Rüdiger Fox, PFW Aerospace
Release Date: 2009-02-18
It has been widely publicized that German efforts to maintain a very dominant position with EADS have faltered, because of an industrial focus oriented on the less technology-intensive automotive industry. What is your thought on the matter; is Germany losing its competencies in aviation?The answer is twofold. One, globalization has led everywhere to a split of overall work content. While decades ago, companies would manufacture the entire product, specialization is necessary today and as a consequence work needs to be shared between, and not just within, nations. Every country started to develop certain specializations and on the other side has lost certain capabilities. With regard to aerospace, I don’t believe Germany has lost competencies in the overall scale. When you look back 20 years in Europe, Airbus was a small entity compared to Boeing’s dominance. The track record of such a success story is proof to me that there must be some basic knowledge across Europe. The driving forces within Airbus were Germany and France. Taking aside the politics which sometimes covered the basic contents, Airbus airplanes are definitely a success story in the market, and as a consequence they are on the leading edge of technology. I would tend to say that yes, there are certain losses, but that is only part of the game of globalization where specialization is more important than knowing everything. As a consequence, Boeing has followed the Airbus experience in subcontracting major parts of their airplanes and focusing on the overall integration and assembly, with all the associated risks. Everybody looks at the risks, but nobody looks at the benefits. Today, we certainly have a much stronger supplier base than some other countries because of this specialization, with England focusing on the wing, Germany on the body, and France on the cockpit and other areas.
In terms of the body, carbon fibre composites are increasing in popularity, with content nearing 100% on the aerostructures in some cases of next generation aircraft. Spain traditionally had a lead in these technologies and right now the thought is that Germany is losing work packages. We’ve seen what has gone on with EADS factory assets in the country – what is happening in this regard, and will Germany have to refocus?
I would like to transfer the question onto PFW as a company, because I would never dare criticize my customer on that strategy, but rather adapt to their needs. I still see any Airbus factory as part of my customer base, because PFW provides to Casa as well as Toulouse, among others. PFW has seen the trend and took a very conscious decision at the beginning of 2008 to swim against the stream, for a very simple reason. Of course there is a need for composites in aerospace, as in other industries. The first question is why in new airplanes is it 50% composite content while in a typical automobile it’s only about 25%? One might say weight plays a larger role in aerospace because of lift forces that aren’t needed for a car, and there’s some truth to that. Being a composites engineer by education, typically I would tend to promote composites, but PFW has decided to stay on metal for multiple reasons. One is that metal will never die. PFW has taken a conscious decision on structures to stay entirely on metal. The company does integration of composites wherever reasonable, and in selected areas of tubing with composites, looking wherever reasonable to support metal structures on sea trails and cargo loading systems with composites, but PFW’s core competence is metal. The company has started, and has seen the same evolution in the automotive sector which I believe is a little bit at the leading technological edge compared to aerospace. Automotive is trying new technologies more quickly because they have the volume synergies. Having spent five years in the electronics industry, there are some striking differences. In comparing the logistical requirements of an electronics manufacturer to an aerospace supplier, the latter will have an order book of three to seven years, and a forecast accuracy of 90%, while in electronics you need to be comfortable with six weeks’ order book and forecast accuracy of +/- 40%. Aerospace has a leading edge technology when it comes to safety and reliability, but trying out new technologies takes much longer than in other sectors, and the logistics systems in aerospace are by far not as flexible as other industries. At PFW, the industrial approach in principle as a supplier is to always look outside the industry, while leading in the given function you are talking about. I’m not saying aerospace is old-fashioned, but in looking at the most flexible and rapid lean manufacturing systems, electronics and automotive are the leaders. PFW’s head of lean manufacturing comes from Siemens, and it’s no coincidence, because we want to be at the speed of electronics, which is 10 times quicker than aerospace. In automotive, it’s the same. There are technologies in automotive where you don’t talk about composites in cars as being innovative, but for primary aerospace structures it is. Of course it takes longer to qualify, and a car crashing is different than an airplane falling from the sky, and definitely there is a higher threshold with regard to security. You can compare certain elements of every industry, and always find another that can do a given selected area better. When for example we look at PFW’s supply base of small parts, we compared to the model of a pharmacy or drug store. Typically, the supplier fills a drug store’s shelves. For the last year, our small suppliers have done the same in production, without any incoming goods inspection. PFW has a kanban where the worker can directly access two bins, and when one is empty he just pulls the tag out, grabs the second bin, and the supplier comes in once a week to replenish. That’s lean.
