White paper

Thrust through trust
Logistics for the aerospace
supply chain transformation
December 2022

2 | Thrust through trust

Executive summary

The COVID-19 outbreak in 2020 was
the most significant disruption everencountered by the aerospace industry.
Nations locked down, flights were cancelled
and aircraft were parked and stored.
The exceptional scope and speed of thepandemic affected each industry segment:
airline, MRO, OEM, vendor and lessor.

Logistics is a success-critical elementin every business model and strategy.
Four dimensions drive rebuilding
a better aerospace supply chain:data, sustainability, partnership andcontinuous innovation.
■

Even before this unprecedented turbulence,the sector showed signs of distress. Today,
the need for change has become a crucial
prerequisite for supporting sustainablegrowth.

■Over the last few years, companies havebeen affected in many different ways. In2020, it was about securing cash flow
and being agile. Through 2021, resizing
and preparing for growth was necessary
to assess future needs and suitablebusiness models. For 2022 and into 2023,
implementing plans and developing new
ways of working help build a more resilient
path forward.

■

As the industry prepares to transform,
so must the supply chain that powers it.

■

Data - Clean data and predictive
analytics are game-changers
Sustainability - Sustainability
leaders will also be the industry
leaders
Partnership - Integrating logistics
into a business model is a key
differentiator
Continuous innovation - companies
that innovate and embracecustomers’ needs will be wellpositioned over the long term

Keep reading to learn how dedicatedlogistics companies support airlines,MROs, OEMs, vendors and lessors so theycan exceed customer expectations. Trustand dedication are the key ingredientsfor achieving sustainable growth in theaerospace industry.

© 2022 Kuehne+Nagel3 | Thrust through trustContentWhite paper | 4

A message from Kuehne+Nagel
You are taking your first flight in a long time. While boarding the plane,
you receive welcoming smiles from the crew. You find your seat, sayhello to the passenger next to you and settle in. The aircraft is pushed
back and the engines power up. You glance out the window as theplane taxis down the runway, turns to line up and then takes off. You getthat familiar thrill of being gently, yet firmly, pressed back into the seat.
The power and the thrust. Then, you are aloft.

A message from Kuehne+Nagel

Looking back and the recovery ahead

The journey to transformation

Driving the transformation

A transformed supply chain: “Thrust through trust”

The aerospace industry is climbing out
after working in crisis mode during thedeepest disruption the sector has everseen. Supply chains have adjusted, adapted
and responded to change while navigating
uncertainty. Now the industry is taking off
again and rising to new altitudes.
Kuehne+Nagel is part of this upward climb.
During the pandemic, our relationships
with customers grew more meaningful,becoming genuine partnerships.
Partnerships of trust to accelerate thrust.
The past few years have confirmed what
we already knew: transactional businessis not the way to achieve a sustainable
competitive advantage—trust is.
Airlines, MROs, OEMs, vendors andlessors rely on logistics that deliver, but todo so efficiently, the supply chain has totransform. Trust in companies and people
provides the competitive edge everyone
seeks.
This white paper highlights the issues webelieve are drivers for rebuilding supply
chains. It outlines our ambition and vision
for the future and what is needed to climb togreater heights.
I, and our entire aerospace team, welcome
your feedback. We look forward to
exchanging insights and discussing newopportunities for mutual success.
With warmest regards,
Erik Goedhart
Senior Vice President,
Global Head of Aerospace© 2022 Kuehne+Nagel5 | Thrust through trust

Looking back and therecovery ahead
The industry has started to recover andeach week, more aircraft return to the air.
The demand for passenger transport isgrowing and cargo volumes are stronger
than ever. The aerospace sector is regaining
its footing, but there are still challenges toovercome before recapturing its full thrust.

