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EMPLOYEE RETENTION CHALLENGES IN
AEROSPACE INDUSTRY
CASE STUDY
Khor Wei Min
Othman Yeop Abdullah Graduate School of Business
Universiti Utara Malaysia.
Prof. Dr. Dileep Kumar M.
Professor: Management
Othman Yeop Abdullah Graduate School of Business
Universiti Utara Malaysia.
dileep@uum.edu.my

Abstract
This study researched how the employee attrition impacts the aerospace industry in Malaysia
and the importance of employee retention for continuous operations in Malaysia. Currently
aerospace industry is amassed and a growing percentage of the manufacturing sector in
Malaysia and especially this sector have been identified as the biggest earnings for Malaysias
government which make up of at least 80% of overall countrys export. Malaysia is the 17th
largest exporting nation in the world. However, there is major concern by industry on
maintaining the competitiveness in the market. Delays in completion and late deliveries may
eventually lead to losing competitive advantages are the shared concern by Malaysian
manufacturing industry and *South Pacific Aerospace Manufacturing Sdn. Bhd (SPAM). The
availability of skilled and knowledgeable employee that to support this new and yet challenging
industry in Malaysia is critical. Thus, research is crucial to examine the challenges of human

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resources in SPAM to meet the requirements of the employees needed by the company and in
general, the future of the industry. From this study, apart from the impact, we liked to learn the
actions taken by the company to mitigate the issues and what are the options available so that
such efforts can be used as a reference to those newly set-up companies in the same industry
or even the small and medium enterprise industry (SME) as research can be costly and time
consuming for such companies. Apart from the statistics provided, a series of questionnaires
and personal interviews with key personnel as well as across the organization in South Pacific
Aerospace Manufacturing Sdn. Bhd. (SPAM)* are taken for this purpose. The findings provide
ample opportunity to the human resource managers and leaders in the aerospace industry to
have an insight into core challenges of attrition and retention.

Keywords: Employee Retention, Attrition, Aerospace Industry, Human Resources,
Manufacturing sector.
PROFILE OF THE COMPANY
South Pacific Aerospace Manufacturing Sdn. Bhd. also known as SPAM , in short
manufactures composite material components and sub-assemblies for aircraft applications
mainly for The Boeing Company based in United States. Its products are can be used in civilian,
defense, and space applications and currently is mainly for commercial Aircraft only. The
company is sited at Selengor, Malaysia. The company was founded in 1998 and the joint
ventured partners are The Boeing Company, Hexcel Corporation, Naluri and Sime Darby.
However, both the Malaysians companies sold off their shares to focus on their main
businesses and in 2011, SPAM is equally owned by The Boeing Company and Hexcel
Corporation where both are based in the United States. As of September 2012, the employment
figure is eight hundred and eighty (880) and is expected to increase to one thousand five
hundred (1500) is the next five (5) years.
SPAM is in the Aerospace industry and lately, there are many of such companies being
set-up in Malaysia and in general, Asia region. In Malaysia, some of the aerospace
companies apart from SPAM are Composites Technology Research Malaysia Sdn. Bhd.
(CTRM), Spirit AeroSystems Malaysia Sdn. Bhd., Honeywell Aerospace Avionics Malaysia
Sdn Bhd, SAM Malaysia (formerly known as LKT Industrial Berhad) and SME Aerospace Sdn.
Bhd. These are mostly Tier 1 and Tier-2 company, and with their presence in Malaysia has
created enormous employment opportunity. They also provided business opportunity for many
members of the Small and Medium Enterprise Corporation Malaysia (SME Corp. Malaysia)
acting as the supporting industry to the value chain of the bigger set-up mentioned above. Apart
from being more cost competitive producing in Asia compare originally in the United States and
Europe, the airplane companies also have offset program with most governments where the
amount of work transfer is on a certain percentage of the purchases make.
