AEROSPACE LOGISTICS

The aerospace industry is expected to grow again – albeit by fits and starts – after the adjustments which were called for last year as result of the economic crisis. The drivers for fleet additions and replacements include the need to improve efficiency and cut emissions of greenhouse gases, and network widening (adding on new routes). Consequently, aerospace logistics service providers will have more work to do, and thereby more revenues to look forward to.

Aerospace logistics plays a key role in enabling the timely deliveries of aircraft components to manufacturers, overhauling and repair depots, and airline companies, as well as helping truncate of delays and interruptions in service during the operating phase of an aircraft’s lifecycle. (We differentiate here between aerospace logistics and logistics by air; the former is logistics to serve the aerospace sector, and the latter is a mode of transport (air) to deliver a logistics function.)

It takes vehicles – moving on road and rail, by sea and in the air – to transport raw materials, components and sub-assemblies to points of assembly of heavy machinery and equipment. If the destination is a vehicle-builder – the automotive or aerospace sector for instance – one can say, if a little bit of panache is permitted, that it takes vehicles to build vehicles.

An airplane is an assemblage of an unbelievably huge inventory of subassemblies and components – electrical, electronic, mechanical, etc. These all have their own different operating lifetimes, and replacements are called for at regular intervals.

Regular maintenance, repair and overhaul apart, unplanned-for emergencies call for immediate attention – like the so-called “aircraft on ground” (AOG) situation when a problem is serious enough to prevent an aircraft from flying and necessitates a rush to acquire the parts to put the aircraft back into service and prevent further delays or cancellations of the planned itinerary.

Throughout its lifecycle, then, an aircraft triggers the movement of raw materials, sub-assemblies and spare parts. To keep it flying and moving men and materials during its operation phase, movements of a plethora of vehicles are necessary. This is influenced, it goes with saying, by both manufacturing and the airline operations taken together, i.e. the additions to the fleet of aircraft operated by an airline, plus the regular maintenance, repair and overhaul operations (abbreviated as MRO) which goes on irrespective of whether airlines decide to add to their fleet or embark on new routes.

UP IN THE AIR

The Airbus Global Market Forecast for the period 2009-2028 predicts that 24,951 new aircraft (24,097 passenger planes and 854 freighters, as a mix of replacements and additions) will be delivered to the global fleet by 2028, which would have grown from a fleet size of 15,750 in year 2009 to 32,000 by end of year 2028.

This would influence (and be influenced by) a rise in passenger traffic by 4.7 percent per annum, measured in terms of revenue passenger kilometres (RPKs), and a rise in freight traffic by 5.2 percent per annum. In year 2028, the traffic is expected to touch 11.7 trillion RPKs, a significant increase on the 4.7 trillion RPKs in 2008.

Narrowing the focus down to Asia Pacific, the countries of India, China, Japan, the UAE, Australia and Singapore are set to spend US$956 billion (at current market price), of the $3.1 trillion (that makes it 31 percent) that is estimated to be spent the world over on the purchase of new aircraft.

Vis-à-vis the global average growth of 4.7 percent per annum in RPKs till 2028, the growth in China (7.9 percent), India (10 percent), the Asia Pacific as a whole (7.2 percent) and the Middle East (6.9 percent) is expected to be much greater, courtesy increasing regional cooperation, interdependencies, rapid economic growth, deregulation and a growing propensity to air travel.

Moving over to freighters, air cargo has, undeniably played a key role in the trend towards lean and JIT (just-in-time) manufacturing in the Asia Pacific region, which has, over the years attracted appreciable inflows of foreign investments in the manufacturing sector. This would continue to be so, in the years to come, resulting in a rise in freight tonnage kilometres (FTKs) associated with aircraft flying into, within and out of the region.

The Chinese domestic market will be the second largest in the world in terms of the number of FTKs – commanding 8.2 percent of the total by year 2028. The Indian freighter fleet is likely to rise 13-fold during the same period, with the domestic FTKs forecast to increase at the phenomenal rate of 16 percent per year. And air freight traffic involving Asian economies (incoming and outgoing) is set to account for over 47 percent of the total FTKs by the end of the forecast period.

More airplanes, emerging routes, and a higher frequency of flights, combined with a rise in passenger-fare, will inevitably result in more MRO activities – occasioned firstly by more rapid wear and tear, and secondly, by an increasing need to avoid delays in a fastpaced economy with demanding passengers expecting good value for their money.

