The global aerospace industry continues to grow and innovate

By Nancy J. Gonzalez

The global aerospace industry is expected to enter a cyclical upswing as the world economy picks up, rising airline profits and the need to replace aging aircraft.
According to the International Air Transportation Association (IATA), this industry posted an operating margin of three percent in 2013, the strongest results in three years. The association forecasts that industry profits will rise for a fourth consecutive year in 2014, marking the longest run of profitability since 2000-2003.
The latest IATA board report explains that the global aerospace industry “is expected to enter a period of strong growth, supported by a recovery in developed markets and a more sustainable outlook in emerging markets.”
Although the aerospace industry forecast is positive, major manufacturers are cautious and most of them lowered their market predictions for the next 20 years and, at the same time, they are adjusting their budgets and improving aircraft technology.
The aerospace industry has a positive impact on theU.S. regional economy; therefore, most of states within the U.S. are giving tax breaks and incentives to start-ups and multinationals to settle operations on their territory, while the local universities invest more in aerospace related fields.

Aerospace industry manufacturers’ forecast

The major aerospace manufacturers, Boeing and Airbus, differ in their 20-year forecast for the demand of new high-capacity aircraft. While Boeing cuts the expected demand by nearly 20 percent, from 760 to 620 aircraft, Airbus estimates a demand of over 1,700 passenger jets and freighters in this category in this same period of time.
Boeing´s revision follows diminishing sales of its 747-8 and slow take up of the Airbus A380. The document shows there is a “continued shift in demand” from the large four-engine jets to twin- engine types.
“The market is still very bullish, but you are starting to see emerging winners and losers among airlines. So that means we have an order book management that is a bit tighter,” said Fabrice Bregier, Airbus president and CEO, to Aviation Week recently.
He explained that the current market is not in a crisis; on the contrary, it is maturing.
On the other hand, Randy Tinseth, vice-president of marketing for Boeing, said to Flight Daily that Airbus has no data to support its forecast conclusion and described the current air transport markets as strong and resilient.
Contrary to the high-capacity aircraft, single –aisle types will remain the strongest category over the next two decades, according to Boeing´s forecast. The company has raised expected demand in this sector by four percent to 25,680 aircraft, about 70 percent of the total requirement.

The document shows the single –aisle sector will be centered on 160-seat aircraft such as the Boeing 737 Max 8 and the Airbus A320neo. Boeing sees as a requirement for 4,520 aircraft in the small twin-aisle category, covering 200 and 300-seat aircraft, and another 3,460 large twins accommodating 300 to 400 seats.
Asia –Pacific customers will account for 37 percent of the total deliveries, far ahead of North America and Europe with around 20 percent each. Boeing estimated the overall value of the global demand at U.S. $5.2 trillion.
The US air framer still predicts annual demand for 840 new-build freighters in the two decades from now to 2033. Last year, this figure was 850 units.
The overall demand for 2,170 cargo aircraft will include 590 new high-capacity freighters in the 80t range and 250 new medium-capacity freighters in the 40-80t sector.
The estimate expresses that, in the next 15 years, the number of seats per flight at the top 25 long haul airports has decreased by 2 percent. Furthermore, the frequency and capacity at these airports have risen by around 60 percent as the number served has increased by 46 percent.

Bombardier expects fewer deliveries

Exhibit # 2 illustrates Bombardier´s market forecast, which also shows a significant drop in anticipated deliveries of business and commercial aircraft from 2014 to 2033.
Last year, the expected demand was 24,000 business jets worth U.S. $650 billion from 2013 to 2032. Nowadays, the estimate has dropped to 22,000 business jets worth U.S. $617 billion. These numbers are for aircraft segments which include its Learjet, Challenger and Global models.
The largest number of jets during the forecast period will be delivered to North American customers, followed by Europe and China.
In the commercial market for 20 to 149-seat jets, Bombardier forecasts demand for 13,100 deliveries worth U.S. $646 billion. This is down from last year´s estimate of 16,700 units worth U.S. $658 billion. The current forecast breaks the commercial market into 400 aircraft with 20 to 59 seats; 5,600 with 60 to 99 seats and 7,100 with 100 to 149 seats.
The North American market is expected to account for deliveries of 3,650 aircraft during the forecast period, followed by Greater China with 2,280; Europe 1,840; Asia Pacific 1,400; Latin America 1,100; CIS 830, India 760; Africa 700 and Middle East 540.

