Outsourcing speeds aerospace industry growth

Business is booming again in the aerospace industry, says Suresh Babu, Global Head of Aerospace Practice, Tata Consultancy Services.

Last year, Boeing booked orders for 1044 new planes and Airbus nearly 800.

With production slots for most of Boeing's models already largely filled for the next three years and a healthy backlog for several Airbus models, aerospace factories worldwide can expect higher production rates until at least 2010.

This is good news for an industry that has suffered in the last few years.

And while the aerospace industry may be allowing itself to breathe a small sigh of relief for the moment, the lean years have taught the industry some valuable lessons.

Suppliers have had to learn to adopt efficient manufacturing methods, for example, enabling them to become more productive.

Every cloud has its silver lining, and such practices will help manufacturers to capitalise on the upswing in order for commercial airliners that we are seeing today.

But the pressure hasn't lifted completely.

With the continuing demand to cut the cost and carbon emissions of air travel, aircraft manufacturing companies are increasingly compelled to reduce development costs and improve the operating efficiency of their aircraft.

To this end, the outsourcing of engineering services is playing an ever more important role, enabling manufacturers to maintain margins and lower costs without compromising quality.

This article will chart the progress of outsourcing in the aviation industry to date, and investigate how the relationship between outsourcers and the major players in the industry is set to develop in the future.

Outsourcing in the aviation industry has come a long way from the low-end projects undertaken in the early 1990s, which involved the basic use of CAD/CAM for the creation of drawings and modelling from 2D to 3D.

By the turn of the millennium, the industry, taking a lead from the automotive sector, started to wake up to the fact that outsourcing projects in general, and outsourcing them to places like India in particular, held many advantages.

Not only was there a large pool of highly-trained engineers to hand in India, but the time-zone and cost advantages were also highly attractive.

In an industry that operates at low margins, any such advantage over competitors was a boon.

The increased maturity level of the IT services outsourcing industry also played a large role in bringing engineering outsourcers up the value chain, demonstrating the capability of companies like Tata Consultancy Services (TCS), which moved into the aerospace space in 1992, to work alongside customers on ever-more complex core projects.

As a result, aerospace OEMs and Tier 1 suppliers are these days entrusting increasingly high-end and complicated projects into the hands of outsourcers.

Correspondingly, the large IT services players have extended their offerings and core skills to enable them to bring high quality, high value, and intelligent engineering services to market.

The majority of OEMs and Tier 1 suppliers now outsource their work to some degree or other.

IT in transport, aviation included, involves some of the most cutting-edge technologies, an increasing proportion of which are designed, tested, or implemented by third parties.

The development and introduction of RFID, for instance, could not have taken place without outsourcing part of the R and D to third parties.

TCS' aerospace engineers, for example, worked in partnership with Oracle in 2005 to pilot RFID with Virgin Atlantic Engineering.

The trial used RFID to tag critical parts used in aircraft maintenance and repairs at Virgin's Heathrow Airport warehouse in the UK.

This enabled Virgin Atlantic Engineering to reduce costs and increase efficiency through improved visibility and accountability, and to gain better automated control of its engineering parts supply chain.

The success of such trials have ensured that RFID technology is making waves in the aerospace industry: 14% of airports have already adopted RFID technology for employee tracking, with 9% using RFID tags for baggage tracking.

And when Airbus introduced RFID for tagging tools loaned out to customers to maintain its aircraft, it saved Eur 100,000 in a single year.

As a further example, TCS has been engaged in the design of metallic and composite structures, development of mission critical software, and also the design of modules for critical subsystems - such as control systems - from a remote offshore centre.

By supporting its customers in delivering designs from specifications through PDRs and CDRs (preliminary design and critical design reviews), TCS has been able to cut costs and expand design capabilities for customer programmes.

However, as well as cutting-edge technology, the right skills at the right cost are also needed to achieve success.

The increased value of outsourcing to the aviation industry could only have come about if the industry was prepared to trust third parties to take on projects.

And only with the right talent and the right skills can outsourcers prove that they are capable of delivering results.

To this end, outsourcers look to hire not only the best engineering graduates, but also increasingly recruit laterally from within the industry and internationally, building up a workforce from around the globe, including the US and UK.

As an example, TCS' aerospace practice includes many non-Indians and a combined experience of over 4500 man years, working at delivery centres and alongside customers around the world.

In the same way that IT services outsourcing now no longer means simply shipping projects off to low-cost destinations such as India, in the future the aerospace outsourcing industry will move towards an increasingly global delivery model, with outsourcers providing the capability to design anywhere and build anywhere.

Aerospace OEMs like Airbus, Boeing and Bombardier are turning to third party outsourcing organisations to outsource engineering services and tap into a global skills pool to find the expertise they need to improve processes and products.

Captive units are already being set up or partnerships formed to outsource structural design and development, embedded development, control system design, simulation, high-level cockpit equipment support software and composite structuring.

Lower tier suppliers too will have to adopt this more flexible approach if they are to survive the cost pressures from above.

Recognising this, most IT services outsourcing companies are strengthening their focus on providing engineering services to the global aerospace industry.

TCS, along with most companies in the sector, is exploring collaborative partnerships with niche players in industry (HAL, NAL, TAML), the technology sector (UGS, Dassault) and academia (IISc, IIT) streams, to be able to provide specific competencies to their customers.

Engineering services outsourcing in the global aerospace industry is continuing to grow, but thanks to the ongoing competitive pressures on the aerospace sector, and it is expected that the aerospace industry will represent a US $4 billion market in India for outsourcers in the next ten years.

As outsourcers and aerospace OEMs work increasingly collaboratively, outsourcers will be expected to provide end-to-end capabilities, working on conceptual design, sourcing and component manufacturing.

And it will be those organisations that have the specific engineering skills, vision, and innovative qualities in-house that will be able to benefit and win out for this forthcoming boom in engineering services outsourcing.

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