City Insider: How predictive maintenance creates advantage in aerospace and defence
Bruce Andrews, partner, and Joseph Lakaj, associate, from Alderman and Company, highlight how advances in sensors, AI, and cloud platforms are making predictive maintenance attainable for smaller aerospace and defence suppliers – creating value from the shop floor to valuation.
Middle market aerospace and defence suppliers are facing higher reliability expectations from their commercial and defence customers, tighter margins on key products, and overall supply chain pressures affecting the industry.
Predictive maintenance, which was once viewed as a ‘big company’ technology, is now becoming more attainable for smaller companies due to advances in technology, including less costly sensors, cloud-based platforms, and AI analytics.
Early adopters of this technology can use it as a lever to increase competitive advantage and improve enterprise value.
The core idea for predictive aircraft maintenance is simple: finding the balance point between how long a component can last and operate safely, and when it should be replaced.
When done right, this avoids two costly extremes, with one of those extremes being removing a component too soon, leading to a wasted useful life, or running it to failure, causing unnecessary safety risks and unscheduled repairs.
Despite years of industry discussion, predictive maintenance on the aircraft level has remained hard to attain, as one of the biggest hurdles has been the lack of sufficient data.
Airlines are reluctant to share operational data, leading to datasets that are only partially done or correct, but still are not enough to cover and build a robust predictive model for the whole fleet.
Unlike global airlines, lower middle market aerospace and defence suppliers don’t need millions of flight hours to create value from predictive maintenance.
Depending on what the company does, there is a wide variety of technology that can be used, including sensors and IoT monitoring being used on CNC machines, heat treat equipment, testing rigs, etc. These systems reduce unplanned downtimes and improve overall delivered equipment reliability.
In aftermarket services and component lifecycle, predictive maintenance allows them to anticipate part failures, improve overall turnaround time, and differentiate their services from competitors.
For fielded equipment in defence applications, predictive maintenance data can be provided as a value-added service to commercial primes and defence contracts, allowing smaller suppliers to provide value beyond some of their competitors.
If your company has never used predictive maintenance, we recommend starting small with critical assets. Focusing on high-cost bottleneck machines or components that prove to be costly when going through downtime are the recommended places to begin.
Leveraging existing Industry 4.0 platforms, which are affordable and allow companies to implement these technologies without having to build their own, is a successful path to follow.
The data you collect is very important, as you can leverage it to integrate workflows with your processes and improve efficiency. Reducing downtime, having a higher throughput, and lowering scrap and rework rates will provide better cost control for your company.
This will allow talent to spend less time working on repairs and focus on providing products and services that will differentiate the company from its competitors.
The aerospace customers increasingly value suppliers who demonstrate investments in technology and are also able to use that technology reliably and effectively in their products.
Now, what does this mean for the valuation of your business? First and foremost, if applied correctly, predictive maintenance will improve margins through consistent cost reduction, and these improvements increase EBITDA, directly raising valuation multiples.
Operationally, strategics and financial buyers view predictive maintenance adoption as reducing operational risks, as there is less dependence on key machines or individuals.
These buyers are willing to pay more for companies that are forward-thinking about these practices, as predictive maintenance signals an opportunity to scale.
Some challenges to prepare for are the upfront cost, the potential requirement of external partners or consultants, and the adoption of the technology and practices by current employees.
With the lower middle market, most firms are capex-constrained and will need to show return on investment quickly, which may lead to the need for external consultants.
These first steps may be costly upfront, but if the company can find a process that will greatly improve these investments, then this can prove to be advantageous.
Finally, when changing technologies, employees may have spent years or decades working in a certain process that is then changed, causing them to be skeptical or confused.
Having a set plan in place for employees to train them in these new technologies will allow for an overall smoother process but also allow management to voice the concerns of their employees and answer any of the questions they have.
Predictive maintenance is no longer just for the biggest firms; lower middle market aerospace and defence suppliers can capture both immediate business efficiency and long-term valuation upside from the implementation of this technology.
Companies of this size can start with one or multiple small pilots, prove that there is a return on their investment, and scale thoughtfully throughout their other processes and stand out to primes, investors, and buyers.
In a sector that is consolidating, technology can be the detail that makes a lower middle market supplier more attractive for strategic partnerships or M&A.
References:
https://pmc.ncbi.nlm.nih.gov/articles/PMC9502349/
https://www.bcg.com/publications/2020/building-value-with-predictive-aircraft-maintenance