THINK ACT - Roland Berger · A350 XWB 2015 787 2011 A340 1993 737 1968 Gulfstream 650 2014 A380 2007 767 1982 Dassault Falcon 5x/8x 2020 Boeing 777X 2020 Global Express 1993 450 1985

2016

Novem

ber

BEYOND MAINSTREAM

THINK ACT

High Value Design A strategic capability in the global competition for the next generation of aircraft

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das Restrukturierungsteam selbst Veranwortung für die Transformation, statt nur Projektpläne abzuarbeiten.

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T H E B I G

32 THINK ACT

High Value DesignAUF EINEN BLICK

DIE PERS- PEKTIVE DER PRAKTIKER S. 8

T H E B I G

32 THINK ACT

High Value Design

#3the global position of the UK aerospace

sector in terms of employment. Page 6

3-5 yearsfor industry and government to make joint decisions and

investments to upgrade the UK's HVD capabilities. Page 14

60,000jobs potentially created by 2030, with up to

GBP 16 bn Gross Value Added. Page 15

THINK ACTHigh Value Design

3

The British aerospace industry has made numerous important contributions to the history of aircraft and was solely, or jointly, responsible for the development and production of landmark projects including: the first aircraft with an enclosed cabin – the Avro Type F (1912); the first commercial jet airliner to enter servi-ce – the de Havilland Comet (1949); the first aircraft capable of supercruise – the English Electric Lightning (1954); the first fixed-wing V/STOL combat aircraft to enter service – the Hawker Siddeley Harrier (1967); and the first digital fly-by-wire commercial aircraft – the Airbus A320 (1987).

These achievements were made possible in times of abundant national and international aircraft program-mes in which British engineers and scientists applied and developed their knowledge and experience while designing and delivering innovative aircraft from the conceptual phase to manufacturing and in-service ope-rations. Success was feeding success.

Knowledge and experience were shared between defence and civil projects, mainly flowing from the former to the latter, and helped build a strong plat-form for the entire UK aerospace industry and its ad-jacent sectors.

So what exactly is High Value Design (HVD)? HVD can be defined as the skills, experience, capabilities and infras-tructure required to conceptualise, define and integrate a whole aircraft and / or complex systems. HVD occupies the highest levels of the system integration pyramid, and spans lower levels, covering systems and complex sub-systems. It incorporates non-specific design, along with product-specific design of aerostructures, propulsi-on and aircraft systems. A

As it is concentrated in the conception of new pro-ducts, HVD can therefore define the principles for any activity further down in the value chain. B

HVD capability significantly influences a number of downstream factors which can result in a greater overall contribution to the economy. C

Therefore, nurturing HVD is critical for any country aiming to be positioned at the forefront of the aero-space sector. It was this that prompted the Aerospace Technology Institute, which leads the UK’s aerospace technology strategy and national aerospace R&T pro-gramme, to work with Roland Berger to understand the strategic importance and nature of HVD to the aero-space sector.

High Value Design: An early-stage design process for aircraft, major assemblies and complex systems.


4

WHOLE AIRCRAFT STRUCTURES

SYSTEMS & SUB-SYTEMSPROPULSION

AEXAMPLES OF HVD PRODUCTSHigh Value Design capability is the combination of competencies required to conceptualise, define, integrate and test complex aircraft systems.

BHVD INFLUENCE ON THE VALUE CHAINHVD enables firms to lock in engineering activities across the value chain.

Source: Primary research, Secondary research, Roland Berger

Source: Roland Berger

→ HVD generates a fundamental understanding of system design and integration which can be leveraged throughout the product life-cycle

→ Significant proportion of overall project cost is defined in concept stage, enabling firms undertaking HVD to shape the programme to secure downstream work

→ Firms which undertake the HVD activity need to understand the manufacturing process and capabilities in order to optimise production

→ This relationship is likely to strengthen with an increasing trend towards new architectures and manufacturing techniques

→ Design authority status enables ownership of data and the understanding of product required to deliver high value services, e.g. predictive maintenance

→ Key to propulsion business model

→ Future designs will likely lead to the development of innovative services that require detailed knowledge of the product's design parameters

DEVELOPMENT MANUFACTURING SERVICES


5

"HVD is key to how you industrialise products.

Without it we wouldn't be competitive and

would lose work from the UK."Tier 1 supplier

CAEROSPACE HVD CAUSE-EFFECT DYNAMICHVD capability influences a number of downstream factors which can result in a greater overall contribution to the economy.

