Aerospace Industry: The Business Model

The aerospace and defense industry value chain can be defined as follows:

Aerospace Research & Development:

The most important aspect of the aerospace industry is research and development. Aerospace firms big and small throughout the world employ designers, jet engineers, and others to work solely in the research and development of new aircraft and aerospace technologies. Research and development are crucial in the creation of aircraft to ensure safety, compliance, technological advances to stay ahead of the fierce competition.

Research and development have been responsible for the creation of new aerospace technologies like the Stealth bomber and satellite flight guidance systems. In product planning, ideas for new products based on market research, safety regulations, and legislation, as well as financial feasibility, are discussed. The R&D team continuously modifies or redesigns new products until they meet the required specifications.

Aerospace Engineering Design:

Flight vehicles are subjected to demanding conditions such as those produced by extreme changes in atmospheric pressure and temperature, with structural loads applied upon vehicle components. Consequently, they are usually the products of various technological and engineering disciplines including aerodynamics, propulsion, avionics, materials science, structural analysis, and manufacturing. The interaction between these technologies is known as aerospace engineering.

Because of the number of disciplines involved, aerospace engineering is carried out by teams of engineers, each having their own specialized area of expertise. The development and manufacturing of a modern flight vehicle is an extremely complex process and demands careful balance and compromise between abilities, design, available technology, and costs.

Aerospace engineers design, test, and supervise the manufacture of aircraft, spacecraft, and missiles. Aerospace engineers develop new technologies for use in aviation, defense systems, and space. Designers create conceptual sketches, clay models, or computer-aided 3-D designs of a new product. Then, they collaborate with suppliers and product managers to ensure that newly designed parts can be successfully integrated into the design specifications of an aircraft, missile, or another product model. Finally, a prototype of each part is built. The team troubleshoots any potential problems and conducts the required tests. Since the aerospace industry is very design intensive, on average an OEM takes about five years to design a completely new model.

Aerospace Manufacturing:

The global commercial aerospace market has few prime contractors who manufacture aircraft and engines. There are numerous small and medium-sized firms that supply components and subsystems. Typically the aerospace value chain is characterized by engine manufacturers and system suppliers firms who are in exclusive supplier contracts with aircraft manufacturers. Once the engineering design is ready and the prototype is approved, the next step in the aerospace value chain is the aerospace manufacturing process. Raw materials are requisitioned from suppliers, purchases, and tested and this process results in the production of the final part.

Aerospace Assembly and Testing:

The lead times in aircraft manufacturing are typically very long. According to Boeing, building a commercial jet aircraft takes about a year on an average. The tooling requirements are very critical and can be almost one third to two-thirds of the total development costs. The recurring cost thereafter for the aerospace companies comprises of maintenance costs including tool replacement. All the requisite finished parts needs for the final product are either ordered or procured from suppliers, or parts are produced in-house in the earlier step. They are used to assemble the final product. The final product is then assessed for quality; if it doesn't meet the required standards, it is reworked.

Sales and Leasing:

The life cycle of a typical commercial aircraft spans about 30 years. There is a trend in the aerospace industry for both outright sales and leasing of the aircraft. OEM makes logistical decisions about the transportation of the products from warehouses to the customer. Logistics and contracts to purchase or lease the products are finalized at this step.

After Market:

As a current trend, the aftermarket services are being pushed back to the suppliers since the OEMs increasingly understand that this is not their core competence. The services technologies are also becoming increasingly advanced which means that a specialist in this area would be able to manage this area much more competently. OEMs have to make sure that service engineers and technicians are available to meet any after-sales support and service needs. Customers are also free to contract the MROs of their choice for future maintenance and repair needs.