Episode Show Notes
Episode 1 features Aerospace & Defense Forum Co-Founder & Executive Director Dr. Ivan Rosenberg and Patriot Industrial Partners Managing Director Alex Krutz. Ivan and Alex discuss today’s aerospace and defense ecosystem including current technology, trends, and cybersecurity considerations. Ivan and Alex also offer practical guidance to A&D organizations, covering topics such as strategic planning, company culture, and problem-solving.
Dr. Ivan Rosenberg is Managing Partner at InVista Associates, Inc and Co-Founder & Executive Director of the 2,400+ member Aerospace & Defense Forum community. Ivan has over 30 years of experience as a management consultant and change agent, supporting organizations whose leadership teams are committed to achieving breakthroughs in organizational performance. He holds Bachelor and Masters’ degrees in Electrical Engineering and Computer Science from Cornell University and M.S. and Ph.D. degrees in Business from the University of Rochester. Ivan has been a university professor and founder of a national software company that develops commercial finance software for banks and other financial institutions. Ivan also served as Vice President of E.K. Williams & Co., which at the time was the world’s largest small business accounting and consulting company. With his long love of aerospace, Ivan’s passion is consulting with aerospace and defense organizations – favorite consulting memories include working with NASA HQ, NASA Centers, 19 robotic space missions, astronomical observatories in Hawaii, and many commercial aerospace and defense companies. He has served on numerous boards, including Legacy Software, Inc. (NASDAQ, subsequently merged), Interex (the international Hewlett-Packard users group), the non-profit Technology for Results in Elementary Education, Cybernet Communications, and the Southern California Chapter of the Institute for Management Consultants. He is also the Founder and President of The Uniquely Abled Project, a non-profit that matches the unique extraordinary skills of those with a diagnosis to the needs of jobs in demand. The Uniquely Abled Academy is teaching those with high-functioning autism to be CNC machinists.
Alex Krutz is the Managing Director of Patriot Industrial Partners, an Aerospace and Defense advisory firm specializing in business transformation and industrial strategy. Alex elevates business performance by focusing on manufacturing strategy, supply chain optimization, and value creation. He has been a consultant for airframe OEMs, Tier 1’s and Tier 2’s on operational turnarounds, and for private equity groups on value creation planning and execution. Previous to starting Patriot Industrial Partners, Alex worked for United Technologies, GKN Aerospace, and various aerospace & defense businesses in roles of general management, operations, supply chain, and program management. His experience spans across engines, APUs, structures, composites, and large complex assemblies. Alex is a Veteran of the U.S. Army, having served overseas as a front-line leader.
Highlights
00:00:00 - Introductions
00:01:31 - Description of the current aerospace and defense environment and ecosystem
00:03:50 - Challenges aerospace and defense manufacturers are facing right now
00:05:21 - The role of strategic planning for small to mid-sized manufacturers in the A&D ecosystem
00:08:53 - Some of the ways SMMs should be viewing current trends to take a longer term perspective
00:13:09 - How to determine if an organization’s culture needs to be modified
00:17:04 - Some of the strategic opportunities that exist in the current A&D world that small to mid-sized manufacturers should take advantage of
00:19:00 - Discussion of Digital Design Manufacturing and Services (DDMS)
00:22:10 - Practical steps to take within the next two years to prepare for coming changes
00:24:00 - In-depth discussion of culture transformation within a company
00:26:16 - Technology trends SMMs should be aware of besides DDMS
00:32:20 - Regulatory or compliance changes in A&D that will impact SMMs in the lower tiers of the A&D supply chain
00:34:46 - Predictions for the aerospace and defense industry in the next one to seven years
Transcript
Gregg Profozich [00:00:02] In the world of manufacturing, change is the only constant. How are small and medium-sized manufacturers, SMMs, to keep up with new technologies, regulations, and other important shifts, let alone leverage them to become leaders in their industries? Shifting Gears, a podcast from CMTC, highlights leaders from the modern world of manufacturing, from SMMs to consultants to industry experts. Each quarter, we go deep into topics pertinent to both operating a manufacturing firm and the industry as a whole. Join us to hear about manufacturing sectors’ latest trends, groundbreaking technologies, and expert insights to help SMMs in California set themselves apart in this exciting modern world of innovation and change. I’m Gregg Profozich, Director of Advanced Manufacturing Technologies at CMTC. I’d like to welcome you.
In this episode, I'm joined by Aerospace & Defense Forum Co-Founder & Executive Director Dr. Ivan Rosenberg and Patriot Industrial Partners Managing Director Alex Krutz. Ivan and Alex discuss today’s aerospace and defense ecosystem including current technology, trends, and cybersecurity considerations. Ivan and Alex also offer practical guidance to A&D organizations, covering topics such as strategic planning, company culture, and problem-solving.
Welcome, Ivan. It’s great to have you here today.
Ivan Rosenberg [00:01:23] Gregg, thank you for the invitation. It’s great to be here.