R&D capability

New aircraft programmes/ upgrades

HVD

Creates IP/Innovation

Allows influence in system design

Develop manufacturing technology

Build up of skills and experience

Influence on manufacturing location

Selection of suppliers/ technologies

Helps lock in future HVD work

Allows margin creation

Economic value creation

Source: Secondary research, Roland Berger

UK HAS HIGH ABILITY TO INFLUENCE

UK HAS LOW ABILITY TO INFLUENCE

"The wing designers understand a lot about

the aircraft system because you can't

design them without having that capability."

OEM


6

There is no consensus on the UK aerospace sector's ranking in terms of turnover, production value or value added; the UK is thought to rank between 2nd and 4th on these criteria. However, in terms of employees1, the UK's aerospace sector ranks 3rd, with 128,000 employ-ees, behind the United States (500,000) and France (186,000), and ahead of Germany (105,000).

The aerospace industry is one of the largest con-tributors to the UK manufacturing sector (c. 8% in 2015) and has been growing faster than manufactur-ing overall (+9.6% p.a. for the 2011-15 period for the aerospace industry vs. average of 4.5% for the manu-facturing industry). This is mainly due to the UK's past strengths in HVD and the ability of HVD to allow the UK to capture a higher share of economic value along the value chain. Indeed, HVD is an extremely important influencer of other competing factors, D which impact where a programme's work share and economic benefits are realised.

The UK still holds a leading position in HVD through its great capabilities in whole-system integra-tion, concept, design and manufacturing of wings, engines and complex sub-systems sustained by a strong engineering skills base. As a result, the UK

Great but fragile strengths in UK HVD: The UK has to defend its position against fierce global competition.

aerospace industry being selected by the major aero-space OEMs on key programmes. E

The UK's HVD capabilities reside primarily in OEMs and secondarily in Tier 1 suppliers, with other companies such as start-ups which are able to offer innovative materials, products, design and simula-tion technologies or services also playing an impor-tant tertiary role.

According to analysis by the Aerospace Technology Institute, UK HVD capabilities have fallen by c. 30% between 1990 and 2015 based on a range of factors in-cluding concept and design activity. This downward trend is primarily linked to the shrinking presence of OEMs within the UK and a reduction in UK-controlled aerospace capability due to past and on-going acquisi-tions by foreign competitors. F The observed conse-quence on the UK aerospace ecosystem has been a clear shift of focus from whole aircraft integration to-wards major assembly and system integration, result-ing in a loss for HVD. The UK aerospace industry now has limited activities linked to architectural integra-tion or flight physics; over time these capabilities have moved overseas.

1 selectusa.gov, gifas.asso.fr, make-it-in-germany.com, adsgroup.org.uk


7

1 2 3 4D

AEROSPACE PROGRAMME INFLUENCEHVD is an important influence on work share decisions, although a number of other factors also play an important role

→ Major assemblies and complex sub-systems require a high degree of skill and experience to conceptualise, develop and integrate

→ Selected suppliers for such high value work packages will need to have demonstrated HVD capability as a pre-requisite

HVD

→ Supplier selection by OEMs is subject to the vagaries of industrial and international politics and is often immune to normal commercial practices due to the high quantity of government funding

→ Governments tend to favour large-scale manufacture and final assembly as well as boosts to short term economic indicators

→ Offset requirements can create barriers to capturing work share

POLITICAL FACTORS

→ Suppliers need to be capable to deliver a product to specification within strict cost and time constraints

→ Only select companies may have the necessary expertise and infrastructure to deliver complex work share packages

COST AND QUALITY

→ Suppliers have to be able to demonstrate the ability to minimise risk in product development in order to diminish the risk to their shareholders

→ OEMs need to be comfortable that suppliers are able to meet required levels of capability and capital expenditure

→ The political environments of certain countries will increase the level of risk when selecting suppliers from those countries

RISK

Source: Primary research, Roland Berger

INFLUENCE ON WORK SHARE LOCATION

STRENGTH OF CURRENT UK POSITIONING


8

E

THE UK WITHIN THE GLOBAL CIVIL AIRCRAFT SUPPLY CHAIN

Source: Airframer.com, Company websites, Roland Berger1 The remaining 10% of UK aerospace activities is accounted for by the services sector; 2 Began as a civil aircraft programme

% of UK aero economic activity

50%125%1

Entry into serviceAircraft

2016A320neoAirbus

2017737 MAX

1994A330

1970747

2009PhenomEmbraer

2013A400M2

1995777

In productionLearjet 75

1988A320

2016CSeriesBombardier

2004550

2015A350 XWB

2011787

1993A340

1968737

2014650Gulfstream

2007A380

1982767

2020Falcon 5x/8xDassault

2020777XBoeing

1993Global Express

1985450

Fuselage

AEROSTRUCTURESWing Empennage

ENGINE

Strong presence Some presence Limited or no presence


9

15%1

Avionics

SYSTEMSFuelComms. HydraulicsElectricals Landing gearControls Navigation


10

FRECENT ACQUISITIONS OF UK AEROSPACE SUPPLIERSThere has been a reduction in UK controlled aerospace capability due to recent acquisitions by foreign competitors.


