We’ve been reading a lot about the aerospace industry lately – strong demand for product from airlines, defense, technology. Difficulty hiring enough qualified workers to fill the orders. What a former boss of mine would have called a high class problem. But there’s another side to this story that applies to the many small businesses in the aerospace industry. Here is one such real life story that is painfully representative of many companies in this space.
We have a long time client in the aerospace manufacturing industry. In business for over 40 years. Its co-owners were in their mid-50s when we started talking about an exit for them. Neither wanted to be working past age 65. The company was profitable and in a strong industry with lots of demand for product, even 10 years ago. But they had several challenges common to similar companies in the industry:
- Very high concentration of revenue from a single top tier manufacturer
- A long term contract that fixed prices for the term
- Constant pressure to lower costs, provide flexible delivery timetables, ensure repeatability, and maintain quality – a very challenging set of standards to meet consistently.
The owners enjoyed strong profits, producing products that they’d been making for years, almost like a recurring revenue model, and in our planning meetings agreed on a plan to build a bench of managers who could replace them when they sold the business and exited.
And then they delayed implementing the plan – for years. Meanwhile the large customer’s contract carried on, neared its contract term. And then we learned their contract had a unilateral extension provision with no changes in pricing despite rising costs – an extension that could be maintained indefinitely at the customer’s option. As costs grew, prices didn’t, profits shrunk. They’re now struggling to negotiate a better contract, without numerous profit-killing provisions, and facing the task of establishing a credible profit trend despite recent history.
And the owners are now in their early 60s. At this stage the recovery plan is…
- Push back to get a better contract with reasonable pricing and renegotiation provisions – and risk losing the business
- Re-establish an acceptable profitability pattern, assuming the first step works
- Find a buyer who understands the industry and is not put off by its unique challenges
- Support that buyer in the transition, including staying around a few years longer than planned.
If your industry has similarities and you’re well down in the supply chain, a lack of long term planning – and solid execution – is not a good strategy. Want to learn how to change that? Here’s my course on strategic planning: