MONKEY Wrench
After winning the $18.9-billion contract to build the Joint Strike Fighter (JSF), Lockheed Martin Aeronautics Co. in the summer of 2002 placed a $12.3-million order with Ingersoll Milling Machine Co. for custom-made machine tools to produce parts for the stealthy tactical aircraft. As of April of this year, Lockheed Martin had paid Ingersoll more than half the contract price but it still had no machines delivered. Then came the jarring news. Ingersoll had shut down.
A giant in the machine tool field, Ingersoll was one of five companies in the world capable of manufacturing sophisticated machinery used in the production of both metal and composite parts for airframes and engines. The Rockford, Ill., factory had sent signals of possible trouble in recent years when it sold off several divisions. But the cessation of operations came as a surprise that sent a shock wave through the machine tool and aerospace industries.
"It was a sudden development," a Lockheed Martin official said. "It got people's attention."
Officials of the JSF program at Lockheed Martin, known in memo language around Fort Worth as LM Aero, stared at the ugly prospect of a huge slip in the multinational F-35 program. Under the aircraft's initial test phase, the manufacturer is scheduled to produce the first of 22 aircraft in the spring of 2005, with other test aircraft following in quick succession. These 22 comprise 14 flying models to execute various missions from traditional takeoff and landing to carrier operations, and eight aircraft destined for ground tests. By 2013, 459 aircraft for the U.S. Air Force, Navy and Marine Corps and the British Royal Air Force are scheduled to be built.
In the weeks following Ingersoll's Apr. 22 bankruptcy filing, which sought court protection under Chapter 11 of the code, Lockheed Martin's attorneys cited risks to national security if the machine tools were further delayed. In early June, the manufacturer asked the U.S. Bankruptcy Court for Northern Illinois to approve an unusual plan that involved Lockheed Martin leasing the Ingersoll plant for $70,000 and completing the building of three drilling machines, possibly with laid-off employees.
The request, opposed by a committee of creditors, was taken under advisement by Judge Manuel Barbosa. In recent weeks Lockheed Martin withdrew the request and put into place a backup plan. On June 17 it hired Cincinnati Machine, an Ingersoll rival and the only other U.S. company that can build both metal-cutting and composite-forging machinery, to complete the work on two of the machines at the Ingersoll plant in Rockford.
The two Ingersoll machines will stand more than two stories high and stretch 70 X 20 ft. The automated machines are designed to drill holes in the F-35 wings and fuselage at high speeds. Personnel from Cincinnati Machine will join with former Ingersoll employees to complete the work and deliver the machines to Fort Worth where drilling is scheduled to begin in 2004. The third piece of equipment will be completed at Cincinnati Machine's new plant near the Cincinnati/Northern Kentucky International Airport and delivered later.
Lockheed Martin officials said that in spite of the Ingersoll bankruptcy the F-35 program is not behind schedule though it was a narrow escape. "If it dragged on, that danger certainly was there," spokesman John Kent said.
The Ingersoll bankruptcy that put a kink in the JSF program underscores how an upheaval in a critical industry such as machine tools can threaten the processes of aerospace manufacturing. In the U.S. Congress, concerns over the loss of manufacturing expertise have spurred a new and stricter version of the "Buy America" movement. The House version of the Fiscal 2004 defense authorization bill contains a host of guidelines and restrictions aiming to protect U.S. industry. The Bush administration, the Pentagon and industry are split on the effectiveness of the legislation (AW&ST July 7, p. 23).
MORE FODDER FOR "Buy America" was generated by Rep. Don Manzullo (R-Ill.), chairman of the House Small Business Committee, who conducted hearings earlier this month on the struggles of U.S. manufacturers against foreign competition and the preservation of the defense industrial base. Manzullo was instrumental in getting a provision in the defense authorization bill that requires any new U.S. weapon to have been produced by a U.S.-manufactured machine tool. That provision could have a huge impact on U.S.-based aerospace companies, which have been acquiring non-U.S. machine tools since the Japanese entered the field aggressively more than 15 years ago.
Preservation of the U.S. machine tool sector serves as a local issue for Manzullo. The campus for bankrupt Ingersoll lies in his home district. Now, Dalian, a Chinese machine tool company, which has already acquired a division of Ingersoll, is one of several bidders to buy what's left of the company.
Rich Carter, Manzullo's aide from his Rockford office, said the Ingersoll bankruptcy robs the U.S. of a company that has performed a critical skill. Ingersoll manufactured a variety of traditional milling and drilling machinery and the machines that produce composites of two general types. Composites are produced by a "tape laying" system or by fiber placement. The former is used for flat, lightly contoured parts such as wings and stabilizers. Fiber placement parts are more complex and include the fuselage and engine cowlings and other such cylindrical shapes.
Carter said the U.S. now has only one company that can produce both kinds of machinery. "And that could affect the future of our weaponry," he said. "If something happened to Cincinnati Machine, we wouldn't have the capability to do that kind of work ourselves."
