Aviation & Aerospace: Conversions, Electrification, and the New Space Race [PODCAST]

Written by Expeditors
23 minute read

Aviation & Aerospace- Conversions, Electrification, and the New Space Race_Horizon

Global Director of the Aviation and Aerospace Verticals, Marie Berner, gives an update on what's been going on with airlines lately as they make tough choices and adjustments to keep capacity and their planes available during the pandemic. Also, learn the new market for the electrification of aircraft and why now is the most exciting time to look to the stars.


Chris Parker (Host): Hello, everyone. And welcome to The Expeditors Podcast, where you can hear about front of mind topics in the logistics and freight forwarding industry through the lens of a global logistics provider. I'm your host, Chris Parker. And today we'll be talking about what's going on in the aviation industry and the adjustments that had to be made to survive the pandemic, we'll be talking about new developments and changing their products and therefore their logistics needs, and finally getting into a personal favorite of mine: space because that's really cool. So joining me today is the Director of the Aviation and Aerospace Vertical, the one and only Marie Berner. Marie, welcome to the podcast.

Marie Berner: Thank you, Chris. I feel like I should be dancing across the stage after that introduction. Actually, I could be dancing across the stage. You wouldn't know, right?

Chris Parker: That is the beauty of an-audio only format. So Marie, could you tell me and help other folks get to know you a little bit more? What do you do as Director of Aviation and Aerospace Vertical?

Marie Berner: Well, I have been in this role about ten years, 26 years with Expeditors.

Chris Parker: Nice.

Marie Berner: But like you, I'm a little bit of a space nut, and I think it comes from way back in the day I grew up in Florida, and I'm old enough to remember some of the first Apollo launches. My dad worked on the Apollo Program. So I think it got into my blood very early in my life back when I was in grade school, watching some of those rocket launches and being on the Cape itself during some of those programs.

Chris Parker: That is super, super cool that had to have been an incredible experience to be there in person and watch that happen.

Marie Berner: Yeah. So taking that from grade school and fast-forwarding now to my career, I say to my boss at times, I probably shouldn't put this in a podcast, but I'm not sure why they pay me because this is got to be the coolest job I've ever had. From the beginning of production, when you talk about what is... In the aviation industry, we've talked about, we've got from O-rings to jet fighters and everything in between, whether it's the parts that are being manufactured, the manufacturers themselves, the folks who do repairs, as well as the folks that are buying the planes and allowing us to fly on them. So every part of the supply chain is what we're involved in for aviation logistics.

Chris Parker: To start off, let's talk about the ground for Aviation Vertical. Could you help me understand what that means and what needs do they have, and how wide is the array of goods that aviation moves?

Marie Berner: So aviation, as I said, covers everything from raw materials to the actual parts for manufacturing. We've even handled, we had an AOG at one time, Aircraft On Ground situation where we needed to get pretzels from one city to another. Why would you worry about pretzels? Well, in the US, there are penalties if you don't have enough food on an aircraft for the number of passengers, and you can't just go down the street to Walmart or Publix and buy pretzels. They have to be an FAA-approved supplier. And when you talk about an actual aircraft itself, a typical commercial aircraft could be over 600,000 parts-

Chris Parker: Wow.

Marie Berner: ... that go into that manufacturer. And then, on top of it, you've got hundreds of suppliers. And especially since this COVID experience that we've had with supply chain disruptions, we've heard so much more about we need to near-shore our sourcing, but it's not something that you can just flip a switch and get a supplier closer to the manufacturing location. So the complexities, the geographical nature that aviation has evolved over the years, I definitely know that there are lot of people talking about improving that supply chain by near sourcing, as an example, by having digitally printed parts is another thing we're seeing, but it cannot happen overnight. It's a much longer process to happen.

Chris Parker: Gosh. Absolutely. That's incredible. Yeah. Okay. So let's go ahead and discuss what's happening to the aviation industry over this last year. So because of reduced passenger flights, like there was a big impact on global air freight, and I'm not sure most people outside of logistics and shipping would know that there's a lot of air freight that moves as what we call belly freight in this space underneath passenger flights. And I imagine there's a lot more to that picture. And I was wondering if you could talk about the changes that the industry had to make when it came to grounding and servicing their planes?

