One of the world's biggest commercial events for the aerospace and defense sector takes place next week, but what’s going to be on the agenda for 2012? Are we going to see the same high-flying order books and themes we saw in Paris? Maybe not on last year's scale but still pretty robust, is our view.
Last year the A&D industry experienced a record year in 2011 on the strength of a surging commercial aviation market.
There is no doubt the pressure is being cranked up hard on those delivering the programs but the industry’s key players will also need to use the time this week to talk about another real issue affecting industry — supply chains — protecting, securing and growing them. Or even, asking if their supply chain can keep up.
Continued growth for this year is likely and with the announcement of the new assembly facility in Alabama it is certain to get suppliers’ interest going. The announcement means that Airbus will now have four assembly sites, two in Europe, one in China and now one in the US. A lot of interest was generated last year around the A320NEO but we could find some of that shine switching to Boeing’s 737MAX this time round.
But the industry is really challenging itself, and we estimate that while there will be about 1,100 new aircraft flying off the production line this year, orders themselves will be above that, pushing backlog to another new record. Furthermore, we anticipate that full year order will be about 1,600, pushing overall backlog to nearly 9,000 aircraft.
Globalization of the industry is a trend, we think, that’s going to carry on for a while. The industry will continue to move from one based on exports to having more content sourced globally. Having said that, the overall growth in the industry means firms like Airbus and their European suppliers will continue to grow as well. There could also be growth in Central and Eastern Europe, as many of those countries, like Poland and Ukraine, have good aerospace capability fostered by the former Soviet Union, and very competitive labor markets.
Technology and investment in research and development capabilities will also be a talking point along with the impact that the European financial debacle is having on industry. It would be a rose-tinted observation if we were to consider in isolation high production figures, without thinking of the implications this is having on our European airlines that fall into the "squeezed middle".
No doubt the debate will carry on this week about whether the industry is over-heated and creating a bubble for itself. The current movement is at a 9 year up cycle, the longest in its history, with no signs of slowing down. For those that are calling it a "bubble" it has proven to be quite a resilient one and one we believe is actually reflective of real growth.