What lessons from 2020 will help in 2021?By Carlos Robles | Fri, 01/08/2021 - 09:00
I firmly believe 2020 has been an unprecedented and unexpected year in many ways, with so many contingencies, unknown scenarios and disruptions to what we once knew as normal. The year will be remembered as a very tough year that showed us that we are not as good nor as powerful as we thought as human beings. We cannot change what has happened, but we can learn from it. By doing that, we have an immense opportunity to refocus and do things better from now on. That is the only way to reshape the year into a meaningful positive experience for us. In my view, these are the six things we should take from the year to do better in 2021.
The aerospace supply chain has been deeply disrupted. It will take many months for the supply chain of many operations to be restored and aligned again. An old friend and guru of aerospace operations told me once that it takes one week to lose a production line and months to recover. It is true! The other challenge aerospace operations are having is that the forced stoppage of operations came without synchronization. While some countries were closed, others were opened and it all happened at different times and durations. That is already bad, but worse, many processes will change suppliers, and many suppliers will change geographical locations in the best of cases, because in the worst some suppliers simply could not withstand the crisis and closed operations. Amid all the chaos, OEMs will take the opportunity to re-leverage and rebalance their supply chain. It will be painful but new volumes will need new contracts and new conditions of supply. Suppliers will have to reposition themselves but with a good strategy, pricing and the right conditions this can be their second call to win contracts where they probably did not in the first attempt.
Logistics are also something to consider in the future. Logistics operations simply are being reshaped. According to specialists, 2021 will not see stability. Crazy-high prices moving products to and from Asia will still be present. Today, it costs up to five times more to move merchandise connecting with Asia. Some routes have been altered by restrictions in some ports, some others are lacking capacity due to the extreme demand that e-commerce has created. Having said that, many parts produced in the aerospace sector have very complex logistics due to process capacity and availability. This ends up translating into parts traveling to five or more places to be processed before being finished and delivered to their assembly point. Cost and complexity to move parts will remain a big challenge next year.
Nearshoring and reshoring are our biggest opportunities in the coming two years at least. If you put together the two previous points, you should have not only a perfect storm but the perfect excuse to reshuffle the way we were thinking about the supply chain in aerospace before the pandemic. The US still represents the biggest market in commercial aviation and if we add the defense sector, it becomes the biggest by far. Many contracts during the previous decade were granted to manufacturing operations in Asia, as those countries were starting operations and had an understanding of the industry. COVID-19 unmasked all the reasons why it is better to have your suppliers closer, in the same region. Logistics are less complex, coordination and alignment are almost natural, communication is far clearer, networking much simpler and development and follow-up far easier. Those are facts. Now, it is up to us in our role as suppliers to get the facts, grasp the opportunity and get the contracts. It will not be easy, but we are always asking for opportunities. This is it. We have to do our best to take it all. I do not think there will be another call louder than this.
It is neither the biggest nor the strongest but the more adaptable that will prevail. Operations took a big hit from forced stoppages and then from the market contraction in civil aviation. The whole chain is aching. Airlines are struggling to maintain operations, and either are restructuring financially or getting help from governments, but for sure, expenses for new planes will go down. OEMs saw their programs fall to around 40 percent in rates as a result. Manufacturing operations are aligning to those numbers. Services and indirect employment are seeing the same effects and even MRO operations saw how planes parked and the low oil prices increased the maintenance time cycles of common customers either because they were not flying or old planes were entering back into service. In the kind of economic instability we are facing, it is not the big company or the usually strongest who will survive. The regular rules are, in many cases, worthless and almost everything has changed; therefore, those with the biggest capacity to adapt will be the ones getting a bigger slice of the markets to the detriment of those who once ruled the place but were not able to adapt. Volumes and rates will not increase soon. In my view, we will be lucky if we can produce in 2021 at the level that we produced in 2020; therefore, operations will suffer adjustments and will look for efficiencies to maintain a competitive cost. One way to adapt and offer new products, services and processes is through collaboration. Collaboration, more than ever, is the name of the game If you think you can do it alone, you are doomed. We have the advantage of being a small community where we all know what the other can offer. This is the moment to behave as an ecosystem and win contracts using each other’s strengths and capacities.
The talent pool is leaking, but it is time to invest in the future. Sadly, we lost direct and indirect jobs in the industry due to rate and volume adjustments. Many of those resources were highly skilled and specialized. It took years for companies and the academy to train and certify those resources. Some of them were able to relocate but many others will have to change their activities to another industry. Please keep their contacts! Volumes will eventually come back, and we will need their skills and experience again. But this is as well a wakeup call to educational institutions, companies and governments to work in a united way and aligned toward the objective of developing the national aerospace educational system that will nurture the future generations of workers needed in the industry. Often, evolution follows disruption. Hopefully, this is the case in the training and education efforts for the aerospace sector in Mexico.
Promotion is necessary more than ever before, but it should be smarter too. ProMéxico disappeared for whatever good or bad reasons. But we urgently need to promote the country and attract foreign investment, nonetheless. We also have to tackle things that do not work properly, such as the lack of presence of an aviation authority, incentives that are more competitive against those offered in Asia, mainly, and the uncertainty among foreign investors created by public policies issued by our government. On the other hand, we have done a very good job in the last 10 years to open new operations, with increasingly complex processes. Big companies have invested in Mexico’s aerospace operations because of its very good ROI, good understanding of quality requirements and proudly, a proven record of efficient operations that in return increased margins and made it worth every penny invested in the country. Those are our credentials, with multiple examples of the benefits of operating in Mexico. We need to continue working on building our credibility and promoting Mexico in aerospace.
I know 2020 has not been a great year for many of us, and I would love to be more positive about 2021, but I cannot. I do think that next year will be as hard and difficult if not more than the one about to end. But if we are able to bounce back full of experience, with lessons learned from our weaknesses and what we did not plan well in the past, we could be on the path to establish solid ground for the future of the industry in Mexico. We do not have many other options anyway.