Third Bridge访谈讨论ITP Aero产能爬坡、MRO转型和供应链瓶颈

[[00:02:44]]
What would you say are the top three questions that ITP Aero's management is facing today?

[[00:02:53]]
I think the first one is ramp-up production. Since ITP, in the last years, is diversifying across multiple programmes, I think one of the issue is to ensure that the industrialisation is ready or is as much developed as they need to cover these kind of ramp-up requirements. It's something that I hear still nowadays around the aerospace industry. I think Airbus is facing the same issue because I visited Airbus some weeks ago. Their bottleneck right now is industrialisation. It's not enough with the production rates the industry has for getting the productivity and also the margins. I think the industrialisation is a key point. Another point that will be somehow diversifying because ITP also move little by little to the maintenance or MRO business, sometimes, it's difficult or could be a challenge to maintain or how to prioritise between those different businesses because manufacturing and MRO, they are very different business, they are operated in different plants, fields. I think that it will be, as I said, somehow a little bit challenging at least for the planning and supply chain vision. That is my main expertise.

Also, I think we are all waiting for the next generation of the aircraft. We can say that Airbus and the main manufacturers are preparing the next generation of the aircraft. We know some critical airlines, and one of them could be a next generation of engine's propulsion because they need to meet also the environmental points for reduction and try to be close to the green objectives for the European Union. That will be another issue because maybe the technology is there, but it's not easy to introduce all the technology advancement in just one phase. Changing from one generation to another, it's a big step. Ideally, all these kind of developments could be included in one phase, but, practically, that, I think, is very difficult, so maybe they need different stages to incorporate all this next-generation propulsion.

[[00:06:48]]
Rolls-Royce is the key pillar of ITP's commercial business. You have the Trent XWB for the A350 and the Trent 7000 for the A330neo, which are primarily low-pressure turbine modules from ITP. How is the Rolls business currently evolving? What are the key strategic questions between the two companies?

[[00:07:15]]
I think Rolls-Royce is a key pillar for ITP because it's not only a client, it's a strategic partner because we had an agreement or a partnership. It's a risk and revenue sharing partnership. That changed a little bit how we can analyse this partnership because it's more close than a business supplier-client relationship. I think, now, the Trent XWB is getting high volume. It was one of the models that was better (inaudible 08.19) and we had a proper visibility of the projections to manufacture the engines. For example, with Trent 1000, somehow we faced some kind of problems, so the supply chain needed to find double sourcing in this case. I think that's the main points. The low-pressure turbine is one of the main assemblies or components for ITP because we're strong in that kind of technology.

[[00:09:19]]
To what extent does ITP's independence from Rolls create operational friction or data siloing requirements when collaborating on future Rolls programmes such as the UltraFan? How is the company managing this delicate balancing act of being a critical partner to other OEMs as well as its legacy partner?

[[00:09:46]]
I think there is not a conflict because I think ITP is trying to improve or increase the relationship or the business revenue with other OEMs, but I think they are trying to maintain the same business revenue with Rolls-Royce. In the case of the UltraFan, because I was a little bit involved in that programme, as I said before, I think the technology is, more or less, developed, but the problem now is how to incorporate these technologies in the engines. For the supply chain point of view, we did many exercise trying to measure the capacity, identifying the bottlenecks, diversifying some suppliers and also securing strategic commodities because this UltraFan has new materials, new coatings, and that is a challenge also speaking from the supply chain point of view.

[[00:11:27]]
Do you not see the balance as a challenge? Do you not see ITP's old partnership with Rolls getting in the way of new partnerships with Pratt & Whitney and OEMs?

[[00:11:40]]
As I said, I don't think so because the growth, for example, with Pratt & Whitney was gradual, and I think it's going to keep the same pace because you need long cycles, you need to have some industrial qualification, some investment. It goes little by little. Overall speaking, I think the market is expanding, and, of course, ITP wants to be more independent from Rolls, but I think that relationship, as I said, is very strong because it's another strategy. They are partners. For the moment, I think it's not a conflict.

[[00:12:44]]
How quickly can ITP scale its new risk and revenue sharing partnerships with non-Rolls major engine OEMs, such as Pratt & Whitney?

[[00:12:58]]
As I said, I think this kind of partnership in which they are partnered with another OEMs is getting slower because it's very difficult to ensure the quality, the capacity at the same time. With Pratt & Whitney, we started some years ago doing this kind of validation, collaboration, but I think it still takes time. As I said, the industrialisation challenge and this potential line of work also is very aligned with this idea of trying to scale new partnerships.

