What is the electronics sector looking for in 2018?
Farnborough Airshow – Market perspective from Dan Lewis, Plexus
Designers and manufacturers typically spend many hours forecasting and predicting, and in the run-up to the Farnborough Air Show, this activity intensifies as revised offerings are showcased and ecosystem partners compare notes.
Dan Lewis, Market Sector VP of Aerospace and Defence at Plexus (NASDQ:PLXS) takes a look at one area of expected change – the global maintenance, repair and overhaul (MRO) of commercial fleets.
“We are seeing increasing interest being shown in the outsourcing of the MRO of commercial fleets by major carriers in the aviation industry,” comments Lewis. “Providers of these services will be looking to OEMs such as Boeing and Airbus for clarity and insight into the companies’ strategies, and how it will affect the overall industry. Where Boeing and Airbus lead, others are very likely to follow.”
Plexus’ own analysis indicates today that original equipment manufacturers (OEMs) are increasingly supportive of a more competitive MRO outsourcing strategy, directly targeting the MRO space through greater insourcing of the design and production of commercial aircraft systems. This is generating a substantial demand in an aftermarket which has historically been deprioritised by OEMs, but is now a margin rich domain.
Wings, nacelles, and flight control actuation are notable areas where both Boeing and Airbus have taken work in-house, not only to lower production costs, but also to retain design IP and gain greater control in the aftermarket. Boeing’s recent formation of a dedicated aftermarket business unit, Boeing Global Services (BGS), is a clear example of this new strategic direction. It poses a significant threat to Tier 1 designers and system integrators as BGS seeks to achieve $50B in commercial, military, and space services revenue by 2026 – a lofty target considering Boeing generated approximately $14B in services activity in 2016.
In the world of global defence, there is a significant push for interoperability and sustainability at the forefront of allied nation electronic systems, particularly in the communication and weapon systems market. With a focus on government entities promoting modular open systems, and OEMs willing to surrender IP to the former, there is a shift afoot that should enable a larger group of companies and service providers to engage in MRO activities on behalf of the user nation. This will open up the global defence MRO market to current commercial aircraft MRO providers who have a wealth of experience that could be utilised for more cost effective and efficient MRO services.
In looking to outsource these services, the ability to retain IP is vital. This is where Tier 2 suppliers can provide a significant advantage. At Plexus, we approach MRO in a competitive and lean fashion, while keeping the IP solely with the OEM. This type of model can prove favourable for both the OEM from a cost-effective standpoint, as well as the Tier 2 suppliers from a service offering standpoint.
“At Plexus, we see the benefits of this for both parties,” concludes Lewis. “The one stop shop proposition is attractive – going from pre-production through system integration to aftermarket services. It eliminates the tiers of suppliers through a product’s lifecycle and provides for a single integrated cost-effective solution, with a predictable warranty and service management cost model.
“More importantly though, this model leaves industry leaders free to focus on the next generation of innovation.”