Marie Berner: Well, first of all, I remember when we first started to hear about COVID, I famously said to our team, "Don't worry about it. It's a flu. We get flu every year," so I always say, "If you see me in a TSA line or at the grocery store, or hear my predictions about a global pandemics, you probably want to go in the other lane," so it's similar. When we first started to hear about COVID and that we were limiting the number of people flying and the international traffic started to slow down, I don't think anybody in the industry expected the impact that we eventually saw, which was that about two-thirds of commercial aircraft were grounded.

Chris Parker: Wow.

Marie Berner: That's more than 16,000 planes. They needed a place to be parked.

Chris Parker: That's insane. Overnight too, almost...

Marie Berner: Overnight. Exactly. And you can't just park a plane. It's just like... I have a vintage convertible. Then when I park it during the winter, because I'm not going to drive that convertible in Chicago in a couple of feet of snow, I have to prep the engine. I have to prep the tires, same thing with an aircraft only exponentially more complex. And so many of these aircraft were parked in the desert. So any intake spot on that plane had to be protected from winds, from sands, from critters getting inside. You have to rotate the tires, just like my vintage car. You can't leave it in one place for six months. You have to rotate those tires; otherwise, it gets that flat spot. So there is a tremendous amount of maintenance that had to happen as those planes began getting parked.

Marie Berner: So the impact of having 16,000 aircraft taken out of the supply chain, so yes, when you are flying on your summer vacation flight, and you're asked to pay whether it's $50 or $100 nowadays for your extra bag, the reason that is the airline is trying to dis-incentivize you from bringing too many bags. And the reason is they utilize that space to move cargo. And so, when two-thirds of the fleet goes out of circulation, that had a tremendous impact on the amount of cargo that could be moved.

Marie Berner: And just as that capacity for cargo was being removed, we had the increase in PPE demands globally, and then eventually, we had the vaccines starting to move by air and required the capacity. So you had the passenger aircraft impact, and then secondly, nobody was traveling internationally. And those are the twin aisle aircraft, the wide body aircraft, where we have a tremendous amount of freight capacity. And that was just eliminated from the market. So we saw a double whammy if you will, both on the domestic side with the belly space, and then our freighter capacity get wiped out.

Chris Parker: How did grounding all those planes affects the flow of parts and the need of parts. Were freight forwarders affected at all by what services that they were providing to the airlines? Now that, I mean, I've had to ground a ton of these planes. I have a bunch of spare parts lying around too. Was that something that airlines took advantage of, and did that impact forwarders at all?

Marie Berner: At first, Chris, we thought there would be more demand for maintenance as a preventative, "Hey, I'm not flying my aircraft right now. So let's do preventative maintenance. It's going to be required in the next cycle; we can do it now while these aircraft are available." That didn't happen either. And their biggest reason was the airlines were bleeding money. We had just an unprecedented drain on revenue. American Airlines, for example, they reported that their revenue was down 90% over 2019. Everybody had seen Delta and United had their first losses in more than five years. So they didn't have discretionary cash flow to do maintenance. So we saw as an industry a downturn in flow of parts, not only for manufacturer but then also certainly for maintenance. And there were some cases where some of the aircraft that were parked, the parts were harvested if you will-

Chris Parker: It makes sense, sure.

Marie Berner: ... from those aircraft. So if an airline had aircraft parked, and there were some great apps that were developed during this timeframe, so you could track what aircraft you had, where they were parked, how long, what maintenance was required, but they could identify probably some of their older aircraft that were parked. Knowing that once we came out of the pandemic, chances are those aircraft may have a different life. And therefore let's take some of the usable parts like an aircraft engine, for example. So that was the term greenfield; it means basically harvesting those usable engines off of a parked aircraft. So we saw engines coming off of some of those parked aircraft and being serviced and then put on other planes rather than leasing or buying new engines. So there was definitely a shift in some of the flows. And again, some of these parking locations, these deserts, are not typically where engines go to and from. So that was a bit of a challenge for the logistics industry as being able to service those new lanes, basically.

