Vertical Integration: a Growing Trend Reshaping the Aerospace Industry

Vincent Espie, Richard Hauser, Dr. Hans-Jörg Kutschera, Benoît Romac, PwC Strategy&


The aerospace industry is going through an unprecedented ramp-up. With this, many quality and delivery issues arise, leading to tensions between airframers and its suppliers. In addition, the operating profit of Airbus and Boeing is two to three times lower than the margins of their main Tier-1 suppliers, who earn up to 15%-20%. One major reason is due to the surprisingly small value-add captured by airframers in the complete aircraft production value chain. By outsourcing the most complex parts of their aircraft, Airbus and Boeing have also lost control of the highly lucrative aftermarket for servicing aircrafts. All in all, this is leading airframers to launch initiatives of vertical re-integration (e.g. wings, nacelles, pylons, several cabin monuments …) similar to what has been seen in the automotive industry over the last few years. The objectives are manifold: capture more value, de-risk the industrial chain, boost innovation, develop better products, obtain cross-platform synergies and sometimes break monopolies. In response, suppliers are consolidating to achieve economies of scale and to offer more integrated BFE products to airlines (e.g. UTCRockwell Collins-B/E, Safran-Zodiac plus several aerostructures M&As).

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