Aerospace: Clear Skies Ahead
North American aerospace manufacturers continue to enjoy the boom in business that began in 2003 and shows no sign of slowing.
Susan Avery (Jun/Jul 07)

Last December, preliminary estimates by the Aerospace Industries Association (AIA) calculated total 2006 U.S. aerospace industry sales at $184.4 billion - up from $170 billion in 2005, with 2007 sales projected at that time to reach $195.4 billion. However, by April of this year, as more detailed information became available, Terry Ruby, the AIA's electronic data manager, calculated that the 2006 figures were underestimated and that the industry had actually exceeded $200 billion in sales in 2006. "The fourth quarter was exceptional," he says.

Of these sales, between 40 and 45 percent is now exported. In 2006, according to AIA figures, aerospace contributed a positive net trade surplus of more than $50 billion to the U.S. economy - $82 billion in exports versus slightly under $30 billion in imports. This trade surplus has more than doubled since 2003, when it was around $25 billion. Now, says John Douglass, AIA president and CEO, "aerospace is roughly equivalent [to] or higher than all of the other manufacturing industries that have a positive trade surplus lumped together. We're the single largest positive trade surplus in the entire American economy."

This immense industry - encompassing civil aircraft, military aircraft, missiles and rockets, space vehicles and equipment, search and navigation instruments, and other related products and services - has become increasingly global. Manufacturers in all of these sectors are locating more production facilities throughout the world, subcontracting parts and fabrication work to a larger number of suppliers overseas as well as in North America, and collaborating with other international companies - even competitors - in joint ventures and consortiums.

Douglass says that the globalization trend has been very positive for aerospace. "There is more activity, more back and forth going on, but we are winning the battle of globalization," he says. "We're on the positive side of the lever. You hear about somebody outsourcing 1,000 jobs to some European nation or China or somewhere, but then that nation buys x-number of airplanes, which creates 10,000 jobs here in America."

U.S. aerospace employment, which totaled more than 1 million workers in 1990 but decreased to a low of 587,000 in 2003, is now back up to 630,000 and growing. States with the highest total aerospace employment, based on 2004 figures from AIA, are California (136,000), Washington (86,000), Texas (51,000), Kansas (44,000), Arizona (35,000), Connecticut (34,000), and Florida (30,000).

The Canadian aerospace industry, which also hit a post-9/11 low, is up to about 80,000 workers now, according to Eric Alexander, communications director of Aerospace Industries Association of Canada. Canada's annual aerospace sales are now about CAN$22 billion, of which 85 percent is exported.

Mexico, meanwhile, is just taking its first steps toward building its own aerospace industry. At the Querétaro International Airport, a new National Aerospace Training Center and 86-acre Aerospace Industrial Park are under construction. Both initiatives, entirely government-funded, will benefit Bombardier Aerospace's new 85-acre complex also under construction there. The company, Canada's largest aerospace employer, began production at a temporary facility in May 2006, and by January 2007 had ramped up its Mexican work force to 650 employees and already shipped its first business jet fuselage to Montréal.

According to Luc Beaudoin, vice president of aerospace for The Everest Group, which provides site selection consulting and other services to foreign companies locating in Mexico, the Mexican aerospace industry will develop around foreign investment rather than from local companies, due to the barriers of entry to the industry. The major incentive to locating in Mexico, he says, will be a "low-cost production site at proximity to the largest aerospace economy of the world."

The global market is strong for all segments of the aerospace industry right now, but the civil aircraft sector is seeing the fastest growth. AIA's preliminary estimates put 2006 sales by U.S. civil aircraft manufacturers at $47.5 billion - a 21 percent increase over 2005. Sales of U.S.-produced military aircraft increased 5.5 percent to about $53 billion, missiles and rockets stayed about level at $15 billion, and space sales increased 3 percent to $39 billion.

 The Civil Aircraft Market
Currently, almost 60 percent of total U.S. civil aircraft sales are for large commercial jetliners - in other words, Boeing, which is flying high right now with record orders, deliveries, and backlog. Orders for the company's new 787 Dreamliner, which will be unveiled to the public this summer and begin FAA certification testing this fall, are already nearing 600 aircraft to almost 50 different customers worldwide. Japanese carrier ANA is scheduled to take the first delivery in May 2008.

Most of Boeing's recent aircraft orders have been from overseas airlines, and the company's supplier network has also become increasingly international. Its 787 production team includes manufacturers in Italy, Japan, France, United Kingdom, Germany, Sweden, and Korea, in addition to more than a dozen U.S. states.

The general aviation segment of the civil aircraft market is also seeing strong growth, especially in business jets. Top North American business jet manufacturers are Bombardier's Learjet Inc., General Dynamics subsidiary Gulfstream Aerospace Corporation, Textron subsidiary Cessna Aircraft Company, and newly independent Hawker Beechcraft Corporation, formed earlier this year with the sale of Raytheon's aircraft operations to a U.S. and Canadian investor group. Learjet, Cessna, and Hawker Beechcraft all have major manufacturing operations in Wichita, Kansas, while Gulfstream's primary production facility is in Savannah, Georgia.

