Easing trade tensions, a rebound in commercial aircraft production, and military modernization can revitatize the aerospace and defense industry
Despite Boeing’s really bad 2019, there are reasons to believe aerospace in general will improve this year. Easing trade tensions between the U.S. and China, progress toward resolving Boeing’s 737 MAX crisis, increased defense spending, a budding commercial space sector, and Airbus’ robust sales and production portend well for 2020. Airbus delivered 863 commercial aircraft to 99 customers in 2019, outpacing 2018’s record output by 8%. Only the A380 declined. For the 17th year in a row, production increased, and Airbus delivered 173 wide-body aircraft, its highest number in a single year.
Airbus had 1,131 new orders for the year, with net orders reaching 768, compared to 747 in 2018, taking Airbus’ cumulative net orders higher than 20,000. The single-aisle A320 family tallied 654 net orders, including an enthusiastic market for the A321XLR. Cancellations of 363 aircraft reflect specific airline situations in 2019 as well as the decision to end A380 production. At the turn of the year, Airbus’ backlog stood at 7,482 aircraft.
Boeing delivered only 380 planes in 2019, a 53% decrease compared to 2018. Its gross orders were 246, a 77% decrease compared to 2018. Boeing’s net orders after cancellations and conversions were 54 planes, compared to 893 the previous year. Boeing’s backlog now stands at 5,406 airplanes. The company’s efforts to return the single-aisle 737 MAX to service included more than 800 test and production flights through October, clocking more than 1,500 hours with new software.
Embraer ended Q3 2019 (the latest figures available) with a firm order backlog of $16.2 billion. Its commercial firm order backlog of 345 includes 181 E175 and 123 E195-E2 airliners. Embraer’s contract with SkyWest Inc. for a firm order of seven E175 jets in a 70-seat configuration is worth $340 million. The most deliveries for the year were of the E175 model. Embraer also delivered its first E195-E2, the largest of the three members of the E-Jets E2 family of commercial aircraft. The recipients were aircraft leasing company AerCap and Azul Linhas Aéreas Brasileiras, the global launch customer for the E195-E2, which placed 51 firm orders. Private jet company Flexjet ordered a fleet of Praetor 100, Praetor 600, and Phenom 300 jets valued at up to $1.4 billion. Embraer also delivered the first KC-390 airlifter to the Brazilian Air Force, and the Portuguese Air Force ordered five, the first international order. Horizon Air, a subsidiary of Alaska Air Group, selected Embraer Aircraft Maintenance Services (EAMS) in Nashville, Tennessee, as the exclusive heavy maintenance provider for the company’s fleet of 30 Embraer E175 aircraft. The multi-year agreement includes airframe maintenance, modifications, and repair services.
Industry Trends: In 2020, the aerospace and defense (A&D) industry is likely to return to growth, according to Deloitte’s Global Aerospace and Defense Industry Outlook. Robin Lineberger, Deloitte’s Global Aerospace & Defense leader, outlines a few trends to watch in the coming year:
- Global defense budgets up 3% to 4%, reaching an estimated $1.9 trillion
- U.S. foreign military sales (FMS) likely to remain steady as global threats persist
- The commercial aerospace sector should recover in 2020, grow in deliveries after the recent downturn; long-term commercial aircraft demand remains robust, with a 14,000-aircraft commercial order backlog
- The regional jet market remains strong; forecasts anticipate more than 5,000 units required during the next 20 years
Scott Walker - Chairman, Mitsui Seiki
Mitsui Seiki sees strong demand for large, hard-metal trunnion 5-axis machines going into 2021 as companies are still tooling up for hard metal parts for landing gear, helicopter components, and aero structural components that manage large stress loads during flight operations. Skills-based manufacturing remains an issue, and the tighter the tolerances, the bigger the impact. An area where the shortage of qualified operators is particularly evident is jig grinding. In the U.S., the average age of jig grinder operators is 60 years old. Jig grinding is a small niche where 1-micron tolerances are typical. In addition to its current jig grinder portfolio, Mitsui Seiki has added the Vertex G (combination 5-axis HMC and grinding) to its lineup to further automate ultra-precision hard milling and grinding. This automated platform provides a repetitive process in micron application environments, permitting users to develop ultra-precision processes and move skilled operators to this machine to produce repeatable jig grinder tolerances. The more-skilled setup person can dial in the machine, then pass production to an operator. Segregating duties allows users to focus highly skilled people on process development on several machines instead of dedicating such limited resources to one machine. This trend will continue in the coming years. https://www.mitsuiseiki.com
Gediminas Ziemelis - Founder & Chairman
Avia Solutions Group Rising customer expectations along with innovative technology implementation set 2020 to be a transformational year for aviation. It is forecast for the sector to have net profit growth again this year; however, it’s essential that market players are prepared to adapt to evolve and achieve that goal.
Sustainability: To reduce aviation’s carbon footprint, original equipment manufacturers (OEMs) are testing lighter airframe components and electrified aircraft taxiing. OEMs are also investing in methods to reduce aircraft fuel consumption. Monitors installed in aircraft will show passengers in real-time the amount of carbon dioxide (CO2) emissions and the improvements being made. A greener tomorrow requires reviewing all business processes from rethinking aircraft design and airframes to their operation and in-flight services. Governments and industry leaders are ready to prioritize environmental impact and waste reduction.
