Global Military Aircraft and Aerospace Manufacturing.pdf

contents error! no text of specified style in document. november 2011 | .au | www.ibisworld.co.uk | ibisworld industry report c2544-gl global military aircraft manufacturing aerospace engines, propulsion units, auxiliary equipment or parts; developing and making prototypes of aerospace products; aircraft conversion (i.e., major modifications to systems); and complete aircraft or propulsion systems overhaul and rebuilding (i.e. periodic restoration of aircraft to original design specifications). main activities the primary activities of this industry are: developing and making military prototypes manufacturing military aerospace engines, propulsion units, auxiliary equipment or parts manufacturing military aircraft, missiles and space vehicles manufacturing military space launch vehicles military aircraft conversion military complete aircraft or propulsion system overhaul and rebuilding the major products and services in this industry are: aircraft aircraft engines and engine parts other parts and auxiliary equipment guided missiles and space vehicles similar industries c2513-gl - global commercial and service machinery manufacturing establishments in this industry manufacture machinery including aircraft machine tools, instruments and appliances. c2523-gl - global computer hardware manufacturing firms in this industry manufacture computer equipment for aircraft controls such as navigational, guidance, aeronautical and avionics equipment. c2534-gl - global auto parts the focus on advanced electronics and information system capabilities; increasing aerospace product manufacturing in developing countries; greater efficiency in developed countries; and the introduction of uavs as strike aircraft. ibisworld forecasts that defense budgets will continue to grow over the next five years, albeit under much greater scrutiny. funding availability will be under pressure by government balance sheets stressed from falling taxation revenue and stretched to capacity with economic recovery programs. this will be reflected in a decline in orders for new aircraft, which will affect the industry in the later years of the coming five- year period. the lag between action and effect will occur because the time between aircraft order and delivery is typically years. the us defense budget serves as a good indication of military spending trends as their expenditure is consistently about 40% of the world total military expenditure. us budgeted military spending peaked in 2007 and is expected to continue decreasing due to a decline in supplementary spending. supplementary spending is in place primarily to pay for continuing military operations in the middle east. defense budgets in europe are expected to increase moderately, growing by about 1.0% per annum. meanwhile, a growth rate of over 2.1% per annum is expected in asia over the next five years. the european aeronautic defence and space company (eads) forecasts that the homeland security market will grow over the five- year outlook. the industry uses many forms of electronics and components to support its products. equipment that falls within this category includes communications, navigation, identification and reconnaissance; electronic protection; information warfare; platform solution; and sensor systems. often, the systems and electronic equipment of an aircraft is replaced rather than the whole aircraft. an improvement in manufacturing processes would reduce costs and raise revenue. increased research into advanced manufacturing processes and technologies, such as predictive process control, high-speed machining, flexible tooling, soft tooling, tool-less assembly and embedded sensors, will benefit the industry. aircraft will continue to be the major revenue earner for this industry; major programs coming into development will dominate the industry. the next wave of aircraft will be unmanned combat aerial aircraft headed by the us army. many other countries have capabilities in this area, though largely for internal military use. helicopter sales are expected to stabilize after several years of strong growth because operations other than war will determine demand. participation grows ibisworld expects that the number of industry establishments will increase marginally over the next five years due to the high barriers of entry in this industry. establishment numbers is estimated to increase at 0.5% per annum over the five years through 2016. most of this will come from developing regions such as north asia, africa, the middle east, india and asia. these regions are increasing their defense capabilities, with establishment growth linked to state-owned enterprises. employment will follow establishment numbers, growing by 0.5% per annum as productivity continues to increase. as the amount of revenue generated per employee increases, total industry wages will grow by an annualized 1.4%. this suggests that the industrys average wage will continue to rise. the globalization of firms in the global military aerospace products manufacturing industry will provide an avenue for emerging countries to learn and develop new products. firms involved in civil aerospace manufacturing will expand overseas manufacturing facilities as they seek to increase sales through collaboration. to achieve this, the manufacturers will outsource components and offer foreign investment in exchange for aircraft sales. www.ibisworld.com global military aircraft however, regulations that restrict the sale of new technological equipment to other countries (even to allied nations) have put a strain on value added. furthermore, legislation to protect the industry in some countries has limited the amount of foreign sales into the country. in the united states, section 8159 of the defense appropriation bill limits the procurement choice of the department of defense to boeing aircraft. these constraints put a threshold on value added and affect the life