[[00:14:07]]
ITP Aero is set to deliver its full volume of combustors in 2026, supporting the continued growth of Pratt & Whitney's GTF engine programme. The company plans to scale its advanced manufacturing and reach full volume delivery of combustors for the PW1500G and the PW1900G, which power the A220s and the Embraer E2s. Could you walk through the key risks in this process?

[[00:14:40]]
Talking about risk, I think, from the point of view of the supplier network, capacity is one of the key issues. For example, to be able to accommodate this new full volume, ITP used to negotiate long-term agreements or contracts with suppliers just to reserve some kind of capacity even if, at the beginning, you are not able to use all this capacity. It's just one of the strategies that ITP follows for the critical elements and anticipating these full volume projections. That strategy was done for these engines. For example, another risk, that's why I comment about the talent of the workforce, is to have the people prepared to work in these programmes because they perform a high-quality or high-specialised task, and, sometimes, the bottleneck comes from the workforce because it's not super easy to find the right people to perform this job. I think one of the strategies, of course, is digitalisation, industrialisation, so they try to improve their ratio between operator and how many machines can they operate at the same time. I think, when I was in ITP, it was one operator for two machines, and now, they are trying to develop a plan, a project to achieve one person for three machines because, as I said, I don't know if, currently, it's already challenging the production, but they expect, I think, to have this kind of bottleneck when they ramp up.

[[00:17:24]]
What are the key bottlenecks you mentioned? Are they in any particular suppliers, such as precision machining with ANT Industries or Midlands, or are they more in forgings, castings and raw materials and powder metallurgy suppliers, such as Aubert & Duval? Are there any critical raw material suppliers?

[[00:17:52]]
When I was there, the first bottleneck was the raw materials. When I enter in ITP, we just passed the COVID, so it was a big, disturbing situation, and we had a lot of problems with the raw materials, the prices, the volatility. That was one point to follow very close.

[[00:18:24]]
Was that on the titanium and nickel alloys?

[[00:18:26]]
Yes. Especially those. Also, steel superalloys were affected by this context. We all expected to recover at some point, but I think, nowadays, they are facing a similar situation with the Ukraine war. Everything in the geopolitical context affects these commodities. Also, we have a problem with the electricity prices because we have some kind of contracts already negotiated with these commodity suppliers and then some things change or we need to review or renegotiate some contracts in order to get maybe better deadlines or deliveries, just paying a little bit more.

[[00:19:37]]
What is ITP's energy hedging policy?

[[00:19:43]]
I can speak more about with the suppliers because for ITP, as a company itself, I think they negotiate some of our long-term contracts to have the price, more or less, fixed, and when we speak with suppliers, we tend to advise them to secure also these kind of contracts because if they are exposed to the volatility of the prices, maybe they have the risk generating some losses. Our price sometimes goes a little bit adjusted because we were acknowledged about the situation and we tried to be fair, but we couldn't adjust all the difference between the contract and the current prices. Sometimes, the supplier could have a difficult situation if they don't secure some kind of stability in their prices. As I said, for commodities, it's just (audio distorts 21.26) external issue because we cannot affect these prices, and commodity is an open market. You are exposed to them, so you have to try to anticipate, secure some batches and then (inaudible 21.54). It's quite challenging.

[[00:21:57]]
Do you expect ITP's build-out for its partnership with Pratt & Whitney on the GTF engines to be on time and on budget?

[[00:22:09]]
As far as I know, when I left ITP, yes, we were on time to secure at least the supply chain ready. I think the technology is also tested and improved, but I think, now, the aerospace industry is growing, so maybe (talking over each other 22.41).

[[00:22:42]]
You don't see any reason why it could be delayed. You think that it's most likely to come in on time and budget. Is that right?

[[00:22:50]]
It's difficult to say from my point of view. Maybe there are some delays, as I said, because you have to cover all the supply chain. I will say that, from ITP, capacity and technology was covered, but you are exposed to the supply chain and your supplier deliveries, so maybe some kind of adjustment has been made. This is quite common. If we are speaking about long project, we are going to be manufacturing and delivering and also aftermarket services during long time, it's quite normal to move the projection from one year to another and compensate between different years. In the end, you end up manufacturing the same amount but not in the same timing that you have expected from the beginning. That's quite normal, I think.

[[00:24:09]]
I believe ITP is not only joining the manufacturing part of the GTF from Pratt & Whitney, but also joining the MRO [maintenance, repair and overhaul] network, so providing component repairs as well as the manufacturing lines. The company is preparing its Ajalvir facility near Madrid to handle these full engine inductions and testing, which is new. Is this correct?

