ALEXANDER CAMPBELL & MURDO MORRISON / LONDON
However, our third quarterly poll of the Top 100 companies finds confidence levels dipping slightly since the Paris air show
The surge in confidence among leaders of the biggest aerospace companies seen at the end of the Paris air show dipped slightly in the third quarter. However, the overall mood remains one of cautious optimism, with 40% of our sample of 40 Top 100 aerospace companies reporting they are more confident than they were three months ago, with only 13% less confident.
This compares with 45% and 13% reporting the same thing in June - a huge increase in optimism over the first quarter, when only 16% were more confident, compared with 31% less confident.
Our latest Aerospace Trends Survey - produced with strategy consultants Roland Berger - shows that the improvement in business performance quarter-to-quarter has tailed off too, although, again, the trend remains encouraging. A total of 40% enjoyed a better July, August and September in terms of orders than last year, with 17% enduring a worse time. In the last quarterly survey, 45% said the second quarter had been stronger than the same period in 2002, with just 10% reporting worse performance.
Staffing plans are less prone to quarter-to-quarter swings and, not unexpectedly, the proportions have not altered from the previous survey, with only 18% expecting an increase in their workforce over the next 12 months and the vast majority - 65% - saying that numbers employed would stay the same.
Roland Berger's senior partner Neil Hampson, whose team each month surveys the same 40 manufacturers drawn from the Flight International Aerospace Top 100, says the feedback generally has been that orders and profitability are picking up. "Order books are not necessarily larger, but are more robust; respondents are more confident of keeping those orders in six months' time," he says. "This is the case especially on the civil side, where there are fewer customers likely to go into bankruptcy and default on commitments, compared with the start of the year."
Although the sample sizes are smaller, the survey also throws up interesting findings when it comes to the different responses between regions and types of business. In the last survey, with the USA still basking in the relief and fervour that followed the end of the Gulf war, North American companies were feeling much more buoyant than their European counterparts. The trend has not altered. Of the 17 North Americans, nine are more confident and just one less confident. Among the 18 Europeans, seven are more confident and three less confident.
Judged by sector, defence manufacturers remain happier than their civil counterparts, which is perhaps understandable given the growing US defence budget and the prospect of production starting on multi-billion dollar programmes such as the Lockheed Martin F-35 Joint Strike Fighter. Of the five "majority" defence companies on the list (so defined if they make more than 70% of their revenue from defence), three are more confident and none less confident.
Of the 12 "majority" civil manufacturers, just three are more confident and two less confident. The remaining 23 companies in our sample derive less than 70% of their sales from either sector. Of these "mixed" companies, 10 are more confident and three are less confident.
Defined by type of business, optimism appears to grow the further up the supply chain you go. Of the six companies describing themselves as "OEMs" or primes, four are more confident and none of them less confident. Among the 10 "tier one" suppliers - the systems integrators that sell to the likes of Airbus, Boeing and Lockheed Martin - six are more confident and none less confident. However, component manufacturers are split down the middle on prospects, with six more confident, five less confident and nine neutral.
The two years since the terrorist attacks of 11 September 2001 have seen a number of false dawns in the aerospace industry, with the expected bounce-back in the second half of 2002 failing to materialise. The US economy continued to struggle and the run-up to the Iraq conflict and the SARS outbreak further destroyed confidence in the first quarter of this year just when many hoped the worst was over. However, although parts of the industry - including US airlines and business aviation - remain in a sorry state, prospects now look better than they have for some time.
Asian airlines are rapidly adding capacity after SARS and there were strong indications from last week's National Business Aviation Association convention in Orlando that the sector has at least bottomed out, if not begun to recover. This mood appears to be reflected in the past two quarterly surveys. If the positive trend continues in quarters four and one - with the success of big regional air shows in Dubai and Singapore giving further readings on aerospace's state of health - the industry might finally be able to say it has firmly put the worst behind it.
Source: Flight International