While military-related products will give a boost to overall aerospace sales this year, the aerospace industry as a whole is likely to run short of momentum next year, according to the Aerospace Industries Association (AIA).
“Overall civil aviation sales are expected to suffer as conditions continue to worsen for helicopters and business and regional aircraft,” AIA president and CEO Marion Blakey said during her association’s annual year-end aerospace review and forecast lunch.
But the former FAA Administrator said that this recession will be different from others, with the valley at the bottom of the cycle relatively shallow. Why? “The pipeline is primed,” Blakey said. “Never before has civil aviation had such a game-changer like the [Boeing] 787 ready to enter the market right when it is needed most. Other considerations are the resilient single-aisle market and the considerable amount of pent-up replacement demand, which could be driven higher if fuel costs surge.”
Whatever downturn might occur in the next 18 months will be far less severe than other downcycles, according to the AIA. “We’ve talked to the experts, we’ve looked at the numbers, we’ve even done some crystal-ball gazing and it simply does not appear that we’re headed for the same severe and sustained downturn that we saw in the 1990s,” Blakey said.
However, as one of the early casualties of the global economic downturn, the business jet market is likely to suffer relatively more than most other aerospace sectors. After burgeoning for five years, business jet sales dropped sharply last year and production cuts have been widespread. In the used market, inventories appear to have stabilized, but they remain near record highs and prices continue to fall.
While the setbacks suffered by the business aviation industry have been substantial, the AIA expects them to be short-lived. “As the global economy strengthens, net new business aviation orders are expected to begin recovering in 2010, leading to growth of new business aircraft deliveries in 2011/2012,” the association predicts.
“On the defense side, we expect a large-scale recapitalization of existing military systems that are wearing out,” Blakey told the nearly 400 industry representatives and media gathered in Washington. “Moreover, pressure to maintain our aerospace dominance requires a substantial amount of modernization. Together, these factors lay a valley ‘floor,’ if you will.”
The aerospace industry is sound and able to absorb some punishment from the tough economy, Blakey noted, and its recovery could be accelerated. “Right
now there are initiatives before Congress that could quickly generate significant growth,” the AIA chief said. “If we can move forward on these initiatives, the aerospace downturn would not only be shortened, but the industry–as well as the overall U.S. economy–would reap benefits for years to come.”
She said the entire aviation industry is urging Congress to allocate much needed funds for accelerating implementation of the next-generation air transportation system. “NextGen airborne infrastructure could be manufactured today and quickly put into place,” Blakey explained. “Accelerating NextGen will not only bring immediate economic and environmental benefits to all Americans, but it will also create jobs in our sector.”
A $6.4 billion federal investment in NextGen equipment is projected to create 156,000 new jobs, directly and indirectly. She added that with the appropriate funding by the government and the proper incentives for operators to equip, NextGen could be implemented seven to 10 years earlier than planned.
The AIA said that despite the extremely difficult economic environment, the civil aerospace sector was expected to register moderate growth last year, improving by nearly $1.9 billion to $82.5 billion. Large jetliners–the largest segment of civil aircraft sales by value–will have a relatively strong year, although most of the growth is due to recovery from the work stoppage at Boeing last year.
Other segments of the civil aircraft sector are not expected to achieve similar gains. General aviation aircraft and civil helicopter shipments were down last year. The depressed market has also taken a toll on aftermarket services. However, on balance, the positive growth expected from the market for large jetliners is likely to drive a net positive trend for civil aerospace.
According to the AIA Research Center, aerospace orders were expected to fall an estimated 33 percent, to $154.5 billion, last year. Lackluster airline traffic and the sizable backlog already in place indicate that orders will continue to decline in
the near future.
Already, falling orders have had a negative effect on the aerospace backlog, which decreased last year for the first time since 2003. Through the first three quarters of last year, civil transport aircraft accounted for 73 percent of the backlog, with $269.6 billion in unfilled orders.