2008 Forecast: Is industry at top of a rollercoaster ride?

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After a record-breaking year, there are fears 2008 could signal the beginning of the next downturn. But we've been here before

It is in the nature of aerospace that captains of industry heave with relief at the ending of each year and enter the next with trepidation. Rarely is the glass half-full. However, more than at any time since the giddy peaks of the turn of the century does it feel like the top of the rollercoaster ride.

Less than a decade ago, airliner manufacturers and their suppliers were struggling to keep up with soaring orders and deliveries, business aviation was going great guns and, in the USA, details of Bill Clinton's private life, rather than worries about the economy or terrorism, commanded the headlines.

Then the dotcom bubble burst, investors drew in their horns and Al-Quaeda flewairliners into the Twin Towers. For the next 24 months, the global aerospace industry slump­ed, helped only by a surge in defence spending with the invasions of Afghanistan and Iraq.

2008 Forecasts features:

Airframers 

Avionics

Defence

Business Aviation

Space

Air shows

Environment 

Engines 

Safety & Security

Airlines 

Since then, however, the recovery has been faster and stronger than almost anyone predicted. While most expected some sort oflevelling out by now, the orders boom has continued and airliner and business jet production is at record levels.

So is the US credit crunch the dot com collapse of the current cycle? Much air travel, from leisure trips to business flights, is directly dependent on consumer confidence and discretionary spending power. Roughly every eight to 10 years since the 1960s a strong recovery has been followed by a sharp two- to three-year lurch, each time prompted by a global catalyst (9/11 did not cause the last downturn, but it knocked any remaining wind out of a wheezing economy). Will this time round be any different?

There are signs of optimism. Some experts believe the lending crisis has been caught in time before it spreads into a global virus. In addition, the current recovery in the aerospace and aviation sectors has been achieved in the teeth of record oil prices. Legacy airlines in Europe and North America have been forced to become much more efficient than they would have had fuel costs not risen so much. Workforces have been slashed, labour contracts renegotiated, frills disappeared.

At the same time, the economic boom in China, India and the Middle East (the latter, ironically, aided by the high price of oil and gas), and a shot of economic liberalism, has meant the East, rather than the traditional markets of the West, has been the main engine of demand. Today, the global civil aviation market is less dependent than ever on the vagaries of the US economy and has proven its resilience despite the price of fuel.

True, the feeble US currency will continue to be in 2008 a huge problem for any manufacturer selling in dollars but with its cost-base in Europe. Even this, however, has seen the slaughtering of sacred cows. European aerospace plants have had to limber up and become more lean - shedding decades of entrenched working practices.

At the same time, European industry has gone on a dollar spending spree in the USA, acquiring businesses or setting up factories. Even Airbus is talking about moving production to the dollarzone. With indications that the US currency may recover its strength in 2008 - although there is a long way to go to make people like EADS's chief executive Louis Gallois happy - such drastic action may in the end prove unnecessary.

Tinkering around the edges

Until now, a sceptical White House and unbridled economic growth in Asia has meant any multinational undertakings on saving the planet have been tinkering around the edges. A new US president, due to be elected in November, could mean big changes in the way the country treats its responsibilities in this area. Although it is unlikely aviation will be first in the firing line, regulators and politicians are under increasing pressure to put the industry in their sights.

A Democrat in the White House, combined with a Congress weary of Iraq, could see a downscaling of that operation and a consequent impact on defence spending. But do not expect President Clinton or Obama to radically reduce the hardware budget. Although not every programme's future is guaranteed, the threat from Iran and North Korea, instability in nuclear-armed Pakistan and the constant threat from Al-Qaeda at home mean the USA will be in no mood to show weakness.

As we go into 2008, all eyes will be on those first signs of a faltering recovery: a cancelled order here, a failed airline or a major programme axed there, more empty seats on airliners, a quieter than usual Singapore or Farnborough air show, less cash changing hands at the big business aviation conventions.

On the other hand, demand for air travel and airliner orders could simply go on growing during the year, extending manufacturers' already bulging orderbooks and pushing the turning point into 2009 or beyond.

Can the good times continue to roll for the aerospace industry in 2008? Our writers make their predictions for what the year ahead holds in their sectors

Grob Aviation will be hoping to get European and US certification for its SPn light jet as business aviation continues to soar airline profits are forecast to dip in 2008 defence programmes in the USA will be in a pre-election pause, while in Europe eyes will be on Eurofighter and export sales.