cycle of the industry. establishment growth in this industry has been minimal due to the high barriers to entry. in addition, players in the two major regions of this industry have just been through a consolidation phase. businesses have seen the need to combine resources to meet the challenges of global competition and to respond to orders for transnational projects, in both the civil and defense sector, which are increasingly being undertaken on a pan-european basis. in europe, mergers and acquisitions between state-owned companies and private enterprises have led to an increase in privatization, hence the ability to compete at a global scale. in the united states, however, mergers between civil and defense contractors provided the basis for players to use economies of scale and technology transfer (defense to civil) to maintain their lead in the industry. consolidation between civil and defense contractors may make the negotiations of military contracts more difficult. for example, a more open relationship between european contractors and china may make it more difficult for these contractors to negotiate for us department of defense contracts. www.ibisworld.com global military aircraft bombers are used to attack ground targets by dropping bombs. combat aircraft outnumber other aircraft types by about three to one. cargo aircraft are airplanes designed to carry goods. this aircraft type has a large fuselage, a high wing to allow the cargo area to be close to the ground, a large number of wheels and a high mounted tail to allow cargo to be driven directly into and off the aircraft. there are more custom features in a cargo aircraft than in a freight aircraft, which usually is a direct conversion from an existing passenger plane design. rotary aircraft include helicopters, autogyros, gyrodynes and hybrid wing (tilt-rotor or tilt-wing) aircraft. hybrid wing aircraft have rotors that can change orientation to drive vertical or horizontal flight. aircraft manufacturing has performed well over the past five years, increasing as a proportion of revenue. demand for military vehicles from the united states and its allies was strong due to their significant involvement in conflicts in the middle east. as such, production increased, leading to a faster growth in revenue compared with the industry as a whole. aircraft product share is expected to decrease over the next five years. high levels of sovereign debt is expected to lower new aircraft purchases and shift spending toward existing aircraft maintenance. engines aircraft engines and engine parts form the second-largest segment. this segment provides the engines and parts for aircraft and spacecraft. the segment reflects the size, distribution and dynamics of the aircraft market. engine products can segment into take-off thrust categories, which can then be matched against aircraft classes. over the years, there has been minimal change between take-off thrust required and the maximum take-off weight (mtow) of an aircraft. however, there have been continued reductions in the mtow required for flights. this has been due to fuel-efficient engines and lighter frame structures. improvements in fuel efficiency are a focal point of much research and development (r flight systems; engine control systems; environmental control systems; fire protection and detection systems; auxiliary power units; propeller systems; and industrial products, including air compressors, metering pumps and fluid handling equipment. sikorsky manufactures military and commercial helicopters, and aftermarket helicopter and aircraft parts. sikorsky also provides aftermarket services. utc reports the performance of these subsidiaries in two segments: military aerospace and space, and commercial aerospace. during 2009, pratt turbofan, turboprop and turboshaft propulsion engines; marine propulsion and ground power systems; engine systems and accessories; commercial avionics, including enhanced ground proximity warning systems; flight control systems; environmental control systems; aircraft landing systems; power management and generation systems; and interior and exterior aircraft lighting. the company also provides repair and overhaul services; aerospace consumable spare parts, hardware and logistics support; and management and technical services for space and communication facilities. in addition, the company is involved in automation controls and systems, power and transportation products, performance materials and specialty chemicals. honeywell is a leading global supplier of aircraft engines, avionics and related products and services for aircraft manufacturers, airlines, aircraft operators, military services, and defense and space contractors. honeywell sells its products to original equipment manufacturers in the commercial air transport, and business and regional aircraft segments, and provides spare parts and repair and maintenance services for the aftermarket (principally to aircraft operators). the us government is a major customer for defense and space products. www.ibisworld.com global military aircraft land and armaments; programs and support; and international. revenue derived from the programs and support segment and international segment relate to this industry. industry-related company sales increased by an estimated 4.0% per annum over the five years through 2010. this is a stronger rate of growth than in the overall industry. as such, bae systems is estimated to have increased market share over the past five years. company sales grew solidly due to plentiful government orders. european aeronautic defence and space company n.v. (eads) www.ibisworld.com global military aircraft & aerospace manufacturing november 2011 32 estimated market share: 2.8% airbus formed in 1970 as a european consortium to compete in the american-dominated aviation industries. airbus is an aircraft-manufacturing subsidiary of eads, which consists of daimlerchrysler aerospace (germany), aerospatiale