Italian aerospace companies are generally small and must banned together if they are to be considered for large scale contracts.
The global air transport industry is expected to see its fifth consecutive year of improving profits in 2016. According to the International Air Transport Association (IATA), airlines will generate $39.4 billion in profits, up from $35.3 billion in 2015 – an increase of almost 12%. Total turnover for the industry is forecast to reach $709 billion, with a net profit margin of 5.6%. Despite being hit by the economic crisis at the end of the last decade, aeronautical companies seized the impetus to make significant changes to their operations, improving synergies and creating new value streams.
IATA outlined low oil prices and increased passenger demand as the two key contributing factors to the airline industry’s five-year upswing. Although oil prices have plummeted by more than 50% in the space of two years, this has only translated to a drop of just over 10% in terms of fuel prices, now representing 19.7% of the industry’s expenses. Passenger demand continues to rise, though the forecast rate of 6.2% for 2016 is less than the 7.4% growth recorded a year previously.
Rising demand is a boon for the aeronautical industry in general as it requires an increase in capacity, while aging aircraft are being replaced with newer, more fuel efficient models. Of the 1,900 new aircraft to be delivered to airlines this year, half are intended to bolster current fleets while the other 50% will be more modern replacements. Consulting company Teoresi, based in Turin and with offices in Switzerland and the United States, suggests airlines are recognising the need to implement new technologies in order to more quickly reap the benefits. “In comparison [with the aeronautical industry], the automotive industry is much quicker at implementing new technologies, particularly when these are able to cut costs and reduce time-to-market. These issues are now becoming more crucial to commercial aerospace companies, as well as the military,” said Mario Brossa, CEO of the Teoresi Group.
Competition across Western Europe for these contracts is fierce, and Italian companies face particular challenges in gaining international recognition. Larger players often will not work with a company until it has achieved a certain annual turnover, a pre-requisite which SMEs often struggle to achieve. “In general, it is quite difficult gaining big contracts – not because of a lack of skill, but because of a lack of dimension,” explained Matteo Vazzola, technical director at technical services provider TPS Aerospace Engineering. “France and Germany are more structured in terms of networking and thus companies can reach higher capacity.”
The fact that small- and medium-sized companies persist in Italy, each providing their own specific services, is increasingly becoming of little use to larger players that are slimming down their supplier portfolios and looking to partner with those companies that can provide a one-stop shop for all their needs. As new business development manager Davide Fusta of mechanical components manufacturer Alfa Meccanica explained: “The challenge for a company such as Alfa Meccanica is to become increasingly vertically integrated, because big customers are showing interest in this from suppliers. We not only aim to provide our customers with a finished product, but also a finished system and subsystem. For this, we need additional capabilities to assemble systems in addition to the components we already manufacture.”
However, being an SME does have its own advantages, which are often lost as companies expand. Smaller companies benefit from less bureaucracy and more flexibility and can often offer their clients more tailored solutions than is found in more structured markets. “Our industry is smaller than that in other European countries, however we are flexible and quick with our work, which lends us our competitive advantage. Germany and France are different economies with different histories; France has Airbus and a huge network of aerospace players in the Toulouse area, while Germany is the most powerful economy in Europe and therefore has the capabilities to produce large volumes,” commented Silvio Marioni, managing director of Turin-based technical foams supplier Tekspan. “However, when it comes to niche applications, Italy demonstrates interesting capabilities.”
Piedmontese companies in particular, which were often initially founded to service automotive companies such as Fiat and Alfa Romeo, have been able to transfer this wealth of expertise to the needs of the aerospace industry, in a process called cross-fertilization.
Bisiach & Carrù began life in 1955, making simple welding equipment for car manufacturer Lancia. Work in the automotive sector moved onto trucks and military vehicles, using its knowledge and experience to create the Tauro Gantry system of assembly. “Bisiach & Carrù then began to work on railway cars and, from there, it was not difficult to expand the system for use on aircraft, as they are similar in terms of production volumes and size, even if these two areas require a completely different approach in terms of technology,” explained CEO Bruno Bisiach.
More than half a century after it was founded, Bisiach & Carrù gained its first contract from the aerospace industry using technology that had initially been developed for other industries. The aerospace sector is now one of the company’s two most important industries. Bisiach continued: “In 2006, Boeing invited us to Seattle for a conference regarding the new 787 airplanes. From 100 proposals, we reached the final three that were chosen to provide different aspects of the manufacturing process. Other activity in the sector includes working with Airbus on the A380, manufacturing the wings for the Eurofighter Typhoon and working with Moreggia on a commercial aircraft sub-assembly.”
Blue Engineering also began life as an engineering company for the automotive industry, before expanding into other industries to spread its risk. Around 30% of its workforce works on aerospace projects, though its employees are able to use their engineering expertise in a number of fields to improve existing product applications. “The company is organized such that the center of competence, which is 10% of the company, has expert knowledge in specific segments. Around 20% of our employees have flexible design knowledge to meet market needs, while the remaining 70% are high-level engineers who are able to work on components across all sectors,” explained executive vice president Mohamed Eid.
After less than a decade in business, Blue Engineering’s reputation for quality engineering in the Turin region by the beginning of the century enabled it to focus on a strategy of internationalization. “To illustrate this point, in 1998, 90% of our income came from Italian customers and 10% came from outside the country; a decade later these two figures had completely switched places,” continued Eid. “Currently, we are working on some important projects in Russia, France, Turkey, Romania, Egypt, China and the United States. We have new contracts under discussion with a further 10 countries.”
This is also the operating model adopted by numerical control manufacturer Fidia, which sees only 10% of its turnover stem from Italian business. It has established itself in various countries in Europe, North and South America and China in order to focus on the entire supply chain from manufacturing to distribution and after-sales care. “Fidia has grown by creating a network of fully owned subsidiaries all over the world, although our production is concentrated in Italy,” said general manager Carlos Maidagan. “Italy has a high reputation for quality and innovative solutions in machinery design and production, and our competition from outside of Italy comes mainly from Germany and Japan.”
Highlighting the advances made by Italian SMEs in terms of cutting-edge technology are APR and Mepit, two companies based in the vicinity of Turin, which have recently been awarded contracts with Pratt & Whitney to work on the Lockheed Martin F35 fighter jet engine. Operated by the founding family for almost 50 years, component manufacturer Mepit signed a $7 million 10 year supplier deal. “From my perspective, we are seeing increasing interest from foreign companies. We are currently in talks with potential customers such as Bombardier and Liebherr Aerospace,” said CEO Luca Pigato. “The only way to lead in the aerospace market is to possess characteristics that a big company has, such as versatility, flexibility and a competitive price.”
Bytest, a Piedmontese testing company, has seen dramatic growth over the last four years since it was acquired by Germany-based inspection, certification and testing company TÜV SÜD in 2012. Although Piedmont has a strong aerospace segment, accounting for 40% of the company’s turnover, looking to international markets is crucial in ensuring solid long-term planning for companies of all sizes. “We have already been awarded a €20 million 10 year contract from Rolls-Royce Engines in Italy and we are confident that this kind of trend in aerospace investment will continue. Moreover, all of the programs in the sector are quite long-term, so there is no reason to expect a slow-down in business for the next decade,” commented CEO Gennaro Oliva.