Thrust: the force ofmoving an aircraft
through the air
Two disrupted industries
As countries locked down, business travel
came to a standstill and thousands ofaircraft were parked or stored. With somany passenger flights cancelled, aircargo capacity also declined. The volumes
available for “belly cargo” (freight carried in
the hold on passenger aircraft) fell by morethan 70%. Because belly cargo previously
accounted for half of all air shipments, thislead to bottlenecks and rate hikes.
Meanwhile, global sea freight experienced
other pressures that unsettled the entire
logistics industry. The Suez Canal blockage
caused by the 20,000 TEU vessel Ever
Given, disrupted 12% of global trade. The
market encountered shortages of containers
and manpower in ports and on the road.
Running parallel to all of this was steadyWhite paper | 6

e-commerce growth that shows no sign ofslowing down. These disruptions continue
to affect companies and their ability to serveend customers.
More than a bump in the roadIn 2017, IATA predicted that China would
be the world’s largest passenger market
by 2036. The same studies projected thatIndia would rise to third place and Indonesia
to fifth in air travel rankings. As a result, theglobal fleet could double from 20,000 to40,000 aircraft.
This long-term perspective still holds: half
the world’s population is not yet travelling,
but will do so in the near future. Airbus still
forecasts a demand of 39,000 new aircraft
between now and 2040—with only about
15,000 regarded as replacements.
The aerospace industry is accustomed todisruption, but the pandemic was a global
gut punch. The number of flights was at alevel not seen in sixty years, making it morethan a short-term setback. Such a significant
interruption further illuminates the urgent
need for change.
The long view
Analyst and consultancy firm Roland Berger
anticipates repercussions will affect theaerospace industry until 2026. A planned
ramp-up of narrow-body aircraft should
surpass pre-2020 numbers as early as
2023. The disrupted logistics market andsignificant growth in e-commerce createda lasting demand for dedicated freighter
aircraft. Slots for passenger-to-freighter
conversions are fully booked for the next fiveyears.
Given these trends and projections, OEMs
have asked suppliers to be ready to ramp up
quickly. Yet, doing so in a disrupted logistics
market calls for greater change with newconcepts and ways of working.
The World Economic Forum (WEF) suggests
a strong likelihood of similar events reoccurring. The industry has to be better
prepared to manage the next disruption.
Having a logistics partner who supports thetransformation of the present-day supply
chain, ensures it stays effective and efficientfor the future.

The journey totransformation
Transform: To change
greatly the nature,
condition or function
The aerospace sector has and continues
to experience distinct phases in its journey.
The "adjust" phase is over; the "prepare"chapter is closing and the "reform" stage isabout to begin.
2020: Adjust
In the early part of the pandemic, massesof aircraft were parked or stored and asset© 2022 Kuehne+Nagel

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values plummeted. Governments stepped in
to support the industry with securing liquidity
as a key focus and concern.
This phase saw companies resizing toensure their survival as well as a profitable
future. In the second half of 2020, "return"
scenarios began to be evaluated, while
hyper-care and agile decision-making
remained indispensable.
2021: Prepare
After the shock of 2020, aerospacecompanies began preparations for theexpected recovery phase. Passenger travel
became possible again and airlines had
decisions to make. Which business modeland core competencies should they move
forward with?

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The daily pressures of ground handling,flight irregularities, travel restrictions andsafety and security remain. Yet today, aircargo is still driving airline revenue streams.
In the next few years, passenger safety will
include touchless travel, flight sanitising andbiosecurity guidance. With virtual meetings
now part of the new normal, business travelis likely to remain around 30% below prepandemic levels, but air cargo is expected tokeep growing at a CAGR of 4%.
2022: Transform
2022 should see a move to the "transform"
phase with an amplified competitive
landscape. This includes developing aresilient infrastructure that can cope with thenext challenge.

The preighter–connecting the dots

As the need for passenger flights diminished, airlines scrambled to find ways to keep their assets
productive. The sudden demand for goods such as personal protective equipment (PPE) opened
up other opportunities. Wherever possible, aircraft were used for cargo only, with main passenger
decks temporarily converted for cargo carrying purposes: the preighter was born.
Kuehne+Nagel brought air cargo expertise to the table, helping airlines and lessors swiftlytransform passenger aircraft into preighters. Working closely with customers, Kuehne+Nageldevised a new ”Passenger to Freighter” (P2F) solution that shortens lead times by 10-15%.

Passenger travel will recover. New concepts,
like long-haul narrow-body (LHNB) services
using Airbus A321LR and A321XLR, will startto earn market share on intercontinental
flights.
A good example of a different businessmodel is the significant shift in the cargo
value chain. Logistics providers are buying
airlines and cargo aircraft to secure theircapacities. Moving forward, the decision isbetween whether we change strategies or
the way we work. Whichever is preferred,
returning to past actions is not an option. On
the passenger side, increased sanitisation
along with aspirations for a touchless cabin
will prompt a boom in aircraft refurbishments.
The supply chain transformation has
to meet new demands and lay thegroundwork to manage challenges in thismodified competitive landscape.

