Back to news

October 16, 2020 | International, Aerospace

A&D Industry And The Chinese Conundrum: Get In Or Out?

Michael Bruno

Western airlines are begging for more government aid, the International Air Transport Association does not expect the industry to see positive cash flow before 2022, and credit agency analysts forecast depressed aerospace and defense business activity for up to another 1.5 years.

Meanwhile, data continues to portray China as the lone bright spot in the aviation world. By August, Chinese domestic flights had recovered to about 90% of 2019 levels. “China has been effectively controlling the spread of COVID-19, limiting cases to less than 100 a day. Combined with a large domestic market, the recovery in commercial aviation is expected to outpace the rest of the world,” Jefferies analysts Sheila Kahyaoglu and Greg Konrad noted in late September.

“Right now, really, the two areas of traffic that are close to normal are domestic China and the roughly 2,000 all-cargo aircraft out there today,” echoes AeroDynamic Advisory Managing Director Kevin Michaels. Otherwise, “it's a bloodbath, and we're all aware of that,” he told an Aviation Week SpeedNews conference in September.

For aerospace and defense (A&D) suppliers, the dichotomy sets up a critical decision: Should suppliers and servicers run toward China—or run away?

It is easy to understand why they are debating the question. Long before COVID-19 gutted commercial air traffic and kick-started what is expected to be the greatest makeover of aircraft manufacturing and the maintenance, repair and overhaul industries since the dawn of the jet age, there were already good reasons to debate being in China. Topping the list was the Trump administration's trade war with the world's second-largest economy. Ongoing questions lingered about intellectual property rights and the specter of inadvertently creating future competitors in Avic, Comac and other Chinese companies.

Proponents of reshoring industry to the U.S.—or “nearshoring” to Canada or Mexico—are certainly touting potential opportunity. “The logical thing is to fill longer-term and COVID-revealed supply chain gaps,” Reshoring Initiative President Harry Moser told an Aerospace and Defense Forum audience on Oct. 6.

Others agree that conditions are ripe for reshoring, not least because automation and advanced technologies that replace humans can offset North American costs. Also, A&D has been deemed a critical part of U.S. infrastructure. And Chinese unit labor costs have risen fivefold in recent decades. This summer, site-selection consultant Duff & Phelps identified A&D as a top candidate for moving to America (see chart).

But siting decisions are complex, and supply chain moves are even more so. Not only is commercial aviation looking strongest in China now and in the near future, but it could accelerate a long-expected toppling of the U.S. as the world's leading aviation market, possibly as soon as 2025. Increasingly, Beijing officials talk about relying on domestic supply instead of imports. Indeed, the “Sleeping Giant” could boast a future estimated aviation market value of more than $1 trillion, according to Yi Zhang, general manager of OCO Global China.

That catches suppliers' attention. Zhang spoke in June to a well-attended webinar hosted by Washington state economic development officials about aerospace opportunities in China, and that was a month before Boeing revealed it was even thinking about scrapping 787 production in Puget Sound, Washington.

Now China's opportunities beckon brighter with no snapback in Western air traffic.

Still, in his Sept. 24 report titled “Caveat Venditor,” or “seller beware,” Vertical Research Partners analyst Rob Stallard cautions Western A&D companies against rushing toward China. “We see the Chinese government leveraging its position of relative post-COVID strength in coming years, and no doubt aerospace will see some of the fallout,” Stallard says. “As the biggest show in town, we would expect to see more quid pro quo in China's relationship with what is still very much a Western aerospace industry. Price, supply chain and technology transfer could be on the table, as could politics.

“Aviation could conceivably suffer collateral damage as part of a broader trade war,” Stallard writes. “So while investors will probably see good news in a Chinese-led aero recovery, we would be looking for any strings attached.”

https://aviationweek.com/aerospace/manufacturing-supply-chain/ad-industry-chinese-conundrum-get-or-out