Chris Parker: But we were able to account for that with new needs by the aviation industry. One of those was fitting the passenger flights that were in operation; we were able to supply the various parts like partitions and things like that. Could you talk a little bit more about what had to happen in order to make these planes a little bit safer for travel?

Marie Berner: Sure. Chris, a great question. And I know for myself, the big worry that I had was how close was I going to to have to sit next to somebody if I was on a domestic flight, and a lot of the travelers around the world had the same concerns. So there was a jump on that temporary fix in a plane. Again, you cannot just go down to your DIY store and pick up some plexiglass and build a partition.

Chris Parker: Or a cabin filter or something like that at an auto parts store.

Marie Berner: Absolutely. Everything has to be approved for airworthiness. You're adding weight to a plane. You've got safety issues. So the industry was incredibly quick to respond to those challenges. So we saw the increase in interior commodities being shipped like the partitions. We saw a change in the onboard catering industry as well – no more liquor carts, no more fresh food available in the typical economy class. You went to the small water bottle and some pretzels, that was it. And then the third, and really, I think significant change that I believe is going to continue, is the conversion of some of these passenger aircraft, either into semi or full cargo aircraft. So taking out some seats and in changing that interior, so cargo can be loaded into those aircraft. And we're seeing a continued spike in those kinds of passenger-to-freighter conversions on smaller aircraft. Large aircraft, very typical market, smaller aircraft, brand new business stream, really for the MRO, Maintenance Repair Overhaul, side of the industry.

Chris Parker: Okay. So if there's a bunch of conversion happening for passenger flights to turn into cargo planes, won't the capacity open back up again, as the world's getting more and more vaccinated and more flights are happening. What are they going to do now with all this extra capacity?

Marie Berner: Well, that is a really good question, Chris. And I think it's still so uncertain. There was just a report I read this morning that said, "Is international travel ever going to come back?" Every customer I talk to, every associate out there that talks about when are they going to start up their international travel? It's very unknown. So I don't foresee a glut of capacity because we've changed some of these passenger aircraft over to partial or full cargo aircraft. And on top of that, outside of the aviation industry, you know, like I do what's happening on the ocean side of the industries, and there is no ocean capacity available, and that's not going to change either. So we're seeing it as logistics providers, a tremendous flow of ocean cargo that's now air cargo, you get a vessel stuck in a Suez Canal for weeks, and everybody wants to get on an airplane and move their freight to get to the customer in time. So I don't see overcapacity from the air freight side being anything we're going to be worried about in the near term.

Chris Parker: Mm-hmm (affirmative). Before we move on to a little bit more uplifting topic that I'll talk about in a sec here, what is the process then for converting a passenger plane for cargo purposes?

Marie Berner: So a plane would be taken into an MRO shop, Maintenance Repair Overhaul shop, and there are many companies that specialize in the passenger-to-freighter conversion, and your plane goes in, the seats, bins, be taken out, floor lighting may be removed. And that creates an opportunity right there. Where are you going to put that stuff?

Chris Parker: Right? Exactly. I was going to ask, does it get binned, or does it get stored off somewhere?

Marie Berner: There are many different opportunities that pop up on the logistics side-

Chris Parker: Sure.

Marie Berner: ... for the forwarding industry. How can we help our customers store this interior equipment? Because in most cases, they do hope to reuse it at some point. There is a secondary market where companies that had... or airlines, for example, that buy used aircraft, maybe a low-cost country or a low budget airline. They'll look for used parts. So that's definitely a market, but most of the people that we talk to today are talking about, we need to put our interior equipment someplace in storage while we use the conversion space inside.

Chris Parker: Sure.

Marie Berner: So once the traditional passenger equipment is taken out of the interior plane, then it's fitted with the cargo handling equipment inside. So it could be the interior walls, the strapping equipment on the ground. So again, new flows into that MRO.

Chris Parker: Yeah. If you pardon the pun, there's been a lot of movement in the automotive industry as I talked with Karen Kinsella about it with electrification. What related developments have taken flight with aviation?