According to the General Aviation Manufacturers Association (GAMA), shipments of every type of general aviation aircraft - business jets, piston airplanes, and turboprops - increased in 2006, and total industry billings set record highs for the second year in a row. GAMA estimated total 2006 worldwide billings for new manufactured general aviation airplanes at $18.8 billion, of which $10.4 billion was for U.S.-manufactured planes.

A new market in the general aviation category is the light business jet. New aircraft manufacturer Sino Swearingen Aircraft Corporation, a partnership between San Antonio, Texas-based Swearingen Aircraft Company and Taiwanese firm Sino Aerospace Investment Corporation, delivered its first production SJ30 light business jet in November. Sino Swearingen's main manufacturing facility for fuselages and wings is in Martinsburg, West Virginia, with final assembly and testing taking place at the company's San Antonio headquarters, where it employs more than 400 workers.

Honda Aircraft Company, meanwhile, is establishing its world headquarters at Piedmont Triad International Airport in Greensboro, North Carolina, where it will produce the HondaJet, a new advanced light jet for which it says it already has more than 100 orders.

Military and Space Markets
Just as it has in almost every industry, the globalization trend has taken hold in the military sector of aerospace with the Joint Strike Fighter (JSF), a U.S.-led multinational government venture to build a multi-functional stealth fighter jet, known as the F-35 Lightning II. Lockheed Martin is the prime contractor with industrial partners Northrop Grumman and BAE Systems, plus a host of suppliers in the United States, United Kingdom, Canada, Australia, Italy, the Netherlands, Denmark, Norway, and Turkey. The aircraft, under development since the late 1990s, made its inaugural flight in December. According to Lockheed Martin, the United States and United Kingdom alone are planning to acquire more than 2,500 F-35s; the other countries in the program are expected to add about 700 more to the total, and sales to other international customers could push the final number of aircraft to 4,500 or beyond.

One new development in the military sector is a growing demand for Unmanned Aerial Vehicles (UAVs). A Teal Group market study predicts the UAV market to triple over the next 10 years, from $2.7 to $8.3 billion annually, and continue to rise to as high as $55 billion in the following decade.

In both the military and space sectors of aerospace, it has become increasingly common for competitors to work together. NASA's primary industry partner, United Space Alliance (USA), is a partnership of Boeing and Lockheed Martin. Headquartered in Houston and employing more than 10,000 workers in Texas, Florida, and Alabama, USA relies on more than 1,200 suppliers in 45 states and reported 2006 revenues of $1.9 billion.

Public interest in space has increased since 2004, when President Bush announced his Vision for Space Exploration (VSE), calling for a return of humans to the moon no later than 2020. Plans also include fulfillment of U.S. commitments to complete the International Space Station (ISS) and to retire the space shuttle by 2010.

To replace the shuttle, NASA has selected the Orion spacecraft, for which Lockheed Martin has been named prime contractor, and the Aries I reusable launch vehicle, for which a contract will be announced this summer. NASA also awarded Commercial Orbital Transportation Services contracts to two entrepreneurial companies - Oklahoma City-based Rocketplane Kistler and El Segundo, California-based Space Exploration Technologies Corporation (SpaceX) - to develop reusable space vehicles and systems to deliver people and cargo to the ISS. The two companies will receive a combined total of $500 million; this is the first time that NASA has granted commercial contracts based on high-level goals and objectives rather than detailed specifications.

Meanwhile, states, counties, and local economic development agencies throughout the country are investing in spaceports. Most recently, voters in New Mexico narrowly approved funding for Spaceport America, located near the White Sands Missile Range, where Virgin Galactic plans a space tourism operation. Commercial launch facilities already exist in California, Oklahoma, Alaska, Virginia, and Florida, most assisted in large part by state or local funding; others are in the works or proposed in Washington, Texas, and Ohio.

The Future
Commercialization of space, continued globalization, consolidation of power at the top levels of the industry, cooperation among competitors, increased outsourcing and subcontracting with larger numbers of suppliers, ongoing technological advances, and worldwide market growth will continue to shape the future of aerospace. Military developments and U.S. politics will also play a major role.

AIA has compiled a list of "Top Issues" for 2007. These include: • ensuring adequate NASA funding for both the VSE program and basic aeronautics research;
• modernization of the U.S. export control system and promoting free and fair trade;
• improving Department of Defense acquisition policies and procedures;
• strengthening the U.S. National Security Space (NSS) program;
• advancing worldwide ethical business practices in the industry;
• implementing the next-generation air traffic control system to eliminate the gridlock that has plagued the airline industry lately; and
• increasing awareness of the U.S. aerospace industry as a strategic national security and economic asset.

A shortfall of aerospace talent may become a serious issue in a few years as current skilled professionals retire in ever-increasing numbers. "We've got to find young people to come into this industry," says Douglass, adding that he spends a lot of time trying to nurture young engineers and scientists. A popular AIA event is its annual rocket contest for students.

Asked what advice he would give to economic development agencies or areas seeking to attract aerospace, Douglass says that they should focus on the worker issue: "We are not particularly drawn to areas by the availability of natural resources. We go where the people are. So if a community is interested in attracting aerospace work into their area, the single most important thing that they can do is show that they have a viable, trainable work force who can work in the aerospace industry.

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