Busy Times Ahead for Aviation and Aerospace
By Mark Kleszczewski
Heading into 2014, the aerospace and defense sectors are facing some of their greatest challenges in decades. In addition to national budget turmoil, obstacles in implementing new federal regulations and air traffic system upgrades continue to loom over the industry.
For example, ongoing cost overruns and delays in the Federal Aviation Administration’s (FAA) implementation of its $40 billion “NextGen” modernization initiative — intended to increase airspace capacity while reducing flight delays, noise and carbon emissions — is one of the top transportation management challenges for the upcoming fiscal year, according to a report issued last month by the Department of Transportation’s Office of Inspector General.
Yet at the same time, industry watchers see rebounding economies, increasing demand for air travel, and innovation in unmanned systems driving commercial aviation to competitive and profitable heights. Keeping a close watch on the many changes unfolding in the industry — from rapid advances in technology to OEMs relocating entire production lines, will be key a priority for communities and suppliers looking to tap into future opportunities in this crucial segment of the economy.
According to its 2013 year-end review, the Aerospace Industries Association (AIA) forecasts a decrease in overall aerospace sales for 2013, reaching $220.1 billion — down from $222 billion in 2012 — with only civil aircraft sales showing growth. Sequestration effects on the industry and Defense Department have forced industry layoffs and divestitures, putting pressure on an already-fragile industrial base. Despite these pressures, overall aerospace exports held their upward trend, improving by $12.5 billion, displaying positive growth in both civil and military sectors.
“A nearly $5 billion increase in civil aircraft sales was offset by a nearly $4 billion decrease in military aircraft sales and a $2 billion decline in civil and defense space sales,” said Marion C. Blakey, president and CEO, AIA, in remarks accompanying the review. “In a reflection of the sequester impact, employment in the aerospace sector dropped from 629,000 to 618,200, the lowest level in eight years.”
The AIA expects strong civil aircraft sales growth and an uptick in the space sector to contribute to a total of roughly $232 billion in sales in 2014. Other upcoming developments include the first test flight for the Orion Multipurpose Crew Vehicle, NASA’s award of contracts for commercial crew transportation to the International Space Station, and test missions for public suborbital crewed space flights, which Blakey named as some of exciting milestones in the year ahead.
On the export front, spurred by a nearly $100 billion year for civil aircraft and space exports, overall aerospace exports grew from $96 billion in 2012 to $112 billion. This resulted in a net surplus of $73.5 billion, the best aerospace trade balance in history, Blakey noted.
“It’s a tale of two industries,” confirms Tom Captain, vice chairman and aerospace and defense sector leader, Deloitte LLP. “Defense on its back with a continued slide due to DoD budget cuts and commercial aerospace with record orders and production expected for several years to satisfy the need for more fuel-efficient, next-generation aircraft, and continued increases in travel demand, especially in the Middle East and Asia/Pacific regions.”
Indeed, according to the latest financial outlook from the International Air Transport Association, the global airline industry is projected to take in record net profits of $19.7 billion in 2014, with passenger demand expected to rise 31 percent between 2012 and 2017.
Total backlog for U.S. civil transport aircraft in 2013 totaled 4,787 aircraft worth $344 billion — equivalent to seven and one-half years at current production rates, with 66 percent of those orders coming from foreign carriers.
Leading this growth in a big way is industry heavyweight Boeing, whose facilities are increasing their combined monthly production rate of the Boeing 787 to 10 airplanes per month, rising to 12 per month by 2016. The company’s Next-Generation 737 also had unprecedented orders in order to meet the demand, with production of the 737 line slated to increase to 42 aircraft per month in mid-2014 and to 47 per month in 2017.
In a bid to lower production costs, Boeing has spurred considerable competition among communities vying to land production of the company’s new wide-body, long-range 777X passenger jetliner. At press time, the company was close to narrowing its final options from incentive packages and proposals spanning 54 sites in 22 states. Full-scale production of the aircraft — which has already received $95 billion in orders — is expected to begin by 2017, with delivery by the end of the decade. (Editor’s Note: On Jan. 3, 2014, members of the local Seattle cahpter of the IAM narrowly approved a contract with Boeing that secured the production for the 777x jetliner and winds in the Seattle region.)
