This year marks exactly ten years since all NATO countries pledged to spend at least 2 percent of gross domestic product on their national defence by 2024. The reason was the Russian annexation of Crimea and the occupation of the eastern Donbas in Ukraine. Although such an investment is more topical and urgent than ever, scaling up in aerospace is easier said than done. ‘You immediately see a catch-up in demand. The problem is that neither our own organization nor the suppliers can follow’, says Edward Voncken, director of KMWE Groep in Eindhoven.
KMWE Aerospace has invested heavily in new housing, machines and infrastructure. ‘We’re ready to grow.’
‘Due to sanctions, titanium delivery times have increased from 60 to 90 weeks’
Looking back, Voncken notes that during and after the Covid pandemic, KMWE Aerospace’s commercial market slumped enormously. ‘Seventy percent of our commercial business then disappeared, which happened fairly quickly. The low point has been behind us since last year’, he says. ‘Covid also caused many of our customers to experience financial problems. That’s why there has been considerable reorganisation and capacity reduction. As a result, a lot of knowledge and expertise was lost in 2020-2021.’
From 60 to 90 weeks
Due to the poor market and rising material prices, no investments have been made in additional capacity. ‘Now they’re faced with shortages due to increasing demand. And restrictions on materials coming from Russia and China further reinforce this.’ Stijn Daemen, Aerospace director at KMWE, illustrates this with an example. ‘For titanium, a light and strong material widely used in the aerospace industry, there are only two major sources worldwide: one in Russia and one in the Southern Hemisphere’, he says. ‘Due to the trade barriers towards Russia, the entire market is shifting and attempts are being made to source titanium elsewhere, while the number of suppliers is therefore limited. As a result, delivery times have increased significantly from 60 to 90 weeks.’
System inertia
KMWE Groep, active in the semicon, aerospace, high-tech and industrial markets, moved its aero activities from Strijp T to Brainport Industries Campus last year. While the military business remained stable for KMWE Aerospace during the Covid period, it is currently growing under the influence of global conflicts. ‘Our order book for the defence branch is well filled, but we don’t see any additional orders opportunities yet because many governments worldwide are increasing budgets’, says Daemen. ‘Due to some system inertia, industrial production capacity and know-how have not yet been restored to normal.’
Opportunities lie in the US, for instance, where work is being done on the sixth-generation fighter, the successor to the F35. Similar developments are manifest elsewhere in the world – in Turkey, India, China and also here in Europe. ‘The use of drones in military aerospace is increasing and with it their significance for the market. Cheaper resources versus expensive systems, as you see in the Middle East now. As a result, the development of unmanned drones and aircraft is gaining enormous momentum’, says Voncken. ‘We’re currently not doing anything in this regard, but we do see opportunities for 3D printing. Perhaps we can play a role with our niche knowledge. That isn’t easy, because OEMs do not yet involve suppliers in the development.’
‘Our government should do more to position Dutch industry. Other countries are much more compelling, they ensure enough business returns to their own country’, says Edward Voncken. Photos: KMWE Groep Patrick Ouwerkerk
One Europe?
The invasion of Ukraine and the war in the Middle East have strengthened the call in Europe for its own defence industry. ‘There’s a realisation that this is necessary, while investing in defence has been a dirty word for a long time. The condition is that a level playing field is created, so we’re no longer dependent on technology from the US and can maintain our own European standard in the field of defence’, Voncken argues. ‘The big challenge is, as always, can European countries find each other? There are many initiatives, but will we have one Europe, one development or many parallel developments that we can’t afford?’
Daemen also states that Europe is currently far from being united. ‘Some countries join American systems, including the Netherlands and Belgium. France and Germany are following their own course and are now developing the successor to the Eurofighter, while England has abandoned that and is now building its own platform together with Italy and Japan’, he explains. ‘There’s no single European investment policy. And in fact it’s already too late, because you will only reap the benefits of such developments in ten or fifteen years.’
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Voncken notes that few parties in the Dutch defence industry are involved in new construction. ‘Our government should do more to position Dutch industry. If we place billion-dollar orders in the US, we also have access to that technology. Other countries are much more compelling, they ensure enough business returns to their own country.’
Difficult environment
The commercial market has also recovered after corona. Aircraft manufacturers, especially Airbus, can grab a large share of the market, but the engine suppliers – our customers – are lagging behind. We see enormous pressure to scale up in terms of capacity, but it’s a difficult environment to quickly come up with technological alternatives’, says Voncken. ‘So 3D printing is an alternative to material shortages and long lead times. But before such a new technology is released in aerospace and is in the process, it takes a very long time due to standards and procedures. At the moment, more aircraft are being purchased than they can handle.’
KMWE Aerospace itself has invested heavily in new housing, machines and infrastructure. ‘We’re ready to grow, but we’re still watching the situation. How is the market developing, where can we offer added value’, says Voncken. ‘Initially, we focus on making maximum use of our investments. We’re also looking at other markets, because some operations in the defence market also appear to be suitable for semicon.’
Higher costs in Europe, significant subsidies in the US
Voncken and Daemen also keep a close eye on developments in the global supply chain. Due to price pressure on some parts, KMWE is starting aerospace activities in Malaysia, where it has been active in high-tech, mechanical engineering and semiconductors since 2009. ‘The entire market is repositioning itself worldwide. We look at the best area to take action. In Europe, we’re dealing with cost increases, while in Asia and the US, governments hand out significant subsidies to attract business. Inflation is another competitive disadvantage, especially now that the US is using the Inflation Reduction Act to keep parties in business. We have to remain competitive in that playing field.’
