The U.S. aerospace industry is recovering faster than expected from the global economic downturn, but future growth will hinge on companies’ ability to capture more overseas business as the Pentagon’s budgets are constrained, according to the Aerospace Industries Association’s (AIA) annual forecast.
The industry’s revenues are expected to grow 1% this year, to $216.5 billion, as an 8% increase in military aircraft sales offsets a 6% decline in civil aircraft revenues. And sales should grow another 1.6% next year to $220 billion, according to the forecast, which was made public Dec. 15.
“Aerospace has proven to be remarkably resilient,” AIA President Marion Blakey told Aviation Week in an interview. “We’ll be one of the real bellwethers of the economic recovery.”
That recovery is underpinned by still-strong military sales and surging demand for air travel. And exports will play an increasingly vital role in the industry’s future growth, Blakey says. AIA notes that Asia will be the “primary driver” of demand for civil aircraft. One indicator: North American customers now account for just 22% of Boeing’s backlog, down from 64% in 2000.
Exports also will become an even more important component of business for military and space companies as Pentagon spending flattens or declines and NASA’s future remains uncertain. And overseas markets, such as the Middle East, will play a vital role in the eventual recovery of the business aircraft sector.
While the 6% decline in sales of civil aircraft — which include business jets — to $48.2 billion had been expected due to weak orders in 2009, the industry has recovered more quickly than expected. A year ago, AIA forecast that the civil aircraft downturn would continue through 2011. Now, it says, 2011 will be a “rebound” year, with sales projected to rise 4% to $50.2 billion. “I think we were being unnecessarily cautious” last year, Blakey says.
AIA wasn’t alone. Last year, the International Air Transport Association (IATA) forecast that the global airline industry would lose $5.6 billion in 2010. But this week, IATA said the industry would instead earn a collective profit of $15.1 billion — a dramatic reversal of fortune.
Despite concerns about U.S. defense funding, AIA projects sales of military aircraft will increase 8% in 2010, to $64.5 billion, more than double the level in 2000. And the forecast sees sales rising another 2% in 2011. Blakey acknowledged the budget environment in Washington remains highly uncertain, but she sounded a warning to lawmakers who may be tempted to target defense to help curtail the nation’s huge budget deficit.
Blakey said the Obama administration has been “consistently supportive of a rational defense budget.” But she warned that the cuts in Defense Secretary Robert Gates’s $101 billion efficiency drive “have pretty much taken us as far as we can go.” As a result, AIA plans to mount a campaign to inform the public of the industry’s significance to the U.S. economy. “We know there is huge public support for defense and security, but we can’t take it for granted,” Blakey says.
Space sector sales are projected to remain flat in 2010, at $45.5 billion, and register a slight decline in 2011. AIA notes that opportunities for growth in the coming years “will likely come from international customers,” noting potential opportunities in India, South Korea and the Middle East.
Industry employment is forecast to end the year at 624,200 workers, down 3%. But the good news is that payrolls appear to have bottomed out in the second quarter and began to grow again in the third quarter, the first increase in two years.
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