Aerospace Industry

Aerospace 2011 Industry Report Aerospace Industry Facts, Figures & Outlook for the Aviation and Aerospace Report 2011 Manufacturing Industry Facts, Figures & Outlook for the Aviation and Aerospace Manufacturing Industry

Published by the Aerospace Industries Association of America and the Center for Aviation & Aerospace Leadership at Embry-Riddle Aeronautical University – Worldwide Photo Credits:

Chap. 1: F-35 fighters (Credit: Lockheed Martin Corporation)

Chap. 2: Boeing 787 Dreamliner in flight (Credit: The Boeing Company)

Chap. 3: C-130J production line in Marietta, Ga. (Credit: Lockheed Martin Corporation)

Chap. 4: The flightline at the Paris Airshow (Credit: Lockheed Martin Corporation)

The cover of this report is a tribute to the U.S. Space Shuttle program. For Chap. 5: Student rocketeers at the Team America Rocketry Challenge 30 years the space shuttle has been the workhorse of the American space (Credit: Aerospace Industries Association) enterprise. With the last shuttle launch this year, the program comes to an end but the future of space exploration endures as a new era in space Chap. 6: Gulfstream G450 (Credit: Gulfstream) travel takes flight. Chap. 7: PW1524G engine ground testing (Credit: Pratt & Whitney)

Chap. 8: Embraer 175 in flight (Credit: Embraer)

Chap. 9: SpaceX Falcon 9 First Flight Liftoff (Credit: Chris Thompson, SpaceX)

Acronyms: Raytheon SM3 launch (Credit: U.S. Navy)

Glossary: Global Hawk (Credit: Northrop Grumman Corporation)

Appendices: Bell 206L (Credit: Bell Helicopter) Aerospace Industry Report 2011 Facts, Figures & Outlook for the Aviation and Aerospace Manufacturing Industry

William A. Chadwick, Jr. Director, Aerospace Research Center Aerospace Industries Association

Bruce W. C. Ellis, MBA, Ph.D. Cantab Senior Aerospace Economist and Manufacturing Strategist Center for Aviation & Aerospace Leadership Embry-Riddle Aeronautical University – Worldwide

Brig. Gen. Robert E. Mansfield, Jr., USAF, Ret. Executive Director Center for Aviation & Aerospace Leadership Embry-Riddle Aeronautical University – Worldwide

Robert Materna, Ph.D. Professor of Business Administration Center for Aviation & Aerospace Leadership Embry-Riddle Aeronautical University – Worldwide

All authors contributed equally and are presented in alphabetical order. Published by:

Aerospace Industries Association Center for Aviation & of America, Inc. Aerospace Leadership 1000 Wilson Blvd. Embry-Riddle Aeronautical University Suite 1700 600 South Clyde Morris Blvd. Arlington, VA 22209-3928 Daytona Beach, FL 32114 Phone: (703) 358-1015 Phone: (386) 226-6115 Web: www.aia-aerospace.org Web: www.erau.edu

The views contained in this document are those of the authors and should not be interpreted as representing the official policies or endorsements, either expressed or implied, of the Aerospace Industries Association of America or Embry-Riddle Aeronautical University. This report is for information only and should not be used for investment purposes.

All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the written consent of the Aerospace Industries Association of America or Embry-Riddle Aeronautical University, including but not limited to, in any network or other electronic storage or transmission or broadcast for distance learning. Any quotation must be accompanied by appropriate bibliographic credit.

ISBN-13 978-0-615-48561-4 iii

Foreword

Welcome to the first joint publication of the Aerospace Industries Association of America (AIA) and the Center for Aviation & Aerospace Leadership (CAAL) at Embry- Riddle Aeronautical University – Worldwide. Earlier this year, the organizations signed Marion C. Blakey an agreement to share their considerable President and CEO resources to produce an authoritative report Aerospace Industries Association on the industry. The information contained in this report builds on AIA’s Aerospace Facts & Figures and CAAL’s Aerospace Economic Report and Outlook to create a new publication designed to help manufacturers and policy makers make more informed decisions about the aviation, aerospace, and growing commercial space industry. We have tried to adopt a “systems view” of the industry to enhance the ability of policymakers, manufacturers, and operators at all levels to comprehend the many factors that are influencing the industry and ulti- John R. Watret, Ph.D. mately improve decision-making. As a major Executive Vice President and Chief Academic Officer reference tool for companies of all sizes, Embry-Riddle Aeronautical Aerospace Industry Report 2011 compiles into University—Worldwide one document data, analysis, and emerging trends that are shaping the industry. At the same time, it is also important to realize that small- to medium- size firms produce as much as 80 percent of the content of aircraft and major end items designed and assembled by the large aerospace iv Aerospace Industry Report 2011

corporations. Many of these small- to medium-size firms have neither the time nor resources to collect and analyze market trends, but having such information can be critical to a firm’s success. As a nation we are just beginning to “re-learn” that manufacturing is important. Making products with a skilled and well-paid workforce is still necessary for a strong economy and aerospace manufacturing, in particular, is vital to the economy and national defense. Aerospace manufacturing is America’s technology advantage. It has been at the vanguard of innovation and productivity for the past 100 years and the secondary benefits of service-based jobs and a positive balance of trade are significant. In other words, “manufacturing matters.” The best way for America to prosper and grow is to be the best at what we do. It is our hope that the information in this report will help decision-makers at all levels understand what is driving the aviation and aerospace industry, and make decisions that will sustain our leadership position in the years to come. v

About AIA

Founded in 1919, the Aerospace Industries Association of America (AIA) is the most authoritative and influential trade association representing the aerospace and defense industry. The association is the leading voice for the industry on Capitol Hill, within the administration, and internationally. In times like these, AIA’s strong representation and advocacy is essential to protecting the business interests of the nation’s aerospace and defense industry, while helping to establish new opportunities for growth. AIA represents nearly 350 aerospace and defense manufacturers and suppliers. The association is at the forefront of critical issues, such as ensuring a strong U.S. industrial base, advocating for defense modernization and acquisition reform, increasing deployment of Next Generation Air Transportation System technologies and equipment, modernizing export controls, and obtaining additional resources for aeronautics research and space exploration. Unlike many other associations, chief executive officers of member companies and their senior managers define and drive AIA’s agenda. Working together, the association shapes regulatory and legislative policies, and is a leader in developing and publishing national aerospace standards that are used in aerospace design and manufacturing across the globe. The aerospace and defense industry supports and drives our nation’s economy. It fuels innovation, creates competition, and employs millions of Americans. AIA is proud to represent our members and our nation. To learn more about AIA and the benefits of membership, visit www.aia-aerospace.org

vii

About Embry-Riddle Aeronautical University

Embry-Riddle Aeronautical University was founded in 1925, just 22 years after the Wright brothers’ first flight. Today, the University and its graduates have built an enviable record of achievement in every aspect of aviation and aerospace. At Embry-Riddle, our mission is to teach the science, practice, and business of aviation and aerospace, preparing students for productive careers and leadership roles in service around the world. The curriculum covers the operation, engineering, research, manufacturing, marketing, and management of modern aircraft and the systems that support them. The University also engages in extensive research and consulting that addresses the unique needs of aviation, aerospace, and related industries. Residential campuses in Daytona Beach, Florida and Prescott, Arizona provide education in a traditional setting. The residential campuses also have over 90 instructional aircraft and offer FAA- approved programs in flight and flight dispatch. Flight programs include private, commercial, instrument, multi-engine, flight instructor, and instrument flight instructor ratings. The Worldwide campus provides instruction at over 150 locations in the United States, Canada, Europe, the Middle East, and Asia, with more than 27,000 students. Combined annual enrollment for all three campuses is more than 34,000. Embry-Riddle Aeronautical University is an independent, nonsectar- ian, not-for-profit, coeducational university that is accredited by the Commission on Colleges of the Southern Association of Colleges and Schools.

About CAAL

The Center for Aviation and Aerospace Leadership (CAAL) was founded in 2008 to capture, create, and share relevant information on leadership in the aviation and aerospace industry. More specifically, the role of CAAL is to explore what it means to be an effective leader in the industry today and in the near future. Activities include managing the CAAL Manufacturing Initiative; publishing profiles of leaders in aviation and aerospace; and offering leadership development programs to individuals and teams in aviation, aerospace, and related industries. CAAL also conducts surveys on how leaders are dealing with specific challenges; administers collaborative programs to stimulate innovation in management practices; and pub- lishes reports on topics that are important to industry leaders. The Center for Aviation and Aerospace Leadership is also seeking research grants; developing a new journal on leadership for the aviation and aerospace industry; and providing material for Embry-Riddle Worldwide’s new Master of Science degree in Leadership. CAAL is located in Embry-Riddle Worldwide’s Department of Business Administration. It operates under the direction of a permanently staffed management committee, but has been designed to leverage Embry-Riddle’s worldwide network of practitioners, scholars, and alumni to address key leadership issues. For more information on the Center for Aviation and Aerospace Leadership, please contact CAAL at the following: Center for Aviation & Aerospace Leadership Embry-Riddle Aeronautical University – Worldwide Phone: (770) 726-9987 E-mail: [email protected] Web: http://worldwide.erau.edu/caal/

The CAAL Manufacturing Initiative

The Manufacturing Initiative is one of several CAAL programs designed to serve the aviation and aerospace industry. The primary purpose of the manufacturing initiative is to provide small- to medium-sized aerospace manufacturers and service providers with resources to help them become more competitive in the global aerospace market—to take a leadership position. The core product of the initiative is the Aerospace Industry Report (AIR 2011) which is being co-produced this year with the Aerospace Industries Association. AIR 2011 is an annual report on the economic and business status of aerospace manufacturing in the United States. The report includes a review of major trends affecting the industry, an in-depth review of sales across the various sectors of the industry, employment trends, key international trade statistics, financial statements of manufacturers, and a forecast for the future based on a review of what the major aerospace firms are saying along with AIA’s and Embry-Riddle’s own analysis. In addition to the core product, tailored reports and analyses can be readily prepared for each state or region in the United States. Special reports on the state of the aerospace industry in selected countries or other topics can also be prepared upon request. The initiative also includes an annual Aviation and Aerospace Manufacturing Summit. This event gathers leaders and experts in a variety of fields to discuss topics of relevance to the aviation and aerospace manufacturing and service community. Related services include seminars and tailored presentations for specific customers and markets. Additionally, a scholarly journal and college level textbooks for aviation and aerospace economics and business are also planned. xii Aerospace Industry Report 2011

Once again, our hope is that the information produced by this initiative can be used by policy-makers, industry leaders, and the academic community to make more informed decisions about business and add to the body of knowledge about aerospace manufacturing. For more information about AIR 2011 or the CAAL Manufacturing Initiative, please contact one of the following:

■■ Brig. Gen. Robert E. Mansfield, USAF (ret.), Executive Director, Center for Aviation & Aerospace Leadership, Embry-Riddle Aeronautical University – Worldwide at [email protected].

■■ Dr. Robert Materna, Professor of Business Administration, Center for Aviation and Aerospace Leadership, Embry-Riddle Aeronautical University – Worldwide at [email protected]. xiii

Table of Contents

Foreword...... iii About AIA...... v About Embry-Riddle Aeronautical University...... vii About CAAL...... ix The CAAL Manufacturing Initiative...... xi The National Economy...... 1 Introduction...... 1 Economic Overview...... 1 The State of the Economy: A Long, Slow Recovery ...... 2 The Fallen Money Multiplier...... 2 Rock-Bottom Interest Rates...... 3 Increasing Producer Prices...... 4 Increasing Utilization...... 5 Rebounding Productivity ...... 6 Increasing Production...... 7 High Unemployment...... 7 Increasing Corporate Profits ...... 10 Rising Employment Costs ...... 10 Increasing Fixed Investment...... 11 Growing GDP...... 12 Summary and Conclusions...... 12 Chapter Endnotes ...... 14 The International Economy...... 17 Introduction—The Global Economy and the Aerospace Industry. . . 17 xiv Aerospace Industry Report 2011

The State of the World Economy...... 18 GDP Growth Forecasts...... 18 OECD Leading Indicators...... 19 Long-Term Interest Rates...... 20 Exchange Rates...... 21 The Rise of the Emerging Markets...... 22 Emerging Market Consumption...... 25 Dependency Ratios...... 25 Summary and Conclusions...... 27 Chapter Endnotes ...... 27 Aerospace Manufacturing and MRO...... 29 Introduction...... 29 Aerospace Sales ...... 29 Federal Purchases of Aerospace Products and Services. . . . . 33 U.S. Aerospace Manufacturing Employment...... 35 Civil and Military Aircraft ...... 36 Civil Aircraft...... 36 Military Aircraft...... 38 General Aviation...... 40 Space ...... 40 Missiles...... 42 Air Transportation...... 43 Maintenance, Repair, and Overhaul ...... 44 Civil Aviation MRO...... 44 Global Civil MRO Market...... 44 U.S. MRO State-by-State Metrics...... 45 Military MRO...... 47 Summary and Conclusions...... 47 Chapter Endnotes ...... 48 The Global Aerospace Marketplace ...... 49 Introduction...... 49 U.S. Aerospace Exports...... 50 The Increasing Importance of Military Aerospace Exports . . . . 53 Table of Contents xv