Gregg Profozich [00:01:25] Welcome, Alex. It’s great to speak with you today, as well.
Alex Krutz [00:01:28] Thanks, Gregg. It’s a pleasure to be here with you.
Gregg Profozich [00:01:31] Really looking forward to our conversation. Thank you both for being here. We’re here to talk about the aerospace and defense industry in California. I did a little bit of research. According to the state of California website, California ranks number one in defense contract spending and number of personnel. California boasts over 181 billion, with a “b,” dollars in economic impact from the A&D sector. Within the state, we have over 10,200 aerospace engineers. More than any other state. We have two of the top three universities for aerospace engineering. We have three NASA research centers, including JPL. With past and present aviation companies like Hughes Aircraft, Douglas, Northrop Grumman, Boeing, and aerospace companies like SpaceX, Aerojet Rocketdyne, and Relativity Aerospace, California has a long history of prominence in the industry that continues today. This doesn’t even mention the thousands of small companies that are suppliers to the industry—the second, third, fourth tier machine shops, metal benders, wiring harness manufacturers, fastener manufacturers, et cetera. A&D is important to California. Today, we’re going to explore the current situation in the A&D sector and talk a little bit about small- and mid-sized manufacturers’ part in it. Let’s get into it. Alex, could you please describe for us the current aerospace and defense environment and ecosystem?
Alex Krutz [00:02:45] Yeah, Gregg. I think starting commercial side, airplane utilization. When that drops, or what we call in the industry, RPK—revenue passenger kilometers. You have those RPKs. When those drop—and that happened in COVID—airlines don’t make money. When they don’t make money, they buy less airplanes. So, the likes of Boeing and Airbus are producing less airplanes. Then ultimately, that trickles down to those tier threes, fours that you had mentioned to all those thousands of companies here in California and others. Then you develop supply chain issues, liquidity issues, and other challenges—labor reductions and things I’m sure we’ll talk about here on the podcast. But that’s the general commercial aerospace. Then on the defense side, ultimately, unfortunately, there’s conflict in eastern Europe, and that increases defense spending and stability in the defense side. You have the commercial aerospace and the defense markets right there. Both look very strong right now and looks like a lot of upside for us.
Gregg Profozich [00:03:43] Okay. Good news from an industry perspective. Maybe not the best drivers of that with the conflicts in eastern Europe. Right?
Alex Krutz [00:03:49] That’s right.
Gregg Profozich [00:03:50] What are the challenges that the aerospace and defense manufacturers are facing right now, Alex?
Alex Krutz [00:03:55] Well, I think there’s a couple positives and there’s a couple of negatives. We talked about increasing demand with people flying. It’s still about 24% under where we were in 2019, with central Asia leading that with their zero COVID policies and other restrictions that they have, but it’s coming back. The 20-year outlook that Boeing just put out is about just shy of 3% CAGR growth of new aircraft. That’s good. Defense programs and funding, we talked about that. MRO is really strong—the maintenance, repair, and overhaul. Shop visits for airframes and our plant engines are pretty strong and the need for parts. Some of the challenges, obviously, with the Russia/Ukrainian conflict, but there’s a broader issue with Russia/Central Asia, what some people are calling a decoupling. Multiple ecosystems are being developed for types of aircraft, MRO systems, what’s purchased. We’re seeing a bit of a challenge geopolitically with Chinese airlines not buying Boeing aircraft. They’re buying a lot of Airbus aircraft, and they’re developing their Comexi 919. I think there’s some geopolitical issues as frontline negative and then ultimately, some of that conflict and such. We’ll get a little bit more into probably the financials. Inflation costs are big drivers right now for businesses. We’ll talk a little bit more about that, I’m sure, Gregg.
Gregg Profozich [00:05:21] A lot of different high-level issues that are impacting the industry, and that relates into how aerospace and defense manufacturers and those in the supply chain should think about their strategies. Ivan, in light of the challenges that Alex just mentioned and some of the others that you also think are key to mention, what role should strategic planning have for the small- to mid-sized manufacturers in the A&D ecosystem?
Ivan Rosenberg [00:05:44] It’s probably important for us to define what is strategic planning because what most companies do that they call strategic planning, isn’t. In general, strategic planning is, “What’s the purpose of your company? What’s its unique selling proposition? What’s the difference that it intends to make? And how’s it going to do that?” That’s usually a multi-decade issue. Tactical planning is what you’re going to do in the near term. That’s usually less than five years. If you look at the kind of issues that Alex mentioned and that we’re facing, they’re generally not going to be dealt with in five-year-or-less perspectives. You really have to have a long-term perspective, and that’s where strategic planning comes in. The other important part of it is the challenges are fairly immense. You want your people to be performing their best. People perform their best when they feel like they’re making a difference. Most companies don’t give them any sense of making a difference. You come in, you do your job, you get paid, end of discussion. A strategic plan gives you a long enough timeframe so that you can create outrageous goals, something really, really, really big, and something that turns your people on and gives them a reason to come to work in the morning, and be creative, and all that good stuff that you want. That’s how strategic planning fits in.