In other Boeing activities, its growing presence in South Carolina — where manufacturing, integration and delivery of the Boeing 787 Dreamliner began in 2009 — is turning North Charleston into a flourishing aviation manufacturing hub.
“The global demand, particularly for commercial airplanes, is very bright — so having a company like Boeing in our community is a definite anchoring asset in our economic development strategy,” says Hank Taylor, vice president of global business development, Charleston (S.C.) Regional Development Alliance. “And with Airbus in Mobile, Gulfstream in Savannah, Spirit AeroSystems in North Carolina and Lockheed Martin in several nearby states, over the next five to 10 years you will continue to see the entire Southeast region growing and leveraging the synergies from having such companies in relatively close proximity.”
In early 2013, Boeing announced that a new IT Center of Excellence and an Engineering Design Center will both be established South Carolina to design and assemble engine inlets for the 737 MAX, beginning in mid-2015.
Attracted by a business-friendly environment and assets that include several universities and a deep pool of experienced technical talent, the company is also investing another $1.1 billion and hiring 2,000 more people in South Carolina over the next eight years, supported by a government incentives package that features $120 million in infrastructure funding. Part of the expansion will include construction of a 230,000-square-foot building where workers will paint the 787 Dreamliners that Boeing builds at the North Charleston assembly plant.
Science Fiction to Science Fact
Another industry segment that’s literally on the cusp of taking off is unmanned aircraft systems which are transitioning from military applications into civilian and commercial uses.
As privacy and safety concerns get resolved, unmanned systems will drive tremendous opportunity to increase productivity, costs savings and the growth of an entirely new aviation sector, potentially worth billions, says Michael Toscano, president and CEO, Association for Unmanned Vehicle Systems International (AUVSI).
“Search-and-rescue missions, delivery capability where there aren’t any roads and even precision agriculture, are just the beginning,” Toscano says. “As these systems start getting into users’ hands, it’s like any other new technology — there will be uses that no one’s ever thought of yet.”
The FAA recently selected six test sites from about 50 teams representing 37 states throughout the country — creates standard rules and procedures to safely integrate unmanned systems into the nation’s airspace, the AUVSI projects that in the first three years of integration, more than 70,000 jobs will be created in the United States with an economic impact of more than $13.6 billion. This benefit will grow through 2025, when the group foresees more than 100,000 jobs created and economic impact of $82 billion.
Innovate to Accelerate
As the AIA notes, the continuation of sequestration will exacerbate the impact on the aerospace industrial base at all levels, especially among small and medium-sized companies. However, despite today’s chaotic domestic budget environment, industry innovations and targeted investments are expected to continue generating the largest positive trade balance of any U.S. manufacturing sector for years to come.
“When you look at the opportunities opening up and coming our way — not just as one locality, but also as a larger region — we think we’ve really built a base of industry jobs for the next generation, which is a very good position for us to be in,” Taylor says. “With all the work done by our leadership to welcome and support aviation and aerospace businesses, it’s safe to say that our eyes are definitely on the future.”
“The industry has changed the very nature of the ways consumers travel by commercial aircraft, communicate via satellites, shop over the Internet, conduct armed conflict when necessary, and assist with humanitarian missions to far reaches of the globe,” Captain says. “The A&D industry is expected to continue to develop game-changing technologies that will offer improvements in these and other areas.
“For commercial aerospace, there will continue to be a need over the long term to bring more people all over the globe closer together physically via safe, cost effective, and efficient air travel,” Captain adds. “For defense, there is a need to continue improvements to recognize, encounter, and contain aggression in a manner that increasingly keeps the war fighter out of harm’s way. Technology innovation is the key to advancements in the industry, in order to address current markets and to create demand in markets that have yet to be discovered.”
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