U.S. Aerospace Imports...... 55 U.S. Balance of Trade in Aerospace Products and Parts...... 57 Summary and Conclusions...... 59 Chapter Endnotes ...... 60 The Workforce...... 63 Introduction...... 63 Employment Statistics...... 64 Earnings and Productivity ...... 65 Top Employers by State...... 67 Employment by Age...... 67 Education and Training Needs ...... 68 2010 Aviation Week Workforce Recommendations...... 69 Summary and Conclusions...... 70 Chapter Endnotes ...... 70 Finance and Capital Markets...... 73 Introduction...... 73 Financing...... 74 Traditional Lending Sources...... 74 Changes in Loan Underwriting Criteria ...... 77 Aggregate Loan Value by Depository Lender Asset Size...... 78 Interest Rates...... 80 Income Statement, Balance Sheet, and Key Ratios for Aerospace Manufacturers...... 81 Alternative Lending Sources...... 86 Collateral-Based Loans ...... 87 Cash Flow Lending...... 88 Invoice Factoring...... 88 Asset-Based Lending...... 90 Small Business Investment Companies...... 91 Venture Lenders ...... 92 Hedge Funds...... 93 Summary and Conclusions...... 93 Chapter Endnotes ...... 94 xvi Aerospace Industry Report 2011

Regional Manufacturing and Exporting Trends ...... 97 Introduction...... 97 Rising Expectations...... 98 Regional Manufacturing Trends...... 99 Regional Aerospace Manufacturing Trends...... 100 Regional Aerospace Exporting Trends ...... 100 Pacific Region Aerospace Exports ...... 100 Mountain Region Aerospace Exports...... 102 South-Central Region Aerospace Exports...... 104 North-Central Region Aerospace Exports...... 105 South-Atlantic Region Aerospace Exports...... 107 Mid-Atlantic Region Aerospace Exports...... 109 New England Region Aerospace Exports...... 111 The Export-Import Bank of the United States...... 113 Summary and Conclusions...... 114 Chapter Endnotes ...... 115 Topics to Watch in 2011 and Beyond ...... 117 Introduction...... 117 The Evolving Role of Clusters in the Aerospace Industry ...... 118 Why Clusters Are Important...... 119 Clusters in the Aerospace Industry...... 120 The Changing Nature of Clusters...... 123 What Governments Can Do...... 124 What Firms Can Do ...... 125 What Other Institutions Can Do ...... 125 Extreme Manufacturing ...... 126 The Importance of Rare Earth Elements and Minerals...... 127 Background...... 127 The Impact of Rising Fuel Costs on Aviation...... 131 Aviation and the Environment: Toward Cleaner, Quieter Skies . . . 133 Environmental Benefits of the Next Generation Air Transportation System ...... 133 The Promise of Sustainable Biofuels...... 134 Table of Contents xvii

Global Environmental Solutions...... 134 Conclusion...... 135 The Threat of Counterfeit Parts ...... 135 Trends in Research and Development...... 139 Troubling Trends for Small to Medium Aerospace Manufacturers. 142 National Manufacturing Strategy for Aerospace...... 143 The Unique Nature of the U.S. Aerospace Industry ...... 144 Creating a National Manufacturing Strategy...... 145 The National Export Initiative...... 146 An NEI Strategy for Aerospace...... 147 SBIR for Manufacturing...... 148 Summary and Conclusions...... 149 Chapter Endnotes ...... 150 Industry Forecasts and Outlook ...... 155 Introduction...... 155 Government Aerospace Forecasts...... 155 International Trade Administration Flight Plan ...... 155 Federal Aviation Administration Forecast...... 161 Aerospace Industry Forecasts...... 164 Boeing Current Market Outlook 2011–2030...... 164 Airbus Global Market Forecast 2010–2029...... 167 Honeywell Business Aviation Outlook...... 171 Bombardier Business Aircraft Market Forecast 2010–2029. . . 171 Bombardier Commercial Aircraft Market Forecast 2010–2029. . 172 Embraer Market Outlook 2010–2029...... 173 General Aviation Outlook 2011...... 174 Outlook for 2011 and Beyond ...... 176 Opportunities...... 176 Threats...... 178 General Assessment...... 179 Chapter Endnotes ...... 179 Acronyms and Other Terms...... 181 Glossary...... 183 xviii Aerospace Industry Report 2011

Appendix...... 193 Summary...... 194 Aircraft Production...... 206 Missiles...... 221 Space ...... 225 Air Transportation...... 233 R&D...... 244 Foreign Trade...... 256 Workforce...... 271 Finance...... 283 About the Authors...... 291 William A. Chadwick, Jr...... 291 Bruce W. C. Ellis, MBA, Ph.D. Cantab...... 291 Robert E. Mansfield, Jr., Brig. Gen., USAF (Ret.) ...... 292 Robert Materna, Ph.D. CPL...... 293 Acknowledgements...... 295 Figures Figure 1.1 M1 Money Multiplier...... 2 Figure 1.2 Reserve Balances with Federal Reserve Banks...... 3 Figure 1.3 U.S. 10-Year Treasury Constant Maturity Rate...... 4 Figure 1.4 Producer Price Index...... 5 Figure 1.5 U.S. Manufacturing Capacity Utilization...... 6 Figure 1.6 Manufacturing Output per Worker...... 7 Figure 1.7 Industrial Production in Manufacturing...... 8 Figure 1.8 Unemployment Rate...... 8 Figure 1.9 Number of Civilians Unemployed 15 Weeks or More...... 9 Figure 1.10 Initial Claims ...... 9 Figure 1.11 Number of Employees on Nonfarm Payrolls...... 10 Figure 1.12 Corporate Profits After Tax...... 11 Figure 1.13 Employment Cost Index, Wages and Salaries for Private Industry Manufacturing Workers ...... 11 Figure 1.14 Private Nonresidential Fixed Investment...... 12 Figure 1.15 Gross Domestic Product...... 13 Table of Contents xix

Figure 2.1 CLIs for France, Germany, China, India, and the U.S...... 20 Figure 2.2 Long-Term Interest Rates for Selected Countries ...... 21 Figure 2.3 Exchange Rate Changes for Selected Countries...... 22 Figure 2.4 Percentage of World GDP, 2009–2035 ...... 23 Figure 2.5 Index of Projected GDP Growth as Percent of World GDP 2015...... 24 Figure 2.6 Real Private Consumption...... 25 Figure 2.7 Dependency Ratios (2020E)...... 26 Figure 3.1 Aerospace Industry Sales by Product Group...... 30 Figure 3.2 Aerospace Industry Sales by Customer...... 31 Figure 3.3 Orders, Shipments, and Backlog, 2000–2010 ...... 32 Figure 3.4 Boeing New Airplane Order Backlog, 2010–2030...... 33 Figure 3.5 Federal Outlays for Aerospace Products and Services. . . . . 34 Figure 3.6 Military Outlays by Functional Title ...... 34 Figure 3.7 Aerospace Employment and Size of Firm ...... 35 Figure 3.8 Civil Aircraft Shipments ...... 37 Figure 3.9 Shipments of U.S. Large Civil Transport Aircraft ...... 37 Figure 3.10 Military Aircraft Sales...... 38 Figure 3.11 U.S. Military Aircraft Shipments ...... 39 Figure 3.12 Military Aircraft Accepted by U.S. Military Agencies...... 39 Figure 3.13 DOD Outlays for Aircraft Procurement by Agency...... 40 Figure 3.14 Federal Space Activities Outlays...... 41 Figure 3.15 NASA Outlays...... 42 Figure 3.16 DOD Outlays for Missile Procurement...... 43 Figure 3.17 Air Cargo Carried: U.S. Commercial Air Carriers ...... 44 Figure 3.18 Global Air Transport MRO Market 2010 ($43.6B)...... 45 Figure 3.19 Top States for MRO Employment and Activity ...... 46 Figure 3.20 US Civil Market by MRO and Parts Manufacturing and Distribution...... 46 Figure 4.1 U.S. Exports of Aerospace Products and Parts...... 51 Figure 4.2 Map of U.S. Aerospace Export Countries ...... 51 Figure 4.3 Trends in Top U.S. Aerospace Export Markets...... 53 Figure 4.4 National Defense Total Obligation Authority...... 55 Figure 4.5 Imports of Aerospace Products and Parts...... 56 xx Aerospace Industry Report 2011

Figure 4.6 Map of U.S. Aerospace Import Countries...... 56 Figure 4.7 Balance of Trade Aerospace Products and Parts...... 58 Figure 4.8 Map of U.S. Aerospace Trade Balances...... 58 Figure 4.9 U.S. Trade Balance by Commodity 2009...... 59 Figure 5.1. Employment in the U.S. Aerospace Industry by Sector. . . . 65 Figure 5.2. Average Hourly Earnings in the Aerospace Industry...... 66 Figure 5.3. Aerospace Employment in Top Five States...... 67 Figure 5.4. Aerospace Employment by Age...... 68 Figure 6.1 Aggregate Level of Commercial and Industrial Loans at All Commercial Banks...... 75 Figure 6.2 Annual Percentage Change in Small Business Loan Balances...... 75 Figure 6.3 Business Loan Balance by Size...... 76 Figure 6.4 Small Business Loans Under $1 Million...... 77 Figure 6.5. Percentage of Respondents on the Tightening Standards for Commercial and Industrial Loans for Large, Medium, and Small Firms. . . . 78 Figure 6.6 Trends in Small Business Lending by Banks of Different Sizes. . 79 Figure 6.7 10-Year Treasury Constant Maturity...... 81 Figure 6.8 Income Statement, Operating Ratios, and Balance Sheet Ratios for Aerospace Manufacturers in 2010...... 82 Figure 6.9 Income Statement and Balance Sheet for Firms with Assets Equal to or Greater Than $25 Million...... 84 Figure 6.10 Income Statement and Balance Sheet for Firms with Assets Less Than $25 Million ...... 84 Figure 6.11 Income from Operations Ratio...... 86 Figure 6.12 Net Income After-Tax Ratio...... 86 Figure 6.13 Total Current Assets to Total Current Liabilities Ratio. . . . . 87 Figure 6.14 Total Cash and U.S. Government and Other Securities to Total Current Liabilities Ratio...... 87 Figure 6.15 Asset-Based Lending Picks Up...... 90 Figure 6.16 ABL as Percentage of Total Leveraged Issuance Remains Steady...... 91 Figure 7.1 Net Balances of U.S. Manufacturing Expectations, 2011. . . 99 Figure 7.2 Regional Manufacturing Trends (2000–2009)...... 99 Figure 7.3 Pacific Region Aerospace Exports to World...... 100 Table of Contents xxi

Figure 7.4 Pacific Region Aerospace Exports to Top Five Markets. . . . 101 Figure 7.5 Pacific Region Aerospace Exports by State ...... 102 Figure 7.6 Mountain Region Aerospace Exports to World...... 102 Figure 7.7 Mountain Region Aerospace Exports to Top Five Markets . 103 Figure 7.8 Mountain Region Aerospace Exports by State...... 103 Figure 7.9 South-Central Region Aerospace Exports to World...... 104 Figure 7.10 South-Central Region Aerospace Exports to Top Five Markets...... 104 Figure 7.11 South-Central Region Aerospace Exports by State...... 105 Figure 7.12 North-Central Region Aerospace Exports to World . . . . . 106 Figure 7.13 North-Central Region Aerospace Exports to Top Five Markets...... 106 Figure 7.14 North-Central Region Aerospace Exports by State...... 107 Figure 7.15 South-Atlantic Region Aerospace Exports to World. . . . . 108 Figure 7.16 South-Atlantic Region Aerospace Exports to Top Five Markets...... 108 Figure 7.17 South-Atlantic Region Aerospace Exports by State...... 109 Figure 7.18 Mid-Atlantic Region Aerospace Exports to World ...... 110 Figure 7.19 Mid-Atlantic Region Aerospace Exports to Top Five Markets...... 110 Figure 7.20 Mid-Atlantic Region Aerospace Exports by State ...... 111 Figure 7.21 New England Region Aerospace Exports to World . . . . . 111 Figure 7.22 New England Region Aerospace Exports to Top Five Markets...... 112 Figure 7.23 New England Region Aerospace Exports by State...... 112 Figure 7.24 New Medium- and Long-Term Official Export Credit Volumes in 2010 ...... 113 Figure 8.1 Change in National Share of Employment, 1998–2008. . . 122 Figure 8.2 Rare Earth Element Production ...... 128 Figure 8.3 Global Supply and Demand for Rare Earth Elements. . . . . 129 Figure 8.4 Global Commercial Airline Profitability...... 131 Figure 8.5 Airbus Oil Price Projections...... 132 Figure 8.6 Increase in Rate of Counterfeit Incidents at OCMs...... 136 Figure 8.7 Relative Amount of Annual R&D Spending by Country. . . . 139 Figure 8.8 Federal Funds for R&D...... 141 xxii Aerospace Industry Report 2011

