Industry Profiles: Aircraft
Industry Profiles: Aircraft
The aircraft manufacturing industry began to turn around in the late 1990s, as sales increased from $55.0 billion in 1995 to $60.3 billion in 1996. This increase reversed a five-year period of declining aircraft sales. Sales continued to increase into the early 2000s, reaching $84.1 billion in 2001. Civil aircraft make up about 60 percent of industry sales, with military aircraft accounting for the remainder. The Aerospace Industries Association (AIA) reported that in 2001, shipments of civilian aircraft (including transports, general aviation, and rotocraft) reached 3,483 units with a value of $43.6 billion.
Commercial aircraft deliveries were expected to number 3,254 in 2002. The commercial jet fleet, which is projected to reach 23,600 by the year 2016, numbered approximately 16,000 in the early 2000s, 75 percent of which were aircraft manufactured by the Boeing Company. The industry entered 2001 with almost $90 billion in unfilled orders. Boeing aircraft accounted for 96 percent of these backlogs. According to the Teal Group, business jet deliveries eclipsed the 700 mark in 2000, an industry record. This increase was attributable to a number of factors, including higher levels of profit in the corporate sector as well as an increased emphasis on productivity. The value of these aircraft exceeded $10 billion. However, Teal forecasts indicated, fewer business jets would be produced through the mid-2000s, with unit totals falling from the 700 range to approximately 600 by 2005.
History of the Industry
On December 17, 1903, bicycle makers Orville and Wilbur Wright earned credit as the first to produce an aircraft capable of powered, sustained, and controlled flight. Such a lofty honor was coveted around the world, and the early development of the "flying machine" was hindered by bickering and fierce legal battles. For example, Gabriel Voisin, who along with his brother Charles was the first to build aircraft in France on a commercial basis, scoffed at the influence of both the Wright brothers and other aviation pioneers.
A company founded by Glenn Curtiss made the first commercial sale of an aircraft in 1909 to the Aeronautic Society of New York. In the same year, one of the Wright brothers succeeded in meeting U.S. Army specifications for an aircraft which sold for $30,000. The Wrights promptly sued Curtiss for patent infringement, thus smothering the development of the aircraft industry in the United States until World War I. Later, U.S. Army war surplus Curtiss JN-4 "Jenny" trainers and the de Havilland Moth in Great Britain would carry a postwar barnstorming craze across both countries. The Piper Cub, introduced in 1937, became the best seller of all time in the general aviation category.
Although Leonardo da Vinci had sketched a helicopter design in 1483, the first sustained helicopter flight was not achieved until 1935, in a coaxial model built by Louis Breguet and Rene Dorand in France. Within the next five years, Igor Sikorsky would perfect his single-rotor type in the United States, opening the door for practical applications.
The early companies formed by pioneers were eventually merged into giant defense and aerospace companies. For example, the Wright Company, formed in 1909 when a group of New York investors bought the Wright brothers' patents for $100,000 in cash, was sold to another group in 1915, then merged with the Glenn L. Martin companies to form the Wright-Martin Aircraft Corporation. Wright-Martin Aircraft later became the Wright Aeronautical Company, which merged in 1929 with the Curtiss Aeroplane and Motor Company to form the Curtiss-Wright Corporation, which was controlled by North American Aviation.
Large conglomerates dependent upon government support continued to dominate the aircraft industry throughout World War II and the postwar period. The "Great War," World War I, had demonstrated the possibilities of aircraft in wartime. By World War II, they had become an integral part of modern warfare. Much of the phenomenal advancements in aircraft design—jet engines, swept-back wings, electronic flight controls, and composite materials—were funded by governments, often in time of war. Air Force One, a Boeing 747, illustrates how important aircraft have become to national security. Converted to serve as a mobile command post for the president of the United States in time of nuclear war, the aircraft has phone, fax, computer, and escape capabilities. The technological improvements in military aircraft have been accompanied by a proportional increase in price. A typical 1945 fighter plane cost about $51,000. By the 1990s, the F-16 jet fighter was selling for approximately $25 million.