Blockchain: This technology allows companies to stop using paper for information processing needed to track aircraft spares and parts, as well as conduct an aircraft parts census. https://www.gediminasziemelis.com
Increasing aerospace electric propulsion system development to reduce carbon emissions, make flights quieter, decrease costs. Commercial space sector investment in new and existing space technologies and services should remain steady, funded primarily from governments and venture capital. Urban air mobility (UAM) vehicle development will accelerate during the next decade, though challenges remain in regulations, energy management, collision avoidance, infrastructure needs, air traffic management, and overcoming passenger anxiety. Mega-mergers may decrease, but further industry consolidation is possible as smaller companies may not meet increased financial, program management, skills, risk-taking, and investment requirements. The consolidation of components, aerostructures, electronics, and interiors is expected to continue as companies focus on gaining economies of scale.
In 2020, Deloitte analysts expect the A&D industry to return to growth with the commercial aerospace sector recovering from its decline in 2019 and the defense sector continuing to soar. “To meet the increased demand and improve production yields, A&D companies should leverage highly agile production that adapts to changes in demand, including digital technologies,” writes Lineberger. “As A&D customers become more demanding in terms of customization, industry players could be at the forefront of manufacturing, enhancing productivity and efficiency by investing in areas such as smart factory initiatives.” Lineberger advises A&D readers to be prepared for market disruptions, such as fallout from Brexit. “Inventory your supply chain, understand where they are and what’s at risk, and ensure you have material on hand to buffer any delays at the border until things get sorted out.” He adds that the era of just-in-time supply chains is over, and companies must manage differently. “Be cautionary, have supplies on hand” to get through any unexpected production bumps.
Richard Aboulafia - Vice President of Analysis
Teal Group The world aviation market has slowed in recent years. The civil market has enjoyed a respectable 4.1% compound annual growth rate (CAGR) in deliveries by value during the last 10 years. But this growth story is complicated by the divergent fortunes of various civil segments; jetliners have enjoyed 10 great years, but all the others are weak. The military aviation segment, by contrast, has been flat for some time, although it is poised for renewed growth. At the start of the year, single-aisle jetliners and fighter aircraft were the only two aviation segments driving market growth. Every other industry segment was either flat or down. U.S. primes’ share has remained relatively steady at about 50% by value of deliveries for the last two decades.
As the industry top line has grown, so has output. The U.S. industry continues to do very well at the subcontractor level, exceeding 50% in key segments of engines, avionics, etc., and equaling 50% in aerostructures, control systems, and the like. The U.S. has enjoyed a roughly 2.5:1 aerospace trade advantage by value with the rest of the world for decades. This export ratio reflects U.S. success at the subcontractor level, along with success in space systems, missiles, and other markets. Large commercial jets now account for about 60% of total industry output by value, not just at the final delivery level but throughout most of the component and structures supply chain. Airbus’ acquisition of Bombardier’s CSeries, now known as the Airbus A220 family, gives Airbus a new line of 110-130-seat jets. Meanwhile, Embraer and Boeing are moving toward creating a joint venture, to be controlled by Boeing, covering Embraer’s E-Jet series, spanning 75-120 seats.
In a year, the jet transport industry will be controlled by only two companies. Barriers to entry remain extremely high, as evidenced by China’s multi-decade effort to break into the market and Russia’s attempts to re-enter the market. Our Top 20 Aviation Programs Chart shows revenue from deliveries over the past 10 years and Teal Group’s forecast for the next 10. The two major single-aisle programs—Airbus’s A320 series and Boeing’s 737 family—constitute 25% of industry revenue. Jetliners comprise eight of the top 10 aviation manufacturing programs. Of the top five programs (which represent half the aircraft industry in revenue), just one, Lockheed Martin’s F-35 Joint Strike Fighter, is not a jetliner.
Dhiren Mariadi - VP of Global Aerospace Business
Altair 2020 predictions:
- Certification by analysis: Aircraft manufacturers and suppliers hope to replace physical testing in aircraft certification, but certification by analysis efforts are constrained by tools and processes with roots dating back to the Apollo program. Recent advancements such as intuitive user experience, integrated solution workflows, and optimization-driven simulation tools are increasing the efficiency of certification by analysis.
- Simulation and optimization tools: To reduce product development time, aerospace organizations are using digital tools to drive designs rather than simply validate them. Empowering design engineers to apply simulation and optimization up-front in the design cycle supports fast design iterations and decision-making. New digital tools provide an environment for analysis, optimization, manufacturing checks, and geometry editing.
- Data analytics to shape early program decisions: Applying statistical methods such as dimensionality reduction to the huge number of design variables considered during a program will help identify a subset of critical performance criteria. Measures considered during early studies using advanced physics simulations can identify the most promising design concepts.
- Increased number of aircraft and satellites: Flying systems will be supported by many on-ground systems. Ensuring the safe and reliable operation of these systems will require efficient management of a system of connected systems. The fields of data acquisition, data analytics, and machine learning are converging to address this need.