Alex Krutz [00:07:19] Gregg, there’s a few more specific challenges that probably are more pertinent to some of your listeners and some of the smaller A&D businesses out there. Labor availability, the great resignation, some of the more seasoned operators and capabilities exited our sector. Usually, we have newer folks coming in, and those newer folks take a little bit of time to train and the learning curve. Number two is supply chain shortages—everything from chips, chemicals, titanium harnesses. When tier ones or OEMs don’t have even some of these small components, they can’t make their larger assemblies, or systems, or even the aircraft. Number three is dealing with lead times. As demand grows for product, there’s a strain in trying to produce it. Lead times start to increase from mills on materials and such. We touched on it earlier with inflation and costs. Really, where this is going to impact tremendously is in high-cost areas for energy, especially Europe, that we’re going to probably see those inflationary costs and energy costs that are increasing. A couple of last things. Planned consolidations, we’re seeing a bit of that, where some companies have two or three plants go down to one. There’s consolidation within the supply chain. Higher interest rates, being able to borrow. Then I would say probably lastly, distressed suppliers financially. That causes strains in the supply chain. Again, I just thought I’d maybe just interject a couple of things that are more maybe local issues or challenges that are facing the A&D sector.
Gregg Profozich [00:08:53] Absolutely. I think that’s great, and I think it really does speak to some of the long-term and short-term things. Ivan, if I could ask you to take some of those things that Alex just mentioned? There’s the global long-term—Russia/Asia. Cost and inflation is a global thing at this point but also local—labor availability, supply chain issues, can’t get chips, lead times, inventory, interest rates, planned consolidations, all those things. How does the small manufacturer take the strategic view towards those and then turn those into those more tactical one-to-five-year plans that are going to get them on the right road? What are some of the things they should be thinking about? What are some of the ways they should be viewing this maybe to take that longer-term perspective? These are very mega trend, global trends and changes. They’re coming, and they’re probably not going to stop, so you have to be ready for them.
Ivan Rosenberg [00:09:41] I think the simple answer—and I agree with Alex on all the things he said—a two- to three-year plan is not going to give you a solution. It’s as simple an answer as that. These are major structural issues. How do I attract a workforce? If I’m having trouble today, how do I improve my attractiveness? Well, you’re not going to be able to pull that off in two years. That’s a fairly substantial transformation. Therefore, you need to look at a long, long-term. As I say, we find that you’ve got to get far enough out that people can’t predict, that it isn’t a logical “Oh, I’ll do this, and this, and this, and then I’ll automatically get that,” because that’s simply extrapolating the past into the future. That’s not going to solve any of these problems. I don’t know what the solutions are, but I know that you’re not going to find it by looking at the past. You really got to go out far off in the future and say what is it you’re committed to and work backwards from there. I’ll give you a simple example. In the mid-’90s, Jet Propulsion Lab was given a very aggressive requirement by NASA. They had to lower their cost of missions from multi-billion to multi-hundred million. They had to lower the development time from 10 years to 3 years. They had to downsize from 7,500 to 5,000. But the big deal, they had to go from 80% on-lab manufacture to 80% outsource, which the workforce hated. Everything they tried didn’t work. They brought in all the experts on LEAN, and TQM, and so on, and it didn’t work at all. What we did is help them create a true strategic plan. They went out 60 years, and they created a vision. JPL was committed to creating a world in which space enhances the human experience for all. They came up with that—we facilitated it—and it excited the heck out of them. Then we worked backwards to the present. Two things they saw by doing that. One is they actually had to start partnering, which had been not something that they really liked doing. The other thing they saw was, “I’m leaving a legacy. I’m not just sitting here putting my time in, that this is a lot bigger.” That has transformed the lab.
Gregg Profozich [00:12:08] You said something earlier about the past and bringing it into the future. I was thinking of that Einstein quote, “The world we’ve created today has problems, and it won’t be solved by thinking the way we thought when we created them in the first place.”
Ivan Rosenberg [00:12:19] Exactly. It’s a weird way of doing things. It’s almost like going out to the airport, hopping in the plane, taking off, and then designing the plane that you’re flying. It makes no logical sense, but it works.
Gregg Profozich [00:12:32] But it can be transformational, with JPL as an example.
Ivan Rosenberg [00:12:36] It is always transformational. If you ask people in a company, “How far ahead are you looking?” the max you’ll get is five years. That’s where people start.
Gregg Profozich [00:12:48] A five-year strategic plan is common in business, right?
Ivan Rosenberg [00:12:51] Yeah. It’s not a strategic plan, though. It’s a tactical plan. There’s no such thing as a five-year strategic plan.
Gregg Profozich [00:12:56] Gotcha. Okay.
Ivan Rosenberg [00:12:59] When we’re done with a strategic plan, people aren’t thinking five years anymore. As I say, they’re thinking about leaving a legacy and, “What do I need to do to prepare for that?”