Is your main competitive advantage lean manufacturing and industrial process rather than an extremely unique end product?
It’s a combination – even with a unique product, you’re uncompetitive if you’re not flexible in the mid-term. PFW combines multiple aspects. On one side, lean from a manufacturing side is a given. You need to be 10 times quicker than the customer demands. You can have an AOG between Christmas and New Year’s Eve, as PFW did, needing 17 parts because of damage, and shipping before the end of the year. And we made it in 24 hours, getting everyone in on a Sunday. First, if you’re a supplier with a lot of in-house manufacturing, you need to serve your customer better than he was served by in-house service before, because it is a trust issue that a customer relinquishes something to beyond his control. It starts with lean, flexibility, speed, proactivity. The second is definitely innovation. PFW is permanently seeking to improve its products. We’re currently in a research phase and we will discuss with our customers about manufacturing titanium in-house, because we have perceived our own supply chain as unreliable with exploding titanium prices.
Since this type of vertical integration is unique among PFW’s key competitors, would you be creating a new business model in your niche?
PFW operates under a business model that is as flexible as I need to be with my supply. PFW loves reliable suppliers, and vice versa. If suppliers are consistently unreliable, we need to have a solution, because the performance of my customers suffer; in past cases, one we bought, another we can replace now, and another we developed our own competencies. For example, taking titanium for the sake of argument, the first tube was bent at the end of August 2008, and PFW is currently working on variances in the metallurgical conception of the material. It probably didn’t even cost six digits. It’s just a matter of getting the right people. Soon, PFW will have a two-day innovation workshop with 10 creative people just being crazy about what the next airplane requirements are. They might specify something that doesn’t exist today, and I hope they do, because then we have five years to develop and qualify. PFW has a new company slogan defined last year, intended not really to advertise big but to somehow communicate what we want to be externally and internally, “thinking beyond now”. This has become a sort of company program recently, where PFW really tries to find out what our customers might require.
PFW is owned by a private equity firm and has undergone a major acquisition campaign of late, and now you’re talking about manufacturing titanium in-house. Where are the funds coming from?
It’s not extensive funding – it’s creativity. You don’t need to have a lot of money to do those kinds of research, but creatively approach it by thinking, “if you don’t have the money, how can you do it?” For example, the reason PFW is in China is very simple: the company has funds for a maximum of one global expansion in the Asian market. In my five years’ experience with China, I have never met a culture with such an unmatched 2,000-year history of equality. Additionally there is a discipline, which although as a German it hurts me to say, I have never seen before. Even compared to the Prussian discipline, the Chinese discipline is exemplary by far, as is their willingness to achieve. When they say they will have an airplane ready in 10 years, they will, I have not the slightest doubt. Also, PFW’s investment in China didn’t cost a fortune. We didn’t go to Shanghai or Tianjin, and the Shanxi province including Xi’an is one of the condensed areas in China with an aerospace zone. The decision took a day to say, “we go to China”, and a couple of weeks to decide jointly with a company of which we were taking over a majority share last year.
City and provincial leaders were probably not familiar with PFW. How much of a challenge was it to explain who you are and what you stand for?
Conveniently, a supplier to our UK operations had already established a basic relationship with the government, and thus PFW bought 50.1% of the shares, and flew to China with that company’s CEO the day after we signed the leasing contract. Tell me a country you can enter as a foreigner and be so well-received. I have had no bad experience with China, and in fact have had experiences that would be considered exemplary for us as Westerners, such as how much a handshake in China counts.
