Aerospace Clusters: Local or Global Knowledge Spillovers?

Industry and Innovation, Mar 2005 by Niosi, Jorge, Zhegu, Majlinda

Economic concentration in this industry is very high. For each sector (large civilian aircraft, regional aircraft, business jets, helicopters, etc.) there are only a few competitors. Barriers to entry are very high due to capital commitments required to design and produce aircraft. Competition among the few is however strong. The industry is hierarchically organized into "tiers". As summarized in Figure 1, at the top of the pyramid one finds the airframe assemblers (prime contractors or OEMs) such as Airbus, Bell Helicopter Textron, Boeing, Bombardier, Embraer and Eurocopter. These companies design planes and helicopters, prospect markets and order subassemblies from the second tier. At this second level, we find manufacturers of propulsion systems such as General Electric, Pratt & Whitney or Rolls-Royce. Producers of on-board avionics, such as Honeywell in the USA and Sextant Avionique in France, also belong to this category. Tier 2 also includes manufacturers of airframe structures and subassemblies such as landing gear, nacelles and hydraulic systems. Messier-Dowty (France) and H�roux-Devtek (Canada), both producers of landing gear, belong to this category. Tier 3, producers of electronic subassemblies, hydraulic systems and fuselage parts, is also a very concentrated group of producers at the global level with a handful of firms dominating each segment.

One other group of firms is usually added to the pyramid. Aerospace clusters always include hundreds of small and medium manufacturers offering parts and components assembled by tier 2, 3 and sometimes by tier 1 firms. Even if these firms often get most of their revenues from the aerospace industry, they are also offering their products and services to a large range of other industries.

Most large aerospace clusters thus consist of one or several OEMs surrounded by hundreds of small and medium-sized tier 4 suppliers of components and parts. In aerospace clusters, knowledge spillovers are technology based and centred on supply chain management linking the OEMs and their suppliers. Unlike biotechnology, in the study of aerospace spillovers, citations to patents and licensing are useless as measurement methods: these companies do not usually publish scientific papers, or license technology, and their processes are most often protected through secrecy rather than patents. Supply chain management is the vehicle of knowledge spillovers in this industry. This chain is basically international. Supply chain management includes such dimensions as technical specifications, concurrent engineering, strategic engineering alliances, quality control, product co-development, certification of suppliers, delivery time, risk-sharing, cost-sharing, production volumes and prices (Bozdogan et al., 1998; Gostic, 1998). Aerospace prime contractors have moved from arm's length American-style procurement practices to more "Japanese" inspired supply chain collaboration with both OEMs of subassemblies and suppliers exchanging knowledge on products, processes and costs. Interfirm teams and OEM training schemes aimed at the suppliers are major mechanisms to transfer knowledge from one organization to another, across borders and regions.