The machine tool sector has averaged $36 billion in annual worldwide sales in 2000 and 2001, according to data collected by the Assn. for Manufacturing Technology (AMT) in McLean, Va. The association represents 320 U.S. companies, each a manufacturer of tools known in the trade as computer numerical control (CNC) machines. Since 1999, the number of association members has dropped from approximately 400. In the last 18 months, 30 U.S. companies have liquidated, filed for bankruptcy or been sold, said Patrick W. McGibbon, vice president for industry marketing services for AMT.
The U.S. formerly represented a $5-billion piece of the $36-billion total sales. In 2002, the U.S. either produced or purchased equipment overseas valued at $2.9 billion. China, the newcomer in the machine tool field, either built or acquired machine tools valued at $5.7 billion. George Rathke, ATM's vice president for international trade, said the Chinese produced tools by themselves that represented half of the $5.7-billion total. The rest was imported.
Machine tool employment in the U.S. has been in steady decline for more than two decades. The peak was reached in 1980 with a workforce of 110,000. In 1998, the most recent peak sales year, employees already had declined to 61,000. Currently, there are 41,000 in the workforce.
The current down cycle in U.S. orders for machine tools has been the longest since the Great Depression (see chart p. 48), but problems have spread beyond the U.S. AMT's McGibbon who tracks world trends said machine tool divisions of Daewoo and Hyundai have faced financial difficulties. Japan's Hitachi Seiki recently closed a plant in Alabama. Consolidation has been a trend around the world, including in Europe. Proprietary technologies are being sold in the process. For example, Cincinnati Machine bought the Power Flow technology of the bankrupt Swedish company Modig for the production of aircraft stringers. The Power Flow tooling is part of the main machine and eliminates the need for special setups, with cost savings of up to 50%, according to Chip Storie, vice president for aerospace sales.
Many of the machine tool industry's problems stem from the downslide in manufacturing in most parts of the globe. Just prior to the downturn, orders for machine tools hit a peak, building a surplus of capacity that still exists. "Aerospace is down and other industries are down," said Mark Waymouth, Aerospace Group marketing manager for Makino, a Japanese firm that operates an exhibition and training center at Mason, Ohio. "China is experiencing some growth."
Makino, formerly LeBlond Machine Tool Co., has sold a MAG 4 machine to Airbus for the manufacture of wing ribs in Britain for the A380. The MAG 4 can produce up to 85% of the structural parts for an aircraft. The MAG 3, which can produce 75% of required aerospace parts, has been a bigger seller. Five have been sold since last September, each for under $1.5 million apiece.
Waymouth said Makino has emphasized training of new users and is counting on continued growth of regional-jet production, at least for the shorter term, to help it through the downturn. Waymouth also sees a broader field of clients including small shops as candidates for new machinery. This is due to the shift by prime manufacturers, such as Boeing, from in-house parts development to subcontracting parts-making jobs to contractors.
After closing its parts operations at St. Louis and Kent, Wash., and reducing operations at the Auburn, Wash., facility, Boeing has turned to Vykor Inc. of Seattle, a company headed by former Boeing technicians, to coordinate parts manufacture. Vykor works with 30 suppliers, primarily U.S.-based companies, in an affiliate network, applying its Velocity software to exploit equipment already in place efficiently.
"Suppliers have been squeezed financially in the downturn. A lot of them are on the edge and struggling," said Todd Wallen, Vykor's vice president for product strategy. "They have been slashing overhead and trying to reduce prices for OEMs [Original Equipment Manufacturers]. They are demanding huge decreases and suppliers have little ability to respond; margins are small to begin with. We work cooperatively with the OEMs and suppliers and implement savings."
Vykor has contracts with other leading manufacturers, Lockheed Martin for the F-22, Cessna and Vought Aircraft.
OUTSOURCING IS a trend that began in aerospace in the late 1990s, following a similar one in the automobile industry. Embraer has increased its subcontracting of metal cutting by 25% from its previous practice. Boeing outsources much of its metal cutting work. Both Boeing and Embraer have retained composite parts making for the same reason. The process of qualification and certification of suppliers is complex and high investment is required. But Wallen expects that Boeing will begin subcontracting more of its composite work in future.
The machine tool industry has been hammered, but all is not lost, said Linford Stiles, president of Stiles Associates, a New London, N.H.-based management consultancy. He has seen evidence of three companies rebounding as they shed old ways of doing business and antiquated equipment. He cited the changes at Japanese-owned Mazak in Florence, Ky., that started seven years ago. The company introduced automation to the manufacturing process, using automatic tool changing and electric carts to move parts and equipment on a railway. The plant is operated by a minimum number of people and operates 24 hr. a day.
"These American companies are old and traditional. They can't learn quickly enough about getting rid of the waste," Stiles said. "Where it has happened, it has worked. It sounds simplistic, but good management can make these things work."