Higher than forecast sales surprise aerospace group

 - January 8, 2008, 10:21 AM

The U.S. civil aviation and space programs have developed what Aerospace Industries Association president and CEO John Douglass calls “a creeping crisis,” where “almost every day some kind of relatively bad news has come in, despite what I consider to be an aggressive effort by our government to fix the security problems.”

Nevertheless, he said, aerospace industry sales for 2002 “actually surprised us” because the preliminary final tally of $148.2 billion was $4 billion higher than had been predicted at the end of 2001. Still, that was $5 billion lower than the $153.1 billion in aerospace industry sales for 2001.

As expected, civil aviation took the biggest hit by far, with shipments of civil aircraft declining in number and value for all categories, led by a drop of 20 percent in production of jetliners. General aviation fell almost 14 percent, with 465 fewer deliveries, and civil helicopter sales declined $75 million to $172 million.

According to AIA’s 2002 Year-End Review and 2003 Forecast, GA revenues declined from 2001’s near-record $8 billion by $1.1 billion, while lower deliveries of airliners pulled transport revenues down from $33.8 billion in 2001 to $27 billion in 2002. Taken together, civil aircraft shipments decreased 19 percent to $34 billion last year. Civil aircraft sector sales, which also include engines and parts, decreased 16 percent to $43 billion.

Douglass said the decline in air passenger traffic and the resulting business crisis for the airlines were masking a long-term problem in civil aviation, and in the case of the current airline crises, there is no apparent solution on what to do. “We have to find a way to make the airlines profitable,” he said during AIA’s 38th annual review and forecast luncheon in Washington last month.

Because air traffic delays have abated, public pressure to modernize ATC, build new runways and install new equipment has dissipated, he told several hundred representatives of the media, industry and government.

“The good news is that we know air traffic will return to former record levels and then grow,” said Douglass, a nationally recognized expert in systems acquisition with experience in Congress, the Defense Department and the White House. “The bad news is that the old problems of flight cancellations and delays will, too.”

He said 9/11 aftereffects will continue to be felt through this year, as annual aerospace sales are expected to decline $9.7 billion, to $138 billion. Although a $4.4 billion increase in sales to the Defense Department in 2003–to a total of $58 billion–is expected partially to offset the decline in civil sales, AIA does not see a turnaround until late this year or early next. “Much depends on what happens in the war on terrorism, how our economy goes and political events here in the United States,” he opined.

On a positive note, Douglass said that despite declining civil aerospace sales, the U.S. aerospace industry posted a $31 billion trade surplus, an increase of $4.6 billion from 2001. Aerospace manufacturers also posted their highest level of profits in three years, he said, as profits rose to an estimated $9 billion last year.

Douglass also said sales of military aircraft, engines, parts and services strongly increased in 2002 to $37 billion. “Substantially increased DOD procurement and RDT&E [research, development, test and evaluation] spending were responsible for the military aircraft sector’s sales growth during the year,” he explained.

Aerospace employment in 2002 fell sharply to 702,000. “This is the lowest level of employment in the aerospace sector since the end of World War II,” said Douglass. “The challenge of attracting young engineering students to aerospace during these trying times and keeping them is one of the most serious issues facing the industry. We face a graying of the industry, as the average age of aerospace engineers is 54 and the average for blue-collar workers is 51.”

The aging and declining workforce was one of the issues addressed by the Commission on the Future of the U.S. Aerospace Industry, of which Douglass was a member. Urging the audience to read the text of the report and not just the nine broad-based recommendations, he stated that it contains some interesting ideas for industry and government to encourage young people to consider aerospace as a career. He stressed that the future of the industry depends on whether it can attract creative young minds today.

The report focuses on all of the hurdles the U.S. aerospace industry must overcome if it is to remain “cutting edge” in an increasingly competitive global market, and Douglass asked the aerospace community to lend its support. “If the U.S. is to remain competitive in the global market, we must design and build an air traffic management system that goes well beyond the [FAA] operational evolution plan,” he said.

One day after the AIA forecast luncheon, leaders from the aviation and space industry met with senior officials from the Departments of Commerce, State, Defense and Transportation, the FAA and NASA to develop an action plan to implement the report. The 40 representatives meeting at Boeing’s offices in Washington agreed to divide the commission’s recommendations into those that are near- or long-term, those that require increased funding or new laws and those that require coordination and administrative action.

They also agreed to divide the recommendations into domestic and international categories, and find ways to bring these ideas for reform to the international groups. The group plans to meet next month with government representatives to discuss “what, in the short term, we can do to build toward long-term goals.”

Douglass said it was significant that such a broad-ranging array of representatives from aviation and space–dubbed the Aviation and Space Stakeholders Coalition–were able to put aside their minor differences and agree on a broad agenda to sustain the aerospace industry. He said the strong interest evidenced at this meeting from the federal agencies and the Bush Administration was a positive indicator that the government supports the report and wants to move forward with its recommendations.