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Overview Before the current Airbus/Boeing duopoly, the jetliner


business included McDonnell Douglas, Lockheed, and numer- ous earlier players such as Convair. Ultimately, the smaller participants saw the advantage in being part of something larger, or of exiting the market. Te regional aircraſt market provides a more extreme ex-


ample of these trends. Looking back 10 years, there were eight manufacturers. Only three survive today. Tis market grew at a healthy pace in the 1990s, yet pricing stayed quite soſt. Of the others, BAE Systems and Saab decided to exit the market. Beech/Raytheon (now Hawker Beechcraſt) exited and focused on business jets. Fairchild Dornier and Fokker went bankrupt. Te first of these ceased to exist in any form. Despite this collapse in regional market participants, three


new players are seeking to enter the market. Russia’s United Aircraſt Corporation wants to build its SuperJet. China’s AVIC/COMAC wants to build its ARJ-21 and C919. Japan’s Mitsubishi wants to build its MRJ. But even these relatively established aircraſt industry manufacturers face an uphill battle breaking into a new market. All three want to build a 70/90-seat regional jet, just as the market for jets in this class looks set to hit a plateau. As a result of manufacturer consolidation and market exits,


the aircraſt industry is notably concentrated. Te top nine companies—Boeing, Te European Aeronautical, Defense, and Space company (EADS), Lockheed Martin, Bombardier, Finmeccanica, Dassault, Embraer, Textron (Cessna and Bell Helicopter), and General Dynamics’ Gulfstream unit account for 90% of industry revenues. Most of these players have ab- sorbed several smaller players over the past decades, increas- ing their shares of a growing market. Yet this market-share growth and industry consolida-


tion is somewhat deceptive. Although prime contractors have increased their dominance at the top end, they are also increasing the amount of work they give away through outsourcing. Manufacturers have always outsourced 50–60% of the value of any given aircraſt (engines, avionics, sys- tems, interiors, etc.). But today, primes are partnering with second-tier companies for major airframe structures. Te primes seek to spread new program risk and costs, and focus on top-end product integration and marketing. Boeing’s 787 is the best example of this trend, although the program’s end- less delays imply that Boeing went much too far in outsourc- ing the design work (but manufacturing outsourcing still looks like a good idea). Due to this outsourcing, the industry has seen the growing


power of subcontract players specializing in aircraſt struc- tures. Te structures industry, too, is relatively concentrated. Te major second-tier companies include Spirit AeroSys- tems, Vought Aircraſt, Finmeccanica, and Japan’s Mitsubishi, Kawasaki, and Fuji Heavy Industries. All of these increasingly important manufacturers are sited in high-cost production


26 Aerospace & Defense Manufacturing 2013


areas, implying barriers to entry that are just as high as in the prime contractor arena. Many airframe subcontractors are current and former air-


craſt manufacturers, finding themselves in a different position as prime contractors in the industry and bidding on additional aircraſt-related work. Stork’s Fokker unit, Saab, and Kaman are the best examples of these.


Barriers and Entrants Harry Stonecipher, ex-CEO of McDonnell Douglas, once


famously remarked of the jetliner business, “If we weren’t in this industry, we’d be trying to get into it.” Tis was basically a pipedream, as evidenced by McDonnell Douglas’s subsequent exit from that market (and the entire company’s absorption into Boeing). In fact, between 1960 and 2005, only one all-new company—Embraer—succeeded in entering the market for jet-powered aircraſt. Te military side of the industry is even tougher on new-


comers than the civil side. Tere have basically been no new military aircraſt market entrants in many decades. Te growing unmanned aerial vehicle (UAV) market has attracted a few new players, especially General Atomics with its Predator series, but there are few hopes for manned aircraſt market entrants. Te reason for these high entrance barriers is simple. If a


need for critical mass favors consolidation, companies that have achieved that critical mass have the power to crush start-up companies, even if the new players offer a superior product. For example, any new-start business jet player must contend with the likes of Cessna, a company with an enor- mous and loyal customer base, deep pockets, and a very exten- sive product sales and support network. Te new company not only needs to develop a design and start producing it: Te costs of selling and supporting the new plane can exceed those design and tooling costs. Another problem concerns volume. Many export-driven


economies, particularly in Asia, thrive on enormous pro- duction volumes of televisions, DVD players, cars, and car components. Tey use these volumes to move up the produc- tion learning curve, increasing quality, lowering manufactur- ing costs, and quickly repaying up-front expenses. Te aircraſt industry offers no such volumes. In fact, just 3920 turbine- powered aircraſt were produced in the world in 2010, includ- ing helicopters and light turboprops. Airbus’s A320 series maintained its status as the highest volume aircraſt program, with 401 deliveries. Government decision making is another obstacle. Gov-


ernments can provide seed money for new market entrants. But they aren’t very good at selecting appropriate segments, products, or strategies. In the mid 1990s, several govern- ments began planning national prop planes. Tat market collapsed, and some began planning 30/50-seat RJs. When those collapsed, several of these governments began looking


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