Business is booming at Dasa Airbus' Hamburg plant
A revitalised German aerospace industry is bracing itself for big changes in Europe
The German aerospace industry has staged a dramatic recovery in the last two years, thanks to drastic cutbacks and restructuring designed to restore profitability, and to a flood of new orders.
"The years of crisis in our branch are over. We are experiencing an upturn which seemed unfeasible not long ago," says Hans-Eberhard Birke, managing director of the German Aerospace Industries Association, the BDLI.
How long the current growth rate can be maintained is uncertain. The notoriously cyclic civil aircraft market now faces the consequences of the bursting of Asia's economic bubble, and some of the key defence programmes which German industry has been counting on - such as the European Future Large Aircraft (FLA), the NH Industries NH 90 multi-role helicopter, the Helios 2 and Horus reconnaissance satellites - are tangled in political and budgetary snares, under threat of delays, cancellation or revision.
Nevertheless, Germany's aerospace industry is certainly far healthier than it was two years ago. After decades of growth, a crisis hit in the early 1990s as a result of a downturn in the civil market and shrinking defence budgets following the end of the Cold War, combined with industrial overcapacity and high production costs. Furthermore, an unprecedentedly weak US dollar - bottoming out at some DM1.4 - slashed profits on products built for deutschmarks but sold internationally for dollars. The dollar is now worth DM1.83.
Aerospace sales peaked at DM26.8 billion in 1991, then plummeted over four years to DM15.4 billion in 1995. Since then, the market has enjoyed an upswing, with the industry's sales climbing to DM16.9 billion in 1996 and now a further 20%,to some DM20.3 billion, last year.
At the same time, the German industry has shed 35,000 jobs. In 1990, German aerospace employed 95,042 people. After years of job cutbacks sometimes topping 9% per annum, and a final 3.3%cut in 1997, Birke says that employment should have stabilised at around 60,000.
"This is due to unexpectedly full order books, and is an especially welcome surprise considering that a [further] decline in employment had been predicted just last year," he says. He adds that the influx of orders ensures that this year will see even more growth, depending on the dollar rate, in the run-up to the anticipated Europeanisation of the industry.
On a cautious note, he points out that although worldwide passenger traffic is predictedto grow at 5.7% per annum up to 2001, leading to an expected demand up to 2016 for 16,000 aircraft with capacities of more than 70 seats, this does not alter the civil aircraft market's cyclic tendency.
The sudden economic crisis in Asia - the region with the highest predicted traffic growth rate - should be taken as a warning to manufacturers not to get too comfortable. Senior Daimler-Benz Aerospace (Dasa) officials now expect airliner orders to drop as a result of the downturn in the Far East.
Another factor to be considered is that aircraft prices have been driven down by 20% in recent years by intense competition, and this seems unlikely to slacken in view of the strength of newly merged US competitors like Boeing.
The regrouping of the US industry makes similar changes in Europe a matter of even greater urgency. Airbus Industrie must restructure if it is to have any chance of achieving its goal of commanding half the future global market. The Airbus partners agreed in October 1997 to place all activities under common management in a single corporate entity by early 1999, but key details such as the ownership of production plants still remain to be clarified.
Birke welcomes the UK, French and German governments' promises to create the right legal and political conditions for the Europeanisation process. Common tax policies, employment conditions, export guidelines, research efforts and procurement policies are still needed to facilitate the changes.
The BDLI maintains that there is still a huge imbalance in the amount of state research funding available to the industry in Europe compared with the USA. In 1996, the organisation claims that US aviation research was backed to the tune of $9 billion, while Germany, France and the UK combined spent only $5 billion. At $10 billion, USspace expenditure stood $3.6 billion ahead of Europe, while European military research and development funding, at $5.3 billion, amounted to less than one-third of the $16.6 billion spent in the USA.
Birke feels that European governments are failing to take advantage of research funding levels allowed under the General Agreement on Tariffs and Trade. While the agreement allows 80% or up to 100% state backing in some areas, Germany offers only 50% backing on average.
The current four-year, DM600 million civil aerospace research funding programme ends this year, and a follow-on remains to be announced. Norbert Lammert, Government aerospace co-ordinator and parliamentary under secretary at the Bonn transport ministry, has declared support for continued funding.
