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Aerospace Market Report 2003


Description: The UK's aerospace industry is currently the second-largest in the world with turnover in 2002 standing at £16.14bn. It provides employment for around 348,000 people (including ancillary sectors) and is one of the UK's major export earners. A recent Department of Trade and Industry (DTI) study highlighted aerospace as the UK's most globally competitive industry - a key measure of its global success being its penetration of the US market. The industry in the UK has benefited from a long-term improvement in productivity, with output per worker rising by 4% a year since 1980. However, the industry is currently experiencing its worst downturn since the Second World War, both in the UK and internationally. An unparalleled sequence of events has precipitated this decline. The industry has always been highly dependent on the global economic cycle and the economic slowdown that began in 2001 has undoubtedly had a major impact on demand in the civil aerospace sector. However, the terrorist attacks on the US on 11th September 2001 caused confidence in air travel to collapse, leaving many airlines on the verge of bankruptcy, while others went into liquidation. Orders for new airliners crumbled and many carriers mothballed aircraft in the desert. Furthermore, the war in Iraq, and the build-up to the conflict, led to a further downturn in global air travel, while the outbreak of the Sars (Severe Acute Respiratory Syndrome) virus has had a significant negative impact on Asian airlines and other carriers that serve that region. The constant threat of further terrorist attacks suggests that recovery will prove gradual and fragile, but in the long term, the growth of the airline industry will surely continue. Airbus predicts that demand for air travel will double by 2020. Even so, we believe that the civil aerospace sector is unlikely to experience a substantial upturn in its fortunes until 2006 at the earliest, and even then, such an upturn would assume no further terrorist activity on the scale of the events of 11th September 2001 and a revival in the global economy towards the end of 2003 or in 2004. As a result of recent events, the UK aerospace industry has become increasingly dependent on the military sector. The events of 11th September 2001 and the launch of the US-led war on terror have unleashed a huge wave of spending on military projects, which is helping to support the aerospace industry through the current downturn. The UK is also launching a number of substantial defence programmes that will provide guaranteed revenues for aerospace companies for many years to come. The trend towards global consolidation of the industry has continued, with mergers and takeovers proceeding apace in recent years. The downturn in the industry is likely to ensure that the process of consolidation continues. For example, Boeing has long been rumoured to be interested in acquiring BAE Systems - Europe's largest defence contractor. The huge sums now required to research and develop new products means that small companies cannot produce major weapons systems on their own. Meanwhile, the major contractors are increasingly outsourcing non-core activities to smaller companies.


Contents: TABLE OF CONTENTS:

Executive Summary 1

1. Market Definition 8

REPORT COVERAGE 8
MARKET SECTORS 8
Aircraft Systems and Frames 8
Aircraft Equipment 9
Aircraft Engines 9
Maintenance, Repair and Overhaul 9
Space and Satellite Manufacture 9
MARKET TRENDS 10
Civil Aerospace 10
Military Aerospace 10
ECONOMIC TRENDS 11
Inflation 11
Table 1: UK Rate of Inflation (%), 1998-2002 12
Unemployment 12
Table 2: Unemployment Rate and Actual Number of Unemployed Persons (% and 000), 1998-2002 12
Population 12
Table 3: UK Resident Population by Sex (000), Mid-Years 1998-2002 13
Gross Domestic Product 13
Table 4: Index of Growth in UK Gross Domestic Product at Current Prices (index 1995=100), 1997-2001 13
Household Disposable Income 14
Table 5: Index of Household Disposable Income (index 1971=100), 1997-2000 14
MARKET POSITION 14

2. Market Size 15

THE TOTAL MARKET 15
Table 6: The UK Aerospace Industry by Value at Current Prices (£bn at msp), 1998-2002 15
CIVIL AEROSPACE 16
Table 7: The UK Civil Aerospace Sector by Value at Current Prices (£bn at msp and %), 1998-2002 17
MILITARY AEROSPACE 17
Table 8: The UK Military Aerospace Sector by Value at Current Prices (£bn at msp and %), 1998-2002 18
BY MARKET SECTOR 18
Aircraft Systems and Frames 18
Table 9: The Aircraft Systems and Frames Sector by Value at Current Prices (£bn at msp), 1998-2002 18
Aircraft Equipment 19
Table 10: The Aircraft Equipment Sector by Value at Current Prices (£bn at msp), 1998-2002 19
Aircraft Engines 19
Table 11: The Aircraft Engines Sector by Value at Current Prices (£bn at msp), 1998-2002 20
Other Sectors 20
Maintenance, Repair and Overhaul 20
Table 12: The Maintenance, Repair and Overhaul Sector by Value at Current Prices (£bn at msp), 1998-2002 21
Space and Satellite Manufacture 21
Table 13: The Space Sector by Value at Current Prices (£bn at msp), 1998-2002 22
OVERSEAS TRADE 22

