Industry experts expect a return to growth in 2017 following a year of flat revenues with commercial U.S. aerospace up at least 2% and defense more than 3% higher.
The Accenture Commercial Aerospace Insight Report, launched in 2016 and updated quarterly, examines trends and market drivers for the next 6 to 18 months.
“We’ re seeing 2016 will be flat compared to 2015, and 2017 will be up 2.3% over 2016,” says Jeffrey Wheless, global lead for aerospace and defense industry research for professional services company Accenture. The outlook uses econometric data and surveys of executives at OEMs, Tier 1, and Tier 2 suppliers for insights on future supply and demand.
“Instead of focusing solely on original equipment manufacturer (OEM) sales, the report covers a wide range of activities, from suppliers to maintenance, repair, and overhaul (MRO),” Wheless explains. “As was the case for 2016, we are forecasting a challenging first quarter in 2017, with the rest of the year spent offsetting 1Q17, resulting in an overall better year.”
The latest report notes that flat production capacity, coupled with the continued production ramp-up, will put pressure on costs and drive additional investments in efficiency, production automation, cost visibility, and supplier development.
“It’s a sustained production increase – not a bump – so everyone is taking a combination of workforce and technology to increase their capacity utilization and capacity expansion,” Wheless tells Aerospace Manufacturing and Design. This includes workforce flexibility – workers doing multiple jobs, not just specialized tasks – and automation.
According Accenture’s Technology Vision 2016 survey of aerospace executives, 81% are planning moderate to extensive production automation.
“Collaborative robots don’t displace workers, but help them do their job better, achieve higher throughput and quality, and cut the amount of rework,” Wheless reports. “People tend to see automation as robotics, but we’re also seeing more advanced technologies such as augmented reality – smart glasses, virtual-reality goggles – helping folks do jobs faster and with higher levels of quality.”
First delivery of a Boeing 737 MAX 8 to Southwest Airlines is expected in 3Q 2017.
He also sees interest in machine learning and artificial intelligence in processes. “How do I manage production capacity, do it intelligently, and how do I better sell in the market? Those are examples of technology used to address capacity challenges, not by adding production capacity, but by increasing utilization.”
The report notes that while there has been some belt-tightening and furloughs at a few companies, production capacity and employment are both relatively stable. Both are expected to increase during 2017. Materials costs are expected to remain stable through 2017, with some executives expecting them to rise in 2018.
Airbus’ civilian aircraft family. Milestones of 2016 included delivery of the company’s 10,000th aircraft – an A350 XWB.
MRO growing
The slowdown in aircraft retirements due to lower fuel costs is driving MRO activities for OEMs and tier suppliers.
“We see incremental growth on the order of 3% per year,” Wheless says. Additional shop visits for older airplanes will provide more opportunity for cost-competitive third-party MROs. www.accenture.com
A supporting view
Deloitte LLP’s 2017 Global Aerospace and Defense Sector Outlook reports commercial aerospace revenues have remained flat despite increased production levels, and the backlog of roughly 13,500 commercial aircraft – an all-time high – represents more than 9-1/2 years of current-rate annual production. For aerospace and defense (A&D), global industry revenues are estimated to grow at 2.0% in 2017.
The outlook also notes that commercial aircraft production will likely increase, driven by stable global gross domestic product (GDP), strong airline passenger traffic, and continued airline profitability supported by lower fuel costs. Experts warn, however, that despite an expected 96 additional large commercial aircraft produced in 2017, continued pricing pressure and product mix changes by airline operators will likely produce only a 0.3% increase in commercial aerospace sub-sector revenues.
Despite those flat revenue projections, Deloitte analysts expect commercial aerospace subsector operating earnings to grow 20.6%, while defense subsector’s operating earnings will likely rise 7.0%. Defense revenues are expected to grow at 3.2% in 2017 after multi-year declines.
“This increase is due to continued concerns about global security threats; growth in U.S. defense budgets; as well as higher defense spending in the Middle East, Japan, South Korea, and India,” says Tom Captain, Deloitte’s global aerospace and defense leader. www.deloitte.com/us
About the author: Eric Brother, senior editor of AM&D, can be reached at 216.393.0228 or ebrothers@gie.net.
