Aerospace manufacturing industry




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7.Product Characteristics


In the aerospace manufacturing industry, many products are tailored to fit the needs of the customer. The U.S. Government and NASA, for example require highly specified products, many of which are kept secret for security purposes. Commercial aircraft, on the other hand share many of the same characteristics and features.

      1. Government


With high concerns about national security and defense, the U.S. Government invests lots of money in keeping with the best and latest aerospace products. These include, but are not limited to: airlifts, tankers, battle network communication, fighter and bomber jets, integrated command control, launch systems, missile defense, weapons, rotorcraft, surveillance and aerial vehicles. There are hundreds of different aviation products the government uses, each of them carrying their own unique characteristics. Take for example the B-52 Sprit. It was developed by Northrop Grumman, Boeing and Vought Aircraft Industries. Its primary goal is to attack time critical targets early in a conflict to lower war making potential in enemies. The unique design minimizes observability in order to avoid radar detection.

      1. Commercial Aircraft


The majority of society would have a hard time differentiating commercial aircraft brands, models and sub models. Regardless of their similarity, each airplane holds their own unique characteristics. Starting from one of the oldest and largest aircrafts, the Boeing 747 has been around since the 1960’s. Throughout the decades the 747 has seen changes into 15 different sub models. The latest 747 sub model is the 747-8 which was launched in November 2005. Additionally, there are two types of 747-8 being produced today. The Intercontinental carries people and the Freighter hauls cargo. Seat mile costs for the 747-8 are 13% lower and trip costs are 2% lower than the 747-400 it replaced. Fuel efficiency is also improved by 16% compared to the 747-400. Because the basic design of the 747 has been around so long, it is the only large plane that fits most modern airport infrastructure, giving it the ability to travel to more destinations.

8.Scale Economies


Economies of scale are becoming more important to aerospace manufacturers as the industry struggles. The two economies which exist in the industry are internal and external.

  1. Internal


    1. Technical economies- Many firms in the industry are producing many of their own parts or machines for specific tasks. This helps prevent shortages, improves turnaround time, saves time, and money.

    2. Administrative economies- Managers and leaders are assigned to various departments to keep focus on specific projects. As a result, this leads to better products, innovations and quality.

    3. Financial Economies- Loans are made to companies to finance production facilities and headquarters.

    4. Marketing Economies- There is a limited amount of advertising in the industry. Firms typically solicit bids for government contracts or market to airline companies.

    5. Research and Development Economies- Companies in the industry are continually seeking and developing new ways to improve technology and efficiency.
  2. External


    1. Aerospace manufacturers have suppliers who supply certain goods or services to save time.

    2. The industry is beginning to outsource production of aircrafts to cut production times and save money.

    3. Companies work closely with customers to understand their wants and needs.

9.Experience Curve Effects


As a business grows, it often finds new ways to increase production while reducing costs. However, many leading companies in the industry have been in business for decades and because of a lack of strong competition, they do not perform to the best of their ability. Therefore, when new rivals enter the industry it often catches companies off guard and seeks to catch up to new competition.
Industry leader Boeing is a great example of this. For decades Boeing was the leading manufacturer of commercial airplanes and did not have a strong, major competitor. Rather than develop new aircraft around new technologies, technologies were being developed for old aircraft. When emerging competitor Airbus began producing commercial aircraft that beat Boeing, they gained significant market share. As a result, Boeing for the first time in nineteen years will be releasing a new commercial airplane to compete with Airbus.

10.Capacity Utilization


With the entire aerospace manufacturing industry trying to recover from the economic downturn, companies with high capacity utilization are scaling back in all kinds of ways to get through hard times. Fewer customers and buyers translate to decreasing production rates. Almost all the major companies in the industry have announced major layoffs. Not only are production workers being laid off, but departments ranging from Research and Development to Information Technology are also seeing the pink slip.
Economists speculate that March 2009 was the bottom of the industries financial downturn. As a result, the industry has slowly begun to recover. Companies can now begin to restructure their organizations, goals and objectives to meet new market forecasts. Although aerospace manufacturing companies will not be able to utilize production capacity as much as hoped, it will enable the industry to better focus on other aspects in their financial recoveries.

11.Industry Profitability


2008 proved to be an economically challenging time for the industry. The economy was on the verge of collapse which translated to consumers spending much less on traveling. Over the past few decades the U.S. airline industry has seen both good and bad times in terms of its net income. From 1979-1989, the Bureau of Transportation Statistics and Data Base Products reports a $2.9 billion dollar profit for U.S. airlines. Followed by a $10.7 billion dollar loss from 1990-1994, $23.1 billion dollar profit from 1995-2000 and a staggering $55.4 billion dollar loss from 2001-2008. Reports for 2009 are also looking grim at $3.1 billion dollars lost so far this year. Below is a chart various financial highlights of companies in the industry:




Northrop Grumman

Boeing

Lockheed Martin

Revenue

35.16 B

63.01 B

43.80 B

Net Income

-1.27 B

-34 M

3.02 B

Profits

-1,262.0 M

2,672.0 M

3,217.0 M

Stockholders’ Equity

11,920.0 M

-1,294.0 M

2,865.0 M

Market Value

14,729.6 M

27,251.6 M

28,175.0 M

One of the most profitable companies in the industry was Lockheed Martin. Nearly 90% of their sales came from the U.S. Government. The results indicate that the majority of aerospace manufacturing companies are less than profitable. Although profits have been meager, the fact of the matter is industry has been growing at an average rate of five percent per year.



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