SINGAPORE, Feb. 10 /PRNewswire/ -- 2008 has been a challenging year for the Aerospace Manufacturing industry with its record breaking oil price hike in decades, which has seen amplified logistics costs due to the globalized nature of manufacturing supply chain. This has resulted in many business experts disagreeing with the idea of expanding a company network of suppliers to other low costs countries because in the end they will still have to pay extra on the logistic costs.

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Prior to the oil price hike, Airbus in 2006 made the right choice and announced that since they already have a strong network of suppliers in the Asia Pacific region, transferred its' A320 aircraft assembly into Tianjin, China due to the expected high demand in the region. The plant started operations in 2008 and is currently assembling four A320 aircraft with expected delivery this year.

According to Frost & Sullivan Asia Pacific Consultant of Aerospace & Defense Practice Syahril Shariff, global Aerospace Manufacturing revenue in 2008 was estimated to register more than US$337 billion with growth below 7.0 percent, lower than the previous years. Frost & Sullivan estimated Asia Pacific's revenue at US$47.9 billion or 14.2 percent of global output, with slightly higher growth rate than global average.

He adds that despite the tremendous drop in the price of oil in the past few months, OEMs still have to endure another challenging task in 2009 in surviving the global economic slowdown. "Total air traffic growth is expected to reduce to below 6.0 percent per annum with air cargo market experiencing the highest decline in growth rates," he continues.

Airlines have been the most affected industry due to the reducing air traffic demand resulting in capacity cut down and aircraft orders being canceled or delayed. Syahril continues to say that some Asia Pacific LCC is expected to bear losses with declining passenger demand in certain sectors as consumers tighten their disposable income to prepare for the economic slowdown despite declining fuel price. Nevertheless, the stronger LCC players in the region are expected to sustain growth for 2009 as business travelers' shifting to LCC from legacy airlines in the move to cut their companies' operational costs.

"Besides enduring lower traffic volumes, another point to note is the effects of fuel hedging. During the price hike in June to July last year, a lot of major airlines hedged their fuel expecting jet fuel prices to stay high. Right now they are suffering from this hedging as prices have dropped lower than expected. On a good note, there are very few airlines today cancelling orders as air travel has become a commodity service in most Asia Pacific countries with few deferred deliveries," he says.

Frost & Sullivan estimates the global aircraft fleet will reduce by 2.0 percent due to the economic slowdown with Asia Pacific delivery reducing to 17,000 new aircraft delivery within the next 21 years.

Year 2009 is going to be a tough time for OEMs to sustain the growth that they have been enjoying in the past few years due to the current slowing economies. Manufacturing costs in the North America and Europe is already at a high and with the worsening economy, costs structures will need to be re-examined to face stronger competition.

"Competition drives the industry to strategically re-align their business model to be able to sustain in the long term regionally and globally. Lean manufacturing today becomes more important for most OEMs with right sizing of their operations. A lot of OEMs today are adopting Six Sigma, Kanban, Kaizen, JIT, Performance Based Logistics and any other best practices to reduce cost of operations and increase their efficiencies," Syahril continues.

"The North American region currently holds about 49.0 percent of global revenue. With increasing cost structures in the region, we may see a reduction of revenue shares from North America shifting towards emerging and lower cost regions such as Asia Pacific, South America and Eastern Europe as OEMs shift their supply chain networks," he says.

Many OEMs integrators such as Airbus and Boeing are shifting their production facility to low labor cost countries in Asia Pacific. He adds, "OEMs are also actively seeking ways to reduce manufacturing costs by outsourcing more 'design to build' packages rather than just 'build to print' to Tier 1 OEMs. This has lead to Tier 1 OEMs to be responsible for the maintenance programs for assemblies and parts that they design and manufactures."

Asia Pacific will see or rather is already seeing the emergence of new aerospace manufacturing plants despite the economic slowdown. Among new manufacturing plants that are starting operations in Asia Pacific in 2009 are Honeywell Aerospace in Malaysia, Rolls Royce in Singapore, and Spirit Aerosystems in Malaysia. "Entrance of prominent primes or OEMs into the region will not only increase the work packages of Asia Pacific manufacturers but will also attract existing suppliers of OEMs from North America and Europe to invest and enter the Asia Pacific market," says Syahril.

While other industries are cutting down manpower, job opportunities still exist in the Aerospace Manufacturing in Asia Pacific due to expansion. Also, most OEMs are replacing high paying employees and expatriate with lower cost, local fresh graduates with production focus. Countries that are expecting to experience growth in aerospace manufacturing activities in the region are Malaysia, China, Australia, Taiwan, and Singapore.

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