Figure 8.9 DOD Funds for RDT&E ...... 142 Figure 8.10 Actual and Expected DOD Funds for RDT&E...... 142 Figure 8.11 Index of Net Sales by Size of Manufacturer...... 143 Figure 9.1 Boeing’s Air Travel Drivers...... 165 Figure 9.2 Boeing’s Fleet Deliveries Forecast ...... 165 Figure 9.3 Boeing’s 20-Year Freighter Forecast...... 166 Figure 9.4 Airbus Industry Drivers...... 168 Figure 9.5 World Annual Traffic Growth in RPKs...... 169 Figure 9.6 Growth in ASKs by Market...... 170 Figure 9.7 Projected Traffic and Economic Growth, 2010–2029. . . . 173 Figure 9.8 Total General Aviation Shipments...... 175 Tables Table 2.1 Projected GDP Growth Rates 2011–2015...... 19 Table 4.1 U.S. Exports of Aerospace Products and Parts to Top 20 Countries...... 52 Table 4.2 Percentage of GDP Spent on Military ...... 54 Table 4.3 U.S. Imports of Aerospace Products and Parts...... 57 Table 4.4 Balance of Trade in Aerospace Products and Parts ...... 60 Table 8.1 Top Aerospace and Defense Clusters in the United States. 121 Table 8.2 Top Aerospace Engine Clusters in the United States...... 122 Table 8.3 REEs, Their Chemical Symbols, and Their Current Common Uses...... 130 Table 8.4 Examples of Life Cycles of Aircraft...... 137 1

The National Economy

Introduction The purpose of this report is to provide aerospace leaders with additional information to make more informed decisions.* Yet effective decisions also require an understanding of the context in which the aerospace industry operates. Consequently, this report contains a substantial amount of narrative, as well as data, to help aerospace leaders make better decisions. The report begins with a description of the national economy and concludes with a data-driven assessment of the outlook for 2011 and beyond.

Economic Overview Each industry segment has its own specific drivers, and competing in today’s economy requires an understanding of these drivers and their impact on the corporation.1 For example, the demand for new aircraft in the civil aerospace segment tends to be highly correlated with gross domestic product (GDP). GDP, in turn, is an important measure of the state of the economy. Hence, understanding the state of the domestic

* All the data in this report comes from public sources. 2 Aerospace Industry Report 2011

and global economy is an important first step in understanding the forces that are driving demand for new aerospace systems and services.

The State of the Economy: A Long, Slow Recovery During the financial crisis and recession, most national economic indicators pointed in a negative direction, creating a challenging environment for the U.S. aerospace industry and most manufacturing sectors. While most economists say the recession began in December 2007 and ended in June 2009, at the time of writing, signs of a broad economic recovery were mixed.2

The Fallen Money Multiplier Several monetary indicators provide insight into the state of the U.S. economy.* One of those is the M1 Money Multiplier. The M1 Money Multiplier measures the number of times the basic money supply circulates in the economy. Liquidity of capital is vital to a healthy economy and the supply of money impacts interest rates, investments, stock prices, and inflation. Prior to 2008, the M1 Money Multiplier ran between 1.5 and 3. But between January 2008 and July 2011, the M1 fell from 1.619 to 0.729, resulting in a massive decline in liquidity and economic activity (see Figure 1.1).3

Figure 1 .1 M1 Money Multiplier 3.5

3.0

2.5

io t 2.0 a R

1.5

1.0

0.5 1985 1990 1995 2000 2005 2010 Source: Federal Reserve Bank of St. Louis Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

* In this chapter, a number of indicators are addressed that can be used to assess the state of the economy. While many readers may already be familiar with these indicators, others may find them useful in making more informed decisions. The National Economy 3

Figure 1 .2 Reserve Balances with Federal Reserve Banks

1,800 1,600 1,400 1,200 s r

ll a 1,000 o D

f 800 o

n 600 illi o

B 400 200 0 -200 1985 1990 1995 2000 2005 2010

Source: Board of Governors of the Federal Reserve System Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

As banks began to accrue excess funds, they deposited those funds in the Federal Reserve. And, as the Federal Reserve began to pay interest on those reserves, balances rose quickly (see Figure 1.2).4 At this point, credit became virtually non-existent. Even though the Federal Reserve subsequently poured trillions of dollars into the U.S. economy, the multiplier has not yet revived and reserve balances remain high, leaving the monetary system stalled.5 This is evident across the entire aerospace supply chain—from the lack of loans for small to medium aerospace manufacturers at one end6 to the lack of capital for buying or leasing large civil aircraft at the other end.7

Rock-Bottom Interest Rates A key indicator of the rate of interest U.S. companies will pay is the rate of interest the U.S. Treasury pays on 10-year Treasury notes. This is a risk-free rate and most bonds and money market instruments are priced at a spread over this rate, but it is a good indicator of the rates that aerospace manufacturers and service providers can expect to pay for capital investments or other expenditures. Under normal circumstances, one would expect that the rates reflected in Figure 1.3 would help stimulate the economy, but these are not normal times. Chapter 6 addresses finance and capital issues in more detail. 4 Aerospace Industry Report 2011

Figure 1 3. U .S . 10-Year Treasury Constant Maturity Rate

18.0

16.0

14.0

12.0

t 10.0 n e c r 8.0 e P 6.0

4.0

2.0

0.0 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Source: Board of Governors of the Federal Reserve System Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Increasing Producer Prices The Producer Price Index (PPI) measures the selling prices producers charge for goods and services in the wholesale market. It is a measure of the cost of inputs into the production process. Because higher costs of production tend to be passed on to consumers, a rising PPI can be an early indicator of a growing economy and potential inflation. Conversely, a falling PPI can signal an economic slowdown. The Producer Price Index can provide insight into what is driving higher prices in the aerospace industry. The price of metals and fuel, for example, can be significant cost drivers, and the PPI can be helpful in estimating the cost of manufacturing or operating aircraft. When the PPI (1982=100) peaked in July 2008 at just over 183, then dropped in December 2008 to nearly 169, the recession was clearly evident (see Figure 1.4). Since then, the PPI has risen, indicating an improving economy and increased demand for manufactured goods. As can be seen in Figure 1.4, the PPI is higher for aircraft and aircraft equipment than for finished goods (less food and energy) and the difference seems to be widening — which suggests that the price of aircraft and aircraft parts may be increasing somewhat faster than the overall price of finished goods. The National Economy 5

Figure 1 .4 Producer Price Index

Finished Goods Less Food and Energy Aircraft and Aircraft Equipment

240

220 0 10

= 200 1982 x e 180 Ind

160

140 2001 2003 2005 2007 2009 2011

Source: U.S. Department of Labor: Bureau of Labor Statistics/FRED Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Increasing Utilization Manufacturing capacity utilization historically responds quickly to economic downturns, serving as a leading indicator of a recession. It also tends to rebound prior to the bottom of a recession. Levels around 80 percent are generally considered typical. Figure 1.5 shows that after recovering from a low of 64.2 percent in June 2009, overall manufacturing capacity utilization increased to approximately 75 percent by June 2011. Aerospace manufacturing utilization also increased over the past year to an “almost normal” level of 74.5 percent in June 2011. Increasing utilization usually means that unit costs are declining, and that the firm is working more efficiently and becoming more competitive. The opposite is usually true when utilization is declining. Given the steep drop in utilization and the relatively quick rebound, there may not be enough capacity to meet demand as economies around the globe recover. In the final chapter of this report, forecasts from various public and privates source are presented. Based on these forecasts, demand is expected to rise, and as demand rises, insufficient capacity could become a constraint. 6 Aerospace Industry Report 2011

Figure 1 5. U .S . Manufacturing Capacity Utilization

All Manufacturing Aerospace Manufacturing 90

85 y t

i 80 a c a p C 75 of

t n e c r

e 70 P

60 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

Source: Board of Governors of the Federal Reserve System Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Rebounding Productivity Productivity growth is possibly the single most important indicator of the long-term health of the economy. It is a key indicator of future prosperity. Today, the output per work hour for the average U.S. worker is more than twice what it was in 1987. However, in January 2008, the index fell for the first time in many years. As a key indicator of the state of the economy, productivity typically falls as a recession approaches. Companies cut production as sales fall, and as sales fall, employers lay off workers. The opposite occurs when a recession ends and employers begin to hire again. One of the things that is somewhat unique about the current economic situation is that even though employment is down, productivity has continued to increase since late 2008 (see Figure 1.6). Most suspect that is due to heavy investments in technology and process innovation. Chapter 5 addresses workforce issues in more detail. The National Economy 7

Figure 1 .6 Manufacturing Output per Worker

120.0

110.0 0

100.0 10 = 90.0 2005 x

e 80.0 Ind 70.0

60.0

50.0 1990 1995 2000 2005 2010

Source: U.S. Department of Labor: Bureau of Labor Statistics Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Increasing Production The manufacturing industrial production index is one of the economic indicators that reacts fairly quickly to the ups and downs of the business cycle. It measures changes in the volume of goods produced, not prices. Because manufacturing is sensitive to cyclical economic activity, it is a good indicator of business conditions. The manufacturing industrial production index experienced a long period of sustained growth from 1975 to July 2007 (see Figure 1.7). However, in January 2008 the index began a decline that hit a low in June 2009. Not all industry sectors were equally affected; the drop was less severe for the aerospace sector. Manufacturing industrial production has now rebounded to 2004 levels, and aerospace production is exceeding the manufacturing average.

High Unemployment The highest national unemployment rate since the Great Depression occurred in the early 1980s, when unemployment reached about 11 percent (see Figure 1.8). In 2009, unemployment rose dramatically and reached a high of 10.1 percent in October, up from 4.8 percent just two years earlier. At that time, 8.834 million U.S. civilians were out of work for 15 weeks or longer (see Figure 1.9). Since then, the number of unemployed workers has decreased, and as of June 2011, the national unemployment rate was 9.2 percent.8 8 Aerospace Industry Report 2011

Figure 1 7. Industrial Production in Manufacturing

All Manufacturing Aerospace Manufacturing 110

100 0

90 10 =

80 2007 x e

Ind 70

50 1990 1993 1996 1999 2002 2005 2008 2011

Source: Board of Governors of the Federal Reserve System Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

The recent recession was the second worst since the Bureau of Labor Statistics began reporting initial unemployment claims. Since the late 1970s, the norm for initial jobless claims during nonrecession periods has been around 500,000 (see Figure 1.10). The current employment situation has been made more difficult by the slow rebound. People are staying unemployed longer, and job creation is lagging compared with past recoveries.

Figure 1 .8 Unemployment Rate

t n

e 7 c r e P 6

3 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: U.S. Department of Labor: Bureau of Labor Statistics Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org The National Economy 9

Figure 1 .9 Number of Civilians Unemployed 15 Weeks or More

9,000 8,000 s 7,000 n o s r

e 6,000 P

f o

5,000 s 4,000 a nd s u

o 3,000 h T 2,000 1,000 0 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: U.S. Department of Labor: Bureau of Labor Statistics Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Figure 1 .10 Initial Claims

1,100,000 1,000,000 900,000 800,000 r

e 700,000 b

m 600,000 u N 500,000 400,000 300,000 200,000 100,000 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: U.S. Department of Labor: Employment and Training Administration Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

The U.S. manufacturing sector lost a significant number of employees in 2009, reducing the total number of manufacturing employees to a level not seen since 1941 (see Figure 1.11). While worker productivity has increased more than eightfold since the 1940s, it has not been enough to stem the tide of manufactured imports and the offshoring of U.S. manufacturing jobs. Consequently, by June 2009, U.S. nonfarm manufacturing employees accounted for only about 12.9 percent of working Americans. Fortunately, employment in the aerospace 10 Aerospace Industry Report 2011

industry has suffered less than in many other industries, as will be discussed in more detail later.

Figure 1 .11 Number of Employees on Nonfarm Payrolls

20,000

18,000 s n

o s

r 16,000 e P

f o

s 14,000 nd a s

u 12,000 o h T 10,000

8,000 1939 1948 1957 1966 1975 1984 1993 2002 2011

Source: U.S. Department of Labor: Bureau of Labor Statistics Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Increasing Corporate Profits Corporate profits after taxes began a steep climb in 2002, increasing from less than $500 billion to $1.4 trillion in July 2006. Subsequently, the trend reversed course, eventually bottoming out at $642 billion in October 2008. Corporate profits have since rebounded to more than $1.45 trillion by the beginning of 2011 (see Figure 1.12). Key figures on the profitability of the aerospace industry, and other financial data, are included in Chapter 6 as well as the Appendices.

