2010 at a glance

Photo by Mark EvansCommercial Sector
As the industry looks ahead to 2010, the commercial aircraft industry must remain focused and continue to seek improvements. There is the need for a positive turnaround since 2008 and 2009 were bleak.

Stabilization is a key theme in the industry. Airports, airlines, and aircraft manufacturers are looking for market stabilization. Manufactures are in search of new aircraft orders with fewer cancellations and deferrals. Airlines are in search of lower unit costs and increased load factors, while airports anticipate higher passenger traffic, increased flight frequency, and new routes.

By the end of the third quarter of 2009, Airbus delivered 358 aircraft, with more than 200 aircraft deferrals and cancellations, and booked a total of 149 orders for the year. Through Q3 2009, Boeing delivered 359 aircraft with 215 deferrals and had 181 orders placed for the year. Going forward, it is expected that aircraft manufactures will exert more pressure on aircraft operators to enforce delivery contracts.

Currently there is a sufficient amount of aircraft in the global active fleet to absorb any aircraft cancellations and deferrals. It is likely there will continue to be excess capacity in 2010, adding additional pressure for increased load factors and aircraft utilization. The continuation of retirement and parking of older aircraft should offset any new aircraft deliveries.

The airline industry must continue reducing cost and replacing older, less-efficient aircraft with next generation aircraft that provide greater efficiency and reduced operating cost. Fuel cost in the fourth quarter of 2009 is greater than that in the fourth quarter of 2008 with fuel costs continuing to increase. Therefore, it is more attractive for the airline industry to replace older aircraft, which in turn enables manufactures to see fewer deferrals and cancellations and more aircraft deliveries.

Currently, there are more than 2,100 global aircraft in storage with values for used aircraft declining. Financing used aircraft is more difficult as the value for some used aircraft has severely eroded during the past 20 months. Additionally, many financial institutions are seeking to preserve cash reserves by focusing on new aircraft. In most instances, parting out older, high-time aircraft is of greater value to operators and lease companies than the cost of restoring these aircraft to full service. Therefore, parting out the aircraft is the better solution than incurring the huge cost of overhaul, as it also provides a greater return on investment.

The current 2010 forecast is a continuation of lower global travel demand, followed by rising fuel prices and greater pressures for wage and benefit improvements from labor unions. Air travel is expected to be greater in 2010 than 2009, but less than those of 2008. Passenger traffic is not expected to return to 2007 levels until 2013. The industry is expected to see a passenger CAGR of around 5% in 2010.

Airports are expected to continue seeing a trend in additional flights and new routes especially for regional and low-cost carriers. Total global available seat miles (ASM) for 2009 are forecasted for 3,793,787,206,180 with the global aircraft fleet growing from 22,226 to 24,775 by 2014.

Aircraft delivery in 2010 is expected to exceed aircraft delivery numbers in 2009 due to fewer aircraft deferrals and cancellations, as well as an improving airline economy. Aircraft are on sale, and at the lowest deal levels in the decade. This deal level is an advantage for the airline industry, and especially for those who can afford new aircraft purchases.

Defense Sector
Looking ahead, the F-22 will continue with partners and customers in at least eight countries. Photo by Leo CachatDefense aerospace in 2010 will be led by platforms and technologies for counter-insurgency and counter-terror operations. These complex missions will continue to require robust funding for a wide variety of spacecraft, aircraft, weapons, and services. Military aircraft sales are expected to increase by about 2% in 2010 to $64 billion. Led by the U.S. armed forces, there will be fewer, but more capable, multi-mission airframes. Increased buying in Asian and Middle Eastern countries in 2010 will not offset continued ITAR difficulties and military spending cuts in Europe, with total exports down from 2009 levels. Despite an emphasis on fixed price contracts to encourage the use of mature commercial technologies, defense aerospace industry employment and profits should remain stable.

The fastest growing segment in 2010 will continue to be UAVs of all types. Though dominated by fewer major manufacturers such as General Atomics and Northrop Grumman, the essential communications and sensors packages afford a wider mix of market participants. More extensive domestic utilization of UAVs for homeland security, law enforcement, and research flights is restrained by safety issues that will not be resolved by the industry and FAA in 2010. Manned ISR aircraft avionics and sensors are being upgraded to meet demands for ground and littoral counter-insurgency missions. In addition, the U.S. Navy is building a replacement aircraft for the P-3 that will focus on open ocean surveillance and strike.

Satellite-related products are expected to total around $35 billion in 2010, led by shifts away from large, immature and expensive systems toward operationally-responsive, smaller and cheaper communications, and sensor spacecraft that can be assembled and launched quickly, using mature commercial technology as a foundation. Military forces around the world will continue to be dependent on commercially owned transponders for about 70% of their bandwidth needs in 2010.

Shortages of medevac, ground attack, and transport aircraft were keenly felt in 2009, especially by allied forces in Afghanistan. Boeing is already benefiting from increased orders for the heavy Chinook helicopter from the U.S., the U.K., and Turkey. The Osprey tilt-rotor built by Bell-Boeing made its first operational deployment with the U.S. Marines in 2009 and production will continue in 2010 along with Air Force and Special Operations Command deployments. The controversy over the next U.S. Air Force tanker will continue in 2010, as Northrop Grumman and teammate EADS compete with Boeing for the estimated $35 billion deal. Boeing’s C-17 Transport aircraft will continue production in 2010 after additional congressional mandates. The C-17 is also expected to attract additional foreign military buyers.

The F-22 and F-35 fighters manufactured by Lockheed Martin continues with partners and customers in at least eight countries. The U.S. intends to give both fighters additional ISR capabilities in order to show more relevance to the current counter-insurgency operations. The first operational F-35 squadron is due in 2012. Another operational success that will expand in 2010 is Hawker Beechcraft’s teaming with Raytheon, Harris, and Lockheed Martin to meet Air Force requirements for small intelligence support and light attack armed reconnaissance aircraft based on current commercial models.

Other market segments that will continue to have very heavy contract activity and margins in 2010 include missile manufacturing led by Raytheon, training aircraft, spare parts, logistic and maintenance services, as well as alternative fuel and fuel cell development. The 2010 focus on counter-insurgency and counter-terror missions combined with an extremely high operations tempo will stress airframes, engines, avionics, and sensors. In 2010, and the years that follow, there will be increased maintenance contracts, avionics upgrades, and air frame replacements.