Europe's aeronautics manufacturers saw values of new orders fall by more than a fifth in 2006 in what could be the first sign of the Airbus effect and that output has peaked. This was despite an otherwise financially strong year for the industry and indications that strong global demand for airliners is likely to continue for some time.
According to figures published this week by the Aerospace and Defence Industries Association of Europe (ASD), order intake in the aeronautics sector - civil and military aircraft - dropped from just under €165 billion ($223 billion) in 2005 to a little over €130 billion last year.
Revenues and operating margins, however, remained robust, rising 8% to €88.2 billion and from 6.9% to a record 7.1%, respectively. Profitability has been picking up since 2001 and is slightly higher than levels being achieved at the end of the 1990s (see chart). The industry also created 18,000 new jobs last year, taking the total European workforce to 448,000 and signalling, given the higher increase in sales, better productivity, says the ASD. However - although it rose in overall value - the percentage of their turnover that aeronautics manufacturers spent on research and development fell slightly from 12.3% to 11.8%. This was partly due to the ending of the development phase of the Airbus A380, but the ASD believes this percentage could rise again in 2007 as investment to support the launch of the A350 XWB kicks in.
The figures - compiled from statistics submitted by ASD's trade association members across Europe from Ireland to Turkey - support anecdotal evidence that Airbus's faltering performance against rival Boeing in the medium widebody segment, together with its Power8 cost-cutting programme, is causing shockwaves down the supply chain, despite production lines being kept busy by existing demand. It could also indicate a trend towards more outsourcing of lower-tier production, traditionally carried out in Europe, to developing countries.
Europe's aerospace industry is, of course, more than its largest airframer and its supply chain. The aeronautics numbers are part of a wider ASD survey of the aerospace and defence industry that includes space and land- and naval-based military systems. They take in sales by European suppliers to non-European customers, including primes or original equipment manufacturers, as well as revenues generated in Europe by non-European-owned companies. Revenues from European-owned facilities outside Europe - BAE Systems' and Thales's US businesses, for instance - are not counted.
At the presentation, ASD president Charles Edelstenne - chief executive of Dassault Aviation - highlighted the strength of the European aeronautics sector. Fuel efficient turboprops - with Franco-Italian venture ATR flying the flag for Europe - have done well thanks to the high oil price. Business and general aviation - represented by Dassault, as well as smaller manufacturers such as Diamond, EADS Socata, Grob, Piaggio and Pilatus - is "riding high on a wave of enthusiasm that shows no sign of diminishing in 2007", he says.
And the "Airbus effect" had its positive side too. With a record 434 aircraft delivered in 2006 - a 23% increase on the previous year - Airbus's hectic production schedule buoyed the aeronautics sector as a whole.
Europe continues to dominate the civil helicopter sector with its two manufacturers - AgustaWestland and Eurocopter - increasing turnover by 15% to €6.6 billion on deliveries of 551 civil and military helicopters.
Space - listed separately from aeronautics in the survey - is another important part of the industry, generating almost 13% more revenue in 2006 than the previous year, at just under €5 billion, split almost equally between government and private customers, and employing almost 29,000 people. This 3.5% increase in the workforce comes after five years during which employment levels fell. Edelstenne says the adoption of a European space policy in May will help maintain "a globally competitive European space industry". Defence spending on space with programmes such as Helios and Skynet now accounts for 20% of industry revenues and is helping to sustain the sector, says the ASD.
In total, the European aerospace and defence sector saw turnover rise 7.2% to €121 billion, but order intake fall 18.5% to just under €177 billion. Edelstenne says 2006 was a "remarkably good year" for the wider industry, in which first- and second-tier equipment and systems manufacturers throughout the European supply chain "increased their output to meet the needs of the prime manufacturers".
The strong performance, he says, has come when the dollar to euro exchange rate is at its most unfavourable to European manufacturers and "at a time of soaring oil prices that ought to have sent the industry into an uncontrolled downward spin", but "strong growth in air transport, together with the fast-growing economies of emerging countries during 2006 sustained the demand for new aircraft".
Growth in Europe's aerospace and defence sector is broadly in line with the trend for the industry as a whole, which the ASD estimates increased by 7-10% last year.
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Source: Flight International