Rising Employment Costs While producer prices and overall employment declined in 2009, wages and salaries of all workers continued to rise. A rising index can be a signal of price increases and inflationary pressure in the economy. The recession slowed the rate of increase for most workers in mid-2008, but in 2009, wages and salaries for aircraft manufacturing workers surpassed the industry average and have continued to rise.9 Employment costs have risen even in the face of a recession, because U.S. industry is dependent on highly skilled workers.10 As can be seen in Figure 1.13, this trend continued into 2011. The National Economy 11

Figure 1 .12 Corporate Profits After Tax

1,600

1,400

1,200 s

r a ll 1,000 D o

f o

s 800 n o

B illi 600

400

200 1990 1995 2000 2005 2010

Source: U.S. Department of Commerce: Bureau of Economic Analysis Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Figure 1 .13 Employment Cost Index, Wages and Salaries for Private Industry Manufacturing Workers

All Manufacturing Aircraft Manufacturing 120

115 0 10

= 110 2005 r e

b 105 em c D e

100 x : e

Ind 95

90 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: U.S. Department of Labor: Bureau of Labor Statistics Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Increasing Fixed Investment One of the key drivers of long-term economic growth is private nonresidential fixed investment (PNFI) by U.S. businesses. Generally, rein- vesting resources back into a company will increase efficiency, drive revenues, and increase profits. U.S. PNFI peaked in the second quarter of 2008 at more than $1.70 trillion. Since then, investment slowed, and by October 2009, PNFI dropped to $1.33 trillion. By October 12 Aerospace Industry Report 2011

2010 the downward trend in PNFI reversed, and by April 2011 it had risen to $1.49 trillion (see Figure 1.14). Over time, these investments should lead to improved operating efficiencies, increased profits, and, perhaps, more jobs in the aerospace sector.

Figure 1 .14 Private Nonresidential Fixed Investment

1,800

1,600

1,400

s r

a 1,200 ll D o

f 1,000 o

s n

o 800 B illi 600

400

200

0 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: U.S. Department of Commerce: Bureau of Economic Analysis Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Growing GDP The most comprehensive measure of the state of the U.S. economy is GDP (see Figure 1.15). GDP peaked in the third quarter of 2008 at more than $14.5 trillion, but then declined, reaching a low of $14.0 trillion in April 2009. Since mid-2009, GDP has been trending upward, and by April 2011 had increased to $15.0 trillion. Recovery and growth in the aerospace industry is closely linked to overall GDP growth, so as the GDP recovers, aerospace will likely benefit. Recent aircraft orders by NetJets, FedEx, and America Airlines tend to support this belief.11

Summary and Conclusions The 18-month recession that started in December 2007 and ended in June 2009, was the longest economic downturn since the Great Depression. Prior to the downgrade of U.S. credit in August 2011, most economists were fairly confident that the United States would not sink into another recession. Rising GDP, growing fixed investments, increasing corporate profits and relatively high levels of production, especially in aerospace, pointed towards a slow, but steady recovery. The National Economy 13

Figure 1 .15 Gross Domestic Product

16,000

14,000

12,000

s 10,000 lla r o D

f 8,000 o

s n 6,000 illi o B 4,000

2,000

0 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: U.S. Department of Commerce: Bureau of Economic Analysis Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

However, economic conditions in Europe and the U.S. are now somewhat unstable as the various governing agencies attempt to manage their debt, control inflation, and stimulate their respective economies. At the same time, China and other emerging market nations are trying to dampen inflation, which tends to reduce demand even as their economies prosper.12 Furthermore, a sustained recovery is dependent on stable energy prices. At the present time, oil prices are down, but turmoil in the Middle East and growing demand in China and India could put upward pressure on prices and destabilize the recovery. At this point, the economic trajectory of the United States is difficult to predict; however, many industry experts anticipate a slightly higher rate of growth in aerospace than other sectors of the economy. This is due, in part, to the global nature of industry and growing demand in various markets around the world. The state of the international economy is addressed in Chapter 2. 14 Aerospace Industry Report 2011

Globalization, the Economy, and the U.S. Aerospace Industry At the global level, demand for civil aviation is growing; existing fleets are aging; maintenance, repair, and overhaul is strong; and new opportunities are emerging. Other segments of the aerospace industry are also expected to grow, but new competitors are challenging the status quo of the industry. Within the United States, Federal Reserve Chairman Ben Bernanke recently commented that the economic recovery was “frustratingly slow.” Analysts were expecting the creation of 165,000 new jobs in May 2011, but only 54,000 jobs were actually created.1 At the same time, a KPMG survey indicated that a growing number of executives believe that manufacturing is going to increase.2 Furthermore, a review of the forecasts of some of the world’s largest aerospace manufacturers revealed that, in general, they are bullish about the future of the industry. Unfortunately, there is also mounting evidence which suggests that small to medium U.S. aerospace manufacturers are not doing as well. These conditions represent both new opportunities and threats for U.S. aerospace manufacturers and service providers. Many of these are addressed throughout the balance of this report.

Sources: 1 Business this Week. (2011, June 9). The Economist. Retrieved from http://www.economist.com/ node/18806662 2 KPGM. (2011). The KPMG Global Business Outlook Survey, Spring 2011, Analysis by Country, USA. Retrieved from https://www.kpmg.com/Global/en/WhatWeDo/Special-Interests/Business-outlook-survey/spring-2011/analysis- by-country/Pages/USA.aspx

Chapter Endnotes

1 Such drivers are often broken down into political, economic, social, and technological factors. See Ellis, B. W. C. & Brown, B. (2009). Strategic Planning: High Impact Solutions for Small- to Medium-Sized Enterprises. Alpharetta, GA: Apex Book Manufacturing. 2 National Bureau of Economic Research. (2011, July 1). U.S. business cycle expansion and contractions. Retrieved from http://www.nber.org/cycles.html 3 All figures in Chapter 1 were obtained from the Federal Reserve Bank of St. Louis. For example, the M1 Money Multiplier chart (Figure 1.1) was retrieved from http://research.stlouisfed.org/fred2/series/MULT 4 Keister, T. & McAndrews, J. (2009, July). Why are banks holding so many excess reserves? Federal Reserve Bank of New York Staff Report (no. 380). New York, NY: Federal Reserve Bank of New York. 5 The Federal Reserve Bank of Richmond. Excess Reserves and the New Challenges for Monetary Policy. Retrieved (2011, July 2) from http://www.richmondfed.org/ publications/research/economic_brief/2010/pdf/eb_10-03.pdf. For a more detailed discussion on the growth of the money supply see Keister & McAndrews report, cited above, Why Are Banks Holding So Many Excess Reserves? 6 Haynes, G. W., & Williams, V. (2011). Lending by depository lenders to small businesses, 2003 to 2010. Washington, DC: U.S. Small Business Administration. Retrieved from http://www.sba.gov/content/lending-depository-lenders-small-businesses-2003-2010 7 ILFC’s $11.6bn aircraft order. (2011). Airfinance Journal. Retrieved from http://www.airfinancejournal.com/Article/2784894/UPDATE-ILFCs-116bn-aircraft- order.html?LS=EMS500174 The National Economy 15

8 Bureau of Labor Statistics. (2011, July 8). The employment situation—June 2011. Employment Situation Survey. Retrieved from http://www.bls.gov/news.release/empsit.nr0.htm 9 Ibid. 10 Benefits are a key component of labor costs. In aerospace, benefits account for nearly one-third of labor costs. While benefit costs once grew faster than other forms of compensation, between December 2005 and April 2009, the cost of benefits rose by 8.3 percent, less than other forms of compensation as firms began to reduce their overall benefits packages. For more information, see U.S. Department of Labor, Bureau of Labor Statistics. (2009). Databases, tables & calculators by subject. Retrieved from http://www.bls.gov/data/ 11 Van Hasselt, C. (2011, March 3). Bombardier gets big NetJets order. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB100014240527 48703559604576176280354984592.html; Boeing: FedEx orders four more 777s. (2011, March 24). Aviation News. Retrieved from http://aviationnewsdaily. com/2011/03/24/ boeing-fedex-orders-four-more-777s/; Memmott, M. (2011, July 20). American Airlines places largest aircraft order in aviation history. NPR. Retrieved from http://www.npr.org/blogs/thetwo-way/2011/07/20/138535143/ american-airlines-places-largest-aircraft-order-in-aviation-history 12 Lahart, J. (2011, August 1). Four ways the economy could grow—or shrink. The Wall Street Journal, p. A 2.

The International Economy

Introduction—The Global Economy and the Aerospace Industry Even though the United States is the world’s largest producer of goods and services, the success of the U.S. aerospace industry is dependent to a large extent on the state of the global economy. U.S. aerospace manufacturers increasingly rely on foreign demand, and foreign suppliers play a critical role in U.S. aerospace supply chains. Similarly, many foreign aerospace manufacturers are dependent on U.S. demand, and U.S. suppliers are embedded in the supply chains of many foreign aerospace manufacturers. In other words, the U.S. aerospace industry is inextricably linked to the economies of the world and vice versa. As a result, U.S. aerospace leaders must understand the pros and cons of operating in the international environment since it plays an essential role in planning and executing the firm’s marketing, manufacturing, and supply chain strategies. 18 Aerospace Industry Report 2011

For large U.S. aerospace manufacturers, growing foreign market share is a top priority. In 2010, for example, sales outside the United States accounted for 41 percent of Boeing’s revenue,1 and more than 70 percent of Boeing’s large civil aircraft over the next 10 years are expected to be delivered to customers outside the United States.2 At Lockheed Martin, 15 percent of net sales were made to foreign governments in 2010, and that number is expected to grow as Lockheed Martin and its eight foreign partners increase production of the F-35 Lightning II.3 International sales are also important for smaller U.S. aerospace firms. Airbus, for example, spent about $10 billion last year on goods made in America. According to Airbus, its aircraft “are equipped with U.S.- manufactured parts and components literally from nose to tail,” and the production of its aircraft “relies on tooling, material and services from American companies.”4 Boeing, Lockheed Martin, and other U.S. manufacturers have similar networks of industrial partners and suppliers across the globe. Simply put, to be successful in today’s environment, it is not only necessary to pursue sales in foreign markets, “it is increasingly important to partner with both local companies and global players.”5 This chapter addresses the interdependencies of the global economy and why this topic is important to aerospace firms of all sizes.

The State of the World Economy Recovery from the recession and the biggest financial shock since the 1930s has been uneven. The U.S. economy has strengthened over the past six months, but the debt crisis has clearly taken a toll on America’s psyche.6 Germany and France are also recovering, but are burdened by the slowdown in Greece, Spain, Portugal, Ireland, and Italy.7 Brazil’s GDP growth is almost twice that of the United States, and many Asia-Pacific countries such as India and China are operating near full capacity (see Table 2.1).

GDP Growth Forecasts Since GDP growth tends to be correlated with commercial aircraft demand, growth rates for individual countries and regions are often used, along with other factors, to plan for future aircraft production and deliveries. Boeing, Airbus, Bombardier, and others, for example, use projected GDP growth rates in developing their 20-year plans. The International Economy 19

The projected growth rate for the world is 3.2 percent in 2011, and 3.6 percent in 2012 and 2013. The average growth rate for the industrialized countries in the Organization for Economic Cooperation and Development (OECD) is projected to be 2.1 percent in 2011 and almost 2.6 percent in 2012 and 2013. Developing economies* are projected to grow 6.3 percent in 2011–2013.8 Table 2.1 lists projected GDP growth rates for selected countries. A quick scan of this table reveals why there is so much interest in Brazil, Russia, India, and China (the BRIC countries) as opposed to many of the traditional developed markets.

Table 2 .1 Projected GDP Growth Rates 2011–2015 2011 2012 2013 2014 2015 Brazil 4.5 4.1 4.1 4.2 4.2 China 9.6 9.5 9.5 9.5 9.5 India 8.2 7.8 8.2 8.1 8.1 Russia 4.8 4.5 4.3 4.2 4.0 France 1.6 1.8 2.0 2.1 2.1 Germany 2.5 2.1 1.9 1.8 1.4 United States 2.8 2.9 2.7 2.7 2.7

Source: International Monetary Fund, World Economic Outlook Database (2011, April).

OECD Leading Indicators The OECD uses what are referred to as “composite leading indicators” (CLIs) to track the economic performance of countries on a global basis. CLIs are designed to provide early signals of turning points in economic activity, with a goal of predicting changes in business cycles six to nine months in advance. Once again, this information can be useful for planning purposes, but for a much shorter planning horizon. Figure 2.1 displays the CLIs for France, Germany, China, India, and the United States from mid-2009 through April 2011. An index of 100 equals the long-term industrial production level for any given country. Hence, a CLI of 104 suggests

* When talking about “developed” versus “developing” countries, it is important to point out that the terminology can be confusing. The World Bank classifies countries as “developed” or “developing” based on their income level. High-income countries are considered to be “developed,” while low- to middle- income countries are classified as “developing.” The United Nations tends to classify countries as “more developed,” “less developed,” or “least developed.” And several years ago, the World Bank introduced the term “emerging markets” to describe countries that are progressing from “developing” to “developed.” See glossaries from the World Bank, OECD, International Monetary Fund, United Nations, and other organizations for more information on definitions. 20 Aerospace Industry Report 2011

that industrial production is projected to be 4 percent above that country’s long-term level, implying a positive output gap six to nine months in the future. The data in this figure indicate that business activity in Germany, China, and India can be expected to decline in the fall of 2011, while business activity in the United States and France can be expected to increase.

