Industry Sectors | Aerospace
Aerospace: Preparing for Takeoff Against Uncertain Economic Climate
The global recession has taken a severe toll on the aerospace industry, and most sectors are still struggling to recover from the hit. Cautious optimism is the watchword for the coming year.
Dan Calabrese
June/July 09
Boeing's 787 Dreamliner
The aerospace industry - like so many others - saw the bottom fall out of its sales and revenues during the last quarter of 2008. The precipitous drop, which accompanied the worldwide financial meltdown and reflected widespread hyper-caution among businesses and consumers, capped what had been looking like a solid year even into the third quarter. The prospects for aerospace in 2009 vary from sector to sector, with defense looking healthiest in the short term and commercial aviation most tenuous. But across the board, industry officials believe they are in a strong position to emerge from the downturn successfully - provided they embrace necessary efficiencies and make the right adjustments to the market.The Downward SlideAccording to the Aerospace Industries Association (AIA), total U.S. aerospace sales fell 4.0 percent in the fourth quarter of 2008 compared with the third quarter, with profits falling a dramatic 91.1 percent. Compared to the same time period in 2007, the fourth quarter saw sales down 6.5 percent and profits down 91.5 percent.For the entire year 2008, sales were slightly up compared with 2007, rising 4.2 percent to from $231.88 billion to $241.66 billion, but profits fell 16.5 percent, from $18.66 billion to $15.58 billion - well below an earlier AIA projection that the industry would top $20 billion in 2008 profits.The weak fourth quarter mirrored so many other U.S. industries, as the near collapse of financial markets prompted a precipitous drop of more than 6 percent of gross domestic product. But prior to the final quarter, Bill Chadwick, the AIA's aerospace research director, says the industry was headed for a solid year. "There really was a sudden downturn," he says. "Even late into the second quarter, people were still talking about the aerospace industry going great guns. But the bottom fell out. This is a true case of where, with the whole economy, it was just so sudden and dramatic."
In addition to the fourth-quarter economic downturn, last year's Boeing work stoppage also made a major impact on industry production, sales, and profits. Chadwick says an AIA analysis projected that the strike cost the industry 2 percent of its 2008 sales.While he is not quite prepared to say the industry's tailspin has hit rock bottom, Chadwick does believe that such a precipitous downturn is unlikely to be sustainable over the long term: "Sales and orders are still sliding a bit, but we still haven't seen a huge run to the door yet."The aerospace industry ended the year with a total of 655,500 direct employees, an increase of 10,000 compared with the previous year, but still far below its historic high of 800,000 in 1993. Because the trend has been more downward in recent years, Chadwick does not think it is likely to go much lower. "The people who are left are very high-productivity employees, and they don't come and go like they used to," he says. Production workers, who earn an average of $29.58 per hour, now account for approximately half the industry's work force.Military and DefenseWhile the outlook for 2009 remains potentially dicey, AIA officials believe the aerospace industry is in a stronger position than most with weather the recession and emerge in a strong position - particularly in the defense sector, where Pentagon budgets are typically in place, along with financing for specific orders, as far as 12 months in advance. And so far, the change in administrations doesn't appear to be raising alarms. "There were people who thought that when the new administration came in, they would just slash and burn, but we haven't seen that," says Chadwick. Military aircraft sales rose in 2008 to $54.7 billion, with increases in aircraft research and development, aftermarket labor, and materials. Fighter planes saw the largest increase, followed by helicopter and military transports. Missile sales also rose in 2008, increasing 6.7 percent to $13.2 billion. And while spending is not likely to continue rising to fund operations in Iraq and Afghanistan, industry officials still expect to see an increase in orders for the purpose of replacing the equipment that has been lost during those engagements.But long-term uncertainty does have some in the defense sector exercising extreme caution. Steve Geary, president of the defense consulting firm Supply Chain Visions, said the defense industry is awash in uncertainty over the long-term direction of Pentagon budgets under the Obama administration. "You don't know what's going to happen to your budgets in the out years, so you're guessing on any investment decision you make," says Geary. "People are being very conservative."Geary, whose company does product and logistics support for various branches of the military and with the Office of the Secretary of Defense, says one trend that appears to be emerging is a move away from flash in favor of more utilitarian options. "If you look at the budget Secretary [Robert] Gates put forth, there is less of an emphasis on the `gee-whiz' futuristic weapons and more emphasis on the weapons that will support national security concerns in the here and now," he says. "Instead of more F-22s, we're going to buy more unmanned aerial vehicles."
As this sector of the aerospace industry prepares for the economic turnaround, it has found opportunities to invest in projects that offer future payoffs. In Oklahoma City, an auto plant that General Motors shuttered in 2006 was purchased by the county and then leased back to the Air Force for use by nearby Tinker Air Force Base, Oklahoma's largest single-site employer. Now known as the Tinker Aerospace Complex, the facility is being retrofitted for maintenance, repair, and overhaul of military aircraft and engines. Oklahoma City Mayor Mick Cornett told The Oklahoman in a recent interview that the military is "thrilled to have the opportunity to build and expand inside that facility" and that there is potential for 3,000 jobs there.
<< Back Page1 2 Next >>
Where Should Aerospace Companies Invest? Evaluating Aerospace Manufacturing Hubs Aerospace Industry Costs "Disrupted" by Economic Development Partnerships Location Trends in the Aerospace Industry Frontline: Drones Redefine the Use of Commercial Airspace Aerospace Skills Gap: Workforce Declines, As Talent Needs Increase
ELTA Expands Howard County, Maryland, Production Facility 09/23/2016
State Officials Offer Lockheed Martin Incentives To Expand In Stratford, Connecticut
UTC Aerospace Systems Establishes Operations Center In Puerto Rico
Envoy Air Inc. Expands Aircraft Maintenance Facility In Little Rock, Arkansas
Meyer Tool, Inc Expands Manufacturing Center in Greenville County, South Carolina
Lockheed Martin Opens Advanced Pilot Training Facility In Greenville, South Carolina
Allegiant Chooses Orlando, Florida, For East Coast Training Center