Aircraft Parts Manufacture
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Industry Overview
In the US, 1,500 companies manufacture aircraft parts with combined annual revenue of about $45 billion. The engine sector is dominated by GE and Pratt & Whitney, which together account for about 80 percent of engine revenue. The remainder of the industry is highly fragmented. Aside from divisions of a few large companies like Honeywell and Northrop Grumman, few parts manufacturers have annual revenue in excess of $100 million. A typical parts company has 150 employees and revenue of $25 million.
Competitive Landscape
Demand for commercial, military, and private airplanes drives the aircraft parts industry. The profitability of individual companies depends on efficient operations and the ability to secure long-term contracts. Small companies can compete by specializing in high-end, low-volume, or hard-to-find parts, or in production of low-price commodity parts. Large companies have economies of scale in production and purchasing. Annual revenue per employee is about $200,000 at larger companies, $125,000 at smaller ones.
Products, Operations & Technology
Manufacturers usually specialize in producing parts for one of several major systems, including engine, fuselage, propellers and rotors, landing gear, electric and hydraulic control systems, and electronic systems (avionics). Primary subcontractors ("primes") that deliver major systems like engines or wings to the original equipment manufacturer (OEM), in turn subcontract much of the component manufacturing activity to smaller contractors.
Aircraft parts manufacture is generally high-precision and high-technology, where the performance of a part is often more important than its price. Much like the automobile industry, the aircraft industry consists of a few large OEMs, like Boeing, that design, assemble, and sell aircraft, and a large number of subcontractors that manufacture the parts. OEMs supply the designs and specifications for many parts.
Most companies specialize in producing specific parts for a particular airplane ("platform") and often hold requirements contracts that commit buyers to purchasing from that supplier all their needs for a particular part. Such exclusive contracts compensate the supplier for the investment in capital equipment often needed to produce a specific part. Because of the many parts in the many different aircraft in service, even relatively small companies may manufacture a very large number of different parts or subassemblies.
The operations of most parts manufacturers are located in a single facility and involve forging, forming, fabricating, machining, finishing, painting, and similar types of manufacturing activities. The processes often require greater precision and use higher-grade materials, such as aluminum, titanium, and specialty steel alloys, than in other manufacturing processes. Specialized operations like chemical milling - removing excess metal with acids - and stretch forming are characteristic.
Raw materials are usually readily available from a number of vendors. Parts are produced according to designs and specifications furnished by the OEM. The manufacturing process for most aircraft parts must be approved by the OEM, or by the FAA through a Parts Manufacturer Approval (PMA), and usually requires extensive testing and other control steps. Quality control is a major concern for manufacturers, requiring a large number of quality control personnel.
In addition to new plane production, there is a large aftermarket for replacement parts and special equipment such as avionics, which are electronic communications and sensing systems. The FAA mandates that certain kinds of parts be replaced after a specified number of takeoffs and landings. This requirement spurs the aftermarket segment, which can be significant for parts makers.
The FAA must approve all replacement parts. Parts are sometimes produced under license from the OEM or original manufacturer. The replacement part market is sizable because of the long useful life of many aircraft. The active US aircraft fleet includes about 8,000 commercial aircraft; 16,000 military aircraft (almost half of them helicopters); and 220,000 private planes.
Investment in expensive machinery, often with computerized controls, is common. CAD and computer-aided manufacture (CAM) are used throughout the industry.