00:00:13: If you would like to record an episode to promote something, please contact Tom Heinkel through LinkedIn.

00:00:20: My guest today is Richard Avalafia from Washington

00:00:24: D.C.,

00:00:24: from the company Aerodynamic Advisory.

00:00:28: Welcome Richard!

00:00:29: Thanks Tom.

00:00:30: good to be here.

00:00:32: Well we're going see each other hopefully at The ELA in Berlin coming up a couple of weeks and You've been there before Right?

00:00:44: When was your first time in Berlin.

00:00:46: Yeah, I mean...in Berlin as a tourist before this.

00:00:49: but uh.. In Berlin for Eula it was a...I remember very well and It was fascinating because just few years after the end of Cold War at the end Soviet Union And they were starting to be points-of-contact between The West & East.

00:01:08: and the theme of Eula back then was Gateway To The East which sounded great in German, it sounded good in English too and kind of filled us with what's promised that maybe there could be an even larger globalized world of aerospace.

00:01:23: So I can see.

00:01:25: well the listeners can listen to.

00:01:27: you have a great experience on our branch more than thirty-eight years.

00:01:31: is that correct?

00:01:33: Yeah, yeah.

00:01:34: My my nineteen eighty-eight was when I started in the industry and nineteen ninety it was my first air show Farmer of nineteen ninety.

00:01:42: so i guess you could say having done exactly nothing other than aerospace...I've had a lot of experience with it!

00:01:48: We're going to talk about the aerospace market but the defense market here one of the global experts from these markets space market may be as well If we have a look at your curriculum, where you've been.

00:02:03: What have you done?

00:02:04: You mentioned to me that you also had been at the NATO in Belgium and you were in Europe during the eighties.

00:02:11: is it correct

00:02:12: ?

00:02:13: Well I wish i could do this in professional capacity but back in the eightys I got my master's degree in war studies from King's College University of London enjoyed immensely in Belgium, and spent some time talking with people about my master's thesis which was tremendously relevant for the time.

00:02:33: Which is the destruction of second-digital on Warsaw packed horses coming through the folded cap!

00:02:39: And you know meetings from a defense technology development standpoint.

00:02:44: so I guess it just goes to show if you wait long enough something that has been forgotten as suddenly perhaps relevant again.

00:02:54: And how come that you are fascinated by this branch?

00:02:57: Did it start as a kid or in school, did want to become pilot.

00:03:03: Oh

00:03:05: yeah I was never fascinated by the idea of being a pilot, I always thought best left to their professionals.

00:03:11: And i'm not great driver so why should be good pilot right?

00:03:14: But you know my father was in World War two and hearing his stories about importance of air power.

00:03:21: that is certainly factor.

00:03:24: Being kid into cold war!

00:03:25: Right?!

00:03:27: I think very few people who grew up in the sixties and seventies wouldn't be fascinated by everything going on, and that confluence of geopolitics in technology and strategy.

00:03:40: And I was incredibly fortunate to study it – maybe less fortunate after things wound down—and all the sudden what do we for a living now?

00:03:50: Thankfully this is where i got more into civil aerospace.

00:03:52: but happy memories learning about these.

00:03:58: Great, great.

00:03:59: And if we talk about aerodynamic advisability of your company how many people work for you as consultants and How long does it exist?

00:04:09: Yeah my good friend and co-managing director Kevin Michaels founded the Company I believe in twenty sixteen.

00:04:16: he had run a company before that been an executive in the industry too.

00:04:20: i joined In January first so four and half years And we've got seventeen people.

00:04:28: I'm deeply privileged to be working with these amazing people.

00:04:32: We have one great guy in your hometown there, Klaus Mueller and Hamburg Another European based up in Oslo Norway, Jonas Murby A few people here on Washington

00:04:43: D.C.,

00:04:44: everyone else is in Ann Arbor Michigan.

00:04:48: So you focus the US at the European market or are you acting global?

00:04:54: Yeah, we're global.

00:04:55: We do a fair amount in Asia these days because you know quite frankly people in asia have just the same ambitions towards defense and aerospace development and sovereignty As people in europe do for very understandable reasons.

00:05:09: But what i can see is that you were an expert Quite often on tv or cnn Or different interview magazines as well And you are going to berlin As an advisor, or what is your aim to be there?