The bulk of Germany's aerospace industry consists of Dasa and its subsidiaries. In January, Dasa revealed record $8.8 billion sales for 1997, and declared that all of its business units, including the formerly troublesome engine subsidiary MTU and its defence and civil systems division (losing money in missiles, but compensating for this in information and communications systems), were now in profit.
The main contributor to Dasa's turnaround has undoubtedly been its Airbus division at Hamburg, which has enjoyed a 40% boom in sales and orders. The Hamburg plant, which performs final assembly of A319s and A321s, is expanding production capacity from six aircraft a month to 11 by the beginning of next year.
Dasa still hopes that the site will one day also take over A320 final assembly from Toulouse, turning Hamburg into Airbus' single-aisle manufacturing centre. This idea has stirred little enthusiasm in France, however.
The military aircraft business received a substantial fillip this year with the signature of the Eurofighter production contracts, although this has yet to influence Dasa's balance sheet significantly. Other highlights of the military aircraft unit's past year have included beating Boeing to win the Greek F-4 Phantom upgrade, and follow-on upgrade work on the NATO Airborne Warning and Control System fleet.
Prospects for the FLA military transport programme have become increasingly murky, however, with Bonn pushing to turn it into a joint venture with Ukraine and Russia, based on the Antonov An-70 transport. Dasa and the defence ministry are investigating the potential of this concept, but other FLA partners - particularly the UK - are sceptical. The longer the delay, the more likely it becomes that the UK will withdraw and turn to US manufacturers.
Dasa president Manfred Bischoff says that the company has begun rehiring staff after the personnel cuts begun in 1992. The restructuring plan involved shedding Dasa plants and the company's stricken Fokker subsidiary, and selling off the bulk of Dornier Luftfahrt to US manufacturer Fairchild Aerospace. Bischoff claims that since it began restructuring, the group has increased its efficiency and cut costs by 30%.
Dasa is involved in other restructuring and consolidation plans apart from Airbus, both nationally and internationally. Having failed to clinch a long-awaited alliance with Aerospatiale, the German manufacturer agreed in May 1997 to a missiles and space partnership with the French Matra-Lagardère Group.
In October last year Matra BAe Dynamics took a 30% stake in Dasa's LFK missiles subsidiary, and is understood to have an option to increase this to a 49% share. Meanwhile, Matra Marconi Space is expected to place all its space activities together with Dasa's in a new 50/50 joint venture, and "certain areas" of Lagardère's defence electronics business in the command, reconnaissance, communication and information systems sectors are to be merged, step-by-step, with those of the German company.
In October, Dasa and BAe acquired Siemens' defence electronics group, and the German company has now absorbed Siemens' former Munich-Unterschliessheim site into its defence and civil systems unit. Dasa, however, has not made much headway in its discussions with the privately owned Diehl group over a merger of its Bodenseewerk Gerätetechnik subsidiary's missile activities with LFK. The sticking point, suggests Bischoff, is thatDiehl does not want to sell its missile interests, and neither does Dasa.
Dornier Luftfahrt, once a millstone around Dasa's neck, has found new life in the hands of Fairchild Aerospace - as has its main product, the 328. This aircraft has now been launched in a turbofan version as the 328JET, an idea which seems to be gaining both credibility and orders.
The mood at the Dornier plant in Oberpfaffenhofen has changed from the depression of the Dasa days, and is now one of optimism. Fairchild Dornier reported group profits of $70 million on sales of $507.3 million last year, writing off all research and development costs.
Of Germany's general aviation manufacturers, Burkhart Grob and Extra Flugzeugbau are the most prominent. Grob has endured the collapse of Government commitment to its revolutionary Strato 2C high altitude research aircraft, and has struggled to find alternative ways to proceed. Grob has also been searching in vain for partners for its GF 200 tourer programme, so the recent recommendation by the Royal Air Force of the manufacturer's G115TA trainer to meet its 100-aircraft basic trainer requirement comes as a major boost.
Extra is planning to double its workforce of 130 to meet production rates expected for its Extra 400 tourer. The company is also broadening its range of aerobatic aircraft with the introduction of the uprated Extra 330.
The immediate future looks bright for German aerospace, but senior executives remain aware that there are no guarantees.
According to Dasa's Bischoff: "We as an industry can and must not rest on our laurels during this turbulent phase of revitalisation. Indeed, we must take full advantage of the favourable business environment to give the process of Europeanisation an extra boost."