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The Growth of Aircraft Manufacturing in Low-Wage Economies 2005-2009
pmi-media ltd., Jan 2010, Pages: 2,008
The study is a detailed analysis of the global aircraft systems, structures and equipment market between 2005 and 2009, highlighting the growth of global market share by companies based in low-wage areas of the world.
It details every major manufacturing contract won in this period and analyses the significance of the work in terms of value, location, and relationships. The analysis section outlines how North American and European manufacturers are retaining their technical and market dominance of supply chain integration but also considers the impact of wage differentials and currency fluctuations on their businesses. It examines the setting up of operations in low-wage economies, which has had both a positive and negative impact on manufacturing operations in traditional aerospace countries.
It conducts a sector-by-sector analysis of the market in terms of manufacturing market share for the following sectors: airliners, rotorcraft, business aircraft, fast jets and military transports.
It then reports, on a country-by-country basis, at the aerospace manufacturing capabilities and growth trajectories of companies based in low-wage areas. It gives detailed supply chain maps of all aircraft programmes based in these countries.
The appendix lists the major aerospace manufacturing contract awards (2005-2009) for airliners, rotorcraft, business aircraft, fast jets and military transports, reporting on values (where known), locations and technical/market implications.
During 2009 there has been a substantial increase in the amount of new contracts for aircraft systems, components and equipment placed with companies based in low-wage economies.
During 2009 an estimated $31,555 million of new business was awarded to the global aviation supply chain, of which $9,212 million was spent with companies based in low wage economies of the world. This represents 29.2% of the total market in new systems, components and equipment work, a very steep growth rate over the 6.2% share recorded in 2008. Most of this work takes place in the airliner sector, which is responsible for around 73% of the value of the total aviation supply chain.
But the value of work won by companies in low-wage economies on European and North American aircraft programmes is worth approximately the same as the work won by Western suppliers on new aircraft programmes pioneered by companies in low-wage economies (China, Brazil, Korea, Turkey inter alia). The value to Western suppliers of work on aircraft originating in low wage economies between 2005 and 2009 was $25,325 million, whereas suppliers in low-wage economies won $23,564 million of work over the same period from aircraft manufacturers in North America and Europe over the same time.
The number of low-wage economy countries now increasing their share of overall global aerospace spend is too many for it to be an isolated or a local phenomenon. Countries where the growth trend - in terms of turnover and employment is particularly strong, include:
- Poland
- Turkey
- India
- Malaysia
- Pakistan
- Vietnam
- Brazil
- Mexico
This list does not include China, which is growing its aerospace turnover at around 40% a year but restructuring its manufacturing industry to more closely align new production plants with markets. The workforce is currently being reduced from around 400,000 as workers involved in non-core aerospace activities are being reassigned.
But there are few signs that low-wage economy companies are starting to move their expertise up the supply chain. Until now the real value in the supply chain has been with systems integrators - such as fuel, pneumatic, electrical and environmental control systems, markets which are still dominated by the US majors Goodrich, General Electric and Parker, inter alia.
Chinese companies registered around $700 million worth of component and structural work on North American and European airliner programmes in 2007. In contrast, Honeywell will earn $23 billion from supplying its HTF7500-E engine to Embraer’s new MSJ and MLJ business aircraft.
The setting up of operations in low-wage economies has both a positive and negative impact on manufacturing operations in traditional aerospace countries which, from the result of this study at least, suggests they tend to cancel each other out. In terms of money, at least, the loss of manufacturing work in Europe and North America to countries such as Brazil and China is balanced by the new work created on aircraft programmes emanating from these countries.
It is unlikely that the next generation of large aircraft being introduced into the market by companies based in low wage economies will feature systems integrated by indigenous suppliers of avionics, fuel systems, flight management systems etc. Or, at least, if they do they will struggle to develop an aircraft which will be competitive with Airbus and Boeing types.
The barriers to entry for newcomers into the “whole aircraft systems” market are large and growing daily. The next generation of airliners will require not just new engine concepts such as geared turbofans and open-rotors, offering 15% to 20% improvements in fuel burn over current types but all-electric actuation systems and substantially lighter but more powerful and reliable air conditioning, fuel, lighting, electrical generating systems.
The technology behind these systems will be available to only a handful of Western suppliers who are heavily involved in the final stages of pre-competitive research studies with national and international research authorities.
The wage differentials between the richest and poorest nations of the world are in a state of constant flux as the strength or weakness of the dollar (particularly against the Euro) can be as much of a decisive competitive factor as the pay and conditions of local employees. Mexico has become a favoured destination for start-up and relocating aerospace companies because the savings per employs over US rates can be in excess of US$30,000. According to French aerospace company SAFRAN every time the dollar falls a cent against the Euro it costs the company EUR22 million. In the middle of 2009 SAFRAN was reportedly paying its Mexican workers US$560 a month and its engineers between $925 and $1,390 a month.
In the 2009 airliner systems, structures and components market the new programmes being developed in China and Russia probably explained much of this rise in work-share from low-wage companies but there were other factors, too.
On programmes originating in the West, low-wage companies featured the following programme wins
- The A350 XWB - Airbus signed a contract with Chinese partners to create a joint venture to make carbon composite parts in China for its A350 XWB and A320 aircraft. Airbus's Chinese business will hold a 20% stake in the joint venture, based in Harbin, and China's Harbin Aircraft Industry Group will hold a further 50% stake, while other local players HAI, AviChina and HELI will each own 10%. Fokker Elmo has set up a plant in China to build wiring for the Trent XWB. Esterline has a new facility in Mexico supplying vanes to the Trent XWB.
- Bombardier CSeries – wiring Will be made in China by Fokker Elmo for the project.
- Airbus and Bombardier airliners - Composites Technology Research Malaysia (CTRM) has signed a 3.5 billion ringgit, $1.03 billion for 20 years with Goodrich to produce nacelle components for a range of airliners.
- Boeing 737 – flaps will be made by MHIVA Aerospace Vietnam Co., Ltd. (MHIVA) of Hanoi, a subsidiary of Mitsubishi Heavy Industries, Ltd. (MHI) The new plant is situated at the Thang Long Industrial Park (TLIP) approximately 16 kilometres northwest of central Hanoi and occupies 4,500 square meters (m2) in floor area within the 19,100sq m plant. Initially, the flaps for the Boeing 737 will be shipped to MHI's Nagoya Aerospace Systems Works for painting and final inspection, and then delivered to the Renton, US site. Once production gathers momentum, MHIVA will deliver the flaps to the US directly, according to the company.
- Mitsubishi MRJ70/90 - Aerospace Industrial Development Corporation (AIDC) of Taiwan is making slats, flaps, belly fairings, rudders as well as horizontal stabiliser rotating blades for the aircraft.
There has been substantial investment by companies in low-wage economies into new aerospace structures and materials, especially composites. Brazil, the Czech Republic, China, Malaysia, Mexico and Turkey all have advanced composite manufacturing facilities.
The most successful of these are companies who have been able to combine development of an indigenous composite manufacturing capability with a national strategic approach to accessing the market.
Thus Turkey has obtained more than $3 billion worth of structures work on the F-35, with TAI opening a new 74,000sq ft facility to make at least 400 composite subassemblies in the low rate initial production (LRIP) phases of the programme.
And Malaysia’s government investment on Composites Technology Research Malaysia (CTRM) Incorporated has seen the company develop substantial business from Airbus, Boeing and Goodrich
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