The global aerostructures tooling equipment market - Roland Berger

Source: Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx6ARESEARCH APPROACH AND MARKET DEFINITIONThe global aerostructures tooling equipment market study coversnearly all leading industry players and expert sourcesGlobal aerostructures tooling equipment market studyEQUIPMENT SUPPLIERSDESK RESEARCHGlobal AerostructuresTooling EquipmentMarket 2010-2020INDUSTRY INTERVIEWSCUSTOMER INTERVIEWS

ARESEARCH APPROACH AND MARKET DEFINITIONWe followed a unique, detailed approach – Relevant market derivedfrom underlying customer markets worldwideStudy approach and resultsSTUDY APPROACHResults> Market development (productoffering, segments and regions)> Current and future customerrequirements along value chainGlobal civil and militaryaircraft marketAerostructuresmarketToolingequipment market> Relationship between marketdrivers for OEMs and theaerostructures and equipmentmarketsStarting point is a forecastfor the OEM market forcivil and military aircraftand helicopters by modelBased on a detaileddemand forecast, wederive the globalaerostructuresmarket of OEMs andTier 1-3Using our insights intocustomer markets, wethen forecast thetooling equipmentmarket in detail> Technology trends in aerospaceindustry and influence onequipment manufacturers> Current and future successfactors for tooling equipmentmanufacturersSource: Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx7

ARESEARCH APPROACH AND MARKET DEFINITIONFrom a customer perspective, the aerostructures tooling equipmentmarket can be clustered into three main segmentsMarket definition and scope of the studySegmentScope of study: aerostructures tooling equipmentNot in scopeIIIIIDRILLING &RIVETINGPOSITION-INGJIGS,HANDLINGANDTRANSPORTSYSTEMS1) CFRP: carbon fiber reinforced plastics> Automated and semi-automated systemsand equipment for drilling, riveting andwelding components/modules> Major suppliers: Brötje Automation,ElectroImpact, Gemcor, Loxin 2002> Systems for high-precision movement andpositioning of components and moduleswithin the assembly process> Major suppliers: AIT, Brötje Automation,Dürr, ECA, MCE> Manual and automated systems for fixing,mounting, storage and transportation ofcomponents and modules> Major suppliers: virtually all OEMs,aerostructures and equipment suppliersCFRP 1)manufacturing> Machines formanufacturingCFRP parts,mainly automatedtape laying(ATL) andautomated fiberplacement (AFP)machinesSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx8

Areostructures_Tooling_Equipment_FINAL_short.pptx9B. Market for aerostructures tooling equipment

BMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENTFour drivers characterize automated tooling equipment market – Newprogram launch, rate increases, cost pressure & new technologyMajor market drivers – overviewStart of new programs> Launch of new programs requires developmentand installation of customized equipmentRate increases in existing programs> Significant increases of cadence for existingmodels require higher automation and processindustrialization and even add-on capacityCost/efficiency pressure> Increase in productivity to reduce unit costs> Increase in process stability/reproducibility andreduction of supply chain risksNew technology & materials> New, more efficient technology and materialsdrive adjustments/replacements of equipmentIPURCHASING NEWEQUIPMENT> Development and procurement of new, modelspecificsystems and equipment formanufacturing and assembly> Investment often within a period of 2-4 yearsIIINDUSTRIALIZATION> Upgrades/updates of equipment & systems> Partial or full automation of manual processes> Increase of process stability throughautomation, measuring and control technologyIIIOPTIMIZATION OF EQUIPMENT> Process optimization based on existing equipment withminimal investment to increase outputVolatile demandmainly driven byoverall economicdevelopmentSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx10

BMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENTIn 2010, the tooling equipment market was worth USD 1.1 bn –Largest segment is positioning systems for final assemblyGlobal aerostructures automated tooling equipment market 1) , 2010 [USD m]TOTAL VOLUME: USD 1,110Jigs,transport,logistics(total: 432)Positioning(total: 423)Riveting, drilling,robotics(total: 115)270127(47%)98(36%)45(17%)Sub-moduleassembly1) Excluding automated carbon fiber equipment (AFP, ATL)300125(42%)125(42%)50(17%)Moduleassembly400180(45%)200(50%)20(5%)Final assembly140ServiceCOMMENTS> Jigs, transport, logistics andpositioning systems are the largestsegments, worth approx. USD 430 min total in 2010> Riveting and drilling equipment havearound a 10% market share – mainapplication in sub-module (e.g.fuselage shells/hull) and moduleassembly (e.g. fuselage sections)> Within final assembly there is limitedautomated riveting and drillingequipment demand – large share ofmanual labor supported by jigs andpositioning systems> Demand for jigs and handlingsystems grows with increasingcomponent sizeSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx11

BMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENTDemand will remain at record levels in the short term – Significantdownturn and shift to service expected from 2013 onwardsAerostructures tooling equipment market, 2006-2020e (illustrative) [USD m]904781 14%15%+83%1.4261.290 10%1.2021.11911%1.11012%12% 13%89016%89%88% 87%85%86% 84%06 07 08 09 10 11eService EquipmentNote: USD:EUR exchange rate: 1.3590%88%12e 13e94417%83%14e78923%77%15e-73%63631%69%16e42552%48%17eAs of today nonew programsafter 2016announced36463%37%18e38063%37%19e38562%38%20eCOMMENTS> A350 (and last phase of B787 tooling)drive peaking market in 2011 and 2012> Start-up of new programs in China andRussia dampens the declining demandin medium term from 2013 onward> Slump after 2016 due to lack of newprograms at that stage between EIS ofA320 NEO/B737 MAX and end of thedecade on LCA> Substantial shift towards optimizationand retrofit of existing equipmentcauses significantly reduced volume> Rate increases covered by optimizationof existing systems with only lowinvestments – significant rate increasesrealized by duplication of existingsystems including minor adjustments/improvementsSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx12

BMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENTThe market is indirectly driven by growth in customer markets –Primary strategic and operational requirements identifiedRelationship of market drivers in OEM, aerostructures and tooling equipment marketOEM (aircraftmanufacturing)> Growth of world economy> Growth of global trade> Liberalization of air space> Development of oil/kerosene price> Development of wagesStrategic requirements> Consolidation and specializationof players> Internationalization and expansionof footprint for targeting newmarkets> Taking on development andfinancing risksOperational requirements> Handling of complete system/module responsibility> Industrialization of manufacturing and assemblyprocess> Integration of new materialsAerostructuresmanufacturing> Global fleet growth> Governmental industrial policy> Cost and efficiency pressures> Risk reduction by OEMsStrategic requirements> Global turnkey capabilities for large projects> Acting as a problem-solving partner for thecomplete manufacturing and assembly process> Local engineering and after-sales expertiseOperational requirements> Suitability for interdisciplinaryglobal development partnerships> Greatest process stability andreproducibility> Flexible system design and broadareas of applicationEquipmentmanufacturing> Start/ramp-up of new programs> Increase of production rates> Cost/efficiency pressure> New technologySource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx13

BMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENTSix major trends influencing the tooling equipment market havebeen identified – Varying impact on supplier depending on segmentTREND1 Industrialization2 Flexibility 3 Cost optimization4 Materialmix5 Risksharing6 ServiceIMPLI-CATIONSIMPACT ON SUPPLIER> Transition fromfactory to serialproduction> Standardizedprocesses,automation andprocess flow> Transfer of bestpractices fromother industries> One tool formultiple models/modules> More flexibleand accessiblework station capableof multipleoperations> Automated,software-basedprocess control> Standardizationand modularizationwithout qualitycompromises> Product costpressurethroughemergingmarkets andOEMs> Two clustersidentified (singleaisle vs. twinaisle) – highCFRP share fortwin aisle andmedium sharein single aisle> Recent CFRPboom expectedto slow down> OEMs focus oncompetencies"systemintegration" and"programmanagement"> Supplier riskmanagementand financialstrength criticalto fulfillrequirements> Local solutioncompetence> Necessaryengineering andprocess knowhow> Optimization ofexisting equipmentDrill & RivetPositioningJigs & transportsystemsLowHighSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx14

BIMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENT – INDUSTRIALIZATIONCost efficiency and industrialization are driving the market –Automation is only viable in certain programs and regionsUse of process automation and production cadences by segment and region, 2011-2020[no. of A/C per month]TypeREGIONALEmbraer ERJ-190, ART 42/72, DHC-8-400BUSINESSCessna Citation Mustang, Embraer Phenom 100LCA – SINGLE-AISLEA318-321, B787-6 to 9LCA – TWIN-AISLEA330, B777, A380, B767, B787, B747-8HELICOPTEREurocopter AS350, Sikorsky UH-60Europe1-230-400-70-142011 2011, relevant size for automation2020Americas1-630-400-60-9Asia2-4Russia1-4 0-60.110.50.1COMMENTS> Production rates for all civilaircraft segments will increase tomeet global demand for newaircrafts, plus the start and rampupof new programs> Increasing production ratedrives industrialization and automationin today's core markets> Start of new programs in Asiaand Russia is shifting markets> Evolving aerostructures players inAsia and Russia require simplersystems at lower costs but withsame accuracy> Players from emerging marketsstrive for turnkey solutions dueto their lack of expertise in aircraftand aerostructures productionSource: Teal, expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx15

BIIMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENT – FLEXIBILITYFlexibility in machinery setup and production processes is enabledby software machine controlling and automated process monitoringDimensions of flexibilityMulti-model machinery> Similar aircraft models (e.g. A318 andA321 on one production line)> Regular updates of aerostructures designdue to product efficiency requirements> Supplier's need for lower dependency onspecific models/componentsFlexible production lines> Frequent re-design of processes andcomponents with effect on machinerysystems (configuration management)> Supplier's thrive for lower investmentsdue to more generic production lines andhigher integration to reduce riskGrowing importance of software> One system solution for multiplemodels/modules> Machinery to be adjusted ratherthan replaced, software controlsrequired quality and precisionLearning from other industries> Optimization of existingprocesses to increase efficiency> Higher integration andconnectivity of individual systems> Automated process monitoring asprocess enablerFlexibilitythroughoutthe aerostructuresproductionprocessSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx16

BIIIMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENT – COST OPTIMIZATIONEmerging markets and overcapacities in the near future require costoptimization through standardization and modularizationDrivers and impact of cost optimizationDEMAND FROM EMERGINGMARKETS> Demand shift towards emergingmarkets> New program launches inemerging markets such asRussia, China and Latin America> Rise of aerostructures productionin emerging markets withdifferent cost structure increasesprice pressure> New markets and customersrequire simpler systems andturnkey solutions at reducedcost"NO FRILLS"Cost optimization throughproduct standardization andmodularizationCOST AND EFFICIENCYPRESSURE> Global demand decline comparedto current peak is expected toresult in overcapacity> OEM cost reduction initiativesforce Tier-1s to reduce shipsetprices (e.g. SCOPE, Blue Sky)> Strong focus on short ROI fornew equipment investments> Price pressure in all marketsnecessitates production and costefficiency on the same level ofaccuracySource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx17

BIVMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENT – MATERIAL MIXLarge aircraft currently being developed have a composite share ofover 50% – No further increase is expected at firstMaterial mix development as a share of total weight of aircraft structure [%]Boeing Airbus Bombar UAC Comac LCA 1)-dier2020e3 2 3B737 B747 B767 B777 B7871 4 3 1 111 1 5512 13 147115079 79 8070 1510201967 1969 1981 1994 2011OtherCompositeTitaniumA300/3107658741985SteelA350A330/A320 340 A38065 55525 58 8 7 715 16 2266 6619871992Aluminum61147202007 ~2014C- Series MS-21 C919 Ø 20205 5-10 530 2)4624~20153819533~201920-3015-205-1030-40~201925-307850-55Impact> Up to B787 and A350, significantincrease in composite share("CFRP hype")> Updates of current single-aisleaircrafts (A320neo and B737max)are planned without a significantincrease in the proportion ofCFRP compared to A320 & B737> Material mix (metal vs. carbonfuselage) of new ("post-neo")single-aisle generation aircraft notyet defined, but clear preferencefor metal"Composite percentage remainsfrozen at today's level – the newA30X will have a metal fuselage"– Head of Procurement at Airbus1) average material mix Large Commercial Aircrafts (LCA) in 20202) including steel and titaniumSource: Teal, expert interviews, Russia & CIS Military Newswire, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx18

BVMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENT – RISK SHARINGOEM's demand for outsourcing larger workpackages drives ongoingconsolidation of aerostructures landscape towards "Super Tier 1s"Evolution of aerostructures industrySituation todayNear-term upcomingmarket consolidationImpactOEMTier 1Tier 2Supplier AAirbus (FAL)Supplier BSpecsDeliveriesSupplier CDeliveriesOEMs hand over design and supply chainmanagement to tier-1s and require risk-sharingpartnerships and large upfront investments –Some take over value chain managementSupplier AAirbus (FAL)Supplier BSupplier CPositioning as "sub-supplier" notsustainable – Players will either have toinvest heavily and actively driveconsolidation or exit> OEMs hand over responsibility &risk to Super Tier 1s by givingthem design & supply chainresponsibility for completeworkpackages / systems> Responsibility for largerworkpackages together withdelay of aircraft programs (e.g.B787 or A350) demands strongfinancial backbone to ensureliquidity – But aerostructures ischaracterized by a fragmentedindustry structure in Europe andpoor financial performance ofplayers> Players from emerging marketswith a strong financial backbonedrive consolidation in EuropeSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx19