Figure 2 .1 CLIs for France, Germany, China, India, and the U .S .

France Germany China India United States 106

104

102

100 x e nd I 98

92 9/1/2009 3/1/2010 9/1/2010 3/1/2011

Source: OECD, Composite Leading Indicators (2011, June).

Long-Term Interest Rates Another indication of the interconnected nature of the world’s economy is long-term interest rates. Long-term interest rates are particularly important because they are a major factor in determining how much aerospace firms must pay for the capital needed for research, new machinery, or other infrastructure investments. They are also a key indicator of the cost of financing the purchase or lease of aircraft.

As can be seen in Figure 2.2, long-term interest rates, which are influ- enced by the monetary policies of countries, remain relatively low and similar across the United States, France, and Germany. The International Economy 21

Figure 2 .2 Long-Term Interest Rates for Selected Countries

France Germany Japan United States Russian Federation 25

20 m nnu

A 15

r e P

t n e

c 10 r e P

0 Q1-2001 Q2-2002 Q3-2003 Q4-2004 Q1-2006 Q2-2007 Q3-2008 Q4-2009 Q1-2011

Source: OECD; StatExtracts.

Exchange Rates Figure 2.3 shows the percent appreciation or depreciation of the U.S. dollar against selected local currencies. As can be seen in this figure, the U.S. dollar has depreciated against the Australian, Indonesian, and South Korean currencies over the past two years, while remaining relatively stable against the euro and the Chinese yuan. When the U.S. dollar depreciates against foreign currencies, U.S. products become more affordable in foreign markets. Thus, dollar- denominated exports of civil and military aircraft and related systems benefit from the weak dollar. As a result, the weakened dollar has actually helped increase exports and is easing the effects of the downturn on the U.S. economy.9 If the U.S. dollar strengthens against the euro and other foreign currencies, dollar-denominated aerospace and defense (A&D) exports will face increased competition. Conversely, U.S. imports of foreign A&D products and services will become less expensive. Other implications may be less obvious. As the International Trade Administration reported in Flight Plan 2010: Analysis of the U.S. Aerospace Industry, currency movements can provide significant strategic and financial incentives to relocate manufacturing operations to other countries. In one example, the dollar’s downward trend against the pound spurred Rolls-Royce to shift production out of the United Kingdom and into markets that were denominated in U.S. dollars. This 22 Aerospace Industry Report 2011

Figure 2 .3 Exchange Rate Changes for Selected Countries

Australia China Euro Area Indonesia Korea 25

n 5 e c r e 0 P

-5

-10

-15

-20 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Federal Reserve Bank of St. Louis; OECD.

shift toward dollar-based production makes Rolls-Royce’s engines even more competitive against their U.S. counterparts.10

The Rise of the Emerging Markets Data indicate that, over the next two decades, emerging-market economies are positioned to grow four times faster than advanced economies. The OECD projects that over the next 20 years, emerging economies will surpass the economic output, as measured by GDP, of the advanced economies. Within the next generation, it is expected that China will be the largest economy in the world. Moreover, 50 percent of the top 10 economies will be in the emerging markets.11 Figure 2.4 illustrates the projected growth in emerging-market countries for 2035 compared to 2009 based on purchasing power parity.* This figure highlights the significant increase of the BRIC and other emerging-market economies’ GDP as a percentage of world total GDP. In this figure, the steepest declines in gross domestic product, as a percentage of world’s total GDP, occur in the United States, Japan, France, Germany, Italy, and Canada.12

* Purchasing power parity (PPP) refers to the number of units of currency required to buy the same amount of goods and services in the domestic market that a U.S. dollar would buy in the United States. PPP adjusts for differences in exchange rates so that purchasing power comparisons between countries are more equitable. The GDP numbers in Figure 2.4 have been adjusted for PPP. The International Economy 23

Figure 2 .4 Percentage of World GDP, 2009–2035 (Constant U .S . $)

2035 2009

U.S.

China

Japan

Other EM

Germany

U.K.

France

Italy

Russia

Brazil

India

Canada

0 5 10 15 20 25 30 35 P ercent

Source: Global is More Than an Asset Class. It’s a Perspective. (2011, January 27). Capital Markets Perspective. Oppenheimer Funds. Note: EM = emerging markets.

Figure 2.5 is an index of the projected GDP growth as a percentage of world GDP of many of the same countries listed above, but portrayed in a different way. This figure illustrates the difference in growth rates between traditional markets such as the United States, Germany, and France and those of Brazil, Russia, India, China, and others through 2015. The divergence is symptomatic of the relative decline in the purchasing power of developed countries compared with the growth that is occurring in numerous emerging markets. In fact, emerging markets now account for approximately 45 percent of global GDP.13 24 Aerospace Industry Report 2011

Figure 2 .5 Index of Projected GDP Growth as Percent of World GDP 2015

China

Indonesia

India

Brazil

Russia

United States

France

Japan

Germany

-20 -10 0 10 20 30 40

Index Year = 2009 Percent

Source: Based on material from the International Monetary Fund, World Economic Outlook Database (2011, April).

The OECD indicates that— … the aggregate economic weight of developing and emerging economies is about to surpass that of the countries that make up the advanced world … Longer-term forecasts suggest that today’s developing and emerging countries are likely to account for nearly 60 percent of world GDP by 2030. (Perspectives on Global Development 2010: Shifting Wealth) This trend seems to reinforce the message of Fareed Zakaria, who in his 2008 book, The Post-American World, claims that the distribution of economic power is shifting away from the United States and toward developing countries like India and China.14 Brazil, Russia, India, and China will continue to develop their own aerospace industries, and increasingly compete for market share with the United States. Nonetheless, in the foreseeable future, U.S. aerospace exports to emerging-market nations are expected to continue to grow, representing significant opportunities for prime contractors and most, if not all, supply chain tiers. Even though the United States remains the world’s largest market, given the economic data we have seen so far, participation in emerging markets may be critical for the long-term success of small and medium manufacturers.15 Prime contractors and first-tier suppliers have long recognized this, and reinforcing what we have already reviewed, the International Trade Administration notes that— The International Economy 25

Over the last two decades, the average annual growth rates in U.S. civil aerospace exports to the largest, legacy U.S. aerospace export markets (such as France, the United Kingdom, Japan, and Canada) have been on the order of 5–10 percent. Average annual growth rates of U.S. civil aerospace exports to smaller emerging markets (such as India, Saudi Arabia, Israel, and Indonesia) have been dramatically higher, on the order of 50 percent. (Flight Plan 2011, p. 8)

Emerging Market Consumption As a country’s GDP per capita increases, typically, so too does the country’s standard of living. Accompanying a higher standard of living is an increase in real private consumption, and increased demand for air travel and airfreight services. Real private consumption growth rates in emerging-market economies have outpaced, and are expected to continue to outpace, those of advanced economies (see Figure 2.6). This is but one more indicator of the opportunities that already exist and will continue to grow in emerging markets around the world for U.S. aerospace firms.

Figure 2 .6 Real Private Consumption

Advanced Economies Emerging Economies 12

e 6 g a n h 4 C

t n e

c 2 r e P 0

-2

-4

-6 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010

Source: International Monetary Fund. (2011, 25 January). World Economic Outlook Update. Washington, DC: Author.

Dependency Ratios Advanced economies typically have “aging-population” demographics, while economies with large working-age populations and few 26 Aerospace Industry Report 2011

dependents—referred to as low dependency ratios—offer the greatest opportunity for demand creation, including air travel.16 Brazil and India are good examples of low-dependency-ratio countries. Of Brazil’s population of 191 million, 9.9 percent are 60 years old or older and the median age is 28.6. Of India’s 1.2 billion citizens, 7.4 percent are 60 or older and the median age is 24.7. By contrast, the median age of the U.S. population is 36.5 and 17.9 percent are 60 or older.17 Figure 2.7 indicates that, relative to advanced economies, dependency ratios are lower and more favorable for emerging market countries. These demographics help to make up what is known as the “demographic gift.” Demographic gifts result in peaks of growth in economic output.18

Figure 2 .7 Dependency Ratios (2020E)

Vietnam Emerging Markets

Korea Developed Markets Brazil Percent of People Outside China Working-Age Population Turkey Indonesia Mexico India Russia Canada US Germany UK Italy Japan

35 40 45 50 55 60 65 70 Percent

Source: Global is More Than an Asset Class. It’s a Perspective. (2011, January 27). Capital Markets Perspective. Oppenheimer Funds.

Not all emerging-market countries have made advances in GDP expansion to levels that counter the effects of rapid population growth. Yet, the success of India and China in growing their economies and standards of living has positive economic benefits for other emerging-market countries. As stated in the OECD report The International Economy 27 cited previously, India and China influence key variables that matter for poor countries, such as interest rates, the price of raw materials, and wage levels for low-skill jobs. As a result, these two countries in particular will continue to have a major impact on global trading and investment patterns.19

Summary and Conclusions Key concepts addressed in this chapter include the growing interde- pendence of the world’s economy, the rate of growth and consumption in emerging markets, the importance of long-term interest rates, and the impact of exchange rates on business decisions. All of these factors affect the aviation and aerospace markets, and are reflected in shifting supply and demand dynamics. It is clear that the emerging markets represent growth opportunities for U.S. airlines and aerospace manufacturers. Furthermore, current interest rates and a weak dollar make U.S. aircraft, parts, and components attractive to foreign customers. When low interest rates and favorable exchange rates are combined with growing markets, it would appear that conditions are, indeed, favorable for U.S. aerospace manufacturers that are trying to grow global market share.

Chapter Endnotes

1 Seil, B. (2011, June). Global Boeing. Boeing frontiers (p. 44). Seattle, WA: Boeing. 2 U.S. Department of Commerce, Office of Transportation and Machinery, International Trade Administration. (2010). Flight plan 2010: Analysis of the U.S. aerospace industry (p. 6). Washington, DC: Author. 3 Lockheed Martin Corporation (2010). Annual Report (p. 23). Bethesda, MD: Author. 4 Airbus. (n.d.). Working with the best suppliers in the U.S. Retrieved from http://www.airbus.com/company/americas/us/industrial-partners/ 5 Lewis, P. (2011, June). Raising the bar. Boeing frontiers (pp. 46–47). Seattle, WA: Boeing. 6 Burns, A., & Riordan, E. (2011). Global economic prospects: Maintaining progress amid turmoil (p. 16). Washington, DC: The World Bank. 7 Blackstone, B. (2011, August 4). Europe’s powerhouses feel periphery’s pain. The Wall Street Journal, p. C1. 8 Burns, A., & Riordan, E. (2011). Global economic prospects: Maintaining progress amid turmoil (p. 1). Washington, DC: The World Bank. 9 U.S. Department of Commerce, Office of Transportation and Machinery, International Trade Administration. (2010). Flight plan 2010: Analysis of the U.S. aerospace industry (pp. 2–3). Washington, DC: Author. 10 Ibid. (p. 34). 28 Aerospace Industry Report 2011

11 Organization for Economic and Co-operation and Development. (2010). OECD factbook 2010: Economic, environmental and social statistics. Retrieved from http:// www.oecd-ilibrary.org/ economics/oecd-factbook-2010_factbook-2010-en?fmt=en 12 Global is more than an asset class. It’s a perspective. (2011, January 27). Capital Markets Perspective (p. 2). Oppenheimer Funds. 13 Peng, M. W. (2011). Global business (2nd ed.) (p. 9). Mason, OH: Southwestern Cengage Learning. 14 Zakaria, F. (2008). The post-American world. New York: W. W. Norton & Company. 15 U.S. Department of Commerce, Office of Transportation and Machinery, International Trade Administration. (2011). Flight plan 2011: Analysis of the U.S. aerospace industry (p. 8). Washington, DC: Author. 16 Birdsall, N. A., & Sinding, S. (Ed.). (2001). Population matters: Demographic change, economic growth, and poverty in the developing world. New York: Oxford University Press. 17 United Nations. (2010). World population ageing 2009. Retrieved from http://www.un.org/esa/population/publications/ WPA2009/WPA2009-report.pdf 18 Birdsall, N. A., & Sinding, S. (Ed.). (2001). Population matters: Demographic change, economic growth, and poverty in the developing world. New York: Oxford University Press. 19 Organization for Economic Cooperation and Development. (2010). Perspectives on global development 2010: Shifting wealth. Retrieved from http://www.oecd.org/docum ent/12/0,3746,en_2649_33959_ 45467980_1_1_1_1,00.html 29

Aerospace Manufacturing and MRO

Introduction This chapter reviews the recent performance of the U.S. aerospace industry and provides an overview of its size and scope within the national economy. It also examines market conditions across major categories of the industry—aircraft, spacecraft, and missiles—identifying areas of growth and potential opportunities for small- to medium- size manufacturers.

