In spite of these developments Farnborough is not an anachronism and it remains a premier venue to take the industry's pulse and assess its global health ahead of what promises to be a very challenging production surge for commercial aircraft suppliers and a contraction for most U.S. and EU defense prime contractors.
Commercial aerospace has been a beacon in an otherwise depressed global economy still struggling to return to growth following the financial crisis. While the U.S. and Europe appear to have again stalled for myriad reasons, it is evident that continuing policy errors in Washington, Brussels, Paris or Athens could negatively impact air travel, jeopardizing sales of commercial, business or general aviation aircraft.
The commercial air transport production surge will be the primary topic at this year’s Farnborough airshow. Concerns remain and original equipment manufacturers, OEMs, are particularly aware that supply chain vulnerabilities may not be fully addressed prior to ramp up.
While Boeing projects demand for 34,000 aircraft over the next 20 years (our numbers are within 2 percent of Boeing's estimates), most suppliers we know are concerned about their operational and financial ability to support this surge.
Furthermore, this industry is clearly exposed to the effects of highly-disruptive macro events, either regional war or natural disasters. While the globalization of the aerospace industry has benefited sales and dampened market cyclicality, it has also created global challenges, which in turn have increased industry exposure. How to best manage this exposure is a complicated question that will be debated at the show.
The Airbus announcement concerning its A320 production facility in Mobile, Alabama further validates efforts of Southern U.S. states to create a business-friendly climate designed to attract majors such as Airbus, Eurocopter and yes, Boeing. The Airbus move is a warning directed at Paris and traditional U.S. aerospace clusters such as the Pacific Northwest and Southern California.
Indeed, the State of Washington need only to look to California as a warning about what not to do if one wants to retain a crown jewel in the state’s economy for nearly a century. In addition, Airbus’s decision creates further challenges for suppliers in the form of pressure to locate in the American Southeast, as this new cluster will require a local presence.
Defense will also figure very high on the Farnborough agenda. The European aerospace and defense industry is under significant pressure from shrinking defense budgets. Programs such as Eurofighter Typhoon, Saab Gripen or BAE -Dassault Telemos are exposed to budget reductions in the UK, France, Italy and Sweden.