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Investing.com -- A former Director at Howmet Aerospace has provided In Practise with insights into the company’s strategy under the leadership of its CEO, John Plant. The CEO’s approach, particularly before the Covid-19 pandemic, was to leverage the company’s capacity as a bargaining chip in negotiations with customers, specifically in the aerospace and airfoils sectors.
Plant’s tactic was to insist on premium prices from customers in exchange for capacity allocation in long-term agreements. This was a significant shift from previous negotiations, where customers were typically in a stronger position and expected suppliers to propose cost reduction measures that would lead to lower prices over time. The CEO’s strategy, however, reversed this dynamic, arguing that customers should pay more due to the capacity allocated to them.
This approach has consistently led to an improvement in the company’s margins over the past six years. Each contract negotiation during this period has been conducted with this strategy in mind, highlighting Plant’s focus on leveraging capacity to drive profitability.
The former Director also shed light on why General Electric (NYSE:GE) sponsored the rise of CPP. According to the Director, GE was not satisfied with the existing duopoly and foresaw a shortage of capacity for its LEAP project. Despite a highly aggressive plan, GE found that even with CPP’s involvement, there was insufficient capacity to meet the ramp-up scale it desired. Even before the Covid-19 pandemic, deliveries of every LEAP A and B were falling behind schedule by up to six months.
The former Director’s insights reveal a strategic shift in Howmet Aerospace’s approach to customer negotiations, turning capacity constraints into a tool for margin improvement. It also highlights the capacity challenges faced by major players in the aerospace industry, such as GE.
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