[[00:25:03]]
Yes.

[[00:25:33]]
MRO is not ITP's core bread and butter. What does the roadmap look like to make these changes in CAPEX plans? What are the key risks?

[[00:26:10]]
I try to say from my point of view because I was not in Ajalvir. I think, in that plant, as you said, it's in Madrid, they perform a super important adaptation or renovation or project to adapt and to establish the capacity to do these kind of MRO services because, as you said, they are different from the manufacturing or the assembling task that they perform also there. I think they started repairing some components, like little services, and then the idea was to move to full engine services. I think the roadmap is starting with small or individual components and then try to perform the MRO to the full engine and then try to maintain or keep this business line. Regarding the risk, I think the main issue is to comply or to be able to deliver the turnaround time because it's the main KPI when we are speaking about the MRO because time is always useful and valuable in these kind of services even more.

As I said, the ramp-up is a challenge and also trying to prepare the people. I think ITP spent some money trying to get the people trained with the capacity, the certification and everything ready to comply with the roadmap, and that takes time, trying to be prepared in all aspect. It was a priority at least at that time for ITP because I think it's another part of the strategy. As we said, they want to diversify, not only to be dependent on one OEM, so the MRO was also a strategic decision because it's also a different business line, more profitable, with some challenge because the predictability of the business is difficult, but recurrent revenue and the margins and the profitability from this new business line, I think it's better.

[[00:30:15]]
How do you assess the risks and hurdles for ITP transitioning from a manufacturer to an independent MRO provider? What is the structural difference?

[[00:30:29]]
I think the main difference is, in manufacturing, you have to optimise a little bit the cost, always keeping the quality. That's, for sure, in aeronautic industry, something that is not negotiable. For example, for the manufacturing, the demand is somehow predictable. You can also, for example, plan your stocks or your inventory. That is, financially speaking, a big issue for the companies because you have a lot of money invested in your stock, in your warehouse. Also, the logistics for manufacturing are more or less optimised. As I said, the main metrics are quality, of course, cost and then OTD, how your productivity is on plan. For example, for the MRO, the demand is less predictable, so you have to be, sometimes, reactive, have the capacity and the resources to have somehow a margin for this kind of reactivity. Also, the inventory or the stock warehouse strategy is different because maybe you have to invest more on having the critical components stock even if, financially speaking, it is not a good decision. The logistic is also very complex because, sometimes, you have to move the full engines, so we are not speaking about the current or the common logistics. That's another issue and challenge for us.

[[00:33:00]]
To what extent would you say that the DNA of ITP's business is changing? Moving from manufacturing to MRO involves changing the tooling and machinery, the training and the inventory management. Would you agree, or would you say that the vast majority of the MRO business that the company does would be manufacturing of spare parts, so quite similar to manufacturing?

[[00:33:31]]
Of course, the business is different. Maybe the technologies are, more or less, the same, but how you run the business, how you soon react or plan your operation, I think, is somehow different. For ITP, now, they have to combine both sites. When, for example, we were doing the planning for the components, we have visibility for the manufacturing projection and those programmes, but we always try to understand or guess if we are going to have some necessities in the short term for the MRO business and we need to send critical components to Ajalvir because they need it on time. It's somehow different.

[[00:34:42]]
Would there be major CAPEX programmes to change ITP's equipment from forging, machining and welding, or do you think that a large part of the manufacturing factory lines will be able to service the aftermarket and MRO facilities?

[[00:35:05]]
I would say the machinery and technologies that serve the MRO will be, more or less, the same from the manufacturing business, so I don't think that the CAPEX will be the bottleneck. I think the OPEX in this business is more important. In the OPEX, I think, is where you get the margin, not in the CAPEX because, sometimes, the CAPEX could be, financially speaking, a burden, but you invest and there you have your machine and it's more predictable. The OPEX planification means a high margin, a good profitability. If you fail in your operation, maybe you lose your margin. I think, in this business, OPEX will be more important.

[[00:36:21]]
What would you say is the number one risk for ITP as it moves the operation of its business from manufacturing to aftermarket?

[[00:36:38]]
For me, it's always people. It's governance because when you have different plants, different teams trying to run business from different point of view with different strategies, different objectives, different metrics, it's difficult to get everyone aligned. When we speak about this critical component, as I said, you need to plan, taking into account the different businesses or different business units or revenues. For me, I think governance is a critical point just to keep the balance and try to make the better decision for the whole company, not for the different plants or business area. I think this challenge is something common in every multinational company because everyone is trying to perform better in their field, and, sometimes, that could be difficult. I am also somehow optimistic about that because, now, we have more data, we have better systems. I think ITP did a very great job integrating ERP system, having everything centralised control and with traceability. I think people is now the challenge part.

[[00:38:44]]
To what extent is moving to MRO more complex? I understand that there is more advanced inspection and testing involved, with some advanced non-destructive testing, automated digital X-rays, radiography, fluorescent penetrant, looking at microscopic details, whereas machining strategy for manufacturing can be automated powder metallurgy additive sintering systems that shape raw metal blocks over long predictable cycles, which I believe is simpler. What do you think?

[[00:39:32]]
I think automation and robotisation, that's the super goal for every industry, every field, also for ITP. I think the goal is there, the ambition is there because, as I said, the productivity is a challenge, industrialisation, and that transformation comes from these robots, automated machines and so on, but I think it's still early to have these kind of technologies or capabilities in full production. I think that everyone is investing a lot of money in this issue because the perspective and the ambition and the potential is very high, but I think it's still somehow in a pilot phase because, at the end, you need certification from EASA or what is the certification body in Spain. I know about this issue because I worked in some European projects that want to move forward with this kind of certification, but, still, there is some years ahead to have the industry ready for different certification in applying AI, more unattended processes and especially, for example, in certification tasks like non-destructive test. The issue is there, the ambition is there, EASA has a roadmap trying to integrate artificial intelligence in the processes. but I think it's going to take time. I cannot think about less than five years, but let's see. Everything is accelerating, so maybe this issue also.

[[00:42:10]]
What are the opportunities within defence for ITP? Geopolitical shifts have led European nations to increase their defence budgets, which has been great for the company's military division, with the Eurofighter engine and the A400M engine from Airbus as key pillars. How would you assess new opportunities now that the FCAS [Future Combat Air System] has been cancelled?

[[00:42:43]]
Yes, it's a principal (inaudible 42.49) because the defence policy is changing day by day and it got in a very different situation than when I worked in ITP. ITP was created to manufacture this Eurofighter engine, so it has been always very related with this programme. I think, in that sense, for the Eurofighter and also for the A400M engine, it's going to be still some years ahead for providing new engines and also for the manufacturing and MRO services. Of course, the new programme cancellation is not a super good news, but I think all the capacities, all the technologies that has been developed under the programme will be, let's say, easily transferred to civil programmes. Also, inside the FCAS programme, there are other capabilities or technologies that haven't been cancelled like sensor, cloud. We had the news about the aircraft for cancellation, but there are also another technologies (audio distorts 44.40) that will continue being developed. I think also the aircraft maybe take an independent line, but maybe in some months, we see a different programme but with the same objective of building the next defence aircraft because the money, as you said, is there and the necessity, I think, also is there. I think it was more a political issue, the reason why they cancel this programme more than a technological or industrial decision. That's my opinion.

[[00:45:41]]
How much wasted resource has ITP likely spent on R&D costs on FCAS so far?

[[00:45:51]]
I wouldn't say waste because, as I said, every research investment that ITP normally used to accept or pursue, they try to be transferable also to civil aerospace programme. I think the technology is related with new materials, new coatings, new capacities. I don't know at which point or when, but I think, at some point, they are going to be transferred to civil aviation. As I say, maybe there is still time to create or to build a new consortium to go ahead with this programme, so I think it's not waste.

[[00:46:51]]
Do you think that ITP would automatically be involved with the new sixth-generation fighter jet? If Germany goes alone or Dassault goes alone in France and makes its own sixth-generation fighter jet, would ITP likely remain within its existing role?

[[00:47:14]]
Here, I cannot be very objective because I would like to be involved as a country, let's say. I think it's very difficult to say because, as I said, the cancellation was a political issue, so maybe we have to face again a political negotiation. I think Spain has a strong industry, a strong history in this kind of programme, and I think if we want more European collaboration, I don't know if ITP being specific, but I think Spanish industry should be included, and because we are competitive in terms of cost. When you see or when you review European projects, we can see that we are super competitive speaking about costs, so I think we have an opportunity in that sense, and ITP has a long history with the defence industry collaborating with Germany, France. I think the consortium should be a consortium, not just national programmes only.

[[00:48:43]]
Could you walk me through how to think about ITP's supply chain? How many suppliers are there, and of what type? What are the shares of material components – nickel alloy, titanium, aluminium, steel alloy, etc?

[[00:48:58]]
How many suppliers in general? Let's say, hundreds of suppliers. For each critical component, it is difficult to say in a general view, but at least two or three, it's possible, different location with different circumstances, try to diversify the risk. Obviously, for critical components, double-sourced suppliers. That's redundant.