Aerospace Sales Despite a challenging business climate, aerospace sales reached a new high of $212.7 billion in 2010, continuing an upward climb that began seven years ago.1 While the overall growth rate has slowed in recent years due to a major recession and global economic turmoil, U.S. aerospace sales have sustained remarkable growth since 2003 (see Figure 3.1). Final numbers for the year also reflect the resiliency of the industry. Reversing a two-year decline, the aerospace industry booked $202.5 billion in orders in 2010, a 23.8 percent increase over 2009. 30 Aerospace Industry Report 2011

Results across the various sectors of the aerospace industry were mixed. While civil aircraft sales slipped modestly, the decline was offset by an increase in military aircraft sales. Looking forward, the situation is likely to be reversed, with the civil side of the industry compensat- ing for declines on the military side. Although calls to trim the nation’s mounting deficit increasingly threaten a large portion of the industry’s federal sales activity, the civil side of the industry is expected to improve as the national and global economies continue to recover.

Figure 3 .1 Aerospace Industry Sales by Product Group

Civil Ai rcraft Military Aircraft Space Related Products and Services Missiles

225

200

175

150

125

100 llions of Dollars

Bi 75

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Forecasters surveyed by the Federal Reserve Bank of Philadelphia project that real GDP will grow 2.7 percent in 2011 and 3.0 percent in 2012.2 Given that growth of the civil aviation sector is closely tied to overall GDP growth, moderate but steady growth in the civil sector is expected over the next few years. At the end of 2010, net orders— a leading indicator for future sales—for Boeing’s large civil aircraft totaled 530 units, up from 142 in 2009. The increase in orders boosted Boeing’s annual 2010 backlog to 3,443 aircraft, which represents some seven years’ worth of work. The outlook for the industry is covered in more detail in Chapter 9. While the overall near-term outlook for the civil aviation industry looks promising, several factors threaten the speed and strength of its recovery, with volatile oil prices topping the list. In a 2011 Forbes-CIT survey, 53 percent of the airline executives surveyed indicated that Aerospace Manufacturing and MRO 31 high fuel costs resulting from increased global demand for fuel would be the most significant challenge facing airline operators over the next two years. High fuel costs were cited well ahead of other potentially destabilizing issues, such as increasing compensation and labor costs, or shifting customer demand.3 Chapter 8 addresses the impact of fuel costs on the aviation industry in more detail. Figure 3.2 presents the same annual sales data seen in Figure 3.1, with the yearly totals broken out by customer. The two largest sectors, Department of Defense (DOD) and nongovernment civil sales, have both had strong runs in recent years. This year marks the twelfth straight year of DOD growth and the seventh straight year of growth for the nongovernment civil sector. Taken together, this represents one of the most robust growth cycles in U.S. aviation history. In the coming years, downward pressure on the defense budget and other discretionary federal spending is likely to be reflected in military, space, and other federally funded programs. However, as the U.S. economy recovers and demand for aircraft continues to grow in emerging markets, the nongovernment civil sector is expected to improve.

Figure 3 .2 Aerospace Industry Sales by Customer

DoD Civil Non-Govt Indeterminable Source NASA/Govt Agencies 225

200

175

150

125

100

Billions of Dollars 75

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: AIA, based on company reports and data from NASA, the Bureau of the Census, OMB, and DOD. Note: “Indeterminable source” indicates that it was not possible to determine whether the customer was military, government, or civilian.

Aerospace falls within the “durable goods” industrial classification. Durable goods is a subset of the overall manufacturing industry, which in turn is a significant component of the GDP. Aerospace sales were generally stronger and more stable during the recent recession than indices for durable goods, manufacturing, and overall GDP. Aerospace 32 Aerospace Industry Report 2011

sales proved less vulnerable to wavering economic conditions because of the long lead times in aerospace manufacturing and the hefty backlog in aircraft order books, as well as the significant amount of sales to the federal government. Rising aircraft orders were an encouraging sign for the industry in 2010 (see Figure 3.3). Orders increased nearly 24 percent, reaching $202.5 billion and nudging the backlog up 2 percent to $427 billion. Orders for civil aircraft and parts accounted for most of the annual increase, jumping 66 percent to $90.5 billion. This indicates that airlines are controlling their costs and refining their business models, and are increasingly confident that growing numbers of travelers will soon return to the airways.

Figure 3 .3 Orders, Shipments, and Backlog, 2000–2010

Aircraft & Parts and Search & Navigation Equipment Orders Shipments Backlog 500 450 400

s 350 300 250 200 Billions of Dolla r 150 100 50 0 2000 2002 2004 2006 2008 2010

Source: AIA, based on information from U.S. Census Bureau.

Airbus and Boeing took in 1,104 net orders in 2010, as the international aviation market rebounded more strongly than expected from the steepest drop in its history. A year earlier, the two manufacturers accrued just 413 net orders as the global economic slowdown led customers to delay new purchases and to cancel or defer existing orders. Airlines that cut capacity during the downturn are now strengthening their fleets to accommodate rising traffic as the international economy rebounds. Soaring jet fuel prices are also contributing to the rise in orders, as airlines consider newer, more efficient aircraft an increasingly viable strategy for reducing costs. Aerospace Manufacturing and MRO 33

Figure 3.4 highlights Boeing’s new airplane order backlog for 2010 through 2030. The forecasts of Boeing and other aerospace manufacturers and government agencies are reviewed in more detail in Chapter 9.

Figure 3 .4 Boeing New Airplane Order Backlog, 2010–2030

Leasing and Government

Middle East, Central and South Asia

China, East and Southeast Asia

Russia and Europe

Asia Pacific

North America

Latin America, Africa, and Caribbean

New airplanes 0 5 10 15 20 Boeing order backlog: $260B Percent

Source: Based on material in Boeing’s Current Market Outlook 2011–2030.

Federal Purchases of Aerospace Products and Services Federal outlays for aerospace products and services have posted year- over-year gains since 2000, achieving a 1999–2010 compound annual growth rate (CAGR) of nearly 6 percent. During this period, the largest expenditures were for DOD aircraft, reflecting the heavy demands from the combat operations of U.S. and allied forces. However, given projected DOD cutbacks, federal outlays for aerospace products and services, including those of NASA, are likely to be somewhat flat or slightly reduced in coming years (see Figure 3.5). Total military outlays have risen every year since fiscal year (FY) 1998, funding activities that include operations and maintenance (O&M); research, development, testing, and evaluation (RDT&E); military personnel; and procurement (see Figure 3.6). While each of these categories has grown significantly in recent years, military O&M is of particular note. Even with the projected defense cuts, this sector could see additional annual growth as combat activities continue to take a toll on the military’s aging aircraft, and because increasingly technologically sophisticated replacement aircraft require support for capabilities that previously did not exist. Maintenance, repair, and overhaul (MRO) is discussed in greater detail later in the chapter. 34 Aerospace Industry Report 2011

Figure 3 .5 Federal Outlays for Aerospace Products and Services

NASA Aerospace DoD A ircraft Missiles 70

50 s

f Dolla r

30 lions o l Bi 20

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fiscal Year

Source: Office of Management and Budget, The Budget of the United States Government.

Figure 3 .6 Military Outlays by Functional Title

Other Operations & Maintenance RDT&E Military Personnel Procurement

800

700

600 r s 500 s of Dolla

n 400 o Billi 300

200

100

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(E) Fiscal Year

Source: Office of Management and Budget, The Budget of the United States Government. Aerospace Manufacturing and MRO 35

U.S. Aerospace Manufacturing Employment This section presents a brief statistical summary of employment in the U.S. aerospace industry, while Chapter 5 provides a more comprehensive analysis of the workforce. The aerospace industry comprises a great number of smaller firms, which generally are second- and third-tier suppliers to the major aerospace companies. These companies rely on workers who have well-rounded educations, are highly trained, possess skills based on current technologies, and have the ability to obtain future skills. While small- and medium-size firms account for approximately 78 percent of the total number of aerospace firms, they employ just 7.3 percent of all aerospace workers. Firms with 1,000 employees or more, such as Lockheed Martin, Boeing, and Northrop Grumman, account for less than 5 percent of the total number of aerospace firms but employ nearly 50 percent of all aerospace workers (see Figure 3.7).4

Figure 3 7. Aerospace Employment and Size of Firm

Percent of Employees Percent of Firms

5,000 or More s ee y

l o 1,000–4,999 p Em

f o

r 500–999 e b m Nu Less than 500

0 20 40 60 80 100 Percent

Source: Statistics of U.S. Businesses: 2008 NAICS 3364 - Aerospace product and parts manufacturing.

As reported by the Bureau of Labor Statistics, U.S. aerospace employment was at 1.1 million in 1990 but steadily declined to a recent low of 587,000 in 2003, largely because of substantial consolidation among aerospace and defense companies and significant gains in worker productivity. From 2003, employment rose to 660,000 in 2008, driven by robust growth in both defense spending and demand for commercial aircraft. Since 2008, employment has declined to about 620,000 (as of mid-2011), which is 5.6 percent higher than the low point in 2003. 36 Aerospace Industry Report 2011

Civil and Military Aircraft Civil Aircraft Civil aerospace sales include all fixed-wing and rotary-wing aircraft, aircraft engines, and related parts and services sold to private entities or to civil (non-defense) government departments and agencies (e.g., the National Aeronautics and Space Administration, National Oceanographic and Atmospheric Administration, U.S. Department of Transportation, Federal Aviation Administration , state governments). Civil sales dropped 6.4 percent in 2010 to $47.9 billion, as the weak economy continued to drag on the aerospace market. Shipments declined across all major civil aviation sectors, with general aviation and the civil helicopter industry particularly hard hit by faltering demand. Even so, the 2010 declines in these two sectors were less severe than those suffered in 2009. In addition to signs that the general aviation and civil helicopter markets are stabilizing, other encouraging signs were apparent in the civil aircraft market in 2010. The civil transport backlog improved to $267 billion, with domestic orders rising more than 10 percent to 764 units. This suggests that airline operators are becoming more confident that the worst of the global financial crisis is over and that demand for air travel will continue to improve. Financial considerations, such as access to capital, also play a significant role in the demand for new aircraft. Due to low operating margins and high cost, few customers pay cash for aircraft. Rather, to reduce capital costs and operating expenses, airlines often lease commercial aircraft. The two largest global aircraft lessors are International Lease Finance Corporation (ILFC) and GE Commercial Aviation Services, a subsidiary of General Electric. While capital for aircraft leasing was in tight supply during the economic crisis and recession, some stakeholders believe the capital markets are loosening, which will facilitate aircraft sales. In a January 31, 2011, Airfinance Journal press release, ILFC’s chief executive officer (CEO) stated that the firm was “very happy and proud to be back in the aircraft buying market for the first time since 2007.”5 These improving conditions are expected to spur an increase in civil aviation sales in 2011, although a stable, enduring recovery will hinge on several factors, including the global economy, the price of jet fuel, availability and terms of aircraft financing, and environmental regulations. Environmental regulations, both domestic and international, have considerable influence on the sale of civil aircraft. Pragmatic and Aerospace Manufacturing and MRO 37

Figure 3 .8 Civil Aircraft Shipments

General Aviation Helicopters Transp ort 5,000

4,500

4,000

3,500

3,000

2,500

Number of Aircraft 2,000

1,500

1,000

500

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: AIA, based on company reports and data from the General Aviation Manufacturers Association (GAMA).

Figure 3 9. Shipments of U .S . Large Civil Transport Aircraft

Number of Aircraft Value of Aircraft 600 35,000

500 30,000

25,000 400 20,000 300 15,000 200 Number of Aircraft 10,000 Value in Millions of Dollars

100 5,000

0 0 2003 2004 2005 2006 2007 2008 2009 2010

Source: Aerospace Industries Association, based on company reports. predictable rules that give the industry sufficient time to adapt will enable sustainable industry growth. For example, goals such as achieving carbon-neutral growth within a reasonable time frame drive industry innovation without stifling industry growth. With supportive leadership, outcomes that are considered positive by a wide spectrum of stakeholders are more likely to occur. Examples of positive outcomes may include the development of alternative fuels, more efficient aircraft designs, and sustainable manufacturing processes. 38 Aerospace Industry Report 2011

Military Aircraft Military aircraft sales reached $64.5 billion in 2010, an 8 percent increase over 2009. Sales have nearly doubled since 2000, but this pace is unlikely to continue (see Figure 3.10). According to Defense Department officials, the Pentagon’s base budget will be relatively flat or may even decline over the next few fiscal years. Already, the growth rate for orders of military aircraft has slowed considerably. This implies that significant adjustments will need to be made to align America’s industrial base with a fiscal environment that is significantly different from that of the latter half of the past decade. In 2010, military aircraft orders reached $62.8 billion, less than a 1 percent annual increase. By comparison, the 2005–2009 CAGR for military aircraft orders was nearly 21 percent. The drop in orders por- tends a decline in outlays for military aircraft in the coming years.