matra (france) and casa (spain). each company is responsible for part of the production. for example, aircraft wings are manufactured in the united kingdom, cockpits are made in france and interiors are fabricated in germany. airbus plants in france and germany assemble the parts. the company designs, builds, sells and supports a range of aircraft in the airbus family of planes. headquartered in leiden, netherlands, the company operates in more than 160 international locations, including 16 main developments and manufacturing sites in france, germany, the united kingdom and spain and wholly owned subsidiaries in china, japan and north america. airbus makes single-aisle (a318, a319, a320, a321) and twin-aisle (a330, a340, a350, a380) jets that can accommodate between 109 and 853 passengers. eads owns about 80% of airbus, while bae systems owns the other 20%. airbus launched the a350 in 2005, sparked by high crude oil prices and the demand for long-haul aircrafts. the a350 incorporates 60% lightweight materials and an all-composite wing to improve efficiency. in 2007, airbus launched the a380, a super jumbo commercial airliner. the a380 is the flagship product for airbus and generated significant momentum for the commercial aircraft giant. airbus military sales increased at a massive annualized rate of 30.3% over the five years through 2010. this is a faster rate of growth compared with the industry as a whole over the same period. however, the segment is highly volatile, and depends on a fluctuating stream of orders from governments. eads is estimated to have increased industry market share. in contrast, the segments earnings before interest and tax declined over the past five years. earnings were negative for three years in a row, before becoming positive in 2010. www.ibisworld.com global military aircraft & aerospace manufacturing november 2011 33 bea systems (programmes and support segment) - financial performance year revenue billion dollars growth % change 2005 8.5 n/c 2006 8.5 0.0 2007 10.7 25.9 2008 8.6 -19.6 2009 9.9 15.1 2010 10.3 4.0 source: annual report www.ibisworld.com global military aircraft & aerospace manufacturing november 2011 34 eads (airbus military segment) - financial performance* year revenue million dollars growth % change ebit million dollars 2005 950.1 n/c 59.8 2006 2763.3 190.8 94.2 2007 1562.4 -43.5 -212.4 2008 4058.8 159.8 -725.3 2009 3116.6 -23.2 -2445.8 2010 3563.5 14.3 27.9 source: annual report note: *euros converted to us dollars with average yearly exchange rates www.ibisworld.com global military aircraft & aerospace manufacturing november 2011 35 operating conditions capital intensity the level of capital intensity is high. large capital requirements because of production space, and automated and precision equipment aircraft and spacecraft manufacturing requires both labor and technology inputs due to the size and components of air planes intense research and development required a typical firm in the industry uses approximately 2.1 units of labor for each unit of capital. this means that for every dollar invested into plant and equipment, approximately $2.14 is spent on labor. start-up capital and ongoing research and development expenses make the industry capital intensive and therefore contribute to its relatively high barrier to entry. a lot of the equipment and materials used in this industry are more advanced and sophisticated compared to the civil sector. productivity is higher in the military segment as it has a lower number of employees and higher wages as compared to the civil sector. in addition, industry sources shows that total shipments of aircraft in for the military is around four times higher than civil partly due to the nature of military aircraft, that is, they are smaller in size. labor however, is still an important input as the industry assembles a complex and highly customized product. in high-performance combat aircraft, tolerance limits can approach one one-thousandth of an inch, and surfaces must be painted to perfection. for the fabrication of airplane parts made of composite materials, each layer of the material is laid by hand in a precise pattern. if not, the structural strength of the part will be compromised. machines may not be able to duplicate such instances without huge expense. in most cases, investment in machines would not be cost effective due to the constant modifications and specifications given to an aircraft. manufacturers are also cautious about the expensive damage and loss production time that could be caused by a malfunctioning machine. the industry conducts research and development activities under customer contract funding and with independent research and development (ir&d) funds. ir&d efforts consist of projects involving basic research, applied research, development, and systems and other concept formulation studies. for example, lockheed martin in 2008 spent an estimated $1.22 billion of ir&d and bid and proposal funds. a substantial portion of this was included in general and administrative costs allocable to us government contracts. technology & systems the level of technology change is high. the global military aerospace products manufacturing industry uses advanced technology in the production process. technology use in this industry is evolving and dynamic due to the specification demands by military powers. in many cases, the processes remain the same but manufacturers use new systems and equipment to improve the quality and efficiency of aerospace products. most governments also provide research facilities and grants to develop new technology and systems, such as canadas national research council. some of the latest research and development undertaken in this industry include metal forming and joining (develop forging and hydro-forming processes for aerospace component production). there is composite structures fabrication and joining, where studies are undertaken to improve liquid composite mold