Western countries are pulling back from armed incursions overseas such as Iraq and Afghanistan. Defense budgets are being trimmed by governments keen to introduce a little austerity to balance the books. Yet even as the industry is rocked by news that Emirates has canceled an order for 70 of the new A350 XWB civil airliners with Airbus, the FT and the Telegraph are separately reporting on two sectors of the UK aerospace market that underline the positive situation across the western aerospace industry.
Great Britain’s aerospace industry has grown ten times faster than the wider UK economy according to ADS, an industry body representing aerospace, defense and security companies. Over the last three years, with the sector generating revenue of almost £28 billion ($47 billion) a year. The aerospace industry grew 9.4% last year and has achieved an average growth rate of 7.1% each year since 2008. More than two-thirds of the 900 ADS member companies surveyed for the research anticipate growth of at least 10% over the next 12 months, unprecedented among the wider UK manufacturing economy.
Nor are these emerging market sales dependent on continued economic growth or less-than-stable regimes. The Telegraph reports North America and Europe together make up more than 70% of the industry’s exports, although regions such as the Middle East and China are becoming an increasingly significant source of orders. Last year, the Middle East was the fastest growing market, with exports rising 75%, while sales to China jumped 23%.
Airbus’s civil aircraft order book is often cited as a source of shareholder value for established suppliers to the aircraft manufacturer and, indeed, for firms such as BAE and Rolls Royce having firm orders on Airbus’ books is a guarantee of future employment and revenue for years to come, but the defense industry is about to experience another massive and sustained boost to BAE as America’s F-35 joint strike fighter finally gets into gear.
The project is some years late and over-budget but due to the sheer volume of the build program it is promising immense returns for the companies who have been in from the start. The UK (largely BAE) is the second-largest industrial partner to the US (usually partnered with Lockheed Martin in joint ventures) in part because it shared significantly in the development costs of the F-35.
The FT reports anticipated sales of the new stealth jet are expected to exceed 3,000 aircraft, with the “risk” to the upside rather than down. Those projections, the FT states, make it the world’s largest ever defense procurement program, with the US alone slated to spend $400 billion, buying almost 2,500 jets.
“The scale, scope and complexity of the F-35 program is beyond that of any other program on the planet,” Stuart Forsyth, BAE’s F-35 development director is quoted as saying. In the same way the whole US aerospace supply chain will benefit from the program as production ramps up to the planned 200 aircraft per year over the balance of this decade and sustained through the 2020’s before gradually tailing off to 100 per year through mid 2030’s.
The demand for aerospace materials, notably titanium, aluminum and nickel-based alloys will be significant and sustained, while the long production program will allow manufacturers and suppliers to invest in production and infrastructure with confidence the long time frame will permit a solid payback. The concurrent engineering approach employed for the F-35 has caused headaches as engineering has continued to evolve even as production has started, but this process allows the latest technology to be incorporated in the design ultimately prolonging the life of the system, and hence the program.
The wider economy may be experiencing mixed fortunes but the aerospace industry and aerospace suppliers have a lot to be positive about in the decade ahead.
by Stuart Burns