Lucas was acquired by

Varity Corporation

(USA)

GKN sold 50% of Agusta

Westland to Finmeccanica

(Italy)

Racal was acquired by

Thales (France)

BAE Systems sold 20% of

Airbus to Airbus

shareholders (Europe)

TI Group sold 50% of

Messier-Dowty to

Safran (France)

BAE Systems sold its

Aerostruc-tures division to Spirit (US)

BAE Systems sold its

Avionics division to

Finmeccanica (Italy)

Smiths Group sold Smiths

Aerospace toGE (USA)

1996 20042000 20061997 20062005 2007


11

The UK aerospace industry is no longer driving the specification of new generation aircraft platforms. G UK Tier-1 suppliers find themselves having to demon-strate superior manufacturing and design capabili-ties in order to win important work packages, which is challenging amidst fierce competition from other key European countries in France, Germany and Spain. H In addition, the UK now lags behind these countries on aerospace infrastructure, a former area of strength, and risks falling further behind. I

In summary, the UK aerospace industry will have to reinforce its HVD capability by increasing its engi-

neering workforce skills and upgrading its infrastruc-ture. This reinforcement will require greater direct funding and support as "spill-overs" of technology and skills from the defence industry are now limited. Indeed, a shift in UK defence policy from indigenous defence programmes to an "off-the-shelf" procure-ment mind-set and open competition has weakened the HVD skills transferable from the defence to the civil sector, lowered utilisation of UK HVD infrastruc-ture and paved the way for foreign competition.

Raising the bar: The UK aerospace industry must upgrade its HVD capabilities.

GMAJOR AEROSPACE COMPETENCIES FOR KEY EUROPEAN COUNTRIESIn Europe, the UK will face fierce competition in HVD capabilities for the next generation of single-aisle aircraft.

SpainTail, fin and pitch elevator, composite technology, military transport aircraft and helicopters

FranceIntegration and final assembly of aircraft, cockpit technologies, engine, tier 1 systems

UKWings, composite applications, engine design/ manufacture/ support, military products

GermanyAvionics, fuselage, cabin equipment, high lift systems, vertical tails, final assembly of aircraft, helicopters

ItalyElectronics, military aircraft, helicopter design and manufacturing, strongly integrated in non-EU value chains



12

HEXPECTED CHARACTERISTICS OF NEXT GENERATION AIRCRAFTAdvanced technologies will be required for the next generation of aircraft to improve performance and reduce cost.

Source: The Aerospace Technology Institute, Roland Berger

Air traffic has various environmental efects: noise, air quality, CO2 emissions, contrails … and is steadily increasing. Trends show that environmental awareness of the impact of aviation is increasing, alongside the traditional pressure on fuel burn. As a consequence, progressive energy efficiency is needed to favour aviation growth.

→ Disruptive architectures → Improved aerodynamics – optimised flight trajectories → Structural updates to enable installation of larger engines → Embedded systems and sensors → Accommodation of autonomous systems → Embedded systems and sensors → Exploitation of composite, metallic and hybrid material configurations → Improved aerodynamics (incl. wing tips) → Lighter materials

WHOLE AIRCRAFT / AEROSTRUCTURES

→ Advanced flight deck avionics and fuel systems → Embedded systems and sensors → Harsh environment electronics → Intelligent heat and health management systems → Lightweight landing gear → Electric architectures → Secure, high-bandwidth integrated comms. and antennae systems

SUB-SYSTEMS

→ Disruptive architectures → High-performance, low-emission engine core aerothermal systems → Embedded systems and sensors → Lightweight composite fan system → New high-performance turbofan core → New materials, including turbine super-alloys and ceramics → Novel nacelle systems

PROPULSION


13

IUK AEROSPACE INFRASTRUCTURE CAPABILITYThe UK now lags Europe on aerospace infrastructure, a former area of strength, and risks falling further behind.

Source: Aerospace Technology Institute, Secondary Research, Roland Berger

LOW HIGH

Flow tunnel

Structure test rigs

Engine test beds

F/T Aircraft & Airport

High Performance Computing centres

Production technology centres

System test rigs

Logistics & Security

Large scale demonstrators

Simulators

UK Rest of Europe Rest of Europe trend


14

The aerospace industry has always been a key strate-gic sector for the UK government, with increased sup-port in the civil sector partially offsetting the reduc-tion in defence spending.

The aerospace sector is a key pillar of the UK's in-dustry: it is competitively positioned among the top 3-4 countries worldwide, boasts a highly qualified workforce attracted by the UK's long-term commit-ment to innovation and advanced technology, and drives the cross-fertilisation of technological innova-tion in other industrial sectors.

Despite strong support from the government, the UK aerospace sector historically lacked a cohesive in-dustrial strategy. This led to the creation of the Aero-space Growth Partnership (AGP) in 2010 to co-ordi-nate the industrial strategy for aerospace, tackle barriers to growth and boost the number of high value jobs. However, this initiative has focused mainly on R&T, manufacturing and supply chain competitive-ness, and regional job creation rather than the UK's High Value Design capabilities.

The level of UK participation in the next genera-tion of aircraft programmes will be strongly linked to the UK's HVD capabilities and will have a long-term material impact on the country's aerospace industry. This will affect the level of employment, operating profits and gross value added to the UK economy.

Independent of the study with the Aerospace Technol-ogy Institute, Roland Berger set out to understand the potential economic implications of HVD through some simple scenarios. We have described three different scenarios to simulate the potential impact on the UK economy at different levels of participation. J

Three distinct hypothetical scenarios simulate dif-ferent levels of UK participation in the future aero-space market. K

Based on our estimations, up to 60,000 jobs and GBP 16 bn GVA depend on the UK's future industrial strategy and execution for High Value Design. Within the next 3-5 years decisions and investments will need to be made jointly by industry and government to up-grade the UK's HVD capabilities and achieve eco-nomic benefits in the coming 15 years and beyond.

While the magnitude of the impact can be debated, more concerning is that failing to address these capa-bilities will only become noticeable after 2020, and sig-nificant after 2025, by which time it will be too late to recover. With Government placing Industrial Strategy at the centre of its refreshed department for business, there’s a chance that this won’t happen.

The first step would be to acknowledge the impor-tance of HVD for the British aerospace industry and the country's entire economy. That is the purpose of this study.

A time of critical need: Without a focus on HVD the UK's capabilities will be reduced.


15

Source: Secondary research, Roland Berger

Withdrawing support

Fulfilling potential

Continuing the status quo

5.5%

4.6%

2.6%

35

10

15

20

25

30

GVA [GBP bn]

2010

10.2

2015 2020 2025

17.8

27.6

33.2

2030

Withdrawing support



5.1%

4.2%

2.1%

5.5

0.5

1.5

2.5

3.5

4.5

Operating profit [GBP bn]

2010

1.8

2015 2020 2025

2.8

4.4

5.2

2030

Withdrawing support



Direct employment ['000s] CAGR

180 3.1%

2.3%

1.0%

80

100

120

140

160

2010

86.0

2015 2020 2025

107.4

140.8

169.7

2030

JECONOMIC VALUE PROJECTIONS - ROLAND BERGER SCENARIOS, 2008-30HVD will impact the level of employment, operating profits and the gross value added to the UK economy.


16

K

SUMMARY OF OUTCOME SCENARIOS

Source: Roland Berger

→ Influence over the architecture of new commercial aircraft → Responsible for entire wing design and production, including composite structures and wing systems → Major centre for Unmanned Air Systems → Reinstated civil rotorcraft capabilities

Aircraft architecture

→ Leading powerplant supplier, including nacelles → Powerplant supplier for new Boeing mid-market aircraft and next generation single aisle aircraft → Global centre of excellence for electrical power generation, conversion and distribution → Expanded UK based supply chain

Powerplants

→ Leader in emerging aircraft systems technology, e.g. avionics, autonomous aircraft control systems, electrical systems, in-flight entertainment

Systems

→ Major supplier of aerostructures and systems to global primes → Thriving engineering consultancy sector with cross-fertilisation to other sectors → Innovative supply base that develops new products → Development of digital-based business models (e.g. the "connected" plane) → Cross-fertilisation between civil and defence sectors → Capture of additional High Value Manufacturing

Supply chain description

FULFILLING POTENTIAL

Roland Berger scenarios


17

→ Minor influence over the architecture of new commercial aircraft → Design and manufacture of wings in the UK, inc. some composite structures and wing systems → Increasing volume of wing design & production moves overseas → Limited Unmanned Air Systems sector

→ No influence in the architecture of aircraft → Architecture, design and manufacture of wing move overseas → UK effectively build to print → No influence in the architecture of aircraft → No Unmanned Air Systems sector