Indeed, as Andrew Seah, Asia-Pacific head of corporate communications and environment affairs, DB Schenker tells LIA, power by the hour (PBH) solutions will characterize the aerospace sector of the future, which translates to increasing importance for logistics operations – acquisition, storage, warehousing and dispatch.

Oxford Economics estimates that the air transport industry directly and indirectly provides employment to over three million people in the Asia Pacific region, and contributes about US$170 billion to the region’s GDP. By end of year 2028, these numbers would have gone up to five million and US$780 billion, respectively. Small but signifi cant parts of the employment and revenue-generation pies are accounted for by the aerospace logistics service providers, which playing a key role during both the production and the operation phases of airplanes.

PARTNERS IN ACTION

Aerospace logistics is verily a niche area in itself, within the logistics sector, with its own set of rules, regulations and quality standards to abide by. Indeed, it has its own little dictionary of terms which keep cropping up.

One talks of kitting, which in short, is the assemblage of kits according to customers’ requirements and delivering the entire assembly either as a kit or pre-assembled, as desired. There is the term, PBH, or power by the hour, which was coined by Rolls Royce in the 1980s and entrenches after-sales servicing (extended supplier responsibility, if one may) as an inseparable component of the relationship between the manufacturer/supplier and the customer. And we also have the acronym AOG, which denotes the aircraft on ground situation referred to earlier.

In February this year, Crane Aerospace & Electronics entered into a contract with logistics provider UPS. As per the contract, UPS will manage Crane-owned inventories of new and serviceable assemblies in various locations throughout the world, with the first one being in Singapore. Initial inventories will include fuel transfer pumps, lube and scavenge pumps, and anti-skid brake components.

As indispensable players in the complex supply chain in the aerospace industry, the 3PLs need to live up to the industry’s quality standards. To this end, AS 9120, also referred to as EN 9100 in Europe and SJAC 9100 in Japan (www.nqa.com), is the international quality management standard specifically written by the aerospace industry in a concerted effort to improve quality and assure the integrity of supplies to the sector.

As Sidney Vianna, the director of aviation, space and defense for DNV Business Assurance USA, tells LIA, certification to AS9120 is one of those differentiators that can make a significant impact to the players in the logistics and distribution sector of the aerospace industry.

A year ago (March 2009), DHL Supply Chain announced that it had been awarded AS9120 accreditation for its dedicated Aerospace Hub in Singapore. The 45,000 sq ft facility, situated near Changi Airport, was designed, says DHL, to meet the stringent safety regulations and quality standards set by the aviation industry and to help its customers improve internal performance and maintain compliance in the aerospace industry. Services offered at the hub include 24/7 urgent parts dispatch, warehousing, transport and inventory optimization systems.

‘‘At DHL, we made a strategic decision a few years ago to focus on the warehousing and supply chain needs in the aerospace sector in Singapore. We built bespoke capabilities culminating in a multicustomer Aerospace Hub for which we achieved the industry’s most highly recognized accreditation for quality assurance,” says Peet Leong, managing director, DHL Supply Chain Singapore.

Besides the Aerospace Hub, in 2006, DHL established an Aerospace Support Team in Singapore. This customer service and support team provides call-center based solutions to track aerospace customers’ aircraft-on-ground (AOG), and regular dayto- day requests across seven languages – English, Mandarin, Korean, Japanese, Thai, Spanish and Cantonese.

“The handling and transportation of valuable and sensitive parts are crucial to the aviation business and DHL has grown substantially in providing turnkey solutions for the industry,” says Paul Graham, CEO, DHL Supply Chain Asia Pacific. “And Singapore’s position as the leading center for the aerospace MRO industry is a great location to showcase DHL’s industry innovations for high-tech specialized segments such as the aviation sector,” he adds.

For DB Schenker, Andrew Seah, tells Logistics Insight Asia that being a 3PL in the aerospace sector essentially means that it has the capability to offer specific aerospace-dedicated solutions.

“It’s not only shipping-in or shipping out but also quality control, kitting repair management, aircraft-on-ground services, etc.,” he says, while also noting that in order to efficiently serve the sector, DB Schenker has 500 aerospace-dedicated personnel worldwide.

“And our aerospace warehouses are catered for various customer types: maintenance, repair and overhaul centers, airlines, stockists, etc. You can imagine that a very wide range of products - from wing assemblies to nuts and bolts to airplane black boxes - can be stored in our warehouses,” says Seah.