00:05:30: You're asked from different persons.

00:05:32: From different companies you go into meet your customers for sure.

00:05:36: but What's the main task of ELA in Berlin now?

00:05:41: Yeah I'm kind of fascinated by this year's ELA because For reasons that are maybe concerning and understandable that there's needed to be such an increase in defense bending and sovereignty in Europe.

00:05:56: And a lot of the center is Germany, which I think is admirable and understandable absolutely fully supported.

00:06:04: but obviously the various companies on this supply chain as well at the top

00:06:10: are

00:06:10: concerned about how it plays out.

00:06:14: We have clients from industrial and financial worlds who are interested in how this all plays out, in terms of programs and timing.

00:06:25: And what it means for export markets everything like that.

00:06:27: so its intelligence gathering.

00:06:29: I'm also privileged to be on the speaking bill from the Berlin Aviation Summit just before Eula.

00:06:34: everyone gets their ten minutes as they say as Andy Warhol said about FAMI i get my ten minutes looking forward presenting the aerodynamic view

00:06:45: Interesting instinct.

00:06:46: Let's go a little bit deeper into that.

00:06:48: the defense opportunities for Europe, For example.

00:06:53: What is your view on that mark before we talk about other market segments?

00:06:58: Yeah It's gotten a lot more complex right?

00:07:00: I mean?

00:07:01: you know back in the eighties when i was again privileged to study it Was About platforms and they still had a lot of bed mending bending metal.

00:07:10: These days in terms of what's required, it has gotten far more complex.

00:07:16: So when we're talking about surveillance and reconnaissance potential adversaries, it's no longer a question of taking aircraft and loading them up with film in recording things.

00:07:32: It is now having sovereign technology stacks that allow for real-time data transmission from satellites to ground terminals and having robust architecture allows you maintain your own surveillance and reconnaissance.

00:07:46: so its gotten far more complex in terms hardware software and domains air and ground, it's obviously space and cyber.

00:07:58: So the requirements are so much greater!

00:08:03: And if you have a look at this supply chain we could compare maybe from Boeing or Airbus for example.

00:08:12: what is your view on that?

00:08:15: Do about these companies?

00:08:20: or maybe other like companies, like Raytheon for example.

00:08:25: What are the key players from your point of

00:08:28: view?

00:08:28: Well you know despite the challenges that have resulted in I suppose sovereignty and decoupling whatever else it's still a global industry And people were dependent upon the same Global sources and therefore the same potential bottlenecks.

00:08:45: so the problems people are focused on titanium melt product, obviously rare earth elements and rare Earth magnets.

00:08:57: You know these are some of the biggest limiting factors in.

00:08:59: they bedevil Airbus and they Bedevil Boeing.

00:09:03: then they develop and they bedevil RTX.

00:09:06: you know I mean there's so much that is being done to enhance the industrial output and capacity At the final assembly level with the tier one to your two-level and you're seeing so much of that in Europe.

00:09:19: It's great.

00:09:19: To see, you know Your hometown again.

00:09:21: You know just ignore some as we like to joke.

00:09:25: maybe it doesn't translate but you know The city bird is now a crane With lots of cranes building new facilities.

00:09:34: But at the end of the day you still have to focus on these industrial bottlenecks That create major challenges be they semi conductors or coatings?

00:09:41: Or again milled product or rare earths.

00:09:45: So I think attention is increasingly concerned about this and how to replicate these capabilities, you look at countries that don't have defense industries but big ambitions to fit in with...I'm thinking here of Canada.

00:10:03: one thing they've identified it's just the opportunities associated and what they can do on that level to help the Western Alliance expand its weapons building capacity.

00:10:20: If you have a look at this supply chain, especially let's say in Germany we had many small medium-sized companies twenty years ago number of suppliers decreased.

00:10:32: nowadays some of the tier one suppliers of Airbus but also for Boeing are bigger than the OEM.

00:10:43: Do you see this at an advantage for the market?

00:10:49: Because of course, the bigger your are and more cash you have, the more you can invest in these very expensive programs from military or aerospace as well.

00:11:00: but on the other hand maybe some of the big tier one suppliers let's say are not willing to do anything the OEM wants from them.