Gregg Profozich [00:13:09] You also talked a moment ago, and it sounded like you were talking about the organizational acceptance of this new vision. JPL had to change from being the producer to the contract manager and outsource a lot of things. They had to change the way they thought of themselves. They had to get things done. I hear you talking, and you’re inferring culture; it’s all about culture. We’ve heard it often said that culture trumps strategy, that culture is one of the most important aspects of a company’s performance and long-term success. If I’m a small- to mid-size manufacturer and I’ve taken your advice on strategic planning, how do I know if my organization’s culture is ready, or needs to be altered, or changed, or amended in any way? What do we do about that?
Ivan Rosenberg [00:13:49] Great question. Well, the first thing you got to know is, “What are you up to?” Because if you don’t know where you’re headed, any road will do. If you want to find out whether your culture is a fit, you got to ask, “A fit for what?” The first thing, how to tell if it needs to be altered, is first of all, you got to make sure you’re clear about the strategic and the tactical goals of the company. You got to have that. Then some of the questions to ask: “Does everybody know and support the goals? Can they see that what they’re doing today connects to that future?” When we go visit a company, we’ll ask the receptionist, “Can you tell me what the company is up to?” If they can, then we know it’s connected. Is people’s behavior in support of or does it sabotage the accomplishment of the goals? As a manager or leader, are you dealing with issues, mostly internal, that get in the way of productivity, like departmental conflicts or that kind of stuff? Those are very high-level, real quick summary of how do you tell when your culture is off or not. Then how do you alter it? Well, the big deal is, you can’t tell people to behave differently. It doesn’t work. People behave the way the world occurs for them. If you don’t alter how the world occurs for them, they’re going to keep behaving that way. If you want people to behave differently—because that’s the reason you want your culture altered is because you want different behavior—people have to have a reason. They have to have something they want that is consistent with that new behavior. As I’ve said a few minutes ago, it’s often a sense of making a difference. It’s an inspiring future that they feel that they created and that they own. I just gave you an example with JPL. That was exactly what happened. We altered the culture. We didn’t, by the way, go in and tell them, “We’re altering your culture. You’re going to behave differently.” That doesn’t work. In fact, we encourage management never to talk about altering the culture because people will resent it. What we did is basically facilitated them creating the future, and that called for new behavior, which they needed training in. They requested the training because now they saw a future that called for that. It was all theirs.
Gregg Profozich [00:16:15] They requested the training, meaning the more line-level employees, not the senior leadership? The mid-managers, everybody across the organization, is who you mean, right?
Ivan Rosenberg [00:16:23] Yeah. Our contract said that all managers, anybody that was a leader or manager, had to take our training—our leadership training. That’s about 400 people. But as we got closer to all 400, we started getting requests from other people. We ended up training 1,300 people. We had a standing waitlist of 100 people. Believe me, people at JPL are so busy they don’t take courses unless they see there’s very practical and fairly immediate benefit from it.
Gregg Profozich [00:16:54] But they were requesting the training because they bought into the vision and the strategic plan and now knew there was a gap between what they could do and what they needed to do.
Ivan Rosenberg [00:17:02] Exactly.
Gregg Profozich [00:16:54] Got it. Alex, in light of Ivan’s comments on strategic planning, what are some of the strategic opportunities that exist in the current A&D world that small- to mid-sized manufacturers should take advantage of? The OEMs tend to have their strategic planning department, they’re looking at these long-term views. A lot of small- to mid-sized manufacturers—I say it all the time—are so busy working in the business they don’t necessarily have time to work on the business. Well, if I spend some time working on the business, I should be looking at what strategic opportunities as a small manufacturer?
Alex Krutz [00:17:32] The things that I would tell my clients, number one is vertical integration where you can. Where you can provide more services and more value for your customers, the more valuable you become. If you are just doing one component or one process, that’s pretty interchangeable. If you do multiple and then assemble them, or create an assembly or system, where you are creating more value or reducing your customers’ costs, that’s a big thing. Number two is diversify into new programs and platforms. Reach into customers where they maybe have struggling suppliers or other partners to see where you can fill the void. Defense has good margins. Business jet is high margins but lower volume. Just figure out where you can diversify. Then lastly and probably the hardest is… There’s lots of different terms for this, but I’ll call it digital design manufacturing and services—or DDMS. Suppliers are going to start hearing a lot about this digital thread, digital twins. Ultimately, it’s 3D modeling that’s coming down from the OEMs. It’s right now on the defense side, but it’s coming to commercial and these higher volume programs. The OEMs will deliver a model, and they have to be able to work within that model in their system. Right now, aerospace and defense supply chain—especially tier two and lower—are not ready for this new technology. It’s going to be really important for those suppliers to understand what it is and to move forward progressively into it.
Gregg Profozich [00:19:00] The digital design manufacturing and services, DDMS. Let’s talk a little bit more about that. I’m a small manufacturer, I do wiring harnesses, for instance. How do I get involved? What practically would that mean? Am I going to get a file that has requirements that I have to design to? It tells me what I have to build? How does that all work?
