AIA: aerospace industry rebounds in 2010

 - February 1, 2011, 3:30 AM

Although the Aerospace Industries Association (AIA) expected that the industry it represents would trend downward in 2010, in the final year-end analysis it turned in a solid financial performance for the seventh straight year.

Contributing to the positive results, aerospace orders bounced back into positive territory, increasing 20 percent over 2009. “While still off from our high in 2007,” said AIA president and CEO Marion Blakey, “this increase hopefully marks the bottoming-out of the recent decline in orders.”

Last year, civil sales dropped nearly 6 percent, to $48.2 billion, but a rebound is anticipated this year, although it will hinge on several factors. These include the economy, the price of jet fuel, availability and terms of aircraft financing and environmental regulations. The AIA’s civil aerospace category includes commercial, business and general aviation aircraft, as well as non-military helicopters, aircraft engines and related parts and services.

In contrast, the growth trend continues for military aircraft, with 2010 sales totaling $64.5 billion, a year-over-year increase of 8 percent–and the 10th year in a row to show an increase.

Sales of missile systems rose 4.4 percent, to nearly $27 billion, while sales of space systems–including military civil and commercial programs–stayed flat at $45.5 billion.

With minimal growth projected for the NASA budget through 2015, opportunities for more substantial growth will likely come from international customers. Developing a more diverse customer base will help the U.S. maintain a strong industrial base, as well as solidify relationships with strategic partners, Blakey noted.

Obstacles to Growth

In her remarks to nearly 350 members of the news media, government and industry at the AIA’s 46th annual year-end review and forecast luncheon, Blakey cited preliminary total aerospace sales of $216.5 billion for 2010.

Rising imports and falling exports led to a 5-percent drop in the industry’s trade balance, but the surplus of $53.3 billion is still the strongest of any manufacturing industry. Meanwhile, employment declined for the second straight year, but at a much slower rate than initially projected.

“Losing jobs is never good,” said Blakey, a former FAA Administrator, “but when viewed in the context of the overall business environment, our workforce is holding its own.

“Job retention and growth are on everyone’s mind these days,” she added. “This is why AIA and our member companies continue to impress on Congress and the Administration the need to invest in the Next Generation Air Transportation System. Improvements to transportation infrastructure benefit a wide swath of American life, from business and tourism to law enforcement, crisis response, freight shipment and family cohesion.”

According to AIA, the general aviation industry continues to face a challenging business environment. Last year–for the second year in a row–sales of general aviation aircraft declined. The sector has endured falling demand, restrictive credit markets and strong competition from used aircraft.

While the rate of decline slowed considerably last year, AIA said that difficulties remain, particularly for the small to midsize jet market, which is more sensitive to the vagaries of the economy. The difference is that the lighter end of the business jet market has traditionally been more dependent on third-party financing, which became prohibitively expensive to secure after the global economy began to falter.

“Generally speaking, larger-cabin business jets are doing much better,” the association noted. “Jet makers are particularly pushing larger models in the Middle East, where the preference is for private jets as opposed to charter aircraft.”

Glimmers of Hope

Other bright spots for the aerospace industry in 2010 were $195.7 billion in orders, a 16.4-percent increase over 2009. AIA said this return to positive growth is a welcome change after two years of decline.

Civil aircraft and parts orders were particularly robust, jumping to an estimated $84.9 billion, a 65 percent year-over-year increase. The improvement in orders suggests that demand for air travel is increasing and global business conditions such as credit availability, are becoming more conducive to aircraft purchases.

“Our forecast for 2011 indicates that there’s some bumpy weather, yet breaks in the clouds,” Blakey told the gathering. “AIA expects aerospace sales to top $219 billion next year, a modest increase but an increase nonetheless.”

“One of the bright lights we see on the horizon is a rebound in civil sales with an increase of $50 billion” she said. “This is still short of the pre-recession 2007 levels, but on the right trajectory.”

Then, as the financial crisis subsides, global market trends and overall economic conditions may increase demand for single-aisle aircraft. Asia will be the primary driver of this demand, as the indigenous low-cost carrier markets continue to expand service to an entire continent of customers new to air travel. Sales of twin-aisle, long-range airplanes such as the new Boeing 787 Dreamliner and the 777 are likely to improve in this region as airlines launch new nonstop routes.

Another growth category likely to emerge as the global economy improves will be cargo aircraft–an integral component of international trade and commerce. But the business jet market remains a mixed bag for the time being. High-end jets are doing fine, while the more modest jets are still struggling to build sales momentum.

Blakey expressed concern about the pressure to trim the nation’s deficit, saying that the severe cuts in defense advocated by some of the various deficit-elimination study groups are dangerous.

“The United States’ security relies on maintaining our defense technological advantage,” she reminded. “Additionally, if we don’t sustain the investment in the industrial base, opportunities for good jobs will dwindle.”

“These men and women support more than two million middle-class jobs across all 50 states, and are the muscle–and heart–of the American economy,” she concluded.