00:11:13: How how do you see that topic?

00:11:17: Yeah, I mean great question and there's good and bad right on the positive side as you say critical mass means ability to raise capital And also with that capital comes the ability to intervene in Say their own suppliers and help out people who were troubled into second or third Or fourth tier which used to be Primes and governments.

00:11:38: now people in the middle tier can help out.

00:11:42: They're also better able to innovate because they've got Better R&D departments, more R & D funding Which is important?

00:11:49: Because so much of the innovation this industry depends upon.

00:11:53: you know The People who build turbines or electronic warfare.

00:11:55: what have You Now?

00:11:58: the downside Is yeah absolutely they Can push back against the primes And sometimes They have not to name names here, but sometimes they have different investment drivers.

00:12:12: So for example if you're heavily driven by the aftermarket increasing capacity for new build might be damaging your aftermarket.

00:12:20: so maybe you are less willing to invest again and not naming names here.

00:12:24: But this is indeed a double-edged sword or two sided coin.

00:12:30: I tend think there's more good than bad But I guess i'm an optimist like that.

00:12:38: If we have a look on insourcing and outsourcing, what is your feeling?

00:12:48: Especially for the big OEMs?

00:12:52: you know there are always waves.

00:12:54: sometimes they try to outsource as much best-cost countries also into emerging markets like India and China for sure because they want to sell their products there.

00:13:10: That's always the case with Boeing airplanes I would say, for the V seven A three twenty new etc.

00:13:18: that is why we have all these fine assembly lines where supplies become bigger and bigger like Tata or other companies in india.

00:13:32: But then there are always, sometimes periods where they say okay we do it on our own because for any reason or the blue colored workers need some work.

00:13:46: We get their work packages back to us.

00:13:49: Do you see this as a problem?

00:13:51: For supply chain management of these two OEMs that's life.

00:13:56: That is same like BMW and Volkswagen And other companies.

00:14:03: You know, I think there's a number of issues at play here.

00:14:07: One is it might be less cyclical than we'd think and part... It was a pattern for a couple decades or decade or so that major chunks of aircraft were indeed outsourced in other systems.

00:14:22: but a lot just wasn't sustainable business model.

00:14:26: People say Boeing has vertically integrated into the spirit now.

00:14:29: No not really.

00:14:31: Boeing is rectifying a mistake they made twenty years ago, because even when it was well run just wasn't sustainable from an investment standpoint.

00:14:40: Aerostructures don't have the profit margins or aftermarket associated with a sustainable aerospace and defense business.

00:14:47: so I don't think anyone's going to return that model.

00:14:51: Airbus to their credit didn't doubt source as much.

00:14:54: They went in this direction.

00:14:55: premium aerotech we're gonna separate.

00:14:58: but then they kind of backed away from that, which was smart.

00:15:01: Right?

00:15:02: And while it's okay to outsource build-to-print stuff or stuff with some limited IP a lot I think is just going be kept in house for all the right reasons.

00:15:13: now defense interesting because this particularly true US.

00:15:17: you have other new emerging defense producers vertical integration.

00:15:22: I'm thinking of the new tech companies like Andarill or SHIELD AI, certainly SpaceX and you know Poundear whatever which works as long as you have private capital people willing to give you money.

00:15:36: but the second year listed everyone's going to want you to specialize in well outsourced to a greater degree.

00:15:43: so get better return on invested capital.

00:15:46: that is gonna be your driver again.

00:15:48: So it's a very complex story.

00:15:51: There is no, you know absolutely this the way to do it It just evolving over time.

00:15:58: Now one thing I will say is that Airbus has little bit of an advantage because not only did they not create big mistake with aerostructures but also created multiple fecos around world Final assembly and check out lines in Tianjin China Canada, the

00:16:13: U.S.,

00:16:14: and who knows?

00:16:15: Probably India at some point as you say big ambitions but why doesn't he have no experience in doing that?

00:16:21: maybe they can't.

00:16:22: Maybe they won't what it may be.

00:16:24: They need to think about it for the future.

00:16:26: But It makes The issue a lot easier when You're merely establishing these mercantilist transplant facilities Simple things at a final level

00:16:38: And doesn't fit into the political willingness and strategy right now for let's say, a minimum of two or three years.