On the same subject

  • Boeing assembles team to bid for next-gen missile defense interceptor

    September 25, 2020 | International, C4ISR, Security

    Boeing assembles team to bid for next-gen missile defense interceptor

    Jen Judson WASHINGTON ― Boeing has assembled a team with General Atomics Electromagnetic Systems and Aerojet Rocketdyne to bid to build the Missile Defense Agency's Next Generation Interceptor (NGI). The agency decided last year to scrap its plans to redesign the kill vehicle of its current Ground-Based Interceptors (GBI) that is part of the Ground-Based Midcourse Defense (GMD) system designed to defend the homeland against possible intercontinental ballistic missiles from North Korea and Iran. The MDA is holding a competition instead to design a brand new interceptor for the GMD system. The company has an extensive history with the GMD system in place at Fort Greely, Alaska, and Vandenberg Air Force Base, California, having held the development and sustainment contract for years. That contract is set to expire in 2023 and MDA is weighing options to break up that contract to foster competition that promotes increased capability. “The Boeing-led team will deliver critical technology to enhance our homeland missile defense,” Norm Tew, Boeing Missile and Weapon Systems vice president, said in a Sept. 24 statement. “Combined, we bring decades of expertise in proven missile and weapon systems.” An NGI “requires a new way of thinking supported by a proven ability to deliver pioneering solutions,” Scott Forney, president of GA-EMS, said in a separate company statement issued Sept. 24. “We are excited to partner with Boeing to deliver the disruptive technologies needed to help MDA rapidly deploy an interceptor system that bolsters the nation's missile defense network and ensures that the U.S., our allies, and partner nations maintain military overmatch against ever evolving threats from adversaries.” Aerojet Rocketdyne will supply the propulsion system. “As the country's premier hit-to-kill propulsion provider, we're able to deliver low-cost, high-performance systems by leveraging our skilled workforce and strategic investments in innovative technology and materials,” Eileen Drake, Aerojet Rocketdyne CEO, said in the Boeing statement. Boeing reports the team submitted its NGI offering to MDA on Aug. 12. Also according to the statement, Northrop Grumman will serve as a “component supplier” on the Boeing team. Northrop is also teaming up separately with Raytheon to compete against the Boeing team and Lockheed Martin. Raytheon was the developer of the now-canceled RKV. MDA aims to downselect to two companies later this year, who will then compete for the right to build the interceptor. Proposals were due July 31, but MDA noted in its request for proposals that there may be some give in that schedule due to the ongoing COVID-19 coronavirus pandemic. The agency requested $664.1 million in fiscal year 2021 for the NGI program, as part of a $4.9 billion five-year budget plan. https://www.defensenews.com/2020/09/24/boeing-assembles-team-to-bid-for-next-gen-missile-defense-interceptor/

  • Hypersonics by the dozens: US industry faces manufacturing challenge

    August 9, 2019 | International, Aerospace, Naval, Land

    Hypersonics by the dozens: US industry faces manufacturing challenge

    By: Jen Judson HUNTSVILLE, Ala. —The U.S. military is a few years from launching offensive hypersonic weapons that are currently under development. But building those initial missiles is one thing — manufacturing the weapons in multitude is another issue entirely. “I would say we really need to understand, again, how can we produce precision hardware at scale,” Michael Griffin, the Pentagon's undersecretary of defense for research and engineering, told a group of reporters Aug. 7 at the Space and Missile Defense Symposium in Huntsville, Alabama. “If we talk about ballistic missile defense or hypersonic offense and we talk about proliferating architectures, we need any dozens, many hundreds, maybe thousands of assets,” he added. “This takes us back to the Cold War where at one point we had 30,000 nuclear warheads and missiles to launch them. We haven't produced at that kind of scale since the wall came down.” As hypersonic missiles become a reality, industry is going to have to relearn how to effectively, efficiently and economically produce them, Griffin said. While industry has developed warheads, glide bodies and other components, there is no industrial base equipped to manufacture hypersonic weapons. Things are moving in the right direction when it comes to bringing industry up to speed and preparing for larger-scale manufacturing of missiles, Griffin said. But building these systems is challenging because, for example, hypersonics require a greater degree of thermal protection than what has been required of other weapons in the past, he noted. Building hypersonics is no longer a technical issue or a matter of understanding physics, but rather an issue of understanding the industrial engineering required to produce a larger number. “I'm not sure how much help the government can be there,” he said. “Mass production is not what we do. ... That is going to be an industry problem.” The Army is just weeks away from awarding a contract to a company that will work with the federally funded laboratory that developed a hypersonic glide body to develop manufacturing plans and strategies. Other companies will have a turn as well. The effort is spearheaded by the service's Rapid Capabilities and Critical Technologies Office. Griffin stressed that the weapons manufacturing process needs to be affordable. “Our adversaries have clearly found ways to make them affordable. China has these things now by the thousands. What do we do to learn, once again, how to produce sophisticated things at scale and affordably?” he said. China is able to field new systems every few years, Griffin noted, while the U.S. takes a decade or more to get through a cumbersome acquisition process. “It don't believe that the issues facing the United States aerospace and defense establishment are issues of specific technologies,” he said. “I believe that over the last 30 years ... we've become lost in our processes.” https://www.defensenews.com/digital-show-dailies/smd/2019/08/08/hypersonics-by-the-dozens-us-industry-faces-manufacturing-challenge/

  • Lockheed Opens New Hypersonic Weapons Factory In Alabama

    October 5, 2021 | International, Aerospace

    Lockheed Opens New Hypersonic Weapons Factory In Alabama

    The manufacturing plant is the third digital factory opened by the world’s largest defense contractor this year.

All news