Emerging countries grow at a faster pace

Each day, 8.3 million people around the World step aboard an airplane. As global incomes rise, people in Southeast Asia, Africa, Latin America, India and China want to travel more. Airbus forecast that emerging countries’ traffic is growing at a 13.2 percent annual rate. The emerging countries’ carriers are adding new jets at a fast pace.
According to Bank of America, in the next six years, Indonesia's Lion Air will get 265 new planes and India's IndiGo will receive 125.
Much of the growth over the next 20 years is expected to be fueled by traffic growth within Asia Pacific, as well as within China and Latin America. Boeing also expects overall worldwide annual airline traffic to climb 5 percent over the 20-year period ended 2033, better than global gross domestic product growth of 3.2 percent per year.
As shown in Exhibit #3, the emerging countries will take most of the new aircraft in the next 20 years. North America will get 7,550 new aircraft, while Europe gets 7,450 units. The forecast predicts CIS will get 1,330 units.
Latin America will get 2,950 aircraft, Africa a total of 1,080 units, the Middle East 2,950 and Asia Pacific 13,460.

Technology and aircraft

Technology is a crucial aspect in the aerospace industry to improve performance and increase security. Major aerospace manufacturers are constantly working on the design and prototyping to adjust their aircraft to the needs of their clients.
Jim McNerney, Boeing CEO, said in a recent interview by Aviation Week the company is adjusting to the market, while adopting new technology.
“We should work just as hard on technology and invest as much in R&D and prototyping,” he explained. “We are going to invest in and stay ahead on those technologies that will differentiate us in the marketplace.”
He expressed that aircraft upgrades should be more efficient; therefore, the final product will be available sooner without sacrificing quality and security.
“The 787 is a wild success,” he conveyed. “We built a very compelling airplane, but we could have gotten it into the field a couple of years earlier. It would have cost us less, and our customers would have had 95 percent of the performance sooner.”
Airbus presented its A330neo aircraft during the Farnborough International Air show recently. This aircraft is a re-engineered version of its oldest wide body in production and some of the improvements includes its extended twisted and strengthen the wings to handle 5 tons additional weight. Furthermore, the A330neo has a 14 percent reduction in fuel burn per seat compared to the current aircraft.
During the presentation, Airbus expressed the A330neo was the logical evolution of the A330 family; therefore, the market for this aircraft is strong, especially in the medium-haul segment.
Air Lease Corporation (ALC) became the first customer and ordered 25 brand new A330-900 neo, a 310 passenger aircraft, to be delivered from 2018. Also, the company bought 60 additional A321neos.
According to Aviation Week, John Plueger, ALC president and CEO, said there is a compelling price difference between A330neo and any other wide body aircraft; therefore, Boeing cannot close the pricing gap with its 787-8 and 787-9.
Embraer also presented its new aircraft during this international air show at the UK.
“It is not just a re-engining, but a mayor improvement of the aircraft, including new wings,”explained Federico Curado, chief executive of the company in Flight Daily News during the event.
The E190 E2 is scheduled to enter service in the first half of 2018, and will be followed by the E195 E2 around a year later. The E175 E2, the smallest family member, completes the lineup in 2020.

GE has a new engine

The GE9X engine that will power Boeing’s new 777X twinjet incorporates the newest technology, the company believes its big bet on the weight savings to be delivered by the unprecedented use of composites is about to pay off.
Even though GE Aviation currently holds orders for some 600 of the engines, the GE9X is scheduled to receive Part 33 certification from the US Federal Aviation Administration in the middle of 2018. This new engine has more than two years of technology maturation behind it.
Recently, GE announced the appointment of three participants in the GE9X program: Japan’s IHI Corporation; Safran subsidiaries Snecma and Techspace Aerospace from France and Belgium; and Germany’s MTU Aero Engines. Collectively, they will account for around 25 percent of the project.
IHI will be responsible for the design and manufacturing of various components in the low-pressure turbine and the fan mid-shaft.
Snecma will handle the design and manufacturing of the 3D-woven composite forward fan case and the turbine rear frame, as well as support GE with the composite fan blades through its CFAN 50/50 joint venture.
Techspace Aero is taking on the design and manufacturing of the GE9X low-pressure compressor, as well as manufacturing the fan disk. MTU is designing and manufacturing the turbine center frame.
The new 100,000-pound-thrust turbofan is expected to deliver a 10 percent reduction in fuel burn compared with the GE90-115B engines on the existing 777-300ER. Also promised is a 5 percent improvement in specific fuel consumption over rival Wide body engines by 2020.
Is on in the U.S. to attract aerospace companies
The aerospace industry is a guarantee for regional economic development; as a result, some states such as Washington, New Mexico, Kansas and Oklahoma offer tax incentives to companies to settle on their territory.
Furthermore, the local universities and community colleges expanded their fields of study to prepare the engineers and technicians the aerospace industry demands.

