14 September 2018
Topline output continues at near record levels. Key segments look set for growth through the next three years, at least. There are areas of concern, and not all manufacturers will benefit equally, but overall the industry is in excellent shape.
World industry output in 2017 came to just over $180 billion. Deliveries in 2014-2016 have all been at about this level in constant 2018 dollars (2015 was the all-time record, at $183.5 billion).
However, the industry has been stuck on this plateau not for market reasons, but rather for reasons relating to production ramp difficulties with key new programs. Single aisle jetliners represent 25% of the value of this industry, and difficulties in transitioning between the last generation and the next generation have resulted in the present level of stalled output. The F-35 Joint Strike Fighter’s slow production ramp has contributed to this problem.
But these numbers represent only the value of deliveries; they exclude the broader footprint of the industry, which is about two to three times as large as the value of total new build aircraft. The numbers also exclude research and development funding, and the generally more lucrative aftermarket sustainment business.
Therefore, since the new aircraft market is worth $180-$210 billion per year, we reckon that the total aircraft industry contributes $700-900 billion annually to the world economy (that covers the broader industry footprint plus research and sustainment). And this figure excludes numerous related industries, such as airlines, air traffic control, and military air base support services.
For the past 15 years, topline deliveries growth has come primarily from the civil markets, with a 3.7% compound annual growth rate (CAGR) by value. Military markets have grown at a 2% pace, but higher defense budgets will grow this in the coming few years.
US primes’ share of this industry has remained relatively steady at just above 50% by value of deliveries for the last two decades. As the industry topline has grown, so has US output. While this metric measures output solely at the prime level, US industry continues to do very well at the subcontractor level, exceeding the 50% mark in most key segments (engines, avionics, etc.) and equaling the 50% level in others (aerostructures, control systems, etc.).
The primary drivers of US industry at the prime level include Boeing jetliners and fighters, Lockheed Martin fighters, Gulfstream business jets, and rotorcraft from all three primes (Boeing, Textron/Bell, and Lockheed Martin/Sikorsky). Many other smaller manufacturers play a supporting role.
Given the relatively steady state nature of this industry, where there are few major disruptions and product life cycles are measured in decades, it isn’t surprising that the US’s aerospace trade surplus is relatively steady. The US has enjoyed a roughly 2.5-1 aerospace trade advantage by value with the rest of the world for decades. This higher ratio of recorded exports (compared with 1-1 output at the prime level) reflects US industry’s success at the subcontractor level, along with success in space systems, missiles, and in other markets.