Figure 3 .10 Military Aircraft Sales

30 illions of Dollars B 20

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: AIA, based on company reports and data from NASA, the Bureau of the Census, OMB, and DOD.

National defense will remain a priority, but more austere U.S. procurement budgets appear unavoidable in light of considerable pressure to reduce overall federal spending. Further, because of rapidly increasing personnel and operations costs, even a nominal top line increase might not preclude a decrease in the procurement account. Consequently, exports of military aircraft will become an even more important component of business for U.S. aerospace manufacturers in 2012 and beyond. This topic is addressed in more detail in Chapter 4. Aerospace Manufacturing and MRO 39

Figures 3.11 through 3.13 provide additional information on the U.S. military aircraft market.

Figure 3 .11 U S. . Military Aircraft Shipments

Exports U.S. Military Agencies 1,200

1,000 t f 800 a r c

600

Number of Ai r 400

200

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: U.S. Department of Commerce, International Trade Administration.

Figure 3 .12 Military Aircraft Accepted by U .S . Military Agencies

Bomber/Patrol Other Transport/Tanker Fighter/Attack Trainer Helicopters

700

600

500 t f a r c r i 400

300 Number of A 200

100

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Department of Defense.(2011). Air Force Aircraft Procurement; Aircraft Procurement, Navy; FY12 Budget Overview Briefing. 40 Aerospace Industry Report 2011

Figure 3 .13 DOD Outlays for Aircraft Procurement by Agency

Air Force Army Navy

Billions of Dollars 15

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (E) (E) Fiscal Year

Source: Office of Management and Budget, Budget of the United States Government.

General Aviation The general aviation industry continues to face a challenging business environment. In 2010, for a second straight year, general aviation sales declined, as measured by value. The sector has endured falling demand, restrictive credit markets, and strong competition from used aircraft. While the rate of decline slowed considerably in 2010, difficulties remain—particularly for the more economically sensitive small to mid-size jet market. The lighter end of the business jet market has traditionally been more dependent on third-party financing, which became prohibitively expensive—if available at all—after the global economy began to falter.

Space Space sector sales were relatively flat in 2010, totaling approximately $45.9 billion. Modest growth can be expected in space revenues over the next five years, with commercial orders likely to account for a growing share as government orders decline. Federal space activity outlays grew at a relatively rapid pace over FYs 2001–2008, spurred by strong DOD spending. Budget restrictions are likely to level out spending within DOD and NASA for FY 2011 and beyond, although commercial and international space activity may replace some of the lost government-funded activity within the space industry (see Figure 3.14). Aerospace Manufacturing and MRO 41

Figure 3 .14 Federal Space Activities Outlays

Other Energy Commerce DOD NASA 45

35 s 30

20 Billions of Dolla r 15

0 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Fiscal Year

Source: NASA, Aeronautics and Space Report of the President.

Representing a significant shift in focus, NASA’s FY 2012 budget shifts from flying the space shuttle to developing the next generation of heavy lift launch vehicles. Commercial companies are being invited to develop and offer commercial services for transport of supplies to the International Space Station. Commercial space sales are also expected to improve in coming years as many satellite services providers around the world replace aging spacecraft. In other areas within the space sector, plans are being developed as part of the National Security Space Strategy. This strategy is expected to define a path forward for national security space programs that help maintain critical satellite constellations, while advancing U.S. efforts in the smaller satellites market and in research and development. Faced with uncertain domestic growth, the U.S. space industry is hopeful that international customers will represent a growing share of business in the coming years. Not only will developing a more diverse customer base help the United States maintain a strong industrial base, but developing space-related business opportunities in India, South Korea, the Middle East, and elsewhere will strengthen relationships with strategic partners. 42 Aerospace Industry Report 2011

Figure 3 .15 NASA Outlays

Exploration, Science, & Aeronautics Space Operations Office of Inspect or General Other

10 Billions of Dollars

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 (E) (E) Fiscal Year

Source: Office of Management and Budget, Budget of the United States Government.

Missiles The aerospace missile sector includes RDT&E and procurement of DOD missiles, missile defense systems, and parts. Sector components include the missiles themselves, as well as the associated sensors and command, control, battle management, and communications systems. In 2010, missile sector sales rose by nearly 1.0 percent, reaching $25.1 billion. Over the 2004–2009 period, the missile sector recorded a CAGR of 7.3 percent, well above most of the other aerospace sectors tracked by AIA. The strong growth resulted from new and replacement equipment and services supplied to combat forces in Iraq and Afghanistan. International bookings also represent a large share of business for U.S. missile manufacturers, with potentially large missile defense orders originating from Saudi Arabia, Turkey, Kuwait, Taiwan, and Israel. As can be seen in Figure 3.16, DOD reported that missile outlays increased modestly in FY 2010, with total funding increasing by just over 1 percent to $8.8 billion. However, beyond FY 2011, spending levels are uncertain. Future budgets will likely include several major program cancellations and changes that target the missile sector, and additional cuts are also under consideration. Aerospace Manufacturing and MRO 43

Figure 3 .16 DOD Outlays for Missile Procurement

Air Force Army Navy 10 9 8 s

r 7 6 f D olla 5

lions o 4 Bi l 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fiscal Year

Source: Office of Management and Budget, Budget of the United States Government.

Air Transportation The operating profit of U.S. air carriers reached a record high of $9.3 billion in 2007, but dropped to a loss of $3.3 billion the next year.6 As the global economic crisis worsened, operating revenues declined by 17 percent to $154.1 billion in 2009. Yet thanks to proportionally lower operating expenses, operating results reversed course again and swung to a profit of $2.3 billion. Both domestic and international operations of U.S. carriers posted operating profits in 2009, indicating that despite deteriorating economic conditions, the carriers took appropriate measures—such as quickly reducing airline capacity—to protect their bottom lines. In 2009, international operations were once again more proportionally profitable than domestic operations. While domestic operations accounted for 71 percent of the total operating revenues of $154.1 billion, the operating profit generated by international operations was $1.1 billion, nearly matching the $1.2 billion profit posted by the domestic side. 44 Aerospace Industry Report 2011

Figure 3 .17 Air Cargo Carried: U .S . Commercial Air Carriers

Domestic International

45 40 40 35 30 25 20 s of Revenue-Ton-Miles n

o 15

B illi 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (E) (F)

Source: Federal Aviation Administration, Office of Aviation Policy and Plans.

Maintenance, Repair, and Overhaul Civil Aviation MRO Over the long term, regardless of higher fuel prices, weak economic growth, and any other difficulties, the aviation industry will continue to grow, generating opportunities for the MRO industry. While growth may be assured, the market structure of the MRO industry over the long term is less certain. Already, financial pressures are forcing changes upon established MRO providers. Price competition has reduced rates and spurred a transfer of work to lower-cost providers in China, South America, and elsewhere. Within Europe, there has been a move to lower-cost providers in Central and Eastern Europe.7 Other factors are also at play. Over time, the maintenance requirements per aircraft tend to decline because each successive generation of aircraft is engineered to require less maintenance than the preced- ing generation. Consequently, while the global fleet will grow over the long term, proportional growth in the civil MRO market is not assured. Taken together, the development of lower-maintenance aircraft coupled with economic pressures on the airlines have resulted in a significant restructuring of the global MRO market.

Global Civil MRO Market The civil aviation MRO market surpassed expectations in 2010 totaling $43.6 billion, a 7.7 percent decrease from 2009. A CAGR of 4.4 Aerospace Manufacturing and MRO 45 percent is predicted for the next decade.8 This growth is likely to be back-loaded, with moderate growth over the next few years accelerating over the second half of the decade. The worldwide civil aviation MRO market is directly tied to airline passenger and cargo traffic, and fewer flight hours means less revenue. Given that airline and cargo traffic show signs of recovery, 2010 will likely mark the bottom of the trough for the MRO market.

By Activity Type and Region Figures 3.18 displays the world MRO market broken out by activity type and region. The engine overhaul sector is easily the largest sector of the commercial jet MRO market at over $15 billion, or about 35 percent of global MRO spending in 2010. The next largest segment was component maintenance (23 percent) followed by line maintenance (20 percent). By region, North America accounts for 32 percent of all MRO activity, followed by Europe (30 percent) and Asia-Pacific (17 percent).

Figure 3 .18 Global Air Transport MRO Market 2010 ($43 .6B)

Modifications Africa, 4% India, 1% Airframe Heavy 7% China, 5% North America 15% Middle East, 5% 32% Latin America, 5% Engine 35% Line By Activity By Region 20% Asia Pacific 17%

Components Europe 23% 30%

Source: AeroStrategy presentation on Air Transport MRO Outlook, (2011, April 12). 2011 MRO Americas Conference.

U.S. MRO State-by-State Metrics Employment and Economic Activity Aircraft MRO is a multibillion-dollar industry employing thousands of workers across the United States. Based on the latest data available, (2008), California and Texas hold the top rankings for both statewide aviation MRO employment and economic impact (see Figure 3.19). Figure 3.20 breaks down the U.S. civil maintenance industry data (2008) by MRO versus parts manufacturing and distribution. 46 Aerospace Industry Report 2011

Figure 3 19. Top States for MRO Employment and Activity

Aviation Maintenance Employment” Aviation Maintenance Economic Total Employment Activity: Total Economic Impact (MRO plus Parts, Manufacturing, (MRO plus Parts, Manufacturing, and Distribution) and Distribution)

California 37,566 California 5.005 Texas 32,673 Texas 4.430 Florida 20,191 Arizona 2.700 Washington 13,898 Florida 2.684 Georgia 13,741 Washington 2.586 Oklahoma 13,485 Connecticut 2.291 Arizona 13,445 Georgia 1.705 Connecticut 12,109 Kansas 1.647 Kansas 9,792 Oklahoma 1.463 New York 9,462 Ohio 1.278

Source: AeroStrategy. (2010, May 5). Aviation Maintenance Industry Employment and Economic Impact, prepared for ARSA.

Figure 3 .20 US Civil Market by MRO and Parts Manufacturing and Distribution

Aviation Maintenance Industry Aviation Maintenance Industry Employment Economic Activity ($B USD)

Parts Manufacturing/ Distribution Parts Manufacturing/ 15% 41,397 Distribution 38% $14.9B

33,324 274,634 MRO MRO: Non-Part $39B 62% 145 (Air Carrier Employees Maintenance & Line Stations) $24.1B 12% 199,913

MRO: Part 145 Repair Station

Maintenance, Repair and Overhaul (MRO) 73%

Source: AeroStrategy. (2010, May 5). Aviation Maintenance Industry Employment and Economic Impact, prepared for ARSA.

As the travel industry recovers and more airplanes return to the skies, MRO industry metrics are expected to improve. Despite the recent market contraction, North America will remain the largest MRO region over the next five years, followed by Western Europe and Asia-Pacific. While North America is still the largest region, its share of the overall market has decreased significantly. China is expected to be the world’s fastest growing MRO region over the next five years, increasing at a compound annual rate of more than 10 percent. Other rapidly growing regions include Eastern Europe and India. Aerospace Manufacturing and MRO 47

Military MRO The consulting firm AeroStrategy calculates that the global military aircraft MRO market topped $60 billion in 2009. Field maintenance accounts for nearly 50 percent of the global market, followed by airframe, component, and engine MRO. North America—primarily the United States—is the largest military aircraft MRO market, accounting for just over 50 percent of the global market, followed by Europe at 21 percent. Global military aircraft MRO spending is forecast to grow by 1.1 percent annually, on average, from 2009 through 2018. Over the shorter term, DOD funding for O&M activities is budgeted at reduced levels. The DOD’s Operations and Maintenance Overview – Budget Estimates (FY 2012) indicates that aircraft O&M funding levels for the Air Force and Navy will decline 17 and 3 percent, respectively, from FY 2010 to FY 2012.9 AeroStrategy believes that beginning in about three years, military aircraft retirements will start outpacing deliveries and will likely continue doing so for the next decade. While this will lead to a contraction of the military fleet size, support costs are expected to rise because of greater system complexity. One of the main reasons is that new fighter aircraft generally have superior capabilities compared with the platforms they are replacing, which means that the replacement rate is often less than one-for-one. AeroStrategy expects the annual global military aircraft MRO to grow to $62.3 billion by 2016, despite the shrinking fleet.10

Summary and Conclusions Despite continuing headwinds, the U.S. aerospace industry registered a comparatively strong performance in 2010. The manufacturing output of aircraft and other aerospace products has not been uniform across all sectors, but overall industry performance has been steady. Key drivers for the civil air transportation marketplace are the replacement of aircraft with newer, more fuel-efficient models in mature markets, strong growth in emerging markets, increased route liberalization, capacity growth on existing routes, and accelerating growth of low-cost carriers, particularly in Asia-Pacific and Europe. High defense sector demand over the past several years has lightened some of the burden caused by the global economic downturn, but challenges lie ahead for the defense sector as the federal government wrestles with the national debt. NASA and the space sector also 48 Aerospace Industry Report 2011

face challenges, but new opportunities seem to be emerging as the commercialization of space continues. General aviation and the civil aviation industry remain poised for growth as the global economy continues to recover. Barring unfore- seen shocks (such as dramatic fuel price increases), the overall outlook for aerospace manufacturing looks promising in 2012 and beyond.

