In a move to address the aviation industry’s requirement for more capacity in aircraft seating manufacturing, superior product quality and reliable on-time performance, Boeing and global automotive seat manufacturer Adient announced they are forming Adient Aerospace. The joint venture will develop, manufacture and sell a portfolio of seats to airlines and aircraft leasing companies—both for new planes and as retrofit configurations for planes made by Boeing as well as other commercial airplane manufacturers.
“Seats have been a persistent challenge for our customers, the industry and Boeing, and we are taking action to help address constraints in the market,” says Kevin Schemm, senior vice president of Supply Chain Management, Finance & Business Operations and chief financial officer for Boeing Commercial Airplanes.
Aircraft interior production issues, and congestion in cabin supply manufacturing in particular, have increasingly led to late airplane deliveries over the past two years. Vertical Research Partners analyst Rob Stallard explains that these delays can cost airplane manufacturers $100,000 a day, which makes solving the bottlenecks in aircraft seating a top industry priority.
Traditionally, aircraft seat makers such as B/E Aerospace and Zodiac Aerospace sell seats directly to airlines, a process which may involve multiple customized designs and regulatory approvals, and potentially lead in turn to industrial delays. Schemm at Boeing notes that this joint venture “supports Boeing’s vertical integration strategy to develop in-house capabilities and depth in key areas to offer better products, grow services and generate higher lifecycle value.”
By sourcing its own seats along with other aircraft components, Boeing stands to gain greater control over quality, intellectual property and high-margin aftermarket sales—a chief source of profit for aerospace suppliers. Transitioning from a global outsourcing approach to an increasing degree of vertical integration. In recent years, Boeing has expanded its reach into avionics, additive manufacturing, actuators and engine covers.
One drawback to creating the joint venture is that it risks adding tension to what may sometimes be anxious relationships between Boeing and some of its largest suppliers. However, it’s worth noting that there has been an on-going shifting dynamic in the aviation supplier ecosystem. For instance, Safran SA, which makes engines for Boeing’s 737 Max through a joint venture with General Electric, is taking over Zodiac, Bloomberg reports. What’s more, Rockwell Collins, a long-time supplier of radio and flight displays to Boeing, last year bought B/E Aerospace, the largest cabin-equipment supplier. United Technologies then struck a deal to acquire Rockwell, a deal aimed at gaining bargaining clout with Boeing and rival Airbus SE, Bloomberg notes.
Then again, with 86,000 employees at more than 230 plants in 33 countries, Adient—itself a spinoff from Johnson Controls—sees itself as a potential “disruptor” in the aircraft seating industry, Mark Oswald, Adient’s vice president of investor relations, said at an aerospace conference last fall.
“The customers aren’t excited about the current supply base,” Oswald said, Bloomberg reports. When Adient was approached about the joint venture with Boeing, a board member “was very influential” in spurring it to look at the opportunity, he said.
Whether you are in the aerospace industry or not, what are your thoughts on vertical integration to develop in-house capabilities as a means to eliminate industry constraints?