Aircraft Engine & Parts Manufacturing
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Industry Overview
The US aircraft engine and parts manufacturing industry includes about 1,000 companies with combined annual revenue of about $60 billion. Major companies in the engine and engine parts segment include GE Aviation, Pratt & Whitney, and the US operations of Rolls-Royce. The remainder of the aircraft parts manufacturing industry includes companies such as Honeywell and Northrop Grumman. Both segments are highly concentrated.
Major aircraft engine and parts companies based outside the US include Kawasaki Heavy Industries (Japan); Rolls-Royce (UK); and SAFRAN, Thales, and Zodiac (France).
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.
Exports are an important source of revenue and include replacement parts for US-made airplanes that are being used and serviced abroad, as well as aircraft engines and parts. Major export destinations for US aircraft parts and engines are Japan, South Korea, and Australia. Top countries of origin for US imports of aircraft parts are Japan, Canada, and the UK; most engine and engine parts imports originate from Canada, France, and the UK. The industry is capital-intensive: average annual revenue per employee is about $350,000.
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). Makers of engines and engine parts make up about 55 percent of the market; manufacturers of non-engine parts account for the remaining 45 percent. 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 7,000 commercial aircraft, 15,000 military aircraft, and 240,000 private planes.
Investment in expensive machinery, often with computerized controls, is common. CAD and computer-aided manufacture (CAM) are used throughout the industry.
