In our new issue of Flight International, we and our partners at PwC sift through 2014 aerospace industry financial data, indeed through a decade of such information. It is no surprise, but the numbers confirm the widely-held view that this industry has never had it so good.
For our Top 100 companies, it was another year of record revenues and strong profit growth, with civil aircraft sales more than making up for continued lean times in defence. This industry has outpaced world GDP for a decade, two years of the financial crisis aside.
The exceptional feature of the past decade – two, really – has been the transformation of much of what used to be called the Third World into sophisticated economies of increasingly wealthy consumers. People with increasing disposable incomes self-evidently want, increasingly, to travel. This shift in underlying conditions has decoupled aerospace from the normal economic cycle, putting the development, production and consumption of civil aircraft onto a super-cycle that looks set to roll on for another 20 years.
Aerospace is special for another reason. Unlike the car business – where supplying a growth market like China means heavy in-country investment in local production to account for local tastes and fast product cycles – with aircraft, there is no locational link between manufacture and consumption. Aerospace companies have thus been able to efficiently tap global capital and global talent to create a fluid global supply chain and glide over local economic ups and downs. But it is also an industry which produces capital goods of large value and long lifespan. The decision to replace serviceable equipment which has been paid for is not taken lightly, but airlines have been eager to renew and expand their fleets; critically, cheap money and dear fuel have supercharged the aerospace cycle.
So, just as emerging market growth created the conditions for an aerospace super-cycle, rising interest rates and low oil prices could shut it off. Economies are fragile, consumer debt remains high and there is war in the Middle East and fear of war in East Asia, so do not be too surprised if this great aerospace money machine is shaken by a wobble of the pillar on which it stands.
That is, do not forget airlines. There are exceptions but, broadly, their history is that of a giant value destruction machine. No less a figure than Richard Branson, both star-struck with the allure of aviation and hard with business acumen, is credited with saying that the best way to become a millionaire is to start with a billion and buy an airline.
Source: Flight International
