Steady growth is good

According to a global aerospace industry forecast prepared by Oxford Economics for the National Fluid Power Association (www.nfpa.com), near-term drivers for aerospace stay positive. The prognosticators see global aerospace production expanding by 5.5% this year and a bit more than 6% in 2016.

Airline profitability is predicted at $25 billion this year, with a net profit margin of 3.2%, thanks to lower fuel costs.

Overall, air travel demand is growing at 5.9% per year, driven by international travel at 6.1% per year, based on revenue passenger miles, a trend led by airlines in emerging nations. However, load capacity lagged at 5.6% as load rates increased to nearly 80%, which means demand for new aircraft should continue. Air cargo expanded 4.5%, another good sign for sustained commercial aircraft sales.

Last year, Airbus and Boeing added orders of 1,456 and 1,432 aircraft, respectively, generating backlogs of 6,386 for Airbus and 5,789 for Boeing. The aircraft turbine engine makers face a similarly impressive backlog. So, even if global demand for new airliners starts to decline, there is still plenty of work to keep OEMs and their suppliers busy for years to come.

U.S. aerospace production this past January was up 5.2% from a year earlier – boosted in part by a rebound from the work-stopping snowstorms of early 2014. There was also good news from Europe, where December aerospace output saw a rise of 1.2% in Germany, a 2.3% gain in the U.K., and a 5.0% increase in France.

Optimism about U.S. manufacturing is revealed in the “Q1 2015 Manufacturing Barometer” just released by PwC US, a division of international professional services network, PricewaterhouseCoopers LLC. The survey of 58 senior executives of large, multinational U.S. industrial manufacturing firms shows the highest level of optimism since the last quarter of 2005. This group’s belief in positive prospects for the U.S. economy during the next 12 months increased to 76%, up from 68% in the previous quarter and 71% in the first quarter of 2014. Their plans for operational spending rose to 83%, the highest in 10 quarters.

PwC also reports healthy levels of capital investment. This news bodes well for the commercial aircraft supply chain.

The Oxford Economics study cites the shadow of rising geopolitical tensions in Eastern Europe and the Middle East as a potential stimulus for renewed defense spending. Officials from Saab, producer of Gripen fighter jets; BAE Systems; and Meggitt have publicly indicated they see the end of declining defense budgets. U.S. shipments of defense aircraft and parts – which decreased 24.1% in 2013 – increased by 10.6% in 2014. The U.S. military has indicated it wants long-range investments in strategic bombers, tactical capability, helicopter replacement, and increased production of the F-35. After record-breaking commercial orders announced in Paris in 2013, the big news at the Paris Air Show this year may not come from the commercial sector, but in the defense sector.

Are you feeling equally optimistic? Let me know at ebrothers@gie.net
 

– Eric