Zodiac seat delays underscore broader constraint in supply chain

Zodiac Aerospace’s revelation that it encountered some difficulty in delivering premium seats on-time to American Airlines’ initial Boeing 787s is serving as a not-so-gentle reminder to the industry that there is very little wiggle room in the aircraft interiors supply chain. As airframers seek to ramp up production of their most popular narrowbody and widebody workhorses, the problem could become more acute.

Though Zodiac has grappled with issues unique to the firm – including a strike this fall at its Gainesville, Texas plant formerly known as Weber, and union-related issues that resulted in reduced productivity across the pond at Zodiac Premium Galleys – the clog points in buyer furnished premium seats and galleys have been known for some time, and indeed were highlighted earlier this year by aircraft leasing giant Steven Udvar-Hazy, who said manufacturers “are working literally in three shifts a day to meet the demand and [they are] working at full speed ahead and we don’t see a lot of cushion in that [situation]”. The suppliers to these OEMs are also working around the clock, notes Ronn Cort, president of KYDEX, which is “running 24 hours a day, seven days a week” to meet demand for thermoplastics used in premium seat fixtures, furniture, closets and sidewall panels.

A constraint in engineering resources across the aircraft interiors industry is exacerbating the issue. An industry insider says cabin engineering is seen as being a “softer” job and far less sexy than say, aircraft manufacturing engineering, even though the innovation occurring in cabins – particularly in premium classes – is immense, and requires a deep understanding of the complex certification process for new integrated IFE/seat products, including head injury criterion (HIC) requirements.

The ability to attract more women to STEM fields such as cabin interiors might ultimately help to relieve the pressure. Work-study programs are also introducing young graduates to interiors firms. Zodiac, for instance, has reaffirmed its continued participation in a ‘Young People & Enterprise’ program that has already resulted in new hires. A work-study program at KYDEX in Bloomsburg, Pennsylvania is feeding talent to the firm. Without it, growth would be stymied, says Cort.

But if the supply chain is already taxed, and in dire need of more engineers, how will it manage to keep pace with production ramp-ups in the coming years? Some industry observers aren’t convinced it will be able to seamlessly do so. John Stack, managing director, aerospace leader at investment bank The McLean Group, says, “I think we will likely see some challenges emerge within the supply chain as Boeing and Airbus continue to ramp production and stress the supply chain.”

Streamlining the certification process is key to alleviating some of the pressure. “From my opinion, one of the biggest issues we currently have is lead time of seats and IFE, and if you streamline all of the certification and modification, reduce the effort for testing and documentation, it would be definitely a big [positive] for the complete industry…because this is one of the biggest hurdles we have to fulfilling the requirements of customers,” says René Dankwerth, VP of research and development at aircraft seat maker Recaro.

Largely focused on producing economy class products Recaro doesn’t face the same headaches as those manufacturers that deal in high volumes of customized first and business class seats, namely Zodiac and B/E Aerospace. Even so, the company has put various measures in place to handle production increases. “From our side, we did a lot to be prepared for ramp up on the airframer side. For example, we installed production sites near the airframers’ locations and also on an international footprint,” Dankwerth tells RGN.

“We have production in the US, including the engineering; we have production engineering here [in Germany] and in Poland, and also recently opened our facility in Qingdao, China. Also, in terms of engineering capacity, we have prepared and ramped up the team, and concerning the supply chain, we have a dedicated concept with double sourced suppliers in place. So for critical components we have double sourcing options, and are not only relying on one source at the end of the day. So I’d say we are pretty well prepared, and also we can show our on-time delivery today is almost 100%. We deliver to Airbus and Boeing and get good feedback for that.”

Stephan Krastev, senior vice president of aerospace & aviation investment banking at global consultancy Seabury Group, believes that, overall, the Tier 1 suppliers “are well positioned, and well capitalized to withstand” production ramp-ups. “The question is: can smaller Tier 2 and Tier 3 firms handle that ramp up, which may cause the industry to further consolidate. Tiers 1 firms might consider bringing Tier 2’s in-house to make sure they can keep up.”

Zodiac certainly doesn’t seem adverse to acquisitions; the company this year bought widebody VIP cabin specialist Greenpoint and oxygen systems manufacturer Pacific Precision Products. But integrating new units can carry its own set of complications. Ensuring current divisions are able to keep pace with demand may take priority. Zodiac’s Weber unit has already faced significant employee turnover, says a source, and seen a “record number of seats at the seat hospital”, an area of the plant tasked with fixing seats that come off the assembly line and need more work. Zodiac could not be immediately reached for comment.

When RGN Premium  first reported on the strike at Zodiac’s Gainesville plant in October based on information from sources, Zodiac would only confirm the industrial action, and its cessation in late October. It did not comment on whether it anticipated a delay of seat deliveries to Airbus and Boeing. But during an conference call this week to discuss a 15.8% rise in fiscal first quarter revenue Zodiac CEO Olivier Guy Zarrouati said in reference to American Airlines’ premium seats, “Now for American Airlines, we do provide seats for this aircraft. It’s a highly customized version of the seat; its development took a long time for the 787. The aircraft’s seats have now been delivered. But it’s true that this is part of those runs for which we had delays, and we’ve spoken about this during our reports to you last fiscal year.”

The American seat is aimed at enabling the carrier to “leapfrog the rest of the industry”, as the airline’s managing director of onboard product, Alice Liu, explained during the recent Future Travel Experience Global 2014 conference in Las Vegas.

Bloomberg reported that Zodiac’s woes have also affected deliveries to the Airbus A350 program, but Zodiac disputes this claim, saying it is “not correct” and that Zarrouati didn’t comment on A350’s seats. Bloomberg has since updated its article with a correction.

Zodiac’s Seats segment, which constitutes 25.6% of revenue, saw revenue grow by 17.2% year-over-year to €290.8 million during the fiscal first quarter. “These figures should be seen in the light of the slow start to the previous year (2013/2014) and the industrial actions being taken to return to on-time deliveries,” said the firm in a statement.