MANUFACTURING TRENDS: AEROSPACE
the long jetliner output ramp—an extraordinary 9.2% CAGR between 2004 and 2015—is disrupted as customers defer. If interest rates rise more than the modest increase anticipated in 2016, the problem will get worse still. Cheap oil and other commodities also reduce demand
for oil fi eld exploration and support helicopters. This seg- ment’s weakness drove civil helicopter deliveries down 5.3% by value last year. The rotorcraft industry may be the most vulnerable to cheap oil because of the proliferation of new models aimed at the exploration segment, with AgustaWest- land’s AW189 and Airbus’s H175 entering service over the past two years and Bell’s Model 525 slated for arrival in 2017.
Also, low oil prices impact business aircraft demand in resource-rich econo- mies. Again, last year saw damage here, with deliveries of the high-end business jets most popular in these markets falling 8% by value in 2015. What’s most
concerning is that we don’t know how long prices will stay low.
Most guidance points to prices fi nishing 2016 at about $50 per barrel with a gradual recovery to the $70–$80 range. On the positive side, while Mideast regional tensions and military actions are not affecting oil prices, they are having a strong effect on demand for combat aircraft and other defense equipment. Combat aircraft sales to this region are up markedly, particularly as Mideast countries diversify their strategic relationships by looking for second sources of aircraft and other weaponry. Dassault provides an excellent illustration of almost all the
key international aircraft market trends. The company sold 24 Rafales to Egypt and 24 more to Qatar last year. These were the fi rst fi rm Rafale export sales, despite over 25 years of heavy marketing and false starts. This was Egypt’s fi rst purchase of a non-US combat aircraft in decades, refl ecting
14 TRENDS
AdvancedManufacturing.org | December 2016 Overall, while 2015 saw a slight 0.3% drop in military aircraft
output, orders have been strong. This year, the military side of the industry will grow by a respectable 6.3% in value over 2015. By contrast, we expect the civil side of the industry to
grow by just 1.2%, with further jetliner output growth (2.2%) dragged down by more softness in high-end business jets and civil rotorcraft. The total aircraft industry growth rate in 2016 will be just 2.4%, about the same as 2015’s number. And most of all, the two large jetliner primes need to re- think their production ramp plans. Airbus and Boeing expect single aisle output to expand at a 13.1% CAGR through 2019, with twin aisles expanding at a 9.4% CAGR. A very diffi cult world macroeconomic environment, coupled with the strong prospect of a long period of cheap fuel, means we may see these plans slow considerably.
concern about another US arms cutoff. Meanwhile, sales of high-end Falcon business jets suffered a serious drop. Over- all, 45 were sold, meaning that for the fi rst time in decades Dassault sold more combat aircraft than business aircraft. Last, the US defense budget showed surprising strength. Not only did weapons procurement recover to a respectable $111 billion in FY 2016, but spending on combat aircraft ramped up to nearly $12 billion, a very strong number. Coupled with high export demand, these numbers promise continued strength for the military side of the business.
Graph courtesy Teal Group Corp.
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