Significant Events Affecting the Industry
Environmental groups in the United States, Europe, and Australia have focused on noise pollution. The Airport Noise and Capacity Act of 1990 (ANCA), which went into effect December 31, 1993, ordered U.S. airlines to make their fleets meet quieter noise specifications by January 1, 2000. Smaller business jets were exempted from this rule. Although the act was successful in reducing noise levels, by the early 2000s it had fallen short of reducing opposition to airport expansion and the continuing need for government funds. According to the October 2001 issue of Noise Regulation Report, "Community opposition on the basis of noise remains the primary obstacle to airport expansion and applications for federal noise mitigation funding have held steady." The report also indicated that calls to restrict and remove older, noisier aircraft from service were increasing. These aircraft require special modification to meet noise reduction standards. In addition to ANCA, the International Civil Aviation Organization imposed similar noise reduction standards, which were adopted by European countries in April 2002.
Because of heavy congestion in airports, a perceived need for large, 600-to-800-seat, ultra-high capacity aircraft (UHCA) or very large commercial transport (VLCT) arose. However, the extent to which very large planes would be required was a source of debate in the early 2000s. At that time, Airbus was moving forward with its plans to introduce the 555-passenger A380 in 2006. Boeing, on the other hand, changed its earlier plans to move in that direction. Citing weak demand for UHCA, the company stopped producing its 568-passenger 747-400 Domestic aircraft after manufacturing nineteen of them and instead began development of the Sonic Cruiser, a high-speed civil transport that is capable of flying near the sound barrier. Boeing's new plane is expected to enter service sometime between 2006 and 2008.
The Boeing Company has earned a considerable reputation for quality both in its commercial aircraft and military aircraft such as the Clipper series of flying boats and the B-17 and B-29 bombers produced in World War II. Another successful military bomber was the B-52. Boeing's 707, 727, and 737 airliners have been well received. Its 747 has become a status symbol among world airlines, with 1,000 sold in its 25-year production run. The 737, the best selling aircraft in history, has dominated the medium-size/medium-range category and has remained Boeing's best-selling plane. The 2,500th 737 was delivered in 1993 and by mid-2002 more than 4,250 had been delivered. Literally no one has sold more jet airliners than Boeing. More than 12,000 were sold by the early 2000s, accounting for about 75 percent of the world's airliner fleet.
In 1997, Boeing increased its hold on the aircraft market by acquiring one of its leading competitors, McDonnell Douglas Corporation, formerly the third largest manufacturer of airplanes. With the merger, Boeing controlled about 50 percent of the aircraft industry. McDonnell Douglas, formed by the 1967 merger of The McDonnell Company and Douglas Aircraft, made such illustrious transports as the DC-3, named the C-47 by the U.S. military. In 1951, Douglas produced 56 percent of the world's airliners. In 2001, Boeing posted revenues of $58.2 billion and employed 188,000 people.
Airbus S.A.S. began as a five-nation European consortium conceived as a European answer to America's domination of the large commercial transport market. France and Great Britain had been discussing such a venture as early as 1965, but Britain dropped out of the project due to political disputes. In 1969, with the formation of Airbus Industrie, the West Germans agreed with France to build the A300, a wide-body, twin-engine airliner. Airbus' initial shareholders included Aerospatiale, Construcciones Aeronauticas SA (CASA) of Spain, Deutsche Airbus, and British Aerospace, which joined in 1979. Fokker and Belairbus of Belgium was an associate member that participated in some of the company's projects. By the early 2000s, Airbus Industrie was restructured into a corporation named Airbus S.A.S. The company's majority shareholder (80 percent) is the European Aeronautic Defence & Space Company. BAE SYSTEMS of the United Kingdom holds the remaining 20 percent interest. The company's main aircraft assembly plant is located in Toulouse, France.
Airbus has succeeded in capturing a substantial market share, becoming the second largest manufacturer of jets in the world. In 2001, the company recorded $18.2 billion in sales and received approximately 60 percent of the industry's orders for large aircraft, outpacing Boeing for the second time in three years. Airbus' key models include the twin-engine jets A300 and A310; the single-aisle twin-engine jets A319, A320, and A321; and the four-engine jet A340 produced for leading airlines around the world. Airbus also has developed the A380, a super jumbo jet capable of transporting 550 passengers, which it expects to introduce by 2006.
In the early 2000s, the aircraft industry continued to achieve strong growth. However, according to the Aerospace Industries Association (AIA), industry sales ($84.1 billion in 2001) were expected to drop considerably in 2002, falling to an estimated $76.1 billion, because of high jet fuel prices, a weak economy, and the September 11 terrorist attacks that wreaked havoc on the profitability of air transportation providers in 2001. According to the Teal Group, the retirement of Boeing 747-400s will begin in 2005 and be in full swing by 2009, at which time the demand for larger planes is expected to increase.
