Reflecting the trend in other industries, the aerospace sector is facing the double-edged disruption of COVID-19. Indeed, a roundup of key facts paints a stark picture of what is a key part of our everyday global critical infrastructure.
For example, according to Statista, the year on year RPK (revenue passenger kilometres) as of December 2020 was (minus) -83.5% on international routes and (minus) -94.7% for Asia Pacific.
Meanwhile, the year on year figure for global capacity was (minus) -58% as of December 2020, though Asia Pacific’s freight load factor managed +11%, reflecting increased demand during the pandemic. Overall, the revenue loss in 2020 to airlines around the world totalled USD370bn.
According to Deloitte, projections for aircraft deliveries over the next four years have been revised from 5-6000 units down to 3-4000 units total. Additionally, Boeing reported just 157 aircraft deliveries in 2020 compared to 380 and 806 in 2019 and 2018, respectively, while Airbus reported 566 deliveries in 2020, down from 863 the previous year.
Aerospace and defence industry leaders are facing short term crisis handling while mapping out new ways of operating in the coming months. Accenture’s pandemic response advisory to aerospace and defence leaders also urges new ways of working to build resilience in these sectors
Incidentally, Malaysia’s national news agency Bernama reported in April 2021 that national aerospace revenue shrank 20-30% in 2020, compared to its 2019 revenue of RM16.22bn.
To gain insights into the state of digital play in Asia’s aerospace sector, Disruptive Asia conducted an in-depth interview with Ben Trenchard, founder of Reka Bluesky, a design, engineering and certification company, which works to improve passenger experience and operator bottom lines through the implementation of innovative, sustainable aviation technologies. A British national based in Malaysia, Trenchard opened with: “On a personal level I am a strong advocate for the Malaysian aerospace and aviation industry, and work with key local and regional stakeholders such as airlines, manufacturers and national regulators to promote the growth of aviation in the region.”
Looking at the broader industry regionally, he said: “It has been hard to watch the devastating impact of the pandemic on the aviation industry over the last year, with the widespread grounding of aircraft, massively reduced aircraft deliveries and retrenchment of staff across airline operators.”
“The outlook for recovery is constantly evolving as the pandemic is still with us, and the financial resilience of even large industry players is set to be tested further as we wait eagerly for passengers to return to the skies.”
“The industry is now in true ‘survival of the fittest’ mode, and there are certain to be more casualties over the coming months,” he continued.
Survival of the fittest
“[However] history has shown though that these conditions often provide a fertile ground for innovation, technology and disruption, and I am hopeful that aviation will not just recover, but truly use this as an opportunity to ‘build back better’ as a safer, cleaner industry enhanced by the widespread use of digital technologies.”
While advocating a safer, cleaner industry, fit for a more digitised future, his comments included elements to propel this journey as “companies must be asking ‘when’ and not ‘if’ this transition should happen. Standing still is no longer an option in aviation”.
In common with the COVID-inspired widespread pivot to digitalisation, aerospace leaders are also ramping up similar strategies.
Trenchard admits, though, that: “Digital adoption in the aerospace lags considerably behind other industries, and supply chain pressures mean that where digitisation is occurring, it is generally occurring top-down, and most widely practised in the major OEMs [original equipment manufacturers] and Tier 1 suppliers. There is now, however, also a top-down push from the OEMs onto their manufacturing suppliers to adopt smart factory technologies and provide digital transparency.”
Global aerospace OEM supply chains have been in a state of adjustment over the last decade, driven mainly by efforts of the major OEMs to cut costs and increase production rates to meet airline demands and address their order backlog.
“The pressure to increase production rates has hampered digital adoption across the supply chain compared to other industries, particularly in lower tiers of the supply chain as companies forego digital transformation in order to address the production rate challenges,” he said.
Going into further detail, Trenchard explained that though these supply chains have remained mainly stable over the last year, however, the pandemic has caused an overall drop in production rates across all the major Aircraft OEMs and further intensified this drive to reduce costs.
“The challenge of lower aircraft delivery rates has also been flowed down to lower levels of the supply chain, further compounding the economic challenges faced by tier 2 and 3 suppliers who were already operating with very low margins as a response to OEM cost pressure,” he said.
