ALEXANDER CAMPBELL / LONDON
Our fourth quarterly poll of the Top 100 companies finds confidence holding up as the global economy strengthens
The world's leading aerospace companies ended 2003 in optimistic mood, continuing an upswing that began halfway through the year. At that time, the Iraq war had ended, the SARS outbreak had peaked and the world economy had started to show signs of recovery.
Flight International's fourth quarterly Aerospace Trends Survey - a snapshot of a sample of Top 100 aerospace firms' attitudes on business confidence, orders and employee numbers - is the third in which positive responses outweigh negative ones. However, the findings also show that, after picking up sharply from the low point of late 2002 and early 2003, optimism and industry performance is levelling off.
Once again, strategy consultancy Roland Berger polled 40 Top 100 companies - 17 from North America, 18 European and five from the rest of the world - in the first two weeks of the year. They were asked three questions: whether they became more confident over the final quarter; whether they were taking more orders than three months previously; and how they viewed employment prospects.
We have represented their answers in terms of an index (positive responses minus negative, with "don't knows" counted as neutral) and then compared their answers to the previous three surveys to give a picture of how sentiment has changed.
On the confidence question, significantly more companies again said their levels of optimism rose rather than fell between October and December. Only five companies - 13% - said their outlook had worsened over the quarter. This reflects the improving wider economic picture, maintains Neil Hampson, associate partner at Roland Berger. "The US economy looks good; Europe is not that bad; Asia is recovering. Airline orders and traffic figures are up, and military spending and orders are stable - there are no negative indicators," he says.
There is also relatively bright news on orders, although the balance of companies saying they are selling more than in the previous year appears to be falling from its peak in the second quarter, where the balance was 35%. However, there are still 15% more positive responses than negative ones.
As Hampson points out, early 2002 was arguably one of the lowest points ever for the industry as orders dried up in the immediate wake of 11 September, so the difference was more marked between early 2002 and early 2003 than for later in the year.
For the third quarter running, employers are evenly divided on whether workforces will grow or shrink over the next year, with the majority - 70% - saying that they expect numbers to be flat over 2004. Any recovery in the aerospace market is still in its early stages and, although there are vacancies in some disciplines, the industry as a whole is still oversupplied in terms of labour, with production rates well below their pre-2001 levels.
Hampson expects this to continue through 2004, with the surplus of labour making it easier for companies to recruit staff on short-term contracts. However, he adds that, if current economic trends continue, manufacturers may find themselves short of staff in 12-18 months.
The recovery, which was initially led by defence sales, now covers all sectors of manufacturing, Hampson says. In particular, business jet sales are set to pick up." Fractional operators will invest ahead of the business cycle if they're smart. Business jet sales are not actually driven by [economic] growth, but by the corporate profits of a few large, mainly US companies. Their profits are improving, which means the jet market will rise with a six- to 12-month lag. Also, there are some cheaper aircraft out there. The market is a lot more fluid and efficient generally - fractionals weren't really present two or three years ago," he says.
Manufacturers serving the commercial sector, after three years of falling traffic, are also becoming more optimistic, as major airlines report rising traffic figures. "We haven't had a major airline bankruptcy for about a year," Hampson says, predicting that "the civil sector will now take over driving aerospace growth".
As orders from airlines pick up, the benefits will probably be felt first by prime contractors and their tier-one suppliers. In our survey, all companies in these categories say their confidence has increased or stayed the same. Component manufacturers, who will not see their own prospects improve until increased orders have trickled down from their customers, are less buoyant: five say they are more confident, four less so, and 11 the same.
Despite concern about the future effects of the weak dollar on European exporters, Hampson says no respondent complained that they were being hurt by the currency exchange rate. However, he adds: "If it goes on for another two quarters, then it could be an issue."
Another two quarters of good news are necessary before the recovery in aerospace can truly be said to be under way - and before companies will start making investment and hiring decisions based on the optimistic view of the future - but late 2003 has seen a calamitous downturn become a cautious renaissance for the industry.
The questions
1. Compared with the previous quarter, is your confidence about your business's prospects more/less/the same?
2. Was this quarter better/worse/the same in terms of orders than the same quarter last year?
3. Do you expect employee numbers to fall/rise/stay the same over the next 12 months?
Source: Flight International