The military market was somewhat stagnant in the early 2000s, held back in part by a reduction in exports, but the Teal Group predicted relatively steady growth for fixed-wing military aircraft through 2005. Industry production levels were expected to climb from 214 units in 2001 (worth $10.9 billion) to 395 units in 2005 (worth $18.1 billion).
The general aviation market looked promising as well, according to the Teal Group. Production of these aircraft was expected to reach 439 in 2001, worth nearly $6.3 billion. Through 2005, the Teal Group forecast the production level to remain around 380 units with an average value of approximately $5.8 billion. Cessna, Bombardier, and Dassault led the industry in the early 2000s.
The outlook for the civil helicopter market was more or less flat in the early 2000s. According to the Teal Group, the market will achieve small percentage annual growth rates and reach about $1.2 billion by 2010. Between 2001 and 2014, deliveries of nearly 820 helicopters are expected, valued at approximately $12.4 billion. Growth in the corporate aircraft segment was expected to partially drive the demand for certain models of high-end helicopters used for executive travel.
Aircraft manufacturing has historically been one of the most consistently profitable and successful of American industries, and by all indications this trend is likely to continue. Led by companies such as Boeing and Lockheed Martin Corporation, the aircraft industry collects a higher amount of export earnings than any other American industry. Until recently, no foreign manufacturer has been able to keep up with the pace of technological achievement or unit output achieved by American firms.
The U.S. industry maintains a positive balance of trade with exports exceeding imports by about $10 billion, although this balance dropped in the mid to late 1990s. Airbus Industries, a European consortium, and Montreal-based Bombardier, Inc. have moved into competition with the American giants and growing companies in the Far East, especially Japan, threaten to absorb some of the demand for commercial and military aircraft. Some industry analysts suggest that future growth in the aircraft manufacturing industry will cross national borders as more and more companies engage in joint ventures with competitors from around the world, taking advantage of the strengths of the individual companies to provide the most competitive product available.
The value of all aircraft exports declined from $35.2 billion in 1998 to $24.7 billion in 2000. At the same time, the value of imports rose considerably, climbing from $4.7 billion in 1998 to $12.4 billion in 2000. According to the AIA, military aerospace exports declined for the third straight year in 2001, while civil aircraft exports increased after two years of declines. Demand in world commercial markets, particularly the expanding economies of Asia and the Pacific Rim, is expected to increase over the next 10 to 15 years. In fact, the larger share of the commercial transport market is now overseas. The U.S. share, as a percentage of the world market, is expected to shrink.
Employment in the Industry
The total number of workers in the aircraft industry stood at 184,698 in 2000, with 88,200 employed as production workers. The industry's production workers earned an average wage of close to $24.00 per hour the same year. According to the U.S. Bureau of Labor Statistics, employment in the large aircraft and parts sector of the industry is expected to achieve a healthy growth rate of 23 percent between 2000 and 2010. Reductions in defense spending and cuts in aircraft purchases by troubled commercial airline carriers, which led to the elimination of thousands of jobs in the industry prior to the late 1990s, remain factors that affect employment levels. In 2002, industry leader Boeing had plans in place to eliminate as many as 30,000 jobs from its employee base of 188,000.
Sources for Further Study
"a boom ends?" the economist, 17 january 1998.
aboulafia, richard. "helo challenge: consolidation." aviation week & space technology, 12 january 1998.
aerospace industries association, washington, dc, 8 june 2002. 2001 year-end review and 2002 forecast. available at http://www.aia-aerospace.org.
"aerospace manufacturing." career guide to industries 2002-03 edition. u.s. department of labor, 8 june 2002. available at http://www.bls.gov.
"airbus outsells boeing in 2001." air transport world, february 2002.
"airplane makers say soaring sales made 1997 a record year." knight-ridder/tribune business news, 12 february 1998.
annual survey of manufacturers. washington, dc: u.s. bureau of census. gpo, 1996.
annual survey of manufacturers. washington, dc: u.s. department of commerce, economics and statistics administration, u.s. census bureau, february 2002.
aviation week & space technology, 8 june 2002.
2002 aerospace source book, 2002. available at http://www.aviationnow.com.
kelly, emma. "eu adopts international noise rules." flight international, 2 april 2002.
noise regulation report, october 2001.
proctor, paul. "new models, new capabilities spark civil helicopter demand. aviation week & space technology, 17 march 1997.
taverna, michael a., and pierre sparaco. "eurocopter boosts production, expands market share." aviation week & space technology, 16 february 1998.
woolsey, james p. "a new buying cycle?" air transport world, january 1996.