Alex Krutz [00:19:19] Harness wire manufacturing is probably more like Asia and cutting into Mexico, maybe the application for California and US companies is machining and large composite assemblies. What will happen—just to give folks a perspective—a Boeing, or an Airbus, or Northrop Grumman will give a 3D model through a secured portal. I’m sure we’ll talk about CMMC and cybersecurity, but give a model and this is the digital thread that they can work from. Typically, what’s happened is the Boeings of the world or the primes will give a 2D drawing to the supplier, and the supplier takes that drawing, makes their own drawing, makes their own work instructions. There’s lots of variability that can be introduced in this process. There’s digital product definition, DPD. There’s lots of different terms out there determining engineering. But basically, what this new system of engineering is, is they give a model and you can see it in 3D, and then you can build within that 3D model. Then you would get your equipment tied to that 3D model. How you program is in that 3D modeling. You can get much more precise dimensions, and key characteristics are much closer to what the OEM needs. Therefore, it’s going to reduce their costs. But the thing is, is that you have to have the technical capabilities with the software. Also, you have to have much more advanced equipment, not your normal older three-axis or five-axis machine. These are palletized machines that are programmed in a modeling environment that can also be temperature controlled and such. There’s a lot of even facilities and equipment modifications that are going to be needed in order to become compliant to this digital thread and 3D modeling that is going to be a requirement in the years to come.
Gregg Profozich [00:21:10] It sounds like a pretty fundamental and significant transition that’s coming.
Alex Krutz [00:21:14] Absolutely. Right now, it’s deployed on the T7 Redhawk Boeing trainer program and also the MQ25, which is a Boeing program. There’s different 3D modeling systems that, for example, Northrop Grumman uses for the B21 Bomber that’s yet to be disclosed or shown to the public. But the defense systems are in and going to this digital thread. It’ll become more mainstream when the next commercial program—which will probably be Boeing that will introduce the new airplane program at some point—will introduce this digital thread. Really, it’s digital engineering and manufacturing where they tie the engineering to the manufacturing to the aftermarket services of the aircraft to both reduce the cost and also improve the learning curve on the initial program entry. It’s going to become a big thing that suppliers need to both understand and move into adoption of it.
Gregg Profozich [00:22:10] Are there practical steps I could take if I was a machine shop right now in the A&D space? Now I know this is coming, what do I do? What are the practical steps I could take in the next two years?
Alex Krutz [00:22:19] Start doing research as to what digital engineering and manufacturing is. Start asking your customer procurement agents and the integrated product teams that they have in engineering and quality, “What are the requirements? What are the flow-downs?” There’s now BAC documents and Northrop Grumman documents that are out there that talk about this technology. Go to conferences. Start attending webinars where they’re starting to talk about this. But there’s multiple groups out there that can help with assessments and implementation. But it’s just like any other kind of advancement. Start educating yourself, understanding what it is and where your customer is headed. I’ll say this: this is going to be the big differentiator five years from now about companies that have this capability and companies that do not. If you do not, you will be on legacy programs. Over the years, you’ll have less and less work if you don’t have this capability of accepting and working to 3D models and improving your production processes to meet the ever-increasing requirements that the OEMs and primes will have.
Ivan Rosenberg [00:23:24] What Alex just said is a great illustration of where true strategic planning and transformation is applicable because people are going to have to think differently. People resist change. “It’s always worked this way. Why do we have to do it differently?” You have to do all the things that Alex suggested. You’ve got to be prepared for both long-term planning—longer than that five years—and also to have your people want to do this. That’s probably going to be a culture transformation. It’s a great example.
Gregg Profozich [00:24:00] Absolutely. Thank you both for that. Ivan, I wanted to have you go a little deeper into something related to this: culture transformation, strategic planning, all these things. We hear the words “leadership” and “management” a lot. They often seem to be used interchangeably, but they’re really not interchangeable. They’re two different things and both important. Let’s talk a little bit about those. Is there a difference? And how is that difference important to organizational performance and to moving confidently and successfully into the future?
Ivan Rosenberg [00:24:27] Well, one of the problems with the area we’re talking about is there’s no agreed-on definition of terms. There is a difference in leading a company. Here’s what we say they are. We would say management is tactical, and leadership is strategic. To use a term of art, which we call an existence system, that’s something that keeps something in existence, like your shopping list. You don’t have to remember. You write it down. It keeps what you want in existence. We would say management is being the existence system for the fulfillment of the commitments of a group. It’s all about accomplishing goals. Leadership is very, very different. Enrollment is explained as when somebody takes something on as their own. Example would be: even after Kennedy was assassinated, the country had taken on his goal of landing a man on the moon and returning him safely by the end of the decade. The country was enrolled in that. We would say leadership is creating the possibility of a future. That’s all you can do is create the possibility of a future that wasn’t going to happen anyhow and enrolling others into taking action to fulfill that future. Both are needed for an organization to operate on an optimal level. It’s useful to understand which is needed and wanted in a particular situation. A particular individual is probably doing both skills. If I have leadership skills and management skills, somebody who’s head of a company probably does more leadership; somebody who’s a first-line supervisor is doing more management. It’s useful for them both to have access to those skills.
