Northwest Aerospace News February | March 2018 Issue No. 1 | Page 23

But for most, the reality is that Boeing “kind of wants your margins and if you’re not prepared to fight back, they’re going to get them. Winter,” the Game of Thrones fan quipped, “is coming.” So how does one fight back against the House of Muilenberg and its vast army of well-armed supply chain managers? “One way,” Aboulafia said, “is to do what the Tier 1 suppliers have been doing—get bigger. Portland-based PCC is a leading exam- ple of a supplier that has gotten so big and controls so many aspects of airframe production that it can push back against Boeing. They can say ‘No, and good luck doing it without us.’ “If you’re not backed by Warren Buffet, like PCC, it may be tougher, but there are still opportunities to get bigger through partnerships—and even mergers—with your company’s customers and/or suppliers up and down the supply chain. “You ought to be bigger, in general, and as you go up the value chain, you want to be as diverse as possible.” That means, don’t become too reliant on revenue streams integration services to your core business,” “We’re still looking for big mergers in Aboulafia said. “How can we add value in the aerostructures area,” he said. Analysts multiple stages of production?” have their eye on potential deals involving major airframe parts suppliers like Alenia, Adding value in this way could also help if and when it comes time for an owner to leave the industry. GKN, Spirit, Triumph—even the Japanese heavies (although Aboulafia questioned whether the Japanese government would from any one airplane program. Or you can “There are a lot of potential buyers these allow Kawasaki, Mitsubishi or Suzuki’s try to get better. days,” Aboulafia noted. “Wall Street aerospace units to be swallowed up.) “If venture capital firms are attracted to the you’re them, there are benefits to bulking historically robust margins, solid near-term up,” he said. “It makes a lot of sense.” “The best chance for a small, independent shop to stay small and independent is for it to truly become best-in-class at whatever it does,” Aboulafia said. demand in the aerospace supply business, and Tier 1 and Tier 2 suppliers that have to emerge with their profit margins—even “Even the OEMs themselves are shopping Boeing’s buyout of Virginia-based, UAV builder Aurora Flight Sciences being a you’re so good at what you do, and so prime example.” (your margins). Be ‘specific and unique.’” biggest and best are the ones most likely against the OEMs. “If they (Boeing) can look at you and say good to deal with, maybe you can protect message: big change is underway, and the decided to bulk up to maintain leverage for suppliers with specific expertise, with All that means there will be some signif- icant changes among the players in the Or add capabilities. For a machine shop, industry, particularly closer to the top of this could mean “adding engineering or the supply chain. All that underscores the underlying their businesses—intact. The analyst’s bottom line advice? Forge alliances before the snows start to fall. “This is an industry that size more than ever matters,” Aboulafia asserts. “Critical mass, more than ever, matters.” FEBRUARY | MARCH 2018 ISSUE NO. 1 23