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CHALLENGES
In this case study, we will focus on the People resources where Second (2) Tier and below
suppliers from the Aerospace industry originally from either United States or Europe is now fast
moving across the continent to Asia. We seek to discuss on retention of employees by
understandings on the attrition rate. Resources ranging from materials to people posed a
challenge to the industry in Malaysia in general, and the neighboring countries as in the pass,
Tier 2 and below suppliers are originally based out of the United States and Europe. Having
most of the existing support is still out of the USA, this has increased the ordering and delivery
lead time drastically. People skill and knowledge is definitely a challenge to the newly set-up
companies in Asia including Malaysia. Many of the works are very manual compare to the other
industries and therefore, skill metric becomes an important tool as a measurement of the
workforce. Staff pinching although strongly discourage between companies but this is
unavoidable as some skill-sets are very limited but necessary for the day-to-day running and
operation of the business. The sudden boom in the aerospace industry is not only in Malaysia
but the rest of the Asian countries including China, Vietnam and Thailand. Therefore, created
many career opportunities which is very positive for country GDP and advancement in the
career for the skill and semi-skill employees. However, this posed a big challenge for the
Corporation in their recruitment and more, to retain their existing employees. Similar to other
industries, aerospace has a set of requirements to follow but with Nadcap, we find the
requirements are extremely strict and hence, compliance cannot be compromised or negotiated.
Nadcap is the leading, worldwide cooperative program of major companies designed to manage
a cost effective consensus approach to special processes and products and provide continual
improvement within the aerospace industry and is the PRI's brand name in the industry-
managed program for special processes in the aerospace industry. Not having the right people
which are required by the various processes can shutdown or stop the operation and ceases the
shipments immediately. Universities and colleges have started to include education and training
in the aerospace field example University Kuala Lumpur but currently already short and not able
to support the demand for engineers with the level of experience and exposures. To meet the
needs and demand, most companies recruited the young engineers and put them on-job
training (OJT) but these young engineers are looking at opportunity and have little loyalty to the
companies. Every company knows they need to attract people and retain them as the cost of
recruitment is also getting very high. This is where the study or research into employee retention
is timely and critical as this can be the life-line for these companies and eventually not only able
to stabilize the workforce and reduce cost of recruitments but risking to stop operation and
delivery. The aerospace news can be obtained widely on the web and the example will be
AeroSpaceNews.org
ISSUE OF RETENTION
Employee retention is defined as the organization's ability to retain its employees and can be
represented by a simple statistic where at retention rate of 90% usually indicates that an
organization kept 90% of its employees in a given period. Companies normally consider
employee retention as relating to the efforts by which employers attempt to retain employees in
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their workforce and in this sense; retention becomes the strategies rather than the outcome.
Attrition simply means a reduction in employees in an organization through normal means
including resignation or retirements. In one of the study, seems that men are more concerned
about their job security than women (Neil and Snizek, 1988; Miller and Wheeler, 1992; Tolbert
and Moel, 1998; Rowe and Snizek, 1995)
In majority organizations, the goal is to decrease employee turnover as this has a direct impact
on costs such as reducing training costs, recruitment costs and most of all, loss of skills, talent
and knowledge. Companies have carried out many initiatives to improve the employee turnover
and hence, the staff retention but question now is how effective. In order to retain employees
and reduce turnover managers must meet the goals of employees without losing sight of the
organization's goals, thereby creating a "win-win" situation. There are theories involving the
employee turnover and retention and provided some of the earlier guidance for retaining
employees. However, while many of these theories may be valid but they provide little practical
assistant for an organization or human resource practitioners. The modern studies relating to
employee engagement demonstrate that by developing a range of strategies that address
various drivers of engagement, many positive outcomes can be achieved. These outcomes
include higher profitability, improved customer satisfaction, lower absenteeism and lower
accident rates as well as higher employee retention. After successful engagement, retention is
the next challenge and has also a direct and causal relationship with employee needs and
motivation.