Gregg Profozich [00:26:16] Excellent. I think those are some insightful distinctions and differentiations you made there. Thank you so much. Alex, you mentioned cybersecurity and some other things earlier. Let’s get into this a little more in-depth now. What technology trends should SMMs be aware of besides this DDMS and digital manufacturing and engineering integration?
Alex Krutz [00:26:35] Cybersecurity in this term, CMMC, Cybersecurity Maturity Model Certification, is basically a compliance level that helps the government and the Department of Defense determine an organization or a company’s ability to be able to control vulnerable or intellectual property data. I’m not a CMMC expert. However, what I would say is that there’s level one, level three, level five. The requirements and definitions are changing, but the core principle still stays the same. The government and the primes are looking to be able to do two things. Number one is to be able to transmit data securely. As you get into this digital thread, where you’re working your models within the models of the OEM and the prime, that data transfer is going to be super important. That way, it doesn’t fall into the hands of our adversaries and other folks that will do nefarious things with that data. Then number two is those advanced machines we talked about in the digital thread and being able to be compliant to this digital engineering and digital manufacturing capabilities. You have to be able to load those programs onto there. How secure are they? Can you put a thumb drive in? Is there encrypted passwords to get in? Just data handling. There’s the data transfer, and there’s the data handling, but that all falls under this cybersecurity umbrella that is going to be a requirement. Again, like digital engineering and digital manufacturing advancements, it’s really in manufacturers’ best interests to understand what those requirements are even if you’re just in the commercial space as well because a lot of your products are dual use, and a lot of companies are very interested in securing their IP that they’re giving to you.
Gregg Profozich [00:28:24] Ivan, the A&D industry is constantly dealing with problems. Some problems are studied and eventually solved. Others are studied and studied, and companies don’t seem to make any progress. Do you have any practical suggestions on how these companies can solve these impossible-to-solve issues?
Ivan Rosenberg [00:28:40] What’s blocking them is often conceptually very simple. What’s blocking the solution to a problem is usually unconscious truths about the situation that limit what solutions can even be considered. You would not consider a solution that violates one of those truths, for example. I’ll give you an example. One mission we worked on had been designed with two telescopes with a third—what they call a combiner in the middle—taking the two signals and combining them together. The positioning of the three spacecraft relative to each other had to be held to nanometers, very, very accurate. They ran into a significant cost problem and were told they had to solve it or they were going to get canceled. When we worked with them on this, they saw that one of the fundamental assumptions, which are almost always simple, was that they were assuming that three separate spacecraft was required, which was the original design. The solution was to put the combiner, the one that was in the middle, on top of one of the telescopes and then to account for the new position using a variable delay line, an absolutely simple and trivial solution. Not only was it cheaper, but quite frankly, even if they gave them the original money back, they would have stayed with that solution because it was more reliable and better designed than the original. The assumption that we had to have three spacecraft, that they never considered only having two, combining two of them together—that’s what held them in place. One of the early steps in trying to solve these “impossible problems,” which we call producing a breakthrough, is to uncover the hidden assumptions that are blocking potential solutions. One of the questions you might ask is, “That’s great. How do you do that?” Well, that would take a while to explain all the details, but let me, just in summary, say what it looks like. We have people list all their interpretations about the situation and we just say, “Tell me about it.” We put them down and phrase on a flip chart. Then we ask them to list the facts. Now, a fact we define as something that can be video recorded, and everyone seeing the video would agree that your suggested fact is true. For example, a purported fact they may come up with was, “sales stunk last year.” Now, I asked, “Well, what’s the video associated with that?” Well, there’s a piece of paper, and it says sales are this or sales are that. You can see the two numbers are less. Well, would anybody looking at that say sales stunk? All they would be able to say is there’s a piece of paper with those numbers on it. I know that it sounds very weird. But you work with people enough on that simple thing and all of a sudden, they see that all the things they put up under interpretations really are, because when they put them up they thought they were facts even though it says interpretations. You have this huge breakthrough that actually occurs in a second that a room will all of a sudden see, “Oh, all those things that I thought were true, they’re just assumptions I made up.” In that moment, a solution becomes possible.
Gregg Profozich [00:32:07] Wow. Sounds like a really interesting and transformational process that you go through with your clients.
Ivan Rosenberg [00:32:12] It’s actually highly reliable. In hundreds of times it’s only failed twice, and that’s when we were learning how to do it.
Gregg Profozich [00:32:20] Makes sense. Alex, let’s talk a little bit about the regulatory environment. Are there any regulatory or compliance changes in A&D that will impact the small to midsized manufacturers in the lower tiers of the A&D supply chain?
Alex Krutz [00:32:32] One of the good things about aerospace and defense, it doesn’t change a lot, because the restrictions and requirements are pretty stringent to begin with. Maybe with medical and maybe auto slightly behind it, but aerospace and defense is highly regulated. We’re already dealing in that environment, so it doesn’t change a lot. But really, the OEMs, or the original equipment manufacturers, are what we consider the Boeings, Airbus, Northrops, Lockheeds of the world. There are even smaller: Bombardiers, Gulfstreams, and even some of the EVTOLs way down the chain into even smaller new aircraft, the Archers. Those are all what would be considered OEMs, original equipment manufacturers. Then you have tiers under it. You have the tier one, which are large systems providers, major systems, major structures providers. On the system side you have Collins Aerospace or RTX, Raytheon Technologies, Pratt & Whitney, Rolls Royce. Then you have structures providers such as Spirit AeroSystems, GKN Aerospace. Then you have tier twos that are your major assembly. These are subbillion dollar businesses that feed into the tier ones. Tier threes are usually your machine shops and components providers. Then tier fours are your materials and processing houses. I would say the two things that do change a little bit—AS9100 is on rev D right now, which implemented management systems, a lot of what I’ve been talking about, which is how you manage the business. It doesn’t talk a lot about leadership but about management processes, procedures. And then also ITAR restrictions. ITAR is International Traffic in Arms Regulations. It’s the United States regulatory compliance procedure for exported defense and military related technologies. Really, it’s to safeguard the US national security and also to achieve our US foreign policy objectives. It’s about who you can and can’t sell your parts to, how you share information with your suppliers and your customers, how you talk about information. There’s also defense related programs: secret, top secret, and how those specialized programs and security clearance programs are. Those are probably the three things: the AS9100, ITAR implications, and security level and compliance to that as you handle sensitive government information.
Gregg Profozich [00:34:56] Thank you, Alex. We’re here to our last question, and then I’ll do a brief wrap-up. Alex and Ivan, both of you, do you have any predictions for the aerospace and defense industry in the next one to five, maybe seven years?
Alex Krutz [00:35:08] I would say we’re going to have probably a new airplane come out of Boeing. I don’t know if it’s in the next year or two, but they definitely do need to launch new commercial aircraft. I think that Airbus is probably going to wait on what Boeing does there and be second to market with that. There’s no rush. On the defense standpoint I do believe that the F35 is the fighter aircraft for our fifth generation. I think that will continue to grow. The B21 will come in. I think we’re going to see some legacy defense aircraft starting to get retired. I think we’re going to see some new defense applications. I think space is going to continue to grow. I don’t think it’s going to be as SPAA (Self-Propelled Anti-Aircraft) crazy and investment crazy as it’s been, but I think that there’s a lot of opportunity there. We’re going to see hypersonic missiles and technology really coming into the fold.
Gregg Profozich [00:35:57] Thank you, Alex. Ivan, anything to add?
Ivan Rosenberg [00:36:00] Alex and I are very complementary in the sense that Alex tends to be very aware from an industry perspective what’s going on, and I tend to focus on the individual company a lot and what’s going on with them. I think the world that they’re going to have to deal with… First of all, I think we’re going to get back to the successes of 2019 and so on. I think the industry is going to get back to where it was eventually. But the big pressures are going to be on a company to continue to lower its costs. I don’t think that’s going to go away, and I think it may even get worse. The other part of it is workforce. There’s been a continual workforce shortage. That is not going to get better. Therefore, they’ve got to find solutions to that. I think that one of the solutions is making themselves more attractive to people to work there. If you look at why people are going up and working for SpaceX or they work for some of the other early-stage companies is because they’re exciting, and that’s because they’re going to make more money there. Attracting people. I think adopting the technology that Alex mentioned, that’s going to see big changes. I think cybersecurity is going to get more important, as Alex said, both for the medium-sized company, but it’s really going to penetrate to the small companies, because that’s really a weak spot right now. If I can get into a small company and do bad stuff, that could permeate itself up the chain. They’re going to have to watch for that. I think they’re going to become more aware of and more planning for risks. I think the pandemic and the 737 MAX issue shocked the heck out of people. They’re going to take risks more into account in their planning. As I say, summary, optimal productivity of the workforce. How do I make maximum use of the people that I got?
Gregg Profozich [00:38:04] Excellent. Thank you, Ivan. I think those are some great points. Anything else to add before I go into a summary?
Alex Krutz [00:38:10] I think, Gregg, Ivan’s points are spot on. Risk assessment is tied into strategy. Risk assessment is going to be really key. I totally agree with him. Costs are going to be a driver of businesses. I think we’re going to see some plant consolidations, some pruning of some legacy businesses that maybe aren’t going to make that because of a variety of reasons: their cost structure, their strategy wasn’t good, they didn’t pivot in the times in the years past to where they should have. Ivan also brings up—because he’s a guru when it comes to training—training the new workforce and engagement is going to be really key. A lot of valuable tidbits there, for sure.