→ Global number 2 in large civil engines → Powerplant supplier for new Boeingmid-market aircraft → Understanding of technology in power generation and distribution → Some shift in supply chain overseas

→ Number 3 or worse in large civil engines. → GTF architectures and presence on single aisle catapult other countries ahead of the UK → UK fails to capitalise on new powerplant architectures and technologies → Greater shift in the supply chain to overseas locations

→ Recognises and takes advantage of opportunities in some emerging technologies → Steady drift of systems design work overseas

→ Neglects emerging systems technology → Legacy positions remain, but no new business secured

→ Supplier of aerostructures and systems to global prime → Flat engineering consultancy sector owing to the absence of new development programmes → Strong supply base that develops new products → Development of digital-based business models → Retain most High Value Manufacturing. but manufacturing based on mature processes moves offshore

→ High Value Design migrates overseas resulting in increasing loss of High Value Manufacturing → Minor supplier to global primes → Shrinking engineering consultancy sector → Weakened supply base

CONTINUING THE STATUS QUO

WITHDRAWING SUPPORT


18

The Aerospace Technology Institute (ATI) is an indepen-dent not-for-profit company at the heart of aerospace research and development in the UK whose mission is to raise UK ambitions to deliver the best technology and maximise the UK’s full economic potential by providing objective technical and strategic insight, maintaining a UK aerospace technology strategy.

ATI is currently leading efforts to explore the im-portance of “High Value Design” to UK aerospace. The aim of the work is to refine our understanding of the design capabilities needed to keep UK aerospace com-petitive and to secure future high value manufacture. The study also aims to determine what sort of actions are required and will inform AGP and ATI strategies.

Building up on recent efforts by both industry and ATI, the mission of the Roland Berger study was to pro-vide an objective and critical analysis of High Value Design in the UK civil aerospace sector, pulling to-gether existing efforts to bring to conclusion a com-mon strategic understanding of the topic, define high level recommendations and analyse high level econo-mic impact (direct employment, operating margin, GVA) through different HVD scenarios.

As part of this study, ATI and Roland Berger have inter-viewed several industry/thought leaders in the aerospace sector and we are sincerely grateful for the cooperation of the following:

InstituteAdvanced Propulsion Centre UKCatapult EPSRC

Academia/researchCranfield UniversityImperial College London

OEM/Tier 1AirbusBAE SystemsGE AviationGKNMeggittRolls-Royce

Roland Berger conducted this study on Aerospace HVD on behalf of the Aerospace Technology Institute.

ABOUT US

19THINK ACTHigh Value Design

Roland Berger, founded in 1967, is the only leading globalconsultancy of German heritage and European origin. With 2,400 employees working from 34 countries, we have successful operations in all major international markets. Our 50 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 220 Partners.

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OPERATIONS STRATEGYHow to manoeuvre in times of technology-driven disruption

Over the last 300 years, new technologies and processes have paved the way for disruptive products and breakthrough innovations. In the 18th and 19th centuries, there were relatively few truly disruptive technologies introduced, and the intervals between them were relatively long. In the 20th century these breakthrough innovations have become more frequent. It was, and obviously is difficult to predict the importance & impact of new products. So have company leaders learned lessons from the past, and are they prepared for this pace of technological change, & the competitive threat it entails?

THINK ACTBEYOND MAINSTREAM

How to manoeuvre in times of technology-driven disruption

Operations Strategy

April

2016

June20

16

A&D Management Issues Radar 2016

Aerospace industry: turning point ahead?

THINK ACTBEYOND MAINSTREAM

AEROSPACE INDUSTRY:TURNING POINT AHEAD? A&D Management Issues Radar 2016

In fulfillment mood. For 2016 and beyond market sentiment is more optimistic in the defense sector than incivil aerospace. Digitization? Underestimated. Although most industry experts foresee further growth in the civil aerospace sector, the outlook is less positive than in 2015. The closer we looked at the various groups of companies, the more diverse the picture turned out to be. Two thirds of the participants in the civil sector expect growth to continue for the next five years or beyond.

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This publication has been prepared for general guidance only. The reader should not act according to any information provided in this publication without receiving specific professional advice. Roland Berger GmbH shall not be liable for any damages resulting from any use of the information contained in the publication.

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THINK ACT - Roland Berger · A350 XWB 2015 787 2011 A340 1993 737 1968 Gulfstream 650 2014 A380 2007 767 1982 Dassault Falcon 5x/8x 2020 Boeing 777X 2020 Global Express 1993 450 1985