BVIMARKET FOR AEROSTRUCTURES TOOLING EQUIPMENT – SERVICEDecreasing demand in key markets is cushioned by increasingservice demand – New service models are requiredEvolution of after-sales and service market for tooling equipmentServicescopeHigh 2020Optimization of existing plants> Automation> Process optimization> Plant layout revision> Retrofit of single and complete systems> Efficiency increase> Cost decreaseLow2010Maintenance,repair and spareparts0 100 200 300Segment volume [USD m]COMMENTS> Expected increase in volume andscope of service offering in line withdecline in demand for newequipment> Key drivers are the reduction of therecord order backlog by rateincreases and rising cost pressuredue to market entry of new (OEM)players> Significant decline in demand fornew facilities in today's core markets(USA, Europe) but shift to processoptimization and efficiency plusincrease in flexibility of existingsystemsSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx20

Areostructures_Tooling_Equipment_FINAL_short.pptx21C. Need for action and recommendations

CNEED FOR ACTION AND RECOMMENDATIONSKey market trends are driven by changing key customerrequirements – Starting point for strategic implicationsKey trends and driversKEY MARKET TRENDSKEY CUSTOMERREQUIREMENTSIncreased usage of technicalindustrialization and serial productionSimpler, costefficientsolutionsIndustrializationMinimal set uptime due tovolatiledemand"No frills"-products withlow cost butsame qualityProduct efficiencyrequirementsin balancewith productioncostsNeed forturnkeycapabilities andrisk-takingHigher demandfor services,shortermaintenanceintervalsInvest in multi-model tools andproduction linesFlexibilityIDENTIFIED TOPICSCost and efficiency pressure intensifiedby new entries from emerging marketsShare of composites remains stable asin latest program revisionsOngoing consolidation of aerostructureslandscape towards "Super Tier 1s"Market development towards period offewer new equipment purchasesCost optimizationMaterial MixRiskSharingServiceSource: Expert interviews, Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx22

CNEED FOR ACTION AND RECOMMENDATIONSWe recommend a clear strategic focus on two business models toensure sustainable business even in turbulent timesSegmentation of business models in the tooling equipment marketEmergingmarketsMARKETFOCUSToday'scoremarketsSource: Expert interviews, Roland BergerISYSTEM SPECIALIST> Comprehensive expertise inindividual systems/specific niches> High innovation potential> Strong brand and reputation inspecific system segment> Comprehensive understanding ofmanufacturing and assemblyprocesses of aircrafts> Wide automation and roboticsknow-how> High customer focus and flexibilityIIISYSTEM OPTIMIZEREngineering know-howSustainable business models in declining marketsCOMPETENCE FOCUSIITURN-KEY PROVIDER> Turnkey capability for complexnew projects/green field projects> Financial strength andprofessional risk management> Specification capability forsolution and interfaces> "One face to the customer"> Control of system value chain> Strong integration know-how> Contract and risk managementIVSOLUTION PROVIDERIntegration know-howCOMMENTS> Wide range of customer requirements intoday's core markets (Europe, NorthAmerica) and future emerging markets(China, Russia, India)> Increased segmentation of theequipment market expected> Key challenge for small, financiallyinstable players: building a clearUSP/competency area for differentiation> Key challenge for large, financiallystrong players: building a global networkcapacity to manage and control thevalue chainAreostructures_Tooling_Equipment_FINAL_short.pptx23

CNEED FOR ACTION AND RECOMMENDATIONSKey question for industry CEOs: How well are you prepared for thefuture challenges?KEY QUESTIONS TO THE CEO1BUSINESS MODEL• Does your strategy conform to or at least comeclose to one of our future business models?• If not, do you have a clear idea of what makesyour business and company special?COST FLEXIBILITY• Is your company's cost structure flexible enoughto survive a market downturn of up to 70%?• Is your financial position strong enough to survivea temporary drop in new equipment business?42MARKET PRESENCE• Does your company have a delivery capabilityin tomorrow's markets (e.g. Russia, China)?• Are you prepared to benefit from future growthopportunities in these markets?RISK MANAGEMENT• Is your organization able to monitor, quantify andmanage project-driven risks and opportunities?• Do you have a clear idea how much risk yourcompany's financial position can take?5COMPETENCE PORTFOLIO3 6• Do you have the right people, processes and • Does your service portfolio cover all relevant andprocedures in place for turnkey solutions?required services for your customers?• Is your company able to manage suppliers ondifferent continents along your value chain?SERVICE STRATEGY• Do you have the right sales and businessorganization to push your service business?Source: Roland BergerAreostructures_Tooling_Equipment_FINAL_short.pptx24

Areostructures_Tooling_Equipment_FINAL_short.pptx25It's character that creates impact