Gregg Profozich [00:38:50] Absolutely. Well, thank you both. I’m going to do a quick summary. We started off talking a little bit about the current environment and ecosystem and some of the challenges that aerospace and defense manufacturers are facing: issues and conflicts in Russia, Europe, and Asia; Chinese policy towards non-Chinese manufacturers; cost and inflation; labor availability; supply chain issues; lead times; plant consolidations; distressed suppliers and supply chain interruptions; inflation and cost; interest rates. All these things are very dynamic and very significant right now in the aerospace and defense industry. We talked a little bit about the role of strategic planning and the purpose of it. Ivan shared with us the purpose in getting past 5 years, getting out to 10, 20, 50 years and having some very aspirational and some very inspiring things that people can get aligned with and then pulling that into the tactical for the 1- to 5-year plans and some of those activities that when people have a sense that they’re making a difference, that’s when things really start to take off. Then we tied that into culture. Ivan shared with us a little bit about making sure do you have the right culture and do you know? Well, did you have clear strategic and tactical goals, and have they been well-communicated? Does everyone know and support those goals? Is everyone aligned? Is everybody rowing the boat in the same direction so we’re going straight, or is it people rowing in different directions so we’re doing circles, or if we’re going in the same direction, that’s the thing we want? Is there cooperation or conflict between the departments? Those are some of the ways you diagnose it. Then you can get into aligning the culture behind that strategy and really making sure that the organization is built and is set on a good course for the future. We talked about some of the opportunities in A&D, vertical integration being one, wherever possible for a small manufacturer to get more of the value added that’s being produced in a part under their own roof or within their control. The second thing was defense diversifications. Look at different programs and platforms that are happening within the Defense Department, within the regional jet market, and platforms, et cetera, et cetera. Then the third thing would be digital design manufacturing and services, when we talked about that digital thread and that digital manufacturing and engineering piece. We talked a little bit about leadership and management, management being tactical, and about accomplishing goals and leadership being strategic and about creating the possibility of a future that’s not going to happen but getting people aligned, enrolled in part of that. That goes back to that culture and that strategic planning comments that we had a little earlier. We talked about technology trends: CMMC, data transfer, advanced machines that are going to be required for that digital design manufacturing service and services, that DDMS. We talked a little bit about some of the regulatory and compliance changes. We talked about AS9100 rev D compliance, ITAR restrictions and some of the changes there, as well as security level and compliance for materials. Then we wrapped up with some of the future look, if you will, the new airplanes expected to be coming out of Boeing in the defense area, the F35 program growing, some legacy aircraft being discontinued or end of life, which means that anybody in those supply chains is going to have to do a little bit of shuffling, and then the B21 being released, and growth in the space side of the aerospace and defense industry. Ivan mentioned for us a belief that there’s going to be a reset to the 2019 growth trajectories at some point. But there’s some big pressures coming. One, constant pressure to lower cost. There are workforce issues with how do we get people in, and how do we solve that problem of the younger generation not seeming to have the same kind of affinity for the kind of work that happens in manufacturing as other generations, adapting to technology, cybersecurity, much more sensitivity to risk planning in light of the pandemic and the 737-800 MAX, et cetera, et cetera, and then trying to figure out ways to optimize the productivity of the workforce. Those are, I think, the items that we covered and some of the important or significant things I pulled out of the conversation. Did I miss anything, or did I misstate anything?
Alex Krutz [00:42:48] Wow. I can’t believe we covered that.
Ivan Rosenberg [00:42:52] Yeah. I look forward to hearing this.
Gregg Profozich [00:42:55] Excellent. Well, Alex, Ivan, it was great having you here today. Thank you both so much for joining me and for sharing your perspectives, your insights, and your expertise with me and with our listeners.
Ivan Rosenberg [00:43:07] Thank you.
Alex Krutz [00:43:07] Thanks, Gregg. Really appreciate it.
Gregg Profozich [00:43:09] To our listeners, thank you for joining me for this conversation with Ivan Rosenberg and Alex Krutz in discussing the aerospace and defense industry in California. Have a great day. Stay safe and healthy.
Thank you for listening to Shifting Gears, a podcast from CMTC. If you enjoyed this episode, please share it with others and post it on your social media platforms. You can subscribe to our podcasts on Apple Podcasts, Spotify, or your preferred podcast directory. For more information on our topic, please visit www.cmtc.com/shiftinggears. CMTC is a private nonprofit organization that provides technical assistance, workforce development, and consulting services to small and medium-sized manufacturers throughout the state of California. CMTC’s mission is to serve as a trusted adviser providing solutions that increase the productivity and competitiveness of California’s manufacturers. CMTC operates under a cooperative agreement for the state of California with the Hollings Manufacturing Extension Partnership Program, MEP, at the National Institute of Standards and Technology within the Department of Commerce. For more information about CMTC, please visit www.cmtc.com. For more information about the MEP National Network or to find your local MEP center, visit www.nist.gov/mep.