Logistics insightIn April 2020, Kuehne+Nagelevaluated the situation and discussed
potential strategies. We decided toremain committed to the aerospaceindustry and aim for an increased
share in a now-smaller market.
Our dedicated aerospace teamlaunched ambitious initiatives andbonded globally with customers as
never before. This included developing
new offerings for lessors, ramping
up engine logistics services anddeveloping a dedicated P2F solution.

© 2022 Kuehne+Nagel9 | Thrust through trust

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Driving thetransformation
Before 2020, aerospace was highly profitable
for logistics providers, but as the market
came to a standstill, interest rapidly declined.
As a labour-intensive sector, the workforce
substantially downsized and many people
left the industry entirely. In this low-volume,
high-value business, the outlook for logistics
providers was significantly different.

1. Data
2. Sustainability
3. Partnership
4. Continuous innovation

Data: predictive analysis

The key is to have one single source of data
for all transactions: movements, trade,operations, finance, CO2 and more.
Companies benefit from the power of datainterpreted and contextualised by skilled
analysts. It offers essential opportunities forstaying agile, flexible and resilient. Real-time

Clean data and predictive
analysis are gamechangers.
Sustainability

To position for the future, the way forward
is driven by four key dimensions: data,sustainability, partnership and continuous
innovation.

In the past, and to some extent today,
estimates have been reactive and basedon old data. Business predictions wereinaccurate because the models paid too little
attention to the rapid pace of change. Realtime data is integral to accurate forecasting.
With it, airlines, MROs, OEMs, vendors andlessors can acquire knowledge and insightsthat are invaluable for managing supply
chains and making agile decisions.

data and transparency are already available
for shipment visibility, but the predictive value
is even higher. When fully tapped, the impact
on strategic decisions, business scenariosand operational actions is invaluable.

myKN–
A single source of data

myKN is Kuehne+Nagel’s global
digital visibility platform. It is a onestop-shop for customers to quote,book and track their shipments.
myKN relies on a powerful
database that brings together
data for all shipments. This single
source keeps evolving and allows
for predictions of aerospacelogistics dynamics

To meet the 2050 carbon neutrality target,
the entire aerospace sector will invest ininnovation and establish mutually beneficial
ecosystems. While environmental
motivators are not the main driver, change
can only be successful with a heightened
focus on sustainable solutions.
In the short- to mid-term, these green gains
can be achieved through leading engine
technologies and greater use of SAF. New
electric and hydrogen propulsion systems
will play a significant role in the mid- tolong-term.
The role of the logistics partner is to support
the industry by developing solutions that
promote sustainable processes and lead tocarbon neutrality. For the present, making
environmental impact visible and measurable
is key. From there, companies can discussand agree on ways to reduce, avoid or offset.
Transparency and a single source of data aresimply the starting points.

The Zero Carbon
initiative

As the industry commits toachieving carbon neutrality by 2050,
Kuehne+Nagel has rolled out an
initiative to support reaching that
goal. Since launching in 2019, theZero Carbon initiative outlines twomain targets:
1. Be fully carbon neutral in our direct
sphere of influence as of 2020
2. Reduce CO2 emissions by 33%
for our footprint, as well as oursuppliers and customers, by 2030
(including scope 3 of GHG protocol )After reaching the first target asplanned our attention shifted tosolving the second. An important
step was offering customers thechoice of sustainable aviation fuel(SAF) for air shipments. This is justone of many advancements that
let us support the industry and ourenvironment.

The sustainability
leaders will be industry
leaders too.
© 2022 Kuehne+Nagel

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Logistics as an integrated
part of the businessmodel–and not as acommodity–will be apivotal differentiator
for end-customer
satisfaction.

advance new ideas. We cannot expect
different results without changing the way
we operate. By infusing agility and flexibility
into an organization’s DNA, teams that are
empowered and entrepreneurial will better
position their companies.

