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overview


component of this market is worth $527.4 billion, while the civil sector is worth $1.451 trillion. Our numbers exclude uninhabited aircraft, nonturbine air- craft, maintenance, overhaul, upgrades, and research. Compare these numbers with the last 10 years (2005– 2014), which saw deliveries of 42,939 aircraft worth $1.419 trillion. Despite the cyclical ups and downs, this represents nearly 40% growth.


Over half of the new build market—$1.059 trillion—com- prises commercial transports (including regional aircraft). Business aircraft are second, worth $300.5 billion. Fighters are third, worth $226.3 billion. Boeing’s jetliner product line rejuvenation, despite its stumbles, will gradually lead to growing market success. Boeing jetliner success, coupled with Lockheed Martin’s F-35 and broad US defense export market dominance, means good things for the US’s share of the industry. US primes are gaining global market share, largely due to their successful embrace of globalization.


Aircraft Markets, Through Good And Bad Years The Numbers Are Better Than We Feel….


Worldwide New Deliveries In 2014 (2015 $)


Large Jetliners ($98.8 b) Civil Rotorcraft ($5.4 b)


CAGR ’03-‘08


CAGR ’08-‘13


Change ‘08-‘13


Change ’13-‘14


7.5% 10.3% 63.4% 7.8%


Business Aircraft ($23.2 b) 17.1% -3.7% -17.0% 5.2% Regionals ($7.2 b)


4.3% -6.4% -28.2% 7.7% 18.2% -1.5% -7.1% -10.9%


Military Rotorcraft($16.4 b) 10.3% 9.0% 53.6% 14.9% Military Transports ($5.3b) 3.2% -1.2% -6.0% -8.1% Fighters ($18.3 b) All Civil ($135.3 b) All Military ($44.5 b)


1.9% 0.8% 4.0% 10.2% 10.0% 5.0% 27.8% 6.5% 3.9% 3.7% 19.7% 7.9%


Total ($179.6 b) 8.2% 4.7% 25.7% 6.8%


expected from a serious drop in economic growth. Regional transports, civil rotorcraft, and, most of all, business aircraft have all fallen by 20–30% since their 2008 market deliveries peak. Yet commercial jetliners, by far the largest civil aero segment, have actually seen 2008–2011 compound annual growth rates (CAGRs) that are roughly in line with what they achieved in the 2003–2008 market boom. In fact, deliveries in 2012 expanded by a record 29.4% by value over 2011. This remarkable divergence between jetliner market for- tunes and the rest of the civil aircraft industry revolves around third party fi nancing. External sources of capital have come to regard jetliners as a safe and mobile asset. They have also come to regard business jets as risky assets, in a time when risk is to be avoided.


The Pleasures of Jetliner Finance


The key distinguishing characteristic of the post-2007 economic downturn was the collapse of commercial credit. Banks became increasingly risk-averse after the high profi le collapse of several key fi nancial institutions. In addition, the increased reserve requirements that were a regulatory reac- tion to the crisis meant that banks needed to build up their cash base before they could resume lending, which also produced risk aversion.


Europe looks set to retain its market share during our


forecast period, largely due to Airbus. However, the outlook for European defense remains quite weak. Numerous macroeconomic trends are hindering non- traditional producers (those outside the US and Europe). These “emerging” producers will actually have roughly the same share of the market by the end of our forecast period, although thanks to increased outsourcing by the US and European primes some emerging players will still prosper.


Aircraft Finance: Drought and Flood? The post-2007 economic downturn has affected civil aero markets in wildly different ways. Most civil markets have suffered exactly the kind of cyclical downturn that could be


Meanwhile, for many investors, large commercial jetliners have come to embody an ideal combination of safety and profi t. As hard assets, they are also a solid hedge against the threat of infl ation. Also, there’s a lack of other global investment opportuni- ties. As the satirical newspaper The Onion put it, “Recession- Plagued Nation Demands New Bubble To Invest In.” In other words, it isn’t just that cash is cheap. It’s also that there are no other good places to earn decent returns with that cash. The role of low interest rates in driving strong jetliner demand has been augmented by high fuel prices. The cur- rent ratio between the two trends (fuel and interest rates) is unprecedented. Yet it does not look as though fuel prices will return to


low, or even moderate, levels any time soon. This implies a continued market preference for new equipment and a willingness to dispose of older jets, even at premature aircraft ages. With high fuel prices it makes sense to replace older planes with newer ones because the fuel and maintenance savings for airlines can be greater than the lease payments on the new planes. Government-backed fi nance further complicates the picture. Export credit agencies (ECAs) are backing a record


16 — Aerospace & Defense Manufacturing 2015


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