Sixteen months after the fall began, we now know how far the industry has dropped. The question now is how long it will stay down. In the civil market, airlines continue to report heavy losses and are not expected to recover before 2004 at the earliest. Airliner deliveries will take even longer to return to 2000 levels.
The damage will spread beyond Airbus and Boeing - to engine manufacturers General Electric, Pratt & Whitney and Rolls-Royce and suppliers such as Alcoa, Hamilton Sundstrand and Honeywell. Not only will they have to deal with depressed demand, but with a longer-term, perhaps permanent change in their businesses.
The aero-engine business model used to be straightforward: sell the engines then, rather more profitably, sell spares and service. But the industry is moving to a new model, with more customers signing "power by the hour" agreements guaranteeing maintenance at a flat rate for a fixed time - generally 10 years or more. This places more emphasis on keeping maintenance requirements low, as spares move from being a profit centre to a cost. Engine manufacturers, and other suppliers in their wake, will have a lot of work to do in 2003 as the new service model spreads.
Aerospace manufacturers, especially in the USA, may see the rapid expansion in US defence spending as a way to counteract the continuing civil downturn. But the extra cash will not translate directly into more aircraft procurement. On the contrary, procurement numbers for the Boeing F/A-18E/F, Lockheed Martin/Boeing F/A-22 and Lockheed Martin F-35 have not been increased and could be cut again in 2003 as the Department of Defense tries to balance its budget. The war on terrorism - even the prospective war with Iraq - needs many things, but supersonic fighter aircraft are not among them.
Existing programmes offer more hope. Eurofighter production is set to ramp up in 2003, bringing long-awaited returns for Alenia, BAE Systems and EADS, as well as other suppliers further down the chain. Also due for production-rate increases are the F/A-22 and Lockheed Martin F-16. Sales of smart weapons on both sides of the Atlantic are likely to strengthen, if only to replace ordnance likely to be expended against Iraq.
Further squabbles are expected between national governments over joint European programmes such as the Airbus Military A400M transport. Europe's defence budgets and contractors are too small to handle major programmes alone, and with several customers pulling in different directions, delays and compromises are inevitable.
OvercapacityThe space industry will remain in a slump throughout 2003. Several satellites were launched in the last few years to handle a telecommunications boom that failed to appear, and the result is overcapacity and depressed demand. Public sector customers, whether scientific or military users, are unlikely to take up the slack while launch costs remain high. And the ongoing transformation of the US military does not require more satellite capacity - the bottlenecks are in information handling.
Northrop Grumman's take-over of TRW creates a new aerospace giant, and could be the last significant merger between two US prime contractors. With US defence spending expected to expand for the next few years, the pressure to consolidate caused by the falling budgets of the 1990s has been eased. But industry observers are still watching for a move by BAE Systems. The UK leader already gets more than half its revenue from North America, and is keen to be seen as the equal of US prime contractors. A major acquisition could be on the cards.
Source: Flight International