Meanwhile, Kuehne + Nagel off ers customized aerospace solutions for manufacturers, leasing companies, airlines and services companies specializing in MRO, ground handling and in-flight services. The company’s Supply The Sky concept covers competencies through the aircraft lifecycle - from individual aircrafton- ground (AOG) management through performance-based supply chain solutions.

In November 2009, Premium Aircraft Interiors Group, a globally integrated group of companies that delivers support for the lifecycle of cabin interior products and services, announced that it had selected Kuehne + Nagel as a global logistics partner for its aftermarket business.

Brent Collins, head of global supply chain services, Premium Aircraft Interiors Group, commented: “There is a much needed shift to customer responsiveness by improving operational performance with no impact to cost. Customers are already seeing the benefits of streamlined reporting and improved physical logistics processes, which in turn will remove waste from the value chain and much needed cost in a struggling airline market.”

With the aim of providing greater control and visibility of Premium’s supply chain, Kuehne + Nagel’s will utilize KN Login, its web-based platform that delivers real-time supply chain visibility and reporting.

The 3PL provider will also undertake process improvements and operations reviews to create a more efficient supply chain for its aerospace client. Assessing the prospects for aerospace logistics over the next few years, DB Schenker’s Andrew Seah points to OEMs and MROs continuing to develop forward distribution centers near their customer facilities in order to offer PBH (power by the hour) solutions. “We can therefore expect more and more logistics activities.”

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‘CERTIFICATION TO AS9120 CAN MAKE A SIGNIFICANT POSITIVE IMPACT’

Det Norske Veritas (DNV), the Norway-headquartered risk management consultancy, is one of the many certifying bodies for AS9120, the set of quality standards relevant to aerospace logistics service providers. SIDNEY VIANNA, director of aviation, space and defense for DNV Business Assurance USA, talks to LIA.

Q: What are the specific performance indicators required to achieve AS9120 certification?

A: There are no specific performance indicators for AS9120 certification, other than a thorough verification that the quality management system of the organization satisfies, in general terms, the requirements of the said standard.

Auditors are specifically qualified before they are authorized to assess aerospace distributors against this document. An area that is carefully scrutinized during such audits is the organization’s ability to satisfy customers and deliver products that are in compliance with customer requirements and regulatory mandates.

Q: Are there benchmarks set by DNV against which the assessed company is compared?

A: No, the AS9120 standard does not set minimum levels of performance, neither does DNV. So, in principle, an aerospace distributor might be certified according to the norm, notwithstanding the possibility that the firm may not be a world-class one. However, as mentioned above, there are requirements for the registrant to focus on customer satisfaction and continually improve its quality system.

Q: Once granted, does the AS9120 certification stay for good?

A: Once the certification is granted, and according to the established Aerospace Industry Controlled Other Party protocol, the certificate is valid for three years. However, in order to remain valid, the organization must be re-audited at least once every year.

If an organization does not satisfactorily address major non-conformities through corrective actions, the certificate might be withdrawn or suspended. While certificate revocation is not typical, around two to three percent of certificates are voided, for different reasons, every year.

Q: For the aerospace logistics sector, how essential is it to have the certificate?

A: In the very competitive aerospace distribution marketplace (which includes the manufacturers of components and the 3PLs who handle the logistics), certification to AS9120 is one of those differentiators that can make a significant positive impact.

Around the world, there are approximately 760 aerospace distributors that have secured AS9120 and the trend clearly indicates a sizable growth. Customers, needless to say, are always looking for reliable suppliers. A credible certification such as this tends to promote confidence in the distributor’s capabilities.

Q: How do the approaches of other accrediting agencies differ from DNV’s?

A: Yes, certainly, there are many certifi cation bodies involved with the registration to the AS9120 document. However, DNV’s global footprint and impeccable reputation in the Aviation, Space & Defense sector makes us the registrar of choice for those organizations looking for a certification body they can partner with and bring value to the audit process. This matters not just to the registrants, but also their customers.

DNV certifies aerospace suppliers such as Parker Hannifin, Honeywell Aerospace, M&M Aerospace, AMI Metals, AAR, among many others. We also certify the sites of organizations such as Boeing, Northrop Grumman, GE Aircraft Engines, and Spirit AeroSystems.