00:16:49: I don't want to become too much politically but what i understand is even from German car manufacturers Trump says please produce your cars in the US otherwise you have to pay taxes.

00:17:06: That's exactly right.

00:17:07: You know, Tom Friedman was a little maybe premature with his world as flat thinking it's trade barriers have gone up.

00:17:14: industrial policy is back absolutely the kind of political barriers and requirements that are definitely back in price.

00:17:23: you say at least for a few years probably longer.

00:17:27: Probably longer.

00:17:29: well let's have.

00:17:30: I have just a very easy question on mind.

00:17:34: From your point of view, you haven't answered that.

00:17:41: You've mentioned Primo Erbotec Airbus where they failed to sell the company to Mubea Aviation right?

00:17:49: There was in the newspaper and well... To make it long story short It took a lot of management attention in the last fifteen years, minimum or twenty years to have this aerostructures experience let's say with these different plans.

00:18:15: In Germany and France selling them buying them finding an investor whatever.

00:18:22: so maybe they Yeah, we're not very successful in this special thing.

00:18:35: But what would you say?

00:18:37: What were the biggest mistakes from Boeing In the last ten or twenty years?

00:18:42: where they said okay They did this and that wrong.

00:18:46: We just have one example for Albus.

00:18:48: maybe another example from Albus as well Where it says Okay From my point of view As an advisor For aerodynamic adviser These are the biggest mistake.

00:18:58: Yeah, I mean both made you know mistakes that were...I think a lot of people recognized at the time.

00:19:08: Both were pretty substantial.

00:19:11: It's kind of interesting going back one.

00:19:14: my first visits to Airbus was in the nineties and it was to Hamburg And i gave her presentation said You guys could be tied for number-one.

00:19:24: whatever you do don't watch a super jumbo.

00:19:31: For ninety-nine days.

00:19:32: Airbus had a CEO, Christian Stryfe I believe who basically said my god we've lost a decade and he was dead right.

00:19:41: Not listening to the customer not listening to market biggest mistake you can make.

00:19:46: Airbus has made full recovery.

00:19:48: everything in their product line is excellent.

00:19:50: they're great shape You know, you got to watch the future.

00:19:53: but right now they've made a great recovery.

00:19:55: But it cost them ten years with this stupid diversion of resources.

00:20:02: You mean A-T-A-D decision?

00:20:04: The A-t-a-d decision... It was a disaster!

00:20:08: Too

00:20:08: much fuel too much.

00:20:10: what was um the biggest mistake in that?

00:20:14: because through this you know that the Hamburg plant Increased the size and they got more or less one billion from the state.

00:20:22: I understand you, i got your point um Richard.

00:20:25: but Um what would you say?

00:20:29: The biggest because the market didn't need this airplane right.

00:20:32: Or why

00:20:32: is?

00:20:33: it did not want to be opposite of this airplane which the hwfdxwb Is kind of the opposite of that airplane.

00:20:38: It's a very good airplane.

00:20:40: And the hre-twenty-one neo Of course also You know uh is the opposite.

00:20:47: The world does not resemble Frankfurt.

00:20:49: No offense to Frankfurt, but... Not everyone wants to change planes in Frankfurt.

00:20:54: Got it!

00:20:54: So you did believe this twenty-half global strategy they mentioned before?

00:20:58: And they shouldn't have believed that either.

00:21:00: there was no reason to believe and

00:21:03: none.

00:21:03: when Boeing launched the seven A-seven another very good airplane.

00:21:06: their message was know people want a five point two point.

00:21:09: and true

00:21:10: the irony is the three twenty one Neo's now with the most incredible Point To Point machine on the planet.

00:21:15: so Yeah, it works.

00:21:18: But how comes that they don't manage the ramp up.

00:21:22: well?

00:21:24: Airbus

00:21:25: A-iii new.

00:21:28: Well a lot of what they're doing It's...a lot of the problem is three twenty one Neo and The New Interior configurations required to do a wider variety Of medium and long haul trips or missions.

00:21:41: but at the end of day Airbus' problems aren't that different from Boeing's, which is they've got very big supply chain issues.

00:21:51: So you look at I remember last November They suddenly said it's not a twenty-seven ninety and It's like what accounts for the thirty plane shortfall?