[[00:49:37]]
How many tier 1 suppliers would you estimate ITP has?

[[00:49:42]]
In total? It's very difficult, but hundreds. I don't know if 200, 500. It's very difficult to give a number. It's not more about the number of suppliers because they have the people who manage a big number of suppliers. It's more about how many critical supplier they have.

[[00:50:13]]
What would you estimate to be the share of material of components for nickel, titanium, aluminium and steel components?

[[00:50:25]]
Difficult to say a number. I don't know because it's different if we are speaking about the low turbine or the other components. I think the point is they are increasing. That's my understanding. I think it's the point, these kind materials are more needed than ever because, as we said, environmental issues, policy complaints and so on, so I think they are increasing their importance in the engines and, obviously, in the supply chain.

[[00:51:22]]
How closely does ITP monitor tier 3, 4 or deeper suppliers?

[[00:51:31]]
Depending on the criticality of the part, but for critical parts, I think they went not only to the direct supplier, but also to the different levels. From my point of view, when I worked there, it's more that we support our supplier to make some kind of audit capacity, workload to their suppliers. Going to the tier 2, 3, as high as you need. When you find where the bottleneck is, you stop and try to fix it.

[[00:52:38]]
Prices and energy costs are unstable and rising, creating uncertainty in the supply chain. How is this evolving today with the Middle East conflict?

[[00:52:53]]
I am going to guess a little bit because I was not in ITP, I am not right now and when these issues came. I think it's always these kind of geopolitical issues, a big concern, but it's more, for the long term, a strategy because the operation in this aerospace, still, you need to have your risk covered for the short-term delivers or deadlines, but it's more about how you prepare your long-term strategy. The point is, right now, we are not only facing problems with electricity, supply chain logistics because (inaudible 53.58), but there are also new technologies. The Chinese industry, I think, is preparing a new generation of their own aircraft. You cannot take a risk one by one, and you need to approach them in a systematic way. That's, I think, why it's getting difficult to foresee the changes and be prepared because it's not a point of having, one by one, the risk covered because everything is affected by the other issues. You need to prepare, as I said, an integrated and systemic plan. It's a huge challenge.

[[00:55:06]]
To what extent does ITP get blamed for delays and bottlenecks from OEMs such as Rolls?

[[00:55:11]]
I think ITP get full responsibility for the delays. When you are the partner with the OEM, you are fully responsible for any delay. If you work together, of course, you can explain the reasons behind the delay.

[[00:55:46]]
Does often Rolls complain, saying it needs to deliver to Airbus and so on?

[[00:55:52]]
Not really, not really because you always have your plant with some buffer, because we knew that delaying deliverables to Airbus or the main OEMs is a critical point, so it's not happening very often. Also, from my point of view, we still have some steps before delivering. For example, we need to move the engine into Ajalvir, and then, from there, they move to Airbus or whoever. The closer you are to the client, the more the pressure. From my point of view, we still have some gap to adjust the deliverables.

[[00:56:54]]
To what extent do you think that ITP may encounter delays with EASA [European Union Aviation Safety Agency] certifications?

[[00:57:15]]
I cannot say because certification was not my main area. I think you have to work hand in hand with EASA. As I said, I know they are co-developing some kind of new certification or to certificate new processes parts. I think with EASA, it's more a co-development. When you are trying to certificate new processes or new parts or new whatever, I think the focus is more on getting the right thing done, and the quality and the security, safety is their main priority. I think, in these kind of processes, there are some kind of possible adjustment because the priority at some point is more to co-develop until you find the best certification solution or whatever. I think, in that sense, the responsibility is more cert. Therefore, the deliverable or the deadlines are handled a little bit different.

[[00:58:46]]
Could you talk about how generative AI could impact ITP's supply chain and sourcing?

[[00:58:52]]
I think AI was not a mainstream when I was in ITP, but from what I can see for the aerospace industry and other companies, I think the main potential or the main impact is to handle all the data. You are going to be able to support a vast quantity of data, and that's a good resource to manage the supply chain. I think, in that sense, there are different projects trying to capture the value from the data and try to simulate a digital twin for the supply chain. I think that could be a good example, and I think some money is being invested in that line of work. Then we will see because, as we said, automisation, robotisation, I think it's going also to be disrupted by the AI, but I think it's in an earlier stage.

[[01:00:28]]
We've come to the top of the time. Thank you so much for joining. Really appreciate your time and insights. Hope to stay in touch.

[[01:00:39]]
Let's stay in touch, and thank you very much.

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