Marie Berner: I think this is going to be the most exciting thing to happen in aviation in our generation. I really do. And I have to say; I become a believer in the last year and a half or so. I had my doubts that electric aircraft would play a big role, but I think COVID has helped change the market or the appetite for it. And so what we're seeing are a tremendous number of startups, as well as some of the typical names, the big aircraft manufacturers, they're all interested in electric aircraft. And I know I talk with my peers and ask, "Would you get on one? Would you get on an electric aircraft?" And I would, I would. I have enough faith in the FAA and the processes that we go through to make sure a plane is certified.

Marie Berner: And having worked with the customers, I know the technology, the engineering, the investment that's being made in electric aircraft is tremendous. So it's being fueled by if you will, on the "e" pun, but it's being fueled by a couple of things. Number one, we've seen tremendous success in automotive. And I think the battery capacity is a big differentiator that really, we didn't know that the technology would exist to this extent even a couple of years ago. So we have the fuel sensitivity; therefore the e-aircraft definitely have the fuel efficiency. And we're also seeing a lot of emphasis on; they have to be shorter routes. You're not going to fly internationally on a battery, but we're seeing the batteries become lighter. And therefore, the distance that these electric aircraft are able to travel will be greater.

Marie Berner: So right now, the projection is, oh, 440 miles on a route for an electric aircraft is about what you'll see most of the industry folks talking about. So there's that side of it for us as passengers. But the other side that's also occurring in this e-space is on delivery aircraft. So on the delivery side of the industry, we're looking at how do we get things to the end-user faster? And that may be your e-commerce. It might be your logistics provider that needs to get the deliveries to their customer faster. And so definitely, these smaller, lighter, fuel-efficient aircraft are going to help fill that need.

Chris Parker: Yeah, absolutely. It almost. And I see too, like this shorter routes that you're talking about from the passenger side, I'm thinking like, if we were looking at commercial flights as, like Greyhound buses, this is almost like a taxi, you can replace those smaller prop planes and stuff with EA or electric aircraft. The other thing, too, I'm thinking of is, does this affect the trucking industry at all?

Marie Berner: Oh, absolutely, this will affect trucking. But again, I think we're talking about, in my opinion, it'll affect trucking because now we have A, a competitor, and B, another source of supply to get those goods delivered. But the thing is COVID showed we're all very happy with our shopping online. And so again, I'm not sure if you want to get behind me in the TSA line, but I predict that that trend is not going to ease up.

Marie Berner: I've talked to, again, a lot of my peers, and they're ordering their groceries, they're doing all of their shopping online, and they can plan to continue to do that once COVID is over. So the delivery capacity that the electric aircraft will provide is just going to be needed to keep that supply chain and the faster expectations that we've had and keep those fulfilled. I mean, you think about what we expected pre-COVID. If I order something today online, I'm going to get it tomorrow. That really changed during COVID. There were driver shortages certainly, but there was a lot more demand. And so we need more capacity to smooth out that demand. So I think that that's where the electric aircraft are going to help fill in that space.

Chris Parker: What does the manufacturing look like for electric aircraft? And I imagine, for some reason, when I think of electric vehicles, I'm always thinking of startups, and startups are new players in this massive space, right? Airlines have been around for a very long time. How does manufacturing work for them, and the flow of goods needed for that? Could you explain a little bit more? Help me understand what that looks like?

Marie Berner: Sure. We have a saying in our team that on the startup side that our customers don't know what they don't know. So I mentioned earlier-

Chris Parker: Sure.

Marie Berner: ... the startups, the folks are brilliant. I've had an opportunity to attend some conferences in pre-COVID with some great high-tech minds in this UAV and an electric aircraft space, and they're brilliant technically, but what they don't have is a real depth of global logistics knowledge.

Chris Parker: Sure.

Marie Berner: And even to a high degree compliance, and I'll tell you from my experience ten years ago, when I first got into the aviation industry, and I talked to customers and try to influence them on the need for compliance, it really wasn't something that played a high role in smaller companies. Nowadays, everybody has a question about, "How do I make sure my supply chain is compliant," whether it's with government agencies, risk of theft, fraudulent goods, there's a high degree of concern and attention to compliance.