00:22:01: And in all my years i'd never heard of The Spanish fuselage contractor than was that was blammed.

00:22:08: who were they?

00:22:08: what

00:22:09: You know, oh the spanish player.

00:22:11: Who are these guys?

00:22:13: And it's always something.

00:22:14: You know, I'm the old joke how many parts does he take to build a plane?

00:22:18: Well all of them you Know.

00:22:22: so It's one thing i don't blame airbus.

00:22:25: You know Airbus had the slowest growth of anybody last year and i'm concerned about that not because of airbus i'm Concerned about that Because it might be your reality Of when you're The biggest player and you're dependent upon the supply chain.

00:22:39: Maybe your growth is gonna have to be a lot slower because of all the various structural bottlenecks in

00:22:45: that supply.

00:22:46: Mm-hmm Understand understand and well if we ever look at the defense market, I think this will be very important for the Ilan Berlin as well.

00:22:56: For sure.

00:22:58: What?

00:22:59: what's your view on dead especially?

00:23:02: Nowadays?

00:23:03: or for where are these wars going on?

00:23:08: Your advisory to investors or two people who are acting in that market?

00:23:13: Why?

00:23:14: Are we so slow?

00:23:15: and Europe from your point of view?

00:23:17: well, you know You've got an industrial base.

00:23:20: That's science for the post Cold War downturn.

00:23:22: And

00:23:23: not everybody is recognizing The demand signals there I think coming from the German MOT and other organizations.

00:23:33: So it was a result people who are willing to invest doing better.

00:23:39: Think Embraer, think Saab, think Korea Aerospace Industries... People were saying all right we're going to invest.

00:23:46: and there are companies in Germany, Rheinmetall leading the way I think that really do a great job at expanding their global industrial footprint.

00:23:55: Really tremendous!

00:23:56: And they're companies here just well placed you know?

00:23:59: The fastest growth defense stock Hensault in February, twenty-twenty two.

00:24:08: Just oh my god wow!

00:24:11: So I think as people accept that the demand signals are there then arsenals are going to be replenished and Europe is going to more of a sovereign actor on defense procurement than i think they'll be faster expansion capacity.

00:24:30: but here now things are constrained by a badly shrunken industrial base.

00:24:36: Interesting, interesting!

00:24:38: If you have look at these markets from global point of view I mean what's happening in Africa?

00:24:50: In Australia South America or other parts off the world?

00:24:55: where do you see the biggest opportunities?

00:24:57: and the defense market?

00:24:59: yeah i mean that thing right.

00:25:00: it is everywhere.

00:25:03: Rearmament is pretty across the board because of course Europe has, well everything going on with Russia's Ukraine invasion and Russia in general.

00:25:12: The Middle East is sadly the middle east still.

00:25:16: And then of course Asia is confronted by China and by US.

00:25:21: that's frankly pulling back from its alliance relationships.

00:25:25: So you know take Australia...you mentioned Australia.

00:25:28: great example.

00:25:29: You know about fifteen years ago.

00:25:30: I remember You've had the Ministry of Defense saying, we don't even care about offsets anymore.

00:25:34: We just want to buy off-the-shelf... ...we're gonna come to Fort Worth put a one hundred million dollar bill in the vending machine.. ..We get a fighter jet!

00:25:42: We don't care about the rest.

00:25:44: and now they are like oh

00:25:45: no!!

00:25:46: We won our own sovereign defense

00:25:47: industry!!!

00:25:48: We wanna build missiles, hypersonic weapons, submarines.... We dont' care.

00:25:52: it collaborates with aircraft

00:25:54: EVERYTHING!!!!

00:25:56: And alot people were saying this right?

00:25:58: That is putting tremendous pressure on everybody's supply chain and counties.

00:26:07: And they're not too many people living in Australia, right?

00:26:10: That is the biggest problem.

00:26:12: at the end of day it's labor!

00:26:16: Interesting I just saw that they have some close cooperation with German submarine companies but to be honest i'm very, I don't have a deep knowledge in that market.

00:26:31: Well you ask what we tell our clients.

00:26:36: it's think abroad in terms of new platform opportunities and thinking about solutions to allow people develop their own intellectual property.