Attrition in SPAM
Enclosed are the data provided by the Human Resources Department on the attrition for the last
five years.
DL% IDL% YTD%
2008 28.99 14.94 25.59
2009 23.30 12.60 20.80
2010 21.61 17.60 20.43
2011 24.63 13.60 21.87
Sep 2012 14.80 18.67 15.24
Keys:
DL = Direct Labor
IDL = Indirect Labor
YTD = Year To Date
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Although we see a decrease in the percentage from 2011 to 2012, and the year has not ended.
This rate is still considered high if compare with the attrition rate in Penang Branch which stood
at 12.5% as published by the state government. The number of employees has also increased
from 2011 and therefore, the number of resignations is still a concern.
PROBLEM
Attrition contributes to significant costs to recruit new employees which drastically decrease in
profitability as per Robin et al. (2012). Hence, this topic is selected as the case study is due to
the below related issues and thus, affecting the company performance including the output,
quality, on-time-delivery and most of all the financial impacts. Below are the discussions on
some of the problems faced in the industry.
Shortages of experienced and skilled employees will impact the production as well as the quality
of the products resulting in not meeting the On-Time-Delivery (OTD). Losses in term of
replacements are totally unavoidable. As per Perry-Jenkins et al., 2000, shortages of workers in
the labor force will force organizations to focus on retaining their employees.
Above is true as in the Aerospace industry, some unique positions are mandatory to have and
any prolong vacancies in those positions can threaten the continuation of the operations. As the
number of qualified employees is relatively less in this part of the world, not having the right
employee also mean problems and issues cannot be resolved quickly.
When staff retention becomes a challenge, employee recruitment cost can grow to a level of
serious concern and affecting the Profit and Lost of the organization.
Closely related to recruitments will be the investment in the training. As the organization moved
forward, more and more investment in this field, Training not only deals with knowledge but also
the skills which are much required. Such activities attract cost to the organization too. While
training is a positive activity but repeated training in the same area is not to be treated as
complimentary to the skills set required but rather an expense to be avoided.
EFFORTS TAKEN
With the impact this issue is having on the organization, of course the management will not just
sit and not doing anything. The decision is derived after several meetings between the
managers and also the top management. Equally critical to know and understand of employee
support provided by the organization. Many efforts are taken thought out the years to address
these repeated problems. Some of which are more attractive while others may not necessarily
so. Employees develop impressions of the extent to which their supervisor values their
contributions and cares about their well-being through perceived supervisor support
(Eisenberger et al., 2002; Kottke and Sharafinski, 1988). In other words, there are both, positive
outcome as well as negatively too.
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Below are some the effort taken and are categories into Pro and Cons.
a. Pros
Staff development. This is definitely a key to the staff retention initiatives especially meant for
those super performers. This action also supports the succession planning in the organization.
Collaboration with the Institute of higher learning. This is a positive move to attract the
talent among the best in the location of the organization after their graduation.
Review of the Perks and benefits. Such action is to make the package more interesting and
competitive with the rest of the other industry within the vicinity. The benefits can be tangible or
intangibles. One of the examples is insurance or medical coverage for the employees spouse
and children.
Engaging Consultant to study the Compensation packages. This is to ensure the
remuneration is of similar or close to what is being paid in Penang and Kuala Lumpur.
b. Cons
Salary Adjustment. This action can create happy employees but it does impact the Profit &
Loss of the organization. In majority of the cases, salary adjustment does not bring positive
outcomes to staff retention.
Expectation of employees. The organization is not able to predict or know the expectation of
employees. Unable to clearly differentiate between employees wants and needs. Hence, the
objective to instill loyalty among employees can be a big challenge for the human resource
department.
Motivation factors. There is definitely a lifestyle different between the elder and the younger
employees. Therefore, the motivation factors also differ greatly between the two groups. It's
equally important to access the stress of the tasks involved and frequent measure of stress
among the employees.
