Aerospace Market Forecast

Barr Group Aero Indicator
We see some smoke over the horizon. The check engine light is on. Aerospace manufacturing has been on the rise throughout this year, albeit at a slowing rate of growth, but we fear a slight turn ahead. Even though capacity and output are rising briskly in the aerospace sector, negative perceptions by corporate management, and a forecast cut in DoD and NASA pending, will flatten growth for a while. Now is the time to plan. Trust Your Indicators!!!
 

Major defense cuts on the horizon, uncertainty in capital markets, and the advent of an unstable political world has pushed the Aero Indicator to an all time low. This is surprising since capacity and the level of production have grown swiftly in recent months. Since measurements began by Barr Group in July 2010, this is the first time the index fell below 100. Off from a high of more than 105 in Q1 2011, it is now 99.79. This means that U.S. aerospace and defense production will fall slightly (less than 1%) during the next six months. We feel the commercial side will slowly overtake the defense cuts, and the index will soon be on a rise again.

1. Aerospace Industrial Production
   From a low of around 95 in January 2011, it hit nearly 106 in September 2011, up 14% at an annual rate so far this year.
    
2. Aerospace Capacity Utilization
   While capacity utilized in U.S. aerospace plants was a mere 71.19% in January 2011, they rose steadily all year to 79.25% in September 2011, up more than 10% at an annual rate so far this year.
    
3. U.S. Aircraft Production Workers
   Jobs, jobs, and jobs!! More than eight million Americans are still out of work as unemployment hovers around 9%. U.S. manufacturing, however, added jobs every month from January 2011 to July 2011, but jobs were lost each month after that. Aerospace manufacturing, on the other hand, continues to be a job engine – with the addition of approximately 13,000 net new jobs since January 2011.
    
4. U.S. Aircraft Passenger Market
   Passenger traffic continues to rise at a 3.01% annual rate from July 2010 to July 2011. Our latest data showed more than two million more passengers flying in July 2011, compared to July 2010.
    
5. U.S. Air Cargo and Air Mail
   In millions of tons, air cargo and mail has fallen from 1.95 in July 2010, to 1.78 in July 2011, down 4.47%.
    
6. U.S. Aerospace Net Profits
   While smaller firms (assets less than $25 million) lost $17 million in Q4 2010, they made $111 million in Q2 2011. The larger firms (assets more than $25 million) made $4.5 billion in Q4 2010, and a near record $5.1 billion in Q2 2011.
    
7. DoD Spending and Aerospace
   Currently, DoD and NASA are responsible for 57% of all spending on aerospace products and services, and aerospace procurement is about to take a significant hit. This is the main driver pushing the Aero Indicator down. We estimate DoD and NASA spending to fall by more than 7% in 2012, as Congress battles an enormous national debt.
    
8. Aerospace Trade
   When we export more than we import, our quality and prices beat the foreign competition. Every year since 2006 aerospace manufacturers ran a trade surplus. We continue to export more than two and a half times more than we import.
    
9. Sales of Civil Aircraft and Engines
   Monthly civil aircraft sales rose by 53% since January 2011, while engine sales were only up 10.4%. The U.S. aircraft backlog continues to rise and the outlook is very positive for the rest of the year.

Aerospace manufacturers at the AMT Fall Forecast Conference in Cleveland, OH, in October 2011, reported having one of the best years yet. Our data supports that, but a deeper analysis uncovers a slowing and flattening in aerospace manufacturing growth. The commercial sector, however, is growing steadily, but we predict cuts in DoD procurement to put a damper on overall U.S. manufacturing sales very soon. The aerospace manufacturing sector, unless otherwise noted, is NAICS3364 numbers.

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