Major aircraft OEM deliveries were down around 35% and 60% for Airbus and Boeing, respectively, with Airbus proving more resilient over 2020. However, the long term nature of supply contracts has mitigated the impact of these rate reductions on the lower tier suppliers; Aerospace revenues in Malaysia only dropping by 20-30% compared to the 2019 figure of RM16.22bn.
The market for non-critical and after-market parts is also typically more volatile than the OEM supply chains. As a result, 2020 has seen an increased use of additive manufacturing technologies and micro/distributed manufacturing approaches, which suits the high mix, low volume nature of this sector, and the customers’ changing requirements in these volatile, uncertain times.
“The ensuing financial challenges faced across incumbent suppliers have in turn opened the door for new suppliers to enter the market, who can immediately meet the digitisation appetite of the OEMs, but are not encumbered by an existing ‘traditional’ set-up, as well as providing an opportunity for any organisations with stronger financial positions to use this time to push ahead with digital transformation,” he continued.
Accelerating passenger experience
“One major impact of Covid-19 is, of course, the drop in passenger traffic, which has seen widespread grounding of aircraft, but also driven both technical and business model innovation as airlines seek to minimise their losses,” Trenchard added.
“For example, many airlines have chosen to convert their passenger aircraft either permanently or temporarily into a cargo configuration (a so-called ‘preighter’).”
Indeed, while passenger numbers worldwide and across Asia reduced by 85 and 94% respectively in 2020 compared to 2019, freight load factors in the APAC region increased by 11%.
He pointed out that 2020 has also seen increased demand for hygiene-related technology and anti-bacterial materials within the cabin, which has provided agile, innovative companies with a chance to minimise the impact of the downturn.
“The highly dynamic nature of the demands by the airlines during this time has highlighted the importance of speed and flexibility in terms of design, manufacture and certification and seen increased usage of rapid prototyping and additive manufacturing as well as increased use of digital technologies across design and manufacturing processes,” Trenchard said.
The push for a more hygienic cabin experience has also accelerated trends in In Flight Entertainment (IFE) and other cabin touchpoints towards a touchless experience and more widespread use of IoT as seen in Airbus – Airspace Cabin concept launched in 2019.
Passenger experience is a key differentiator between airlines, and intense competition in this area makes the aircraft cabin a fertile ground for innovation and implementation of new technologies.
In an increasingly ‘connected’ world, digital transformation is a crucial part of this journey, with passengers now demanding the same level of connectivity in the air as they do on the ground.
Trenchard said: “Due to the strict regulation regarding electronics and communications devices in the cabin, aircraft technology has typically lagged commercially available tech by 5-10 years in some cases, but this has started to change with the introduction of high-speed connectivity solutions for aircraft, which utilise distributed satellite networks to offer network speed and bandwidth comparable to land-based networks such as 4G.”
This increased connectivity has opened the door to further innovations around the in-flight experience, allowing operators to offer advanced In Flight Entertainment (IFE) solutions, including BYOD (bring your own device), as well as integration with other on-board services such as duty-free purchases, ordering your in-flight meal or controlling lighting and air-con settings.
“The gap then between the in-air experience and the highly connected experience on the ground is slowly being narrowed, and the dream of a truly seamless connected digital travel experience is not far from reality,” he added.
Trenchard said there have been some positive advances during the last year, which include:
- Digital Travel Pass to address Covid-19 risks: To safely opening borders, a pass to share passengers’ health status and inform passengers about travel requirements.
- IATA’s target set a cap on net aviation CO2 emissions from 2020 to encourage carbon-neutral growth in air transport. Longer-term, the reduction target by 2050 amounts to 50% vs. 2009 CO2 net emission levels.
- : Vision-Box will implement a biometric digital identity management system at the KLIA and KLIA2 terminals, which uses contactless technology to help enhance passenger safety in response to the current global pandemic. It is also set to improve customer experience by enabling identification, clearance and safety monitoring software.
- Late last year, AirAsia introduced an all-in-one platform covering cashless payments, food delivery, shopping, entertainment, and travel. It hopes it will promote the conglomerate as more than just an airline.
Four key areas
Naturally, digital disruption has impacts stakeholders and processes, he said. “As an example, transformation in aerospace manufacturing has had widespread implications for leaders – not just on the processes and technologies in use – but also in terms of how the supply chain is structured, requiring a mindset shift in industry leaders wishing to remain competitive.”
