INDUSTRY REPORT: Aerospace and Defense

Black Collegian, Oct 2004

The Washington Business Journal of August 3, 2004 says that college graduates should be saying, "So long, Peace Corps, hello, defense industry." But the Journal adds this note: "Defense contractors are being flooded with telecom and Internet castoffs." If you are interested in working lor either the aerospace or the defense industry, should you worry? Most jobs within the industries require graduates with degrees in engineering, physics, math, and computers, degrees in areas unlikely to be found among telecom and Internet castoffs. As for growth, the S&P Aerospace & Defense index rose 21.1% in 2003. Both industries show signs of excellent job opportunities for collegians.

The global aerospace and defense industry consists of three major components: commercial aircraft, military weapons, and rockets and satellites. It is a $350 billion industry In 2003 about 20 aerospace companies accounted for $140.6 billion and 100 defense contractors accounted for $197.4 billion, a figure that includes revenue from companies manufacturing rockets and satellites. The total for the aerospace and defense is $338.0 billion. That figure is up from $234.0 billion in 2002 for the same aerospace and defense contractors. Another $112.0 billion is spread among hundreds of small defense contractors. Figures for 2004 indicate continued growth for the industry. However, that growth continues to be slow, about 4% according to Standard and Poor's monthly industry reports. Not all areas of the aerospace industry and the defense industry show that same growth rates. Except for rockets and satellites, 9/11 and the wars in Iraq and Afghanistan have caused slow-downs in the growth rate of the aerospace and defense industries. The reason for the slow-down is the US governments restriction of sales of military aircraft, satellites, and ordinances to other countries. Three primary segments of the aerospace and defense industries, commercial aircraft, military weapons, and rockets and satellites makeup this report.

The Aerospace Industry

The aerospace industry itself comprises companies producing aircraft, guided missiles, space vehicles, aircraft engines, propulsion units, and related parts. Ii includes companies that overhaul aircraft, rebuild aircraft, and manufacture parts.

Companies manufacturing civil transport aircraft make up the largest part of the civil, non-military, portion of the industry. Civil transport aircraft, ranging from small turboprops to jumbo jets, move people and goods all over the world. It also includes general aviation aircraft, those that range from small two-seaters to corporate jets, and civil helicopters commonly used by police, medical services, and businesses such oil and mining companies that must transport workers to and from worksites.

Companies manufacturing aircrafts and helicopters purchased by governments for defense constitute the military portion of the aerospace industry. Many of these aircraft are specifically designed to deliver powerful ordnances to military targets.

In 2002, about 2,800 companies made up the aerospace industry, an industry that includes companies that manufacture parts. Most of the companies in the aerospace parts industry are subcontractors that employ fewer than 100 workers. Most jobs, 64%, in aerospace manufacturing are in large establishments that employ 1,000 or more workers. The health of the aerospace industry depends upon six segments, the focus here: large commercial aircraft, business & regional aircraft, military aircraft, MRO (maintenance, repair and overhaul), jet engines and civil avionics.

Commercial Aircraft

From the perspective of frequent flyers, the commercial aircraft segment of the industry seems to be larger than it is. According to Avitas Inc., airlines across the globe operate about 11,500 wide and narrow-body jet aircraft. US airlines fly about half, 5,750, of these. For 2003, the global market required only 500 new aircraft. Large commercial aircraft generated about $47.4 billion in 2003, according to S&P's Industry Profiles. Of this amount, Airbus SAS accounted for $23.8 billion and Boeing Company about $22.4 billion in 2003. For 2004, S&P's Reports forecast that revenues from this sector will remain flat at $47.4 billion. The way in which commercial and military aircraft are designed, developed, and produced is undergoing significant change in response to the need to eut costs and deliver products more quickly. Growth will occur among manufacturers of small jets, but this increase will not be noticed until 2005, because it takes about 18 months to manufacture a plane.

Business and Regional Aircraft

Five major builders of business and regional aircraft earned an estimated $15.9 billion in 2003,1.3% less than the $17.5 billion in 2002. General Dynamic Corp's Gulfstream unit is the second largest manufacturer of business and regional aircraft, at $2.9 billion and an 18% market share, according to S&P's. Textron Inc.'s Cessna division and Raytheon Co.'s business jet division make up an additional US total of $5.2 Billion, or 32%.