Oklahoma

Oklahoma embraces at least 500 companies from the aerospace and defense, the third largest industrial community in the state. These companies employ more than 120,000 people statewide.
Furthermore, this state not only is home to the largest military MRO center at Tinker Air Force Base in Oklahoma City, but also the major center in the U.S. for Unmanned Aerial Systems (UAS), both commercial and military applications.
UAS companies are developing applications for precision agriculture, severe weather research, exploration of natural resources, crop and herd monitoring and management, forestry, first response, law enforcement and Border Patrol.
Mary Fallin, Oklahoma Governor, explained to Aviation Week that the state established and Aerospace Engineering Tax Credit to attract aerospace professionals and manufacturers. The credit provides U.S. $5,000 per year to engineers hired in the aerospace industry. Also, the state grants companies working in UAS technology no matter if they are start-ups or multinationals.
She said Oklahoma is investing in infrastructure, education and business networks to fulfill the needs of this industry.

New Mexico

To attract aerospace industry, New Mexico not only reduced the Corporate Tax Rate by 24 percent in 2013, but also the Governor, Susana Martinez, signed into law a bill that eliminated Gross Receipt tax on the sale of refurbished aircraft of over 10,000 lbs. and another bill reducing taxes on aircraft maintenance.
The new tax benefits are likely to provide an immediate benefit to MRO businesses in this state.
The elimination of the Sales Tax is expected to have a U.S $5-million direct economic impact and a U.S. $3.5-million of indirect economic impact. Also, the induced economic impact is forecasted in U.S. $1.8 million.
Also, just recently, the FAA Albuquerque Air Route Traffic Control Center, Spaceport American and Virgin Galactic signed an agreement to clear the way for commercial flights of Virgin Galactic´s Spaceship Two by setting parameters for the safe integration of commercial, licensed space launch operations from Spaceport America. The entire facility will cost around U.S. $212 million.
Furthermore, New Mexico is allocating U.S. $14.5 million to upgrade the road from the Interstate that leads from Las Cruces to the spaceport near the city of Truth or Consequences.
Aerospace companies are getting to New Mexico to take advantage of the tax incentives and the new infrastructure.

Washington State

Washington State has 1,250 aerospace companies in its territory and 131,000 workers depend on its activity.
According to Aviation Week, Alez Pietsch, head of the Governor´s Space office, explained the legislation adopted an eye-catching package to attract companies doing commercial aircraft manufacturing.
He informed Boeing tax break incentive package is worth U.S $8.7 billion, but the economic benefits for Washington State are greater because many companies are moving there trying to be part of the supply chain for this aerospace OEM.
Also, Washington state assigned 1,000 student slots in community college per year for aerospace fields at an annual cost of U.S. $8 million. Likewise, a new program to teach how to build carbon fiber wings is offered statewide.
In 2013, Washington State Legislature approved a bill that provides a sales and use tax exception for large airplanes refurbished in the state.
The bill gave Aviation Technical Services confidence to expand at Grant County International Airport and allowed Greenpoint Technologies to bring two VIP 787-8s to Moses Lake for completion, supporting more than 100 jobs. Also, Zodiac Aerospace continues to do brisk business in the state.

Kansas

While in Wichita, Kansas general aviation companies are shutting down some operations, commercial aircraft is thriving.
During this year, Textron Aviation fired 575 people in Wichita while Bombardier Learjet cut 550 jobs at its local plant.
Also, Boeing announced plans to leave Wichita for Oklahoma City and San Antonio taking away 2,186 jobs. In June, the final E4-B left the Boeing flight line facilities at McConnell Air Force Base in Wichita.
Even though these companies are moving away, others, such as Spirit AeroSystems, which manufactures parts for commercial aircraft, is booming. This company is the largest employer in Kansas and Boeing and Airbus are its customers.
Jeremy Hill, director of the Center for Economic Development and Business in Wichita, explained the aerospace industry has a positive forecast, but this situation does not translate into more employment in the state.

Conclusion

For aerospace manufacturers the market is maturing; therefore, aircrafts have more technology and are constantly evolving. Even though Boeing and Airbus 20-year forecasts show contradictory figures at least for the high-capacity aircraft, the worldwide market is strong.
The emerging countries will take most of the new aircraft in the next 20 years due to the increase of passenger traffic in these regions.
As the market is getting tighter, aerospace manufacturers are looking for better places to settle their production; therefore, the several states in the U.S. are offering tax break packages and incentives to attract this kind of industry to their territories.
The growing interest to attract aerospace companies is supported by the expected strong growth due to the recovery in developed markets and a more sustainable outlook in emerging markets.
All of this activity will benefit Mexico, which continues to attract projects on the heels of the supply chain of OEMs.