AEROSPACE MANUFACTURING INDUSTRY
December 11, 2009
Report Completed By:
TABLE OF CONTENTS
DOMINANT ECONOMIC INDICATORS 5
1. Market Size 5
2. Scope of Competitive Rivalry 6
3. Number of Companies in the Industry 7
4. Customers 8
5. Ease of Entry/Exit 8
6. Technology/Innovation 9
7. Product Characteristics 10
i. Government 10
ii. Commercial Aircraft 11
8. Scale Economies 11
A. Internal 11
B. External 12
9. Experience Curve Effects 12
10. Capacity Utilization 13
11. Industry Profitability 14
SIX FORCES OF COMPETITION 14
1. Threat of New Entrants 15
2. Bargaining Power of Suppliers 16
3. Bargaining Power of Buyers 16
4. Threat of Substitute Products/Services 17
5. Intensity of Rivalry among Competitors 18
6. Relative Power of other Stakeholders-Unions 18
COMPETITIVE POSITION OF MAJOR AEROSPACE COMPANIES 18
COMPETITOR ANALYSIS OF MAJOR AEROSPACE COMPANIES 20
Boeing Co. 20
Lockheed Martin Corporation 21
Northrop Grumman Corporation 23
Raytheon Co. 24
Other Manufacturers 25
United Technologies 26
KEY SUCCESS FACTORS 26
Reducing Costs 26
Maintaining Access to Foreign Markets 27
INDUSTRY PROSPECTS AND OVERALL ATTRACTIVENESS 29
Factors Making the Industry Attractive 29
Factors Making the Industry Unattractive 31
Special Industry Problems and Issues 32
Profit Outlook 33
“Micro Jet” Airplanes 33
Works Cited 37
Appendix A. Aircraft Information Fixed-Wing Aircraft 40
The accomplishments and advancements in the aerospace manufacturing industry over the last century since the Wright Brothers made their first flight on December 17, 1903 are astounding. The first flight covered a distance of one hundred twenty feet in twelve seconds. Today, airplanes allow us to travel across continents and are a crucial part of our military. The manufacturing of these aircrafts has evolved into an industry that has become an enormously profitable and has had a significant impact on our business world. This report analyzes the aerospace manufacturing industry and highlights the dominant economic characteristics, the six forces of competition, the competitive position of major companies within the industry, key success factors, and industry prospects and overall attractiveness.
Aerospace manufacturing is a high technology industry geared especially towards governmental work that produces aircraft, guided missiles, space vehicles, aircraft engines, propulsion units, and related parts.
There are hundreds of manufacturing companies and suppliers that are responsible for building and supplying the aircrafts used today, however the aerospace industry is largely dominated by a few large firms that contract to produce aircraft with government and private businesses (usually airline and cargo transportation companies). These large firms, in turn, subcontract with smaller firms to produce specific systems and parts for their vehicles. To better understand the sheer number of aircrafts produced, the attached appendix of this report includes a list obtained from the U.S. Department of Transportation and Federal Aviation Administration that lists the vast number of aircrafts the industry manufactures.
Firms producing transport aircraft make up the largest segment of the civil (nonmilitary) aircraft portion of the industry. Civil transport aircraft are produced for air transportation businesses such as airlines and cargo transportation companies. These aircraft range from small turboprops to wide-body jets and are used to move people and goods all over the world. Another segment of civil aircraft is general aviation aircraft where aircrafts in this segment range from small two-seaters designed for leisure use to corporate jets used for business transport. Civil helicopters, which make up one of the smallest segments of civil aircraft, are commonly used by police and large city traffic departments, emergency medical services, and businesses such as oil and mining companies that need to transport people to remote worksites.
In the United States of America, the Department of Defense and the National Aeronautics and Space Administration (NASA) are the two largest consumers of aerospace technology and products. Others include the very large airline industry. The aerospace industry employed four hundred seventy two thousand wage and salary workers in 2006. There are over one hundred major aerospace and defense companies that are members of the Aerospace Industries Association (founded in 1919, shortly after the “birth of flight”).
The United States market share in helicopters, civil aircraft, launch vehicles and jet engines has decreased a staggering 50% in the past 40 years. While once highly profitable, Wall Street reports the aerospace industry has been on a decline for years and now only accounts for 1.8% of the S&P 500 market capitalization. During the 1970’s this number was at nearly 9%. March 2009 proved to be the roughest month for the industry with stock prices drastically plummeting. Over the past few months the industry has begun to recover and have gained back an average of 60% from their bottom, but still far from their peaks just a short time ago.
With the rise of terrorism and threats to national security, more and more money is spent on our nation’s defense systems. The market for government defense systems has been growing steadily and will continue growing. Boeing, Northrop Grumman and Lockheed Martin are companies in the industry with large amounts of sales from the U.S. Government. Commercial aircraft also has huge market share in the aerospace industry and is currently decreasing in market size. Airline companies are experiencing less people traveling and in turn are placing fewer orders on new aircraft.
Current Market Forecasts for major commercial airplane manufacturers reveal project demands for 25,000-29,000 new aircrafts between 2009 and 2028. Every year airline manufacturers look at current market conditions and forecast the next twenty years. Various world regions are also individually analyzed. The report shows that Asia Pacific region is expected to have the largest amount of new air transport deliveries at 8960, followed by North America and Europe.