Those who innovate andmake customers’ needs apriority are leaders in theaerospace supply chaintransformation

Continuous innovation
With market dynamics shifting, theaerospace and logistics industries haveto remain resilient, adapt quickly andKuehne+Nagel insightPartnership: integrating logistics intobusiness models
With both industries disrupted, the role oflogistics is changing. Currently managed
as indirect procurement, companies try tosecure the lowest price per transaction—much like sourcing paper clips. However, thebasis for tenders has been data that is atleast a year old. For the long-range outlook,data will inform business decisions rather
than outcomes and the process will shift todirect procurement.
These changes were already underway
before the pandemic. Organizations

reduced the number of logistics providers
and entered into strategic collaborations
with a few trusted partners. Price was still
the dominant factor, but strategic datatransparency and sustainability weregrowing in importance. Supply chain design
also became interconnected with endcustomer satisfaction.
With the pandemic’s impact and global
markets in turmoil, logistics climbed to the
top of every C-suite agenda. Its businesscritical nature was vital for transparent
and efficient supply chains beyond any
company’s procurement teams. Logistics
is indisputably contributing to the make-orbreak strategies of the future.

As the pandemic evolved, we acted quickly to launch three initiatives to support customers
through the disruption:■

Connecting the dots – The urgent needto increase airfreight capacity resulted
in our P2F solution. It ensures aircraft
conversions are implemented fast andwithout any logistics-related delays. WithP2F, we have reduced conversion time by10-15%.

■

The touchless cabin – Based on lessons
learned, the world is seeking ways toreduce health risks. For travel, thismeans replacing human interaction withelectronic support, where possible.
We develop specific processes to help
airlines adopt the touchless cabin.

■

Leasing support – The leasing segment
has been challenged by aircraft, engine
and component repossessions—andvalues have not yet bottomed out. In
the recovery phase, aircraft have tobe prepared for their next operator ordisposed of in an eco-friendly way. We
launched a solution to support leasing
companies throughout the productlife cycle.

© 2022 Kuehne+Nagel

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A transformed supply
chain: “Thrust throughtrust”
Trust: confidence in aperson or quality
The recovery and ramp-up have begun,and aerospace is on track to exceed prepandemic growth. Founded on real-timedata and nimble decisions, the sector isWhite paper | 14

climbing again to be more resilient andsustainable. With the importance of personalcollaboration on the rise since the beginningof 2020, confidence in partnerships will be
the future of any competitive edge.

Airlines, MROs, OEMs,
vendors and lessors look
for partners they can trustto co-devise solutions,
keep promises and set
new industry standards.

Every company seeking to build long-term
trust with a logistics partner will ask andaddress three fundamental questions:
1. Who are they?
What are the DNA, identity andauthenticity of the logistics company?
What is their industry commitment trackrecord? Do they speak our language?
2. What are they?
Do they see logistics as a key element
in a sustainable future? Do they view
logistics as a commodity or closer todirect procurement in the businessmodel? Can they offer purposeful insights
and deliver a beneficial end-customer
experience?
3. Where are they?
Is the logistics partner ready for the next
disruption? Can they navigate throughuncertainty? Can they identify improved
methods and offer better solutions?
Do they work with one global sourceof real-time data to predict businessdevelopments?

Through innovation and collaboration,
beneficial and sustainable ecosystems
are created. The industry will be able toscale up–and, if necessary, scale down. A
solid partnership is established with the
backbone of a single data source.
Continuous interactions among all theindustry’s players will make the difference.
Complacency and trying to replicate thepast are not an option. The pandemic
has taught us better ways of working
together and bonding as partners throughchallenging times. Let’s make the mostof this experience to set new industry
standards.
Kuhene+Nagel is pleased and proud to beworking alongside the aerospace industry totransform its supply chain. Together we canreach higher altitudes, generating thrustthrough trust.

The way forward
Transforming the aerospace supply chain isa complex undertaking. It is an opportunity
to gain a competitive advantage in a new
business landscape, requiring all theexpertise, experience and commitment of achosen logistics partner.

© 2022 Kuehne+Nagel

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About us
Kuehne+Nagel is one of the world’s leading
logistics providers. We support our customers
in sea, air, road, and contract logistics witha focus on integrated and industry-specificsolutions.
We continuously work to offer relevant andinnovative supply chain solutions to theaerospace community. Our network of global
and local specialists ensures compliance withall regulations and industry requirements.
Learn more about our services→ kuehne-nagel.com