Airspace Industry
1. Aircraft (manned and unmanned)
2. Missiles
3. Spacecraft and Launch Vehicles
4. Propulsion, guidance and control units for
... [Show More] aircraft, missiles, and space systems
5. Ancillary ground and air based systems essential for the operation and testing of all the above.
Industry Associations
1. Aerospace Industries Association (AIA)
commercial and military aircraft, helicopters, spacecraft, component parts.
2. General Aviation Manufacturers Association (GAMA)
light aircraft and component parts.
Main Customers
Government
usually between 2/3 and 3/4 output purchased by government.
Commercial
6 out of 10 air transport aircraft are of U.S manufacture.
Economic Impacts
Trade Balance
strong demand abroad leads to trade surplus with foreign nations;
Employment
although cyclical the aerospace industry employees many people;
Economic Profile of the Industry
Activity:
Civil and Military aircraft:
~ 54-55%
Space Fabrication:
~ 21-25%
Related Products and Services:
~ 16-17%
Missile Systems:
~ 5-6%
Cyclic Industry
As defense budgets change and as foreign economies rise and fall so does the health of the industry.
As defense sales slide, sales to civilian customers typically increases.
Industry still one of leading employers. Due to a multiplier affect, the industry accounts for over 2 million jobs.
Ratio of salaried to production workers is about equal.
The U.S. industry has consistently shown an aerospace trade surplus in the international markets.
Industry Suppliers
Much aerospace work is highly specialized and therefore, in order to save money, it is contracted out to various suppliers.
Suppliers are predominately U.S. companies; therefore, aerospace has a large impact on the domestic economy;
Aerospace industry is a major consumer of goods and services not strictly related to aerospace.
The Government Market
Aerospace industry is dominated by defense/government contractors.
NASA and DOD account for over 45% of aerospace purchases.
Defense Contractors
Nuclear arsenals are being reduced and defense industry is shrinking and consolidating;
Initially the industry attempted cost cutting by trimming personnel expenditures and limiting new R&D.
DOD expenditures have decreased by approximately 40% since 1987.
Current focus is on improving design and manufacturing processes and inventory control (holding excess inventory is very expensive).
Traditional defense sector suppliers are exploring the commercial aviation marketplace.
Diversification into the civil arena could, if successful, broaden their non-defense market share and allow growth.
NASA
Since 1990, NASA spending has been flat
Companies that service the space industry (government) will have to explore commercial opportunities (private satellite launches, etc.) or seek to use their technology in different areas in order to profit and grow.
The Civil Aviation Market
Excluding the former USSR, the United States has been the largest market for commercial aircraft (helicopters, transports, and GA aircraft).
Air Transport
The principal civil aviation product is the air transport aircraft.
There is a direct correlation (industry-wise) to the health of the airline industry.
Air Transport Prior to WWII
More than 2 dozen manufacturers of large aircraft (over 20 seats at that time)
Air Transport Today
Boeing and Airbus
As costs of production rise, consolidation of the industry is a necessary by-product.
Major airliners
due to heavy competition, need to keep their costs lower than the competition.
Need to transport people at the lowest revenue passenger mile (RPM) possible.
RPM= Cost to transport one passenger (one seat) one mile.
Factors Affecting Commercial Transport Sales - First and foremost
There is a direct correlation between the airline industry and aircraft manufacturing
Factors Affecting Commercial Transport Sales - Business Cycles
the industry has a history of dramatic market swings (between the demand and supply).
These cycles are based on economic growth, inflation, fleet capacity, replacement aircraft, and airline profitability
Factors Affecting Commercial Transport Sale - Economic Growth
during periods of general economic growth the demand for travel increases.
This places demands on airlines to meet the increase travel demand.
Therefore, new routes (expansion) occurs which requires new aircraft.
Need to be aware of domestic and international economic conditions.
Factors Affecting Commercial Transport Sale - Inflation
"too many dollars chasing to few goods".
This causes prices to rise.
When prices rise quickly there is a subsequent demand for dollars.
Therefore, interest rates rise quickly (incentive for "savers").
As interest rates continue to rise it eventually becomes too costly for manufacturers to borrow to finance expansion - this inhibits economic activity.
Factors Affecting Commercial Transport Sale - Fleet Capacity
Airlines must maximize the use of their aircraft to remain profitable.
High load factors and demand by travelers place demands on airlines to purchase aircraft.
Passenger Load Factor: expressed as a percentage:
number of occupied seats to available seats.
Example: 80/110 = 73% Load factor.
Factors Affecting Commercial Transport Sale - Replacement Aircraft
as the world fleet ages, there is pressure to modernize fleets and replace older, inefficient aircraft with newer more efficient models.
Factors Affecting Commercial Transport Sale - Airline Profitability
based on complex interactions between market forces. Some things that directly affect profitability include:
Competition: leads to fare wars which severely limit profits and eventually competition in the long run by driving weaker competitors out of the marketplace.
New Government Regulations: enhanced safety and security requirements
General Aviation
The general aviation industry has experienced growth since the enactment of the General Aviation Revitalization Act of 1994
This limits the potential for product liability
suits regardless of the age of the aircraft.
Before the Federal statute was enacted, a manufacturer could be sued under a product liability theory regardless of the age of the aircraft involved in an accident.
General Aviation - Restructuring and Consolidation
the industry has undergone dramatic changes due to many of the same factors enumerated before regarding commercial aircraft.
Cessna - General Dynamics - Textron
Beech - Raytheon
Piper-New Piper Corporation
General Aviation - Smaller operations
Smaller operating expenses and security issues have caused the light twin and executive jet segment of the market to grow.
In addition, light aircraft can fly directly to their destination and are not constrained by airline schedules and ground support equipment necessary for large aircraft.
The Air Transportation Industry
The air transportation industry includes all civil flying performed by certified air carriers and general aviation aircraft.
For our purposes the following definitions will apply:
Certificated Air
Carriers/Airlines
involve the carriage of aircraft of persons or property as a common carrier for compensation or hire.
The Industry's Contribution to the Economy
Aviation employees
Support services: baggage services, travel agents, hotels, rental cars, etc.
Suppliers: direct and indirect [Show Less]