New quarterly poll of industry's leading players shows a stronger quarter for orders but warns of further job cuts
Short-term confidence is dipping among top aerospace companies, and many expect to shed jobs over the next 12 months. However, the picture is not all downbeat: comparing performance in the first quarter of this year to the same quarter in 2002, more firms saw orders pick up than fall.
These are the key findings of a new quarterly poll by Flight International and strategy consultancy Roland Berger. The Aerospace Trends Survey questioned 32 Flight International Top 100 companies by telephone during the last three weeks of March. Thirteen of the companies are in Europe, 14 in North America and five in the rest of the world.
The companies - with aerospace sales ranging from hundreds of millions to tens of billions of dollars - represent a spread of civil and defence activities from airframers through tier one engine and component suppliers to technology and systems specialists. Those same firms will be asked identical questions each quarter to provide an ongoing picture of industry optimism and performance.
Asked if confidence about their business's prospects had risen, fallen or stayed the same over the first three months of this year compared with the last quarter of 2002, 16% said they were more confident, 31% less confident and 53% the same.
Although most companies are no less confident than they were at the end of last year, the figures are likely to reflect concerns about the situation in Iraq: those surveyed were questioned either in the immediate run-up to or just after the outbreak of hostilities.
In general, US companies are much more pessimistic than their European counterparts. Only two of the 13 European businesses surveyed (15%) are less confident than in the previous quarter; while six of the 14 North American firms (43%) give a negative response. By contrast, three of the Europeans are more confident (23%) compared with only one of the North Americans (7%).
The outlook, unsurprisingly, is also worse for companies in the civil sector. Nine of the 32 firms surveyed get more than 70% of their revenues from the civil market. Of these companies, three are less confident and none more confident. One North American manufacturer involved mainly in the civil sector is typical: "Things have improved significantly after the 9/11 shocks, but we expect further downturn in the civil market,".
On the other hand, a European manufacturer with a mixed civil and military business, comments: "We have continued to win major contracts over the last two years."
Neil Hampson, associate partner at Roland Berger, says Airbus's relative success in winning airliner orders recently has benefited the region's suppliers. He also believes US exporters are being hit by political flak from the Iraq war. "A lot of it is to do with where sentiment lies," he says. "It's possible that anti-Americanism will be hitting the sales of American companies."
However, several European respondents are worried about prospects for the civil sector. One defence/civil manufacturer which reports feeling less optimistic, says: "We are entering another downturn - military is improving; civil may fall off a cliff." Says another: "I am worried further airline orders will be cancelled and that demand will decline again."
The war in Iraq is likely to give a short-term impetus for manufacturers supplying equipment and parts to the coalition military, and that will bolster confidence for some. One North American civil/defence manufacturer which reports rising first quarter orders and stable confidence, says:"We have a near-term demand for US military programmes." According to Hampson, optimism among defence suppliers is based on expectations of a healthy aftermarket rather than any boost for original equipment. "Most of them feel that sales will be unchanged by the war," he says.
The second question asks whether this quarter (January-March 2003) was better than, worse than or the same as the same quarter last year in order terms. Here, the picture is better.
However, as Hampson says, the first quarter of 2002 was when the impact of 11 September really hit the industry, with hundreds of orders deferred or cancelled in the months after the attacks. While the first three months in 2003 were more lucrative for most than that low point, it scarcely indicates a turnaround in industry fortunes.
Thirteen of the 32 companies (41%) say orders rose compared with 2002, while seven said they fell (22%). Again, Europe fares best. Four North American respondents and three in the rest of the world report falling order books. However, none do in Europe.
The third question looks at employment. Asked if they expect employee numbers to fall, rise or stay the same, only two of the 32 companies (6%), both European, plan to take on more staff, with nine (28%) forecasting a drop in their workforce.
According to Hampson, even those respondents who believe business is improving are not looking to employ more people. "And if they think business is stable or slightly down they are still cutting jobs. There is not a positive outlook for employment," he says.
The next survey, to be carried out at the end of June and published mid-July, could see markedly different responses. A stable post-war situation in Iraq looks more likely than it did in late March, and world stock markets were bouncing back last week on news of coalition advances into Baghdad.
A buoyant atmosphere at the Paris air show could see industry executives preparing for their summer vacations in a much more positive frame of mind. However, last year's predictions of a post-11 September bounce-back proved premature.
Terror attacks in the West, further tensions in the Middle East, continuing economic worries in Europe and the USA and the spreading SARS health scare could all extinguish any glimmer of a recovery this year.
Source: Flight International