Long term agreements dominated traditional aerospace supply chains, and manufacturing organisations benefitted from the significant barriers to entry posed by the industry in terms of capital and capability.
While these barriers remain, the increasing pressure from major OEMs to be digitally transparent, coupled with wider changes in supply chain structure and more acceptance of processes such as additive manufacturing and distributed manufacturing approaches, have made the industry more vulnerable to disruptive new entrants and now companies are faced with a choice; digitise or become a dinosaur.
Incumbent suppliers face a double challenge because they are suffering financially due to the downturn in aircraft deliveries during 2020, but the need for digital transformation remains just as important.
To address these challenges, Trenchard points to four key areas that leaders need to consider:
- Embrace Digital Transformation: The pandemic has further accelerated the already significant top-down pressure from the major Aircraft OEMs to reduce costs and embrace digital transformation in their supply chains. Put simply, digital transparency will before long become a critical metric for any supplier, and those who are not already investing in digital transformation will soon find themselves left behind.
- Restore Passenger Confidence: The development of ‘travel bubbles’ and other programmes to support the return to the skies such as the IATA Travel Passport address the supply side of the industry, but do little to address the widespread perception of air travel as a high-risk activity, especially as the long term effects of the pandemic on global consumer patterns have yet to be fully understood.
- Allocate Sufficient Funds for a Positive Recovery: Put simply, any company which only aims to get back to their pre-COVID-19 position will already find itself behind the curve as new entrants and other organisations use this opportunity to drive change.
- Integrate Sustainability: The increasing emphasis on sustainability in aviation has been viewed with some scepticism by those in the industry. However, things are now changing as major international industry bodies IATA and ICAO have firmly committed to long term carbon reduction. In an industry that has been so highly focused on operational and cost efficiency, this demands a significant mindset change and may prove to be a crucial differentiator in aviation’s ‘new normal’. The use of digitisation and move towards Smart Factories will be critical in achieving the desired efficiencies and is already being practised by major OEMs.
Moving ahead: Boosting productivity
By nature, aviation is a very safety-focused and highly regulated industry, which, in turn, creates both challenges and opportunities in terms of digitisation for industry leaders, Trenchard said.
He concluded the interview by sharing some approaches to leverage these opportunities, which are summarised here:
- Consider the changing needs of the supply chain
- “It is crucial for those involved directly in the aerospace supply chain to be constantly aware of the changing needs/demands of their customers. Traditional metrics for supply chain quality are becoming less relevant as aircraft OEMs start to be more demanding in terms of their digital requirements, particularly the drive for a digitally transparent supply chain. Organisations that are not pro-active in addressing these needs will face challenges in the future as the OEMs begin to enforce these requirements more rigorously.”
- Increase Agility through digital initiatives
- The last twelve months has also highlighted the need for agility within these supply chains, as airlines and operators have sought to minimise their losses by changing their business models. One example would be the increase in demand for parts and services to support the conversion of passenger aircraft into cargo configurations, which has seen smaller, more agile companies and new entrants challenging the more established suppliers simply by beating them to market. Rapid prototyping, additive manufacturing, and other digital technologies such as distributed manufacturing are key enablers of this ‘more agile’ approach.
- Understand the challenges of innovation in a regulated industry
- The increasing pace of change proves a difficult challenge for ‘traditional’ aerospace business models and practices. The high level of regulation both from the aircraft OEMs and national aviation authorities (NAAs) has traditionally favoured a ‘slow and steady’ development process, with high levels of oversight. However, new materials, technologies and processes require significant validation in such a safety-conscious industry, and this is one of the key challenges to any company wishing to innovate, particularly where speed to market is crucial, as was the case for Covid-19 related innovations, which were in demand during 2020. Therefore, it is essential that businesses in the sector develop their capabilities not just in terms of agile design and manufacture but also acknowledge the importance of certification and test as an integral element of the innovation process. The implementation of ‘Design for Certification’ thinking will enable shorter development lead times and lower costs but requires positive engagement and support from the OEMs and NAAs to ensure that the desire for innovation does not compromise safety.
The effort taken to reconfigure, prioritise and scale operations to work through crises will also build resilience for future disruptions.