Story ID: 318
U.S. Aerospace Chases Supply-chain Stability
By: Charles Alcock
Caption: AIA chief warns budget swings still threaten suppliers
Word Count: 769
“You get what you pay for” would appear to be the mantra the Aerospace Industries Association (AIA) is channeling in its ongoing efforts to shore up an industry supply chain it says has struggled with inconsistent levels of government spending. The impact goes beyond military programs, contributing to challenges on the commercial aviation side of the industry, according to AIA president and CEO Eric Fanning, although he did acknowledge some improvement on both fronts when speaking with AIN before the Farnborough International Airshow.
Decades of pressure on manufacturers to reduce aircraft prices have resulted in a very lean supply chain that has struggled to adapt to increasing demand. “Progress has been made, especially on the commercial side,” Fanning commented. “Having capacity and the ability to move quickly comes with some expense, and we have seen the commercial side invest in that capacity, so improvements are being made there.”
Meanwhile, at face value, U.S. defense spending is on the rise under the second Trump administration—not least due to the war with Iran—but Fanning explained that the impact on AIA member companies remains unclear in important ways. “It is the stability of the budget and appropriations process that is still not fixed, and it is also the duration of the demand signal,” he explained. “In aerospace and defense, there is a very expensive and capital-intensive workforce, as well as significant supply-chain investments. For that investment to be justified, there has to be some sense that the demand signal will have a long duration.”
Fanning’s acute insights into the mysteries of federal defense budget allocation come from personal experience as a former U.S. secretary of the Army, and he acknowledged that he has done his share of penny-pinching in the past. “Spikes in baseline budgets are disruptive; what’s more important is a budget you can count on,” he said.
Inflation Bites Budgets
At the same time, inflation has added to the pressure on industry leaders, making it hard for them to get pricing right for long-term contracts. “It is not just a fixed number; there are many factors such as energy, labor, et cetera,” Fanning explained. “How do you do a five-year bid having been burned before with long-term contracts and planning? Inflation takes a while to work its way through.”
AIA provides a space where aerospace partners and competitors alike can address shared challenges. “One of our superpowers is that we bring together the supply chain to learn from them,” Fanning said. “We also bring them together with their customers because the big companies sometimes think they are doing something helpful, but smaller companies find it is not helping. Big companies have more tools to weather perturbations. Small companies can find it hard to raise capital and also hiring [the skills they need].”
Many of AIA’s members will be part of what the group said will be a very strong U.S. presence at this year's Farnborough show. As well as companies exhibiting, Fanning expects to be alongside a large congressional delegation, officials from 20 states, and senior federal figures including the NASA administrator.
Some might hope this year’s show will provide space for some constructive dialogue between the U.S. industry and its partners/clients at a time when antagonism has undoubtedly taken a toll. Fanning indicated that while he endorses the validity of U.S. government calls for European countries to significantly step up their defense spending in the face of real and immediate threats, their response could result in complex outcomes.
Like the U.S. military, NATO states and other allies are dealing with surges in defense spending that cannot readily be met on the supply side. At the same time, governments scrambling to inflate military budgets while balancing their books are under political pressure to spend this money at home.
“It took the U.S. decades to build today’s defense industrial base,” Fanning reflected. “It is not something Europe can turbocharge in a few years, even if there is agreement to do so.”
Meanwhile, AIA member companies are pressing ahead with efforts to make electric aviation commercially viable despite the U.S. government’s abandonment of decarbonization goals. “Whatever your position, it is an economic competitiveness issue, especially if [the] price of fuel is going up,” Fanning concluded. “We are hearing good things about FAA certification [of new eVTOL aircraft]. Who is going to solve the noise emissions issue is going to have the competitive advantage.”