00:26:45: so the days at US companies saying ah great here is an ITAR based solution compliant with US international traffic and arms regulations.

00:26:55: no Instead think about working with countries on a local basis where you work together develop new technology that they own.

00:27:05: So what I learned is You're not coming to on June two Berlin.

00:27:10: You were coming earlier.

00:27:11: Is that correct?

00:27:14: Um, are

00:27:14: we going before to Europe?

00:27:16: well i'm just the brilliant.

00:27:17: aviation summit is earlier this week uh... the whole week, but then coming back a few weeks later just to spend time in Europe with my family at the farm bro.

00:27:29: So... A lot of this summer I will be in Europe and very pleased to say

00:27:33: so you're going to miss The World Cup And You're not Going To Watch soccer In Washington.

00:27:40: Well But i am expecting My own copy Of The FIFA Peace Prize.

00:27:45: That's important.

00:27:49: Okay okay Where is that gonna happen?

00:27:52: at the capitol or what?

00:27:53: Oh yeah, somewhere like that.

00:27:55: Sounds good!

00:27:56: The Arbium Lincoln Memorial

00:27:59: Yeah...the new pool.

00:28:01: Okay please let me know then I will try to US and be a spectator of the first row.

00:28:07: hopefully That's a good one.

00:28:12: So are you interested in soccer or do not care?

00:28:16: Oh more of a baseball or

00:28:17: sports in general.

00:28:19: Sports the only sport.

00:28:20: I really like his baseball because my son loves baseball.

00:28:23: so

00:28:26: Interesting interesting, so if people wants to meet Richard and in person they come to Berlin To The Avation Summit And where can they meet you?

00:28:37: at the ELA?

00:28:38: There are so many people it's quite difficult right they could contact You.

00:28:44: We are linked in an advance.

00:28:46: that for sure.

00:28:46: all right i will put your linked in profile into the show notes.

00:28:52: That's for sure, I think that's easiest way right?

00:28:55: But yeah you have a walk around or are you busy from morning to evening?

00:29:00: You know nothing i love more than walking around on air shows.

00:29:03: so hope to meet as many people as possible and if not my favorite bar at The Marine

00:29:08: House

00:29:09: which is not too far from the Ostbahnhof and I do have my favorite Berlin neighborhoods in bars, it's a wonderful city.

00:29:19: Absolutely absolutely!

00:29:21: And i was born in Hamburg raised in Hamburg live in Hamburg uh...I can tell you that I love Berlin very great To be honest, quite well not proud but I'm happy that the ELA is so successful nowadays.

00:29:37: What i learned?

00:29:39: there are other air shows in Europe and yeah of course I am happy That Berlin based ELA Is So Successful.

00:29:51: Well me too.

00:29:52: this time it's funny.

00:29:55: And The Big Driver Back In Nineteen Ninety Eight was Gateway to the Yeast.

00:29:59: And now the reason I think is coming back strong, it's because of ironically The East.

00:30:07: Yeah

00:30:08: and there are requirements for defense spending as a consequence Of that.

00:30:12: so It's ironic and perhaps unfortunate but its That driver behind aerospace in the importance of companies to be on the same page into Coordinated shows like this Is going to be strong for very long

00:30:25: time.

00:30:27: Exactly, exactly and we need it.

00:30:29: That's for sure.

00:30:31: companies needed to sell their products to do marketing And we needed to have market overview For sure Especially from aerodynamic advisory.

00:30:44: You're too kind.

00:30:45: thank you

00:30:47: All right Richard famous.

00:30:48: last words from your side.

00:30:50: did I?

00:30:52: Forget to mention anything?

00:30:59: Is there a key message from your point of view to the listeners on The Aerospace Manager podcast?

00:31:04: Well, I think that most important thing for my perspective and reason why i spend more time in Europe these days is because the message sadly atop here in US has not been pro transatlantic alliance.

00:31:20: perhaps ever has been the last eighty years of the transatlantic alliance and in my tiny, tiny part I'd like to keep that going.

00:31:35: That's perfect message for sure!

00:31:39: And i would say thank you very much Richard.

00:31:50: Same here, hope to have a beer with you Tom.

00:31:53: Thank You!

00:32:11: If you would like to record an episode To promote something please contact Tom Heinkel through LinkedIn.