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Share price: Airbus forecast declares aerospace prospects back on track

Manufacturers hope that commercial aircraft sales will compensate for a fall in defence spending.

The global aerospace sector begins the new decade in better shape than feared, latest figures from major industry sources on both sides of the Atlantic suggest.

In its 2010 year-end review and forecast, the US Aerospace Industries Association (AIA) claims the general outlook has improved markedly even from a few months ago.

The AIA, whose members include the likes of Boeing and Lockheed Martin, says preliminary estimates show the US industry defied expectations and grew slightly in 2010 to total revenues of US$216.5bn. This was despite a 6 per cent decline in commercial aerospace sales and mainly thanks to continued strong growth in military jets and missiles.

In 2011 the organisation forecasts defence income to slow sharply as budget cuts bite but commercial sales to rebound, with the overall result adding up to another year in positive territory and total sales of US$219bn. The AIA cautioned, however, that factors such as the global economy and fuel prices would continue to provide 'bumpy weather'. Companies also face significant individual challenges, including Boeing's ongoing delays to its flagship 787 Dreamliner project.

In Europe, Airbus declared the global airline industry 'back on track' faster than expected after the economic downturn of 2008. In its latest 20-year Global Market Forecast, the company predicted that almost 26,000 passenger and freight jets will be needed by 2029, a 900 aircraft increase from its last estimate.

Growth will be driven by surging demand for travel and freight services in the Asia- Pacific region and the replacement of planes with new, more fuel efficient models, said Airbus, which estimated the 20-year value of the market for new aircraft at US$3.2tn.

Glynn Bellamy, a partner at KPMG in the UK who works with aerospace and defence companies, confirms an increased sense of confidence within the commercial sector, not least because of the resilient order books of the industry's big two.

'In 2009 there was a lot of uncertainty,' said Bellamy, adding that some in the industry feared a prolonged downturn in the aftermath of the financial crisis. 'But based on what we are seeing from Airbus and Boeing, and from talking to businesses in the supply chain and the airlines themselves, there does now seem to be an expectation that there won't be that level of drop off and that, in fact, we will see stable and continued growth.'

In the defence sector, Bellamy expects more European and US businesses to look for footholds in expanding military markets, such as India or South Korea, as budget cuts hit business in the West. 'In many cases that will have to be via joint ventures,' he said. 'Those markets want to develop their own capability, they don't just want European or US OEMs selling into them.' Companies are also likely to make more strategic acquisitions to gain a presence on key military programmes or to widen their technology capabilities, he adds.

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