Aerospace Clusters: Local or Global Knowledge Spillovers?

Industry and Innovation, Mar 2005 by Niosi, Jorge, Zhegu, Majlinda

Aerospace regions are specialized. They manufacture high-value products, in batches from a few hundred to several thousand. Their major components (aircraft, fuselages, wings, engines, avionics, landing gear) can be shipped from one place to another, transportation costs being a small fraction of total costs. Thus, there are civil aircraft assembly clusters (such as Montreal, Seattle or Toulouse), engines clusters (around GE's engine plants in Cincinnati, Ohio and Lynn, Massachusetts). With Boeing as a major assembler, Seattle is specialized in engineering and production of large commercial aircraft. Toulouse (France) is the major production site of Airbus and ATR. All these aircraft regions have been active in the aerospace industry for as long as one century (Toulouse) or at least 50 years (Fort Worth, Texas). The specialization of regions in different nations reinforces the international spillovers in this industry, as the regions where systems integrators are based "import" engines or fuselages from regions of other nations where these are produced.

Aerospace clusters are characterized by major geographical inertia due to heavy sunk costs in large plants with costly and complex sophisticated equipment that cannot be easily moved from one location to another. Contrary to biotechnology and software, where human capital is dominant, large aerospace plants are used for decades. Also, the industry is characterized by increasing returns: successful companies tend to gain market share and thus increase the size of the existing plants, build new plants in the same region or absorb other companies' plants in the same region or in other ones. For these reasons, aerospace clusters are long-term phenomena. As regional agglomerations do not disappear but get more specialized, thus international flows are reinforced by the long-term trend.

2.2. Internationalization of the Aircraft Industry

Four periods of internationalization may be distinguished in the evolution of the aircraft industry: (1) the period of the USA's industrial supremacy; (2) the European catching up; (3) the duopolistic war between Airbus and Boeing; and (4) the worldwide diffusion of the industry.

From the end of World War Il until the beginning of the 1960s, the USA's predominance was absolute, in terms both of production and market. During this period, the American aircraft supply chain remained dispersed but only in a national base. In the meantime, the USA protected its domestic aircraft market. The "Buy American Act" was the strong protection mechanism, imposing penalties on US government agencies who preferred importing foreign over domestic equipment (Todd and Simpson, 1986). None of the European countries had by itself the technological and financial capabilities of the American aircraft industry. Thus, they had no other choice but to purposely initiate and develop international relationships, mostly through intra-European cooperation.

During the 1970s, the European countries reinforced this strategic industry and accelerated the creation of the Airbus consortium. The American aerospace sector was quickly involved in the new oligopolistic war. There were clear signals from the other side of Atlantic, announcing the end of American leadership.