Despite the worldwide recession and the fact that spending on the defence side of the business is slowing dramatically, largely due to the end of the armed conflict in Iraq and Afghanistan, the aerospace industry still has a promising future. The reason, say industry experts, is that there has been a big push by commercial airlines to revamp their fleets to more efficient aircraft, with demand driven by resilient passenger traffic levels.

Dubai-based airline Emirates, for one, announced plans in November 2013 to order 150 Boeing 777 and 50 Airbus A380 aircraft. This is the largest order in civil aviation history.

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US aircraft manufacturer Boeing and its French counterpart Airbus both forecast growth in air traffic in their respective 2013 to 2032 global markets forecasts. Airbus projects that air traffic will double in the next 15 years, and predicts growth in its business driven by new technologies and a focus on environmental concerns. Airlines are also up-gauging aircraft in their existing backlogs and making cabin configurations denser, the company reports.

Boeing predicts that air traffic will grow by 5% annually through to 2032. The company forecasts demand for more than 35,000 new planes valued at some $4800bn in this period. It predicts that 41% of these new airplanes will replace older, less efficient aircraft and that the remaining 59% will be needed to meet demand for growing airline fleets, aviation expansion in emerging markets and new airline business models.

Leaning the mixture

Some aerospace companies, such as Canada-based aircraft manufacturer Bombardier Aerospace, are reaping the crossborder advantages afforded by the North American Free Trade Agreement (Nafta). The agreement allows companies to take advantage of low manufacturing wages in Mexico and the large aerospace markets in the US and Canada.

Bombardier Aerospace makes aircraft harnesses and electrical sub-assemblies in its five-building complex in Querétaro, Mexico. Not only does the company benefit from its close proximity to US and Canadian markets, another huge plus is the talent coming out of the nearby Universidad Aeronautica en Querétaro (UNAQ), Mexico’s first and only aerospace university. According to Mexican authorities, UNAQ was created to attract Bombardier to this economically challenged central Mexican location.

Another Mexican city, Chihuahua, which is located close to the Texan border, has succeeded in attracting aerospace companies – including aircraft manufacturers Cessna and Hawker Beechcraft and component manufacturers Fokker Aerostructures and Manoir Aerospace – thanks to its proximity to the US and low manufacturing and labour costs. Aerospace executives cite Nafta and the ability to get factories operational quickly as the major draws of locating in Mexico. Fokker Aerostructures was able to complete construction on a 7000-square-metre greenfield site in Chihuahua in just six months.

Additionally, companies benefit from Mexico’s maquiladora system that allows foreign companies to import material and equipment on a duty and tariff-free basis for assembly, processing or manufacturing, and then export the assembled, processed and/or manufactured products.

According to data from greenfield investment monitor fDi Markets, thousands of jobs have been created in the Mexican aerospace industry thanks to an influx of foreign investment in the past few years. Between January 2009 and February 2014, Mexico was the leading country for aerospace job creation and Chihuahua was the leading city, with more than 7000 jobs created in the country as a result of FDI, with 3351 of these in Chihuahua.

Landing investments

The US aerospace industry is the largest in the world. In 2011, it contributed more than $85.6bn in export sales to the US economy, a 9% increase over 2010, according to a study by the US Commerce Department’s economic and statistics administration. The industry’s positive trade balance of $47.2bn is the largest trade surplus of any manufacturing industry and came from exporting 53% of all aerospace production and 77% of all civil aircraft and component production. 

According to fDi Markets, the US is the leading destination country for aerospace investments, accounting for one in eight projects between January 2009 and February 2014. In this period, the country recorded 92 aerospace projects from 63 companies, resulting in nearly $700m in capital inflows. 

Locations within the US compete fiercely for aerospace investment. Virginia secured an investment from UK-based supplier of aircraft airframe and engine machined products Kilgour Industries to establish its first operation in the country, with the help of a $250,000 grant offered by its governor’s Opportunity Fund, $1.15m in Tobacco Region Opportunity Funds approved by the Virginia Tobacco Indemnification and Community Revitalisation Commission, and other benefits the state could offer through the Virginia Enterprise Zone Programme. Virginia competed with Florida, Michigan, North Carolina and South Carolina for the $27.3m investment.

As well as financial incentives, collaborations with educational institutions also draw investment. In April 2014, Rolls-Royce announced that Virginia Tech and the University of Virginia were joining its Rolls-Royce University Technology Centers (UTC) network. UTC is a group of world-class universities involved in collaborative research to advance key aerospace technologies critical to Rolls-Royce.

Arizona State University, together with academic and industry partners, has established an Aerospace and Defence Research Collaboratory, while Ohio State University has launched its new Aerospace Research Centre.

In October 2013, the University of Cincinnati Research Institute and GE Aviation announced the creation of the GE Aviation Research Centre. “Our business is growing significantly and we have considerable new technologies that must be developed and industrialised,” says Gary Mercer, vice-president of engineering at GE Aviation. “We want the University of Cincinnati’s best minds to be a part of our journey as we influence the future course of aviation. It is also an important effort to further enhance Ohio’s aerospace capabilities.”

On the radar

Boeing estimates that 80% of all its new aircraft will be sold outside of North America, with one in three going to the Asian market, and experts have already noted that competition for aircraft manufacturing, components and ancillary services is shifting to other markets.

“New government-backed competitors in China, Brazil, Russia and Canada have emerged as players in the aerospace markets over the past few years – and they are playing for keeps,” says US senator Maria Cantwell of Washington, chairwoman of the US Senate Subcommittee on Aviation Operations, Safety and Security.   

Helping to foster the growth of China’s aviation sector is the country's goal of building 56 new airports, re-locating 16 existing airports, and renovating or expanding 91 airports by 2015. “China will have 220 airports [it currently has 175], including three national hubs, five regional hubs and 24 medium hubs,” reports the US Department of Commerce. “The commercial air fleet will grow along with the number of airports, up from 3888 aircraft in 2011 to an estimated 4500 by 2020.”

The US Department of Commerce projects that this increase in airports and aircraft will require new infrastructure, aircraft engines as well as parts, pilots, controllers, communication, navigation and surveillance systems, as well as other equipment. While this provides export opportunities for US companies, it also opens up opportunities for FDI. Bombardier Aerospace, a subsidiary of Bombardier in Canada, already has plans to build a new maintenance, repair and overhaul (MRO) facility in Tianjin, China. The facility, which will be Bombardier’s first MRO operation for business aircraft in China, is expected to open in 2016.

Similarly, Singapore, already home to one of the busiest airports in the region and a key MRO hub, is attracting significant aerospace investment. Data from fDi Markets shows that between January 2009 and February 2014, Singapore landed 34 projects with $119.90m in capital investment.

A big draw is Singapore’s Seletar Aerospace Park, a 3,200,000-square-metre campus that plays host to an integrated cluster of activities. In February 2014, the Satair Group – which was formed the month previous to combine the resources of Airbus’s former material and logistics management operation and Satair, a Denmark-based parts supply and distribution firm – opened its first facility at the park.

Dubbed the Satair Airbus Singapore Centre, the 16,700-square-metre facility will serve customers in the Asia-Pacific region and consolidate the supply chain operations of both Airbus and Satair. The centre not only represents growth in Airbus's own sizeable global footprint, but also signals the direction of future growth in the aerospace industry as a whole.