3. Industry Background 23

RECENT HISTORY 23
INDUSTRY SYNOPSIS 23
Table 14: Key Financial Ratios for the Aircraft and Spacecraft Manufacturing Industry (£000, % and £) 24
NUMBER OF COMPANIES 24
EMPLOYMENT 25
REGIONAL VARIATIONS IN THE MARKETPLACE 25
DISTRIBUTION 25
HOW ROBUST IS THE MARKET? 26
LEGISLATION 26
KEY TRADE ASSOCIATIONS 27
Civil Aviation Authority 27
The Economic Regulation Group 27
QinetiQ 28
Defence Science and Technology Laboratory 28
European Space Agency 28
Royal Aeronautical Society 29
Society of British Aerospace Companies 29
United Kingdom Aerospace Forum 29
Regional Aerospace Consortia 29
Aerospace Wales 29
Eastern Aerospace Alliance 30
Farnborough Aerospace Consortium 30
Northern Defence Industries Aerospace Group 30
Northern Ireland Aerospace Consortium 30
North West Aerospace Alliance 30
West of England Aerospace Forum 30

4. Competitor Analysis 31

THE MARKETPLACE 31
MARKET LEADERS 31
AgustaWestland 31
Company Structure 31
Current and Future Developments 32
Financial Results 32
Airbus UK Ltd 32
Company Structure 32
Current and Future Developments 32
Financial Results 33
Astrium Ltd 33
Company Structure 33
Current and Future Developments 33
Financial Results 34
BAE SYSTEMS PLC 34
Company Structure 34
Current and Future Developments 34
Financial Results 35
BBA Group PLC 35
Company Structure 35
Current and Future Developments 35
Financial Results 36
Boeing 36
Company Structure 36
Current and Future Developments 36
Financial Results 37
Bombardier Aerospace Europe Ltd 37
Company Structure 37
Current and Future Developments 38
Financial Results 38
Cobham PLC 38
Company Structure 38
Current and Future Developments 39
Financial Results 39
Dunlop Standard Aerospace Group Ltd 39
Company Structure 39
Current and Future Developments 40
Financial Results 40
EADS 40
Company Structure 40
Current and Future Developments 40
Financial Results 40
GE Aircraft Engine Services Ltd 41
Company Structure 41
Current and Future Developments 41
Financial Results 41
GKN Aerospace Services Ltd 41
Company Structure 41
Current and Future Developments 42
Financial Results 42
Meggitt PLC 42
Company Structure 42
Current and Future Developments 42
Financial Results 43
Rolls-Royce PLC 43
Company Structure 43
Current and Future Developments 43
Financial Results 44
Smiths Group PLC 44
Company Structure 44
Current and Future Developments 44
Financial Results 44
Ultra Electronics Holdings PLC 45
Company Structure 45
Current and Future Developments 45
Financial Results 45
MARKETING ACTIVITY 45
Exhibitions 45

5. Strengths, Weaknesses, Opportunities and Threats 46

CIVIL AEROSPACE 46
Strengths 46
Weaknesses 46
Opportunities 46
Threats 47
MILITARY AEROSPACE 47
Strengths 47
Weaknesses 47
Opportunities 48
Threats 48

6. Buying Behaviour 49

CUSTOMER PROFILE 49
CIVIL AEROSPACE 49
Behaviour of Airline Customers 49
US Airlines 50
European Airlines 50
Airline Aid 51
Asian Routes 51
Budget Airlines 52
MILITARY AEROSPACE 52
The Global Customer Base 52
US Spending 52
Military Spending in the Developing World 53

7. Current Issues 54

UK GOVERNMENT POLICY 54
MAJOR UK DEFENCE PROGRAMMES 55
Future Strategic Tanker Aircraft Programme 55
Joint Strike Fighter aircraft 55
Eurofighter 56
New Giant Aircraft Carriers 57
THE ROLE OF THE IRAQI AND AFGHAN conflictS 57
THE UK'S EUROPEAN DILEMMA 58
LEGISLATIVE CHANGES 59
THE ENVIRONMENT 59

8. The Global Market 60

JOINING THE JET SET 60
A SMALLER SLICE OF THE AMERICAN PIE 60
EUROPE'S EXPANDING HORIZONS 60
PACIFIC PARADISE? 61
America's Continuing Military Might 61

9. Forecasts 62

GLOBAL ECONOMY 62
INTERNATIONAL TERRORISM 62
Table 15: The Forecast UK Aerospace Industry by Value at Current Prices and Constant 2002 Prices (£bn at msp), 2003-2007 64
FUTURE TRENDS 64
Aircraft Size 64
Fuel Developments 64
Competition in the Civil Sector 65
The Global Giants 65
Competition in the Military Sector 65

10. Company Profiles 66

Bae Systems Plc 67
Bba Group Plc 69
Bombardier Aerospace Europe Ltd 71
Cobham Plc 73
Ge Aircraft Engine Services Ltd 75
Rolls-royce Plc 77
Smiths Group Plc 79

11. Further Sources 81

Associations 81
Bonnier Information Sources 82
Government Publications 83




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