Hedging the aerospace bets

September 13, 2010
| By Pete Daly |
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The Michigan Aerospace Manufacturers Association now has some acquaintances in high places throughout the U.S. aerospace industry. One of those is Boeing, which is a major contender for the long-term and very lucrative U.S. Air Force in-flight refueling tanker, as well as the source of the long-awaited fuel-efficient Dreamliner.

A second major development at MAMA lately is a growing relationship with Northrop Grumman, which had been competing against Boeing for the air tanker contract and is still a major prime contractor for many types of aircraft needed by the Department of Defense.

As for MAMA’s victories of late, “the big winner is our association with Boeing, but secondly, our association with Northrop Grumman,” said MAMA president Gavin Brown in late August.

“Northrop Grumman is now looking at our membership, as well, to look at all our capabilities for all seven of their divisions,” said Brown.

MAMA was organized in 2007 when the Michigan Legislature allocated $500,000 to help manufacturers in Michigan — especially auto industry suppliers — qualify and compete for orders in the aerospace industry.

Although its corporate offices are in Grand Rapids, it is a statewide organization with more than 50 member companies.

MAMA is still growing, said Brown, and also “growing with the amount of quoting” its members are doing on aerospace projects. Also increasing is the amount of business its members are actually awarded.

Aerospace was impacted by the Great Recession but is apparently on the rebound, far ahead of many other sectors in the U.S. economy. According to Reuters news service, new contracts in the aerospace and defense industry have reached $4.2 billion so far this year — up 45 percent from the same period a year ago but still far short of the $14 billion worth of deals signed in 2008.

With its fourth year coming up, MAMA is now better able to identify some of the major corporations that are diversifying or expanding into the aerospace market. The nonprofit organization also has set up a Quick Start program that enables its new member companies to quickly grasp the key intricacies of aerospace manufacturing and how to take on those projects for which they are qualified.

MAMA also is starting what Brown called a “corporate membership” category for “the prime Tier Ones and Tier Twos” that support major U.S. aerospace companies, such as Boeing, Northrop Grumman and Lockheed Martin. That would bring those companies into close proximity with MAMA members. Ultimately, the goal is new business for MAMA members.

From its work in the field, MAMA is coming back to its members with the latest information about key issues in the aerospace industry. Shaping up as the driving issue is cost.

Brown noted that in late August, Secretary of Defense Robert M. Gates said his branch of the government intends to save ten percent on the procurement costs it has been experiencing.

Gates, the only secretary of defense in U.S. history to be asked to remain in that office by a newly elected president, is responding to the demand for tighter budgets amid growing threats to national security by leading the DOD in a new direction: away from traditional weapons and toward cyber security and unmanned drone aircraft that are much smaller and thus cost less to acquire and operate than conventional manned aircraft.

Brown said he and representatives of MAMA member companies will be in Washington, D.C., this fall to meet with DOD officials and senators “and propose that we’ll be able to save them 12 percent.”

“We’re going to make it a prime objective of MAMA members to fulfill those defense requirements, where they are looking for a 10 percent cost savings,” added Brown.

Perhaps one way that lower cost could be realized is through labor cost. To that end, Brown said he is trying to get the unions that are involved in aerospace manufacturing to agree to a five-year moratorium on unionization of aerospace companies that are starting up in, or relocating in, Michigan.

“We are going to be working with the labor unions in Michigan to come up with a plan to attract new and existing companies to expand into aerospace (production) in Michigan,” said Brown.

He agreed that if that proposed collaboration works, it would be “revolutionary.” The five-year moratorium, he added, would provide an “incubating” period for new aerospace business in Michigan.

“We know what the result is if we don’t bring in any” aerospace companies, he said: “an uphill battle” in getting supplier contracts for MAMA members.

Another goal of MAMA, in reaction to the new austere direction government is taking, is to support the establishment in Michigan of a technical center for development of UAVs — unmanned aerial vehicles — which is another way of describing drones.

Brown said the UAV tech center is a long-term project that will require investments in infrastructure needed for developing a manufacturing base for UAV components. “That’s going to take a little longer but (UAVs are) probably going to be the most aggressive growth in aerospace in the next two decades,” he said.

Brown said MAMA has been in touch with local governments that have airports, particularly in the more distant parts of Michigan, because testing of UAVs will require restricted air space. For example, Brown said he is aware of a large area of restricted air space over Lake Michigan.

Yet another idea germinating at MAMA is securing financing sources for investors willing to back something like an MRO facility in Michigan, according to Brown. MRO stands for maintenance and repair organization and would offer employment to graduates of aeronautic training programs at schools such as Western Michigan University and the Michigan Institute of Aviation and Technology in Canton.

The cost of membership in MAMA is $8,400 annually, according to Brown. Among the member information and services described above is the value of member companies getting to know companies already working in aerospace.

“Trust, in any industry, takes a long time to develop,” said Brown. “We’re developing trust not only with our customers but with our members, with each other. That is part of the collaboration process.”

“Probably one of the most difficult things to do is to get companies to work with each other on a level of trust, to where they can do more business,” he added.

Some companies, especially those involved in declining manufacturing sectors in recent years, are striving for sales in new markets as quickly as possible, but Brown cautioned that in aerospace “nothing happens quickly.” He said members and would-be MAMA members must be looking at “the long-term payoff.”

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