Marie Berner: So when we talk to some of these newer high-tech startups, electric aircraft, for example, they'll tell us, "We don't know what we don't know when it comes to this stuff." So they need providers that are highly experienced in global trade policy and custom parts classifications, in customs brokerage, duty, importer of record documentation. They need a full service provider. And I think it's kind of cool to the industry that in, I would say, 90% of the cases, the price is not number one on their list of concerns when they're talking to a potential provider. They really want to know that you have a deep understanding of logistics and compliance and how are you going to help them. How can you walk them through this process? They know how to build the aircraft. They know how to source the parts. And even though we've seen a lot of startups in the US on the electric aircraft space, still the parts are being made at some of your traditional OEMs.

Chris Parker: Oh, okay.

Marie Berner: And, yeah. So they're assembling them someplace in the US.

Chris Parker: Sure.

Marie Berner: But you're seeing traditional shipments from Germany and France, a lot from Mexico, some from Asia. So they definitely need that global support from a very deeply experienced freight forwarder.

Chris Parker: So there is some kind of relationship between startups and legacy OEM. I think I've heard you refer to them as, or just like, more traditional airline manufacturers. Startups are bringing in the big ideas and the big money, but they're using existing suppliers out there to repurpose these parts or just shape them in a different way that meets the electric aircraft needs.

Marie Berner: Absolutely. We see the traditional wing manufacturers, for example, it's a great example where they're used to making a wing for a traditional propulsion aircraft. So they have that experience, maybe a bit smaller wing that they're going to make now for an electric aircraft.

Chris Parker: Sure.

Marie Berner: But yeah, so you are seeing those suppliers involved, but the complexity comes in again for these startups is, well, if I buy from this traditional OEM, what terms of sales should I be requesting? What's my responsibility as the exporter, the importer. What's an importer of record. Why do I have to declare it as an aircraft wing versus an airplane part?

Chris Parker: Yeah, absolutely.

Marie Berner: So as I said, they don't know what they don't know. So they really are always asking for the guidance of an experienced logistics provider.

Chris Parker: Another super hot space of recent growth right now has been the aerospace industry. And I imagine there's a lot of similarities with aviation, but how do they differ enough to make them their own unique vertical?

Marie Berner: As we talked at the top of the podcast, for both of us, space is so exciting.

Chris Parker: It is really cool.

Marie Berner: Yeah. I think it was just earlier this week that Jeff Bezos announced he wants to be a part of the crew on a Blue Origin launch. So it's in the headlines every day. And the big difference in 2020 commercial versus space was COVID didn't have that big of an effect from an opportunity basis in space. We still were launching satellites, low earth orbit satellites. We all wanted actually, probably more so we wanted our internet to be working fast and furiously because we're all working home. So space didn't see the same kind of downturn that the commercial aviation market saw during COVID. So that's probably the biggest difference. And then what else we see is the pace at also startups in the space side of the industry as well.

Marie Berner: Your top ten space companies are still if you look at them, you could probably name seven of them right off the top. There are the traditional aircraft manufacturers, but they have a space division. We're seeing more and more of the startups in the space side of things as well. So one of the examples of a startup in space, I'm not sure if you've heard of it, Chris, but it was advertised during the Super Bowl. And I noticed it was called four, the number Four, Four Inspiration (Inspiration4), and I remember when I saw that, I don't know what that's about. I quickly pulled out my iPad, and I Googled it, and you could sign up to try and become a crew member. So the goal is this will be the first commercial or all civilian, I should say, mission to space.

Marie Berner: And the founder of this project is 38 year old guy named Jared Isaacman. He founded a company called Shift4 Payments. He's also an accomplished pilot, and he's a big adventure. And he's doing this obviously for the focus on space, but his main focus is St. Jude's Children's Hospital. He's trying to bring awareness to St Jude's in particular and continue to support the funding for that. But his crew are three, besides himself, three other civilians, none of them are astronauts. One woman was actually a patient at St. Jude's when she was younger.

Chris Parker: Wow.

Marie Berner: And she is now a physician's assistant at St. Jude's, there's a scientist, and there's another entrepreneur. So this is how I think the space industry is going to continue to grab our attention because we're trying to make it much more relatable, constantly talking about STEM in our schools for our kids. So you'll see a lot more on the space growth in the future.