Cultural Difference. The location and family background affects the employees thinking and
decisions. Such factors is viewed as a great challenge to the Human Resources department.
Work Load. This is mostly to ignore by most organizations even though this is an important
factor to determine the success and effectiveness of the employee. Heavily loaded employee
not only not able to cope but not able or have room to work on improvements.


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IMPLIMENTATION
As this relates to human resource, there is no single solution to the problem. The management
keeps or continues discussing and brainstorm frequently to further improve the decisions and
actions in this matter. The ability to balance between what is provided and from what is afforded
by the organization is another challenge to most organizations. Although faced with many
challenges and factors, the organization must move forward to take the necessary actions so
that the attrition rate is managed and meeting the Customers objective are not impacted. Some
of the actions taken are listed below.

Recruitment from neighboring countries
The organization faced with high attrition from the direct employees, started looking into foreign
workers from neighboring countries. With the contract of two years minimum, production will be
able to stabilize the movement of the blue-collar employees.
Benchmarking Compensation
To ensure SPAM is able to attract as well as to retain employees, SPAM has engaged the
services of the consultant to assist to benchmark between what have been the current to those
states like Penang and even, Kuala Lumpur. Apart from the salary, the consultant also assists to
review the employee ranking so that employees have better perception of their career growth
opportunity and development in the organization.
Revision of Compensation package
The salary and total remuneration and compensation package are being reviewed. Staff
development is another key initiative in retention. Organization need to improve the
communication flow in order for the employee to have the right perception of the top
management as well as the middle management which is their supervisor in most cases.
An internal promotion
The organization is encouraging promotion from internal whenever a position fall vacant and this
has given the employee the confident that career advancement is possible.
Refining learning and development
Instead of providing the training and losing 50 70 % of the new recruits, the decision to
recruits foreign workers is to help stabilize and improve this important factor. Many of the work
required experiences and hence, duration in the employment matters and greatly assists. The
organization also started to collaborate with educational institutions surrounding or nearby like
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technical colleges and even universities to train their student who can potentially serve SPAM
after their graduation. Lately, we can see universities and even institutions of higher learning
coming to us to have better understandings of our requirements as well as the scope of the
expectations.
Career development
For employees growth and also to sustain the operation of the SPAM, we have also embarked
on the succession planning for the key positions. A potential candidate is selected and
necessary training identifies to ensure they are ready for the next level of promotion when the
need arises. With the improvement in the position rankings, the employee also be able to
recognize their career growth opportunity and such position perception is important for the
employee as well as for the organization.
CONCLUSION/SCENARIO
Cost of replacing employees who voluntarily leave an organization is such that even a small
interaction effect size should have important implications for organizational policy. According to
Tziner & Birati (1996) cost of turnover was an employees annual salary times a multiplier of 1.6.
The success of convincing employees to remain in an organization requires an understanding of
the reasons why employees choose to leave the organizations.
Although the company can do whatever and everything necessary to reduce the attrition but
they have no control on the employees choice to leave or stay with the company. As the
employee skills and knowledge are viewed as critical for employee performance as well as their
contribution, companies such as SPAM will continue to provide training and making the
employees multi-tasks orientated. They also came out with many initiatives as part of their
mitigation plans. Although some may not be favorable but there are those which are very
beneficial to the organization. Hence, attrition has been managed and employee retention
continues to be the focus and changes of the human resources department.
FUTURE RESEARCH
Future research can be undertaken to research what can be done to the employee or even
potential employees so that SPAM is not only view as a good employer but a magnet to the
workforce and hence, improve the staff retention which has been a challenge to the human
resources all this while.
REFERENCES
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Eisenberger, R., Stinglhamber, F., Vandenberghe, C., Sucharski, I.L. & Rhoades, L. (2002).
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*South Pacific Aerospace Manufacturing Sdn. Bhd. (SPAM)* The name of the company has
changed for assuaring confidentiality