The Aerospace Industry in Review

The U.S. aerospace industry is at a crossroads, facing another crisis on the commercial side while the defense side picks up steam. The commercial side of the industry is suffering through both a cyclical downturn and a long-term structural adjustment, both of which promise to leave the industry in worse shape than it was just a few years back. The defense side of the industry is enjoying a resurgence due to increased U.S. military spending and a long-term shift toward air and space-based combat systems.

Sales for 2002 have slowed and the trend is clearly downward for the next few years, based mostly on yet another decrease in the production of large civilian transport aircraft. The industry’s overall profits have decreased over the last few years but seem to be holding up during this downturn.

Employment in the U.S. aerospace industry has fallen throughout 2002 as production in the commercial aerospace industry declined. In October, employment was down to 728,000 from its most recent peak in 1998 of 896,000.

Commercial Aerospace
The commercial segment of the industry has been beset with setbacks due to a cyclical downturn, consolidation, over capacity and the rise of international competition. Commercial transports, general aviation, and commercial satellites have all suffered to varying degrees, while regional aircraft are a lone bright spot. Sector-by-sector highlights follow.

Commercial transport
• Is in a world-wide depression caused by the economic downturn, the drop in air travel following September 11, and the ongoing financial crisis in the airline industry caused by the long-term effects of deregulation.

• The immediate future of commercial transport production is for cutbacks through at least 2004. That assumes the airline industry can right itself in the next year or so, which looks increasingly unlikely.

Regional aircraft
• Production is down less than in other segments.

• Operators are realizing benefits of regional jets– they are cheap to buy, cheap to fly, and are typically flown by low-paid pilots.

• The regional aircraft sector is dominated by firms that rely on government support.

General aviation
• Dominated by U.S. manufacturers.

• Sales and production down due to economic troubles in Western and Asian economies.

• This market consists of small planes for private use and business jets. Of these two segments, business jets are growing in importance.

• In 2000 there were a record 3,140 aircraft shipped, while in 2001 the total shipped declined slightly to 2,999.

Defense Aerospace
The defense segment is resurgent because of increased United States military spending that favors air and space-based combat systems. However, this overall improvement in the market for defense aerospace parts is narrowly based in a few defense sectors.

Rotorcraft (helicopters)
• More commercial rotorcraft are produced than are military rotorcraft.

• Military craft account for 80-85 percent of the total dollar value of production.

• Military transport helicopter market has maintained its traditional strength.

Fighter and attack aircraft
• Beginning to show signs of increased demand after it had stagnated after the Cold War and the long procurement holiday in Europe.

• Increased deliveries will not begin until after 2005.

Satellites and rockets
• Although commercial applications are important, the satellite industry will rely on the military market in the near future.

• High hopes for the civilian sector have faded due to problems in the telecommunications sector.

• Military demand is rising again and returning to its former dominance.

• Since Boeing and Lockheed Martin have important new satellite launch vehicles, the U.S. government has decided to support Lockheed and Boeing to keep both firms in the launch business.

Sector Forecasts
There are two forecasts for the aerospace industry: one for the commercial side and one for the defense side.

Commercial
In the commercial sector, forecasts have not been optimistic. General aviation is expected to face a slowdown in the next year, and the civil rotorcraft market will remain about the same.

Commercial transports
• Make up 60 percent of world-wide sales.

• Sales are expected to decrease in 2003 and 2004.

• Expect intense competition between Boeing and Airbus to continue as Airbus eats into Boeing market share and eliminates Boeing’s monopoly in jumbo jets.

Defense
In the defense sector, b growth appears to be on the horizon.

Rotorcraft
• Increased military demand, both in the U.S. and Europe.

• U.S. military needs to rebuild its rotorcraft force.

• Shift in military doctrine favoring force mobility and quick strike capability benefits rotorcraft.

• U.S. dominance in the military arena should be enhanced as new technology is brought into production with the V-22.

Fighter and attack aircraft
• Number of units produced will begin to rise in 2003.

• F-22, F-16 Block 60, and Eurofighter 2000 will account for most of the increased production.

• Since Europe is not developing new planes, the U.S. Joint Strike Fighter program (recently awarded to Lockheed Martin) could dominate the market over the next few decades.

Military transport
• Production is predicted to increase by mid-decade.

• Military doctrine has changed to favor force mobility and quick response to hot situations, rather than long-term forward basing. That should result in increased production over the next decade.

Defending the U.S. Aerospace Industry
The U.S. government has tacitly allowed U.S. firms to employ low wage workers in developing nations – a practice that is growing in the aerospace industry. The government has done nothing when other nations regulate trade and employ subsidies to take market share from U.S.-based producers and jobs from U.S. workers. Revising these trends requires explicit public recognition that the future of the U.S. aerospace industries is important and worth preserving.