Chris Parker: Aerospace has its specific needs. This is a lot of high-value stuff as well. I know that the parts, the machinery, the probes, the landers they're created in very clean environments, and you need to be able to transport that safely somehow. So that requires a lot of attention. And that's where forwarders come in because we generally have a lot of expertise in this kind of space. How have forwarders and logistics providers helped with the growth of the space industry?

Marie Berner: We've seen in this area, number one, I said you need to be global. The days of a very small forwarder footprint just doesn't support the space industry in particular. And one of the main reasons is you look at where these launches take place; we have to have the flexibility of getting the cargo to so many points around the world for the launches is a big part of it. Then you have to have the capacity to support the market, which is very challenging given what we're experiencing right now with the impact from the ocean freight, going over to ocean or to air, but with the space industry, the schedules are so tight, you don't have the flexibility to miss the flight and catch the next one in two days. You have to have extremely tight control over the capacity, the service providers, the documentation. And if you don't have a very thorough project planning capability, you're just not going to be successful in supporting the space side of things.

Chris Parker: Absolutely. So then, where do we come in then with freight forwarder services and such to help with that?

Marie Berner: Well, the space industry, in particular, we've seen I mentioned a few minutes ago, number one, they're not as concerned about costs as they are about qualification. That, I would say, is the number one criteria when we're talking to the space industry. Now mind you, you always have to pass the red face test in our business, but it is about your capability to move an oversized piece of equipment. Do you have the project planning capabilities? Can you move something that's going to need over-the-road permits? How do you even know it needs over the road permits? You need to have that global project cargo capacity. You need to be able to have theft-deterrent on your cargo. We have one customer that requires that everything has a live tracking device because it's so sensitive.

Marie Berner: They want to have; it's not good enough just to have GPS on the truck. They want every item to be tracked because it's that sensitive, that valuable. So somebody that has that kind of capability and not all of your freight forwarders are going to have that. And then, as I mentioned, the trade consulting, the parts classification, and really it needs to be considered upstream because you can have some significant cost impact if you don't understand the the duty, the fee implications before you start sourcing.

Marie Berner: We worked with a customer earlier this year that brought parts in from around the world, and their terms of sale put the tax burden on them. They didn't know that. So I guarantee the next time they go to bid on the manufacturer of a project for space, they'll be much better educated, and that's the kind of entry that's really important to the industry. Yes, as logistics providers, we'd definitely want to sell you something, but in a lot of cases, we're really trying to help you avoid risks, avoid excessive costs and do it right the first time.

Chris Parker: Yeah. Because we need to see those rockets get up there.

Marie Berner: That's right. Yeah. Yeah. I didn't win one of the seats on the Four Inspiration, but I've already ordered my Four Inspiration gear. I should've worn the shirt today. You'd be impressed. Yeah.

Chris Parker: This is so fun to learn about. And just to see how quickly things are changing and where they're going towards, this is a super exciting space, and you have got to be one of the luckiest people in Expeditors to be doing something so cool.

Marie Berner: Thanks, Chris. Thanks to you. Thanks to our team. And most importantly, thanks to the customers that we have the fun time supporting. And I really look forward to getting to know more of the players in the aerospace and aviation industry. So thanks again for your support.

Chris Parker: Yeah, absolutely. And if people wanted to get into contact with you, where is the place to go to get discussions started?

Marie Berner: Marie.Berner, B-E-R-N-E-R, @expediters.com. Also, on LinkedIn and certainly any Expeditors office, just ask to get in touch with the Aviation team, and they will point you in my direction.

Chris Parker: Perfect. Well, thank you again so much for your time. I really appreciated talking to you about this.

Marie Berner: Thanks, Chris.

Chris Parker:
Thanks for listening to today's episode. If you've got any questions or want to learn more about today's topic, check out the show notes for more information. And before you go, make sure you're subscribed on whatever podcast app you're using so you won't miss the next episode. To learn more about Expeditors, you can find us on LinkedInFacebookInstagram, and Twitter, or simply visit us at expeditors.com. Take care, and I'll see you next time.

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Blog was originally posted on June 15, 2021 9 AM

Written by Expeditors

23 minute read