100

150200

250

300350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008

0

10

20

30

40

50

Total Number of deals

Total disclosed value of deals(US$bn)

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Airline Business Model

Business class

Load factor

Profit contradiction

Cyclical behavior of civil aerospace markets

Manufacturing delay

Time of recognition of over capacity

Double Delay Structure

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XXX’s sales variation and market demand

Both civil and military; opposite trend. XXX’s sales affected.

Cyclical Behavior

Cyclical behavior of civil aerospace markets

-40,0%

-20,0%

0,0%

20,0%

40,0%

60,0%

80,0%

2000 2001 2002 2003 2004 2005 2006 2007 2008

SIFCO SALES CIVIL - ORDERS DEFENSE - ORDERS

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TABLE OF CONTENT

Introduction



Conclusion

1

2

3

4

5


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Industry Processes

Impression Die Forging

Dies

Impact

Part

The forging advantage

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Market Overview

Markets served

1 491 1 636 2 014

1 779 1 863 1 442

2 601 2 651 2 629

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

2006 2007 2008

OTHER

AUTOMOTIVE

AEROSPACE

Automotive: high to very high volume.

Aerospace: very low to medium volume

Other: various industries, oil, nuclear, boiler etc…

Markets Info

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Market Overview

Market share

2,8%

3,5% 3,5%

0,7%0,9%

1,2%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

4,0%

2006 2007 2008

Aero Market Share

Total Market Share

Customers140 customers; 100-110 are repeat customers that places orders on a consistent basis. 5 customers represent 65% of the sales, when combining direct and sub-tier level:

#1 – Rolls-Royce#2 – Sikorsky Helicopter#3 – Bell Helicopter#4 – Goodrich Landing Gear#5 – Alloy Specialties (Honeywell)

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TABLE OF CONTENT

Introduction



Conclusion

1

2

3

4

5


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The Economic Downturn

Background Information

Undervaluation of the risk

A blurred financial system

Financial Innovation and Globalization

Main factors

Effects on the Industry

Less Credit

Less Orders

Production adjustments

XXX’ sales drop

Fewer financing possibilities for aircraft acquisition.

Fewer orders, orders cancellation, orders delay

Prime integrators adjust their production schedule

Effects of the crisis on XXX

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Issues Summary

Industry Cycles

Globalization risk

Value Chain integration

Fewer prospects

Globalization of customers supply base

Economic crisis

High Cost of dies

Consolidation of the supply base

Less forgings in new aircrafts

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XXX’s SWOT Analysis

STRENGHT

High recognition in most aircraft primes and subs

High customer retention

High regard for historic technical capability (titanium)

Wide range of materials, forge methods, and manufacturing capability

In-house capability of supporting operations

Low utilization of equipment (available capacity)

5-yr. bargaining agreement

Customer LTA’s on several growth programs

2D/3D simulation capability

WEAKNESSES

Limited awareness of XXX outside of small group of customers

Image as a “typical” hammer operation

Perceived lack of capability to forge nickel alloys

Less forge product in XXX’s size is included in new product

Poor IT Systems

Older equipment in ageing facility

Significant reliance on aerospace industry – 95%+

Limited aluminum forge heating capability

Overall forge size capability

OPPORTUNITIES

Use access to high level decision makers in industry

Develop press capability for superalloy rotating parts

Add related services –i.e. machining

Convert 1500T press into isothermal forging press

Promote improved turn around time

Promote better cycle time

Asian markets – particularly China

Aluminum forge products

THREATS

Potential customers will choose other providers

Incomplete quotations will result in prospects selecting competition (not able to quote all nickel work)

Utility costs (natural gas continues to rise)

Regressive pricing

Customer are looking for suppliers who can deliver product quicker than today.

Low-cost competitors

New global forgers entering US civil and military markets

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Strategy’s Proposal - Consolidation

Keep and Seek

Benefits

Strong competitive advantage

Huge dies inventory

Low Costs

Program targeting

Customer targeting

Risks Involved

Being barred from new programs

Miss new opportunities

Can not be the only strategic item

Use the die inventory to target active programs and customers and gain competitive advantage while lowering tooling costs.

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Strategy’s Proposal - Consolidation

Enter the Aftermarket

DIE

CUSTOMER 1

SUB-ASSEMBLY

PROGRAM 1

CUSTOMER 2

CUSTOMER 3

CUSTOMER 4

CUSTOMER 5

PROGRAM 2

PROGRAM 5

PROGRAM 4

PROGRAM 3

ASSEMBLY

ASSEMBLY

End-User 1

End-User 2

End-User 3

End-User 4

End-User 5

End-User 6

XXX Tier 3 Supplier

TIER 2 SUPPLIER

TIER 1 SUPPLIER

AEROSPACE SUPPLY CHAIN – XXX’S OPPORTUNITY

PRIME INTEGRATOR AFTERMARKET

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Strategy’s Proposal - Diversification

Service provider ?

Raw material supplier XXX Tiers 2 Tiers 1 Prime End-User

Fin

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d pr

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Raw

For

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Fin

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d m

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ned

part

Fin

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d su

b-as

sem

bly

Fin

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d ai

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: Sale

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Any Questions?

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Presentation Aerospace Forging