Top 100 see orderbooks surge

World's leading aerospace companies report substantial quarterly growth in sales, as long-term recovery sets in

Eighteen months of growing optimism among the industry's biggest companies appears to be cementing into long-term confidence about a sustained recovery, figures from our latest quarterly Aerospace Trends Survey indicate.

Our seventh snapshot of the industry mood and performance, taken at the end of the third quarter of 2004, shows optimism continuing to grow, backed up by a surge in orders compared with the same period in 2003, and even signs that the so-called jobless recovery may now be generating demand for new employees.

As before, strategy consultancy Roland Berger polled a sample of 40 Top 100 aerospace companies - 18 from Europe, 17 from North America and five from the rest of the world - with the same three questions relating to their confidence compared with the previous quarter, orders against the same quarter the previous year, and expectations over the numbers of people they would be employing over the next 12 months.

The responses highlight an industry relishing the fruits of recovery after a barren 18 months in the wake of the 11 September terror attacks. Twenty-four of our respondents say they took more orders in the July-September period than in the same quarter last year. Only two of them say orders fell: a positive balance of 22 or 55%. This is the most positive response yet on this question since we kicked off the survey in early 2003.

We ask whether their confidence is higher, lower or about the same as in the previous three-month period. For this figure to remain positive, optimism must continue to grow over the previous quarter. In this case, 16 of the 40 say they are more confident, compared with just one - a component manufacturer from the rest of the world - who is pessimistic. The large number of "neutrals" on this question gives a positive balance of 15 or 38%, slightly down on the previous two quarters. This seems to indicate that the surge in confidence felt at the beginning of 2004 is levelling off into a more consistent level of optimism.

Roland Berger partner Neil Hampson says the move from quarter-to-quarter to stronger year-on-year confidence is "an exciting message, although graphically it may not look as much. I think it is cementing a trend we have seen for the past 18 months and shows both civil and military businesses buoyant."

On employment, the findings are also highly interesting. For most of the previous six surveys, the question as to whether respondents expected employee numbers to rise, fall or stay the same over the next 12 months has given a neutral figure. Matched with a rising orderbook, this seemed to indicate that companies have been prepared to absorb higher demand within their existing workforces - the classic jobless recovery. However, for the first time, there are signals that some Top 100 businesses at least are preparing to boost headcounts, with 12 planning to recruit, four to cut back on staff and 24 to keep employee numbers the same, giving a positive balance of eight, or 20%. Interestingly, five of the eight are OEMs - original equipment manufacturers - which backs up the anecdotal feedback Roland Berger has been picking up, but appears contrary to the received wisdom that "outsourcing" is driving jobs away from the airframers and major primes and down the supply chain to component manufacturers and subsystems houses.

According to Hampson, the picture remains one of a largely jobless recovery, "although with some of the OEMs now predicting job growth, I would expect this to translate down the supply chain over the next 12 months".

Yet again there are signs too that companies reliant on the civil sector are benefiting from the recovery. For two years after 11 September, it appeared that it was the defence sector that was holding up as airlines slashed orders and put off deliveries. This makes sense given that production of the Airbus A380 is now under way and supplier contracts have been allocated for the Boeing 7E7, the two key commercial aircraft programmes of the decade. Of the 12 "majority-civil" respondents (those that make at least 70% of their revenues from that sector), four are more confident, seven enjoyed a stronger quarter for orders than last year and three expect to boost headcount. There are only three negative responses among this group in total.

Again, there is little divergence between the world's regions, although Europe may have a slight edge when it comes to optimism. Of the 18 Europeans, nine are "more confident" - six of the 17 North Americans give the same response. On orders, things are split pretty evenly: 12 Europeans saw demand grow in the quarter, compared with 11 in North America. On jobs, North America appears to be the more buoyant, with seven expecting employee numbers to rise, against five Europeans, perhaps reflecting the easier legislative and cultural environment in the former against which companies hire and fire workers.

MURDO MORRISON / LONDON

Source: Flight International