Aerospace Market Forecast

Politics aside the outlook for aerospace is still strong. Financial jitters have rocked the world as the U.S. government continues on a path of spending much more than they make. Budget deficits are a huge drag on corporate capital spending. Of greatest concern is that even though large cap aerospace firms continue to earn strong profits (more than $4 billion in Q1 2011), aerospace firms with assets under $25 million struggle (profit $40 million in Q1 2011). The question is where will we go from here? Now is the time to plan. Trust Your Indicators!

Barr Group Aero Indicator – Off from Mays High
The Aero Indicator has been on the rise overall, up from the January level of 101.59. In June it hit an index of 104.96, down from 106 in May, meaning the industry will see about a 5% annualized rate of growth over the next six months. Next time, however, we are expecting the Aero Indicator to fall again, due to uncertainty in government spending, which accounts for more than half of aerospace manufacturing spending, among other things.

1. Aerospace Industrial Production
   Since January, the index has risen from 95 to about 98 and is now at its highest level since 2009.
    
2. Aerospace Capacity Utilization
   Before you get too excited, remember that since 1972, the highest aerospace capacity utilization has ever been was in September 2007 at about 88% of full capacity. The index is up from about 71 in January to more than 74. Still, our sector has 26% of capacity idle.
   
   
3. U.S. Aircraft Production Workers
   For the last eight months, happily the number of U.S. manufacturing workers has been rising at around 7% to 8%, at an annual rate. Between January and May, the addition of about 2,000 aerospace workers makes the total about half a million (NAICS3364).
    
4. U.S. Aircraft Passenger Market
   In January, about 59 million U.S. passengers were flying, and in May more than 66 million. U.S. passenger traffic is up almost 12% in as little as five months.
    
5. U.S. Air Cargo and Air Mail
   In thousands of tons, air cargo and mail has grown from 1,644 in February 2010, to 1,935 in April 2011, up from 1,773 in January.
    
6. U.S. Aerospace Net Profits
   All 20 BGA tracked U.S. OEMs and Primes, reporting their profits between April and August, made solid profits; 65% of the firms beat Wall Street estimates. While large firms become more profitable, smaller firms, the backbone of the aerospace supply chain – while returning to profitability in Q1 2011 – earned only $40 million compared to $257 million in Q3 2008.
    
7. DoD Spending and Aerospace
   Congress is in a pickle to balance a budget where spending for 2011 is expected to exceed revenues by 40%. The DoD will lose more than previously estimated. Barr Group estimates total procurement to fall by about 7% in 2012 and aerospace, the largest part, to fall by slightly more than 5%.
    
8. Aerospace Trade
   While U.S. aerospace manufacturers continue to export more than twice as much as they import, trade overall has slowed in 2011 by more than 6% from Q4 2010 to Q1 2011.
    
9. Sales of Civil Aircraft and Engines
   Monthly civil aircraft sales rose by 42.7% since January, while engine sales were virtually flat. The civilian aerospace market continues to benefit from airline upgrades to reach better fuel economy since fuel is as much as 30% of the operating costs compared to labor that is now about 12%.

Barr Group Aerospace recommends those companies who want to learn more about improving their own manufacturing competitiveness visit: bga-aeroweb.com/LEAP/LEAP-V2.pdf