Now that you have your foot in the door, what is your plan for China? Where can PFW best contribute to this plan of putting a 150-200 seat aircraft in the sky within a decade?
There are at least two or three areas. Without sounding too philosophical, PFW could act as a mirror, because China in my experience underestimates its competence. China has experience in many regards. In the first instance, it’s about mutual learning and putting the two entities on an even level. PFW has three main products: tubing and ducting, structural subassemblies including tanks and isolated scientific solutions and structures, and cargo loading systems. The cargo loading systems, from all the research performed and feedback solicited, is definitely one area where China is lacking experience. PFW needs to find out, jointly, what type of cargo loading systems are really needed, because there are multiple ways to load an airplane, so we need to learn from China what in their needs, scope of needs, and future application what kind of cargo loading systems are needed to jointly develop. As a second step, PFW has put the factory in China, because we don’t want to be one of the companies that just goes to China to benefit in a one-sided manner. PFW wants to be a partner in China, and that’s why we said if we manufacture something we do it in China, because China benefits as well. It’s part of becoming a global player. If PFW works with Chinese companies in the long-term, the company must be present in the market, and the country benefits from this presence. It’s not milking a cow, it’s being a partner.
For the manufacturing facility, PFW started off with 3,000 sq. m., and expanded after four weeks to 10,000, and just signed another expansion in November 2008 with another 5,000-10,000 sq. m. This means PFW is paying for empty space, backed by the belief that there’s a strong future together. We have very strong relations with the First Design Institute, discussions with COMAC, and of course respect any decision for the partnerships they select, and if they need us we are very interested in working together, because for PFW it’s a huge gain of experience.
PFW’s investment is “thinking beyond now”. In principle it’s a business decision, but not in the sense of “milking the cow”. Aerospace is on the leading edge of being amongst the world’s most globalized industries, so the way we operate in aerospace will somehow be an exemplar for how industry can work together on a global scale. That’s why of course we always need to survey that the way we act is acceptable on a global scale.
I believe that aerospace will become global for China as it has for Europe, and that specialization plays an even stronger role there than in other countries,. There are not many suppliers around the world who do the kind of parts PFW does. There are certain strategic decisions taken: one is metal, the other is China. PFW is a relatively small company and needs to earn a return on investment in a reasonably short time frame.
And this plan met the criteria of your private equity investors?
Absolutely, because growth is something we are certainly heading for, and we want to grow with the role we are playing. PFW defined a niche where we want to be specialized, and we want to be number one in the area; we don’t want to be everywhere. There are people who can do great composite work. Why should I compete with them? I will probably never be number one in that area, but that’s not the case in the niches we have chosen. To say PFW is the world’s best tube supplier in any aerospace application, that’s probably not far from reality. And it’s of course a challenge we need to refresh every year and see what innovations are necessary. If I were to say PFW is among the best in cargo loading systems, that’s also true. There are probably one or two others, so we also need to look at how we can be permanently the best, in terms of flexibility, cost, and technology.
What is your final message to readers of International Business Daily?
I think there are multiple messages. What is important from the five years’ experience I have working in China is that partnerships are really possible between China and Europe on an even level. There’s no reason China should believe they can only learn; Europe can learn, and that’s the magic of it. Every dealing I’ve had has been a win-win, and this cannot be said of every joint-venture, country, or investment. It has been a win-win on multiple levels, even on a friendship level, and the same on a business and learning level. We need to come really to a point between the two countries that we learn when we can trust the other, and how to live in such a relationship and fully experience it. There is still a lot of hesitation; PFW does cultural trainings for its people when working with China, to ensure that first of all they avoid the common pitfalls, and understand where the other party is coming from. There’s a lot of misperception and skepticism in both directions when both countries haven’t really found the way together, but my experience is if you establish this close, trustful, and friendly relationship, it’s one of the countries where there are really the best win-win experiences I’ve ever had.
| Company: | PFW Aerospace |
| Position: | Member of the Executive Board |
| Country: | Germany |