Chapter Endnotes

1 As calculated by the Aerospace Industries Association, based on company reports, federal budgets, and data from government agencies. 2 Federal Reserve, retrieved from http://www.philadelphiafed.org/newsroom/press- releases/2011/051311.cfm 3 Millar, B. (2011). 2011 Global aerospace outlook: Challenges of an ever-changing industry. Forbes Insights. New York, NY: Forbes, p. 8. 4 Bureau of Labor Statistics. (2009). Aerospace product and parts manufacturing. Washington, DC: U.S. Department of Labor. 5 ILFC’s $11.6bn aircraft order. (2011, March 10). Airfinance Journal. Retrieved from http://www.airfinancejournal.com/Article/2784894/UPDATE-ILFCs-116bn-aircraft- order.html?LS=EMS500174 6 Data in this section originated from: “Operating Revenues and Expenses of U.S. Air Carriers: Domestic and International Operations,” Department of Transportation, Office of Aviation Statistics, Air Carrier Financial Statistics Quarterly. 7 Tegtmeier, L. A. (2010, April 1). Forecasts show MRO at a crossroads. Aviation Week. Retrieved from http://www.aviationweek.com/aw/jsp_includes/ articlePrint.jsp?storyID=news/om/2010/04/01/OM_04_01_2010_p30-213069. xml&headLine=Forecasts%20Show%20MRO%20At%20A%20Crossroads. 8 Ibid. 9 Office of the Under Secretary of Defense (Comptroller). (2011, February). Operation and maintenance overview fiscal year 2012 budget estimates. Washington, DC: U.S. Department of Defense. Retrieved from http://comptroller.defense.gov/defbudget/ fy2012/fy2012_OM_Overview.pdf. 10 Tegtmeier, L. A. (n.d.). Military MRO Forecast. Overhaul & Maintenance, Aviation Week. retrieved from http://www.aviationweek.com/aw/jsp_includes/articlePrint. jsp?headLine=Military%20MRO%20Forecast&storyID=news/om706milf.xml 49

The Global Aerospace Marketplace

Introduction This chapter addresses several important trends in the global aerospace marketplace. From a U.S. perspective, the first trend involves a changing mix of civil versus military sales. In recent years, global sales have become increasingly important to U.S. aerospace manufacturers as they seek to grow and diversify their customer base. Even though overall shipments of civil aerospace systems were roughly equal to military shipments in 2010, “over the past five years, approximately 86 percent of aerospace exports consisted of civil products.”1 This may be about to change. While exports of military aerospace products and services have accounted for a smaller percentage of total aerospace exports in recent years, they are likely to become more significant as U.S. defense spending declines. The second trend involves the growing demand for aerospace products and services in emerging markets. As noted in Chapter 2, the average annual growth rate in civil aerospace exports to legacy markets over the past 20 years has been on the order of 5 to 10 percent, while 50 Aerospace Industry Report 2011

the growth rate for civil exports Exports, Imports, and the Reality to emerging markets has been of Operating in the Global Aerospace Market approximately 50 percent. High This chapter focuses on U.S. exports, levels of demand in these mar- imports, and the aerospace trade kets can be expected to continue balance. While these measures are useful for tracking major trends in and possibly even increase. the industry, they do not necessarily capture the subtleties of operating in The third major trend involves today’s aerospace market. Although the growing capabilities of new some sales are still relatively simple transactions, most are more complex, entrants into the global aerospace involving various types of alliances, manufacturing community. Russia joint ventures, co-production, or offset agreements. and China are often mentioned, In China, for example, there are now but other new entrants are also 36 aerospace-related joint ventures beginning to appear. with foreign partners, with another 12 waiting for approval. Some involve the These trends are subject to production of new aircraft, such as the C919, whose U.S. suppliers include shifting political and economic Eaton, CFM International, GE Aviation, conditions, but major forces are Goodrich, Hamilton Sundstrand, at work that make it likely they Honeywell, Parker Aerospace, and Rockwell Collins. will continue. These trends will Boeing is also heavily engaged in intensify the battle for global China, but has taken a somewhat market share and challenge con- different approach. Boeing has focused ventional thinking about how to on sourcing parts and components for its own aircraft from Chinese suppliers compete in an industry that it is as opposed to building factories already dependant on high levels and risking the loss of even more intellectual capital and manufacturing of cross-border collaboration. expertise. Nevertheless, Boeing is committed to building high-level relationships with the Chinese and U.S. Aerospace has trained more than 37,000 Chinese professionals since the early 1990s. Exports U.S. exports of aerospace prod- Source: Mecham M., & Anselmo, J. C. (2011, April 25–May 2). Multiple articles in a special double ucts and parts peaked in 2007 issue, “Winning in China: Partnering Strategies for a Mega-Market,” Aviation Week, 42–67. at $97 billion, nearly doubling from a decade earlier (see Figure 4.1). However, exports began to decline in 2008, in large part because of the financial crisis and global recession. Still, exports continue to provide the industry with valuable new opportunities for growth and expansion. Furthermore, a geographically and economically diversified customer base has helped soften the impact of the recession on some sectors of the aerospace industry. The Global Aerospace Marketplace 51

Figure 4 1. U .S . Exports of Aerospace Products and Parts

Military Civil 120

100

Billion of Dollars 40

0 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Based on data from the U.S. Department of Commerce.

Figure 4.2 is a color-coded display of the recipients of U.S. aerospace exports in 2010. Top-tier export markets are highlighted in red and second-tier recipients are highlighted in green. The standout feature of this map is the scale and scope of U.S. aerospace exports.

Figure 4 .2 Map of U .S . Aerospace Export Countries

In 2010, 20 countries purchased approximately 80 percent of total U.S. aerospace exports (see Table 4.1). Among these, the top five U.S. export markets were France, the United Kingdom, China, Germany, 52 Aerospace Industry Report 2011

and Canada. This was China’s first appearance in the top five, displac- ing long-time incumbent Japan.2 Table 4.1 also reveals that within this list, the fastest growing markets for U.S. aerospace products were Indonesia, Qatar, Hong Kong, Turkey, Ireland, and Brazil.

Table 4 .1 U .S . Exports of Aerospace Products and Parts to Top 20 Countries Value in Millions of Dollars Percent Change Percent 2006– World Country 2006 2007 2008 2009 2010 2010 Exports World 76,400 84,763 85,681 84,478 81,052 6 100 France 6,430 7,712 7,326 8,655 7,239 13 9 UK 5,513 6,615 7,152 6,085 5,995 9 7 China 4,841 5,223 3,917 5,344 5,766 19 7 Germany 4,369 5,261 5,677 5,515 5,407 24 7 Canada 5,285 6,799 7,245 5,700 5,359 1 7 Japan 5,954 6,532 6,703 5,700 5,297 -11 7 Brazil 3,273 4,532 5,568 4,681 4,421 35 5 Singapore 4,314 3,717 3,902 2,974 3,878 -10 5 South Korea 3,669 3,495 2,712 2,026 2,648 -28 3 Turkey 1,174 730 1,409 1,240 2,465 110 3 United Arab 4,080 2,629 2,775 3,507 1,812 -56 2 Emirates Indonesia 146 396 543 910 1,727 1081 2 Ireland 1,206 1,434 1,389 1,903 1,717 42 2 Qatar 158 500 742 1,366 1,702 974 2 Australia 1,526 1,218 1,749 1,797 1,637 7 2 Mexico 1,817 1,210 1,530 1,657 1,617 -11 2 Netherlands 1,932 1,781 1,974 1,847 1,529 -21 2 Hong Kong 567 1,263 1,177 2,199 1,408 148 2 Taiwan 1,460 1,517 1,176 806 1,358 -7 2 India 1,449 3,707 1,863 2,302 1,318 -9 2

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Figure 4.3 illustrates that among the top U.S. aerospace export markets, demand increased in France and China from 2008 to 2009, while demand in most other major export markets declined owing to the global recession. From 2009 to 2010, aerospace exports to The Global Aerospace Marketplace 53

France declined, exports to Germany, Japan, and the United Kingdom remained relatively stable, while exports to China continued to increase.

Figure 4 .3 Trends in Top U .S . Aerospace Export Markets

France UK Japan Germany China 9,000

8,000

7,000 s r a ll o D

o 6,000 s on illi

M 5,000

4,000

3,000 2006 2007 2008 2009 2010

Source: U.S. Department of Commerce, International Trade Administration.

Since GDP tends to grow faster in emerging market nations than in industrialized economies, sales of U.S. aerospace products and services to emerging markets are likely to grow faster than sales to domestic markets, representing significant new opportunities for manufacturers and service providers.

The Increasing Importance of Military Aerospace Exports As suggested earlier, military sales abroad represent another channel for U.S. aerospace manufacturers and service providers, as worldwide spending on armaments is quite significant. Table 4.2 shows the top 10 nations’ expenditures on military spending in 2007. The United States leads the world in terms of the total amount spent on defense, although it spends much less as a percentage of GDP than many other countries. In fact, when measured against GDP, the U.S. level of national defense spending is generally ranked 24th or 25th, depending on the methodology used.3 54 Aerospace Industry Report 2011

Table 4 .2 Percentage of GDP Spent on Military Value in Millions of Dollars 2007 Military Percent GDP Country GDP Rank 2007 GDP Spending on Military World 70,155,375 2,157,172 3.1 U.S. 1 14,120,000 741,200 5.2 China 2 8,818,000 380,000 4.3 India 4 3,680,000 92,000 2.5 Russia 7 2,116,000 82,500 3.9 Saudi 22 590,900 59,090 10.0 Arabia France 8 2,094,000 54,444 2.6 U.K. 6 2,123,000 50,952 2.4 Turkey 16 879,900 46,635 5.3 Germany 5 2,815,000 42,225 1.5 S. Korea 12 1,362,000 36,774 2.7

Source: Based on material from http://www.globalsecurity.org/military/ world/spending.htm Note: Excludes GDP and military spending for the European Union.

The World Bank reported that in 2009, approximately 2.6 percent of world GDP was for defense expenditures,4 while approximately $1.6 trillion was spent on the military in 2010.5 Even though the United States leads the world in absolute expenditures, the rate of growth in military spending in China and Russia now exceeds the rate of growth in the United States.6 Despite this, the U.S. Defense Department’s $671 billion fiscal year 2012 budget request is slated to be 5 percent lower than the 2011 budget request. Much of the reduction is expected to result from a drawdown of troops in Iraq.7 However, due to the current economic environment, cuts in procurement are also likely. Consequently, unless there is major change that affects the security interests of the Units States, the military’s demand for aerospace products is likely to decline in the near future. Figure 4.4 highlights the Defense Department’s planned reductions in total obligation authority (TOA) over the next several years. The impact of reductions in U.S. defense spending remains to be seen but may be mitigated, in part, by increased demand from outside the United States. Turmoil in the Middle East and North Africa may limit demand for upgrades and new systems in the near term, but some estimate that the regions will spend more than $63 billion through 2020.8 The Global Aerospace Marketplace 55

Figure 4 .4 National Defense Total Obligation Authority

800,000

700,000 s

r 600,000 a ll o

D 500,000

f o

s 400,000 on

illi 300,000 M

200,000 Constant Dollars (2011 ) 100,000

0 2000 2003 2006 2009 2012 2015 Fiscal Year

Source: National Defense Budget Estimates for FY 2011.

Saudi Arabia, for example, plans to upgrade 70 existing F-15s and to buy 84 new F-15 SA fighters, 70 AH-64D Apache Longbow helicopters, 72 UH-60 Blackhawk helicopters, 36 AH-6i light attack helicopters, and 12 MD-530F light training helicopters—for about $60 billion spread across multiple years. India announced plans to buy 10 C-17 Globemaster IIIs at more than $4 billion,9 the United Arab Emirates plans to spend at least $1 billion on terminal high-altitude area defense (THAAD) advanced missile defense interceptors,10 and Israel is contemplating the purchase of 100 F-35 Lightning IIs totaling at least $5 billion.11 The United States plans to double its foreign military sales this year, which are expected to exceed $46 billion.12 The demand for aircraft like the F-15, F-16, F-35, C-130J, and C-17 will help sustain the U.S. aerospace defense sector as domestic budgets are tightened over the coming years. Similarly, the foreign demand for missile defense systems, unmanned aerial aircraft, and other systems remains strong. However, after peaking in 2011, foreign military sales are expected to level off between $20 billion to $30 billion per year.13

U.S. Aerospace Imports As a result of the recession and global financial crisis, U.S. aerospace imports declined in 2009 after five years of solid growth. However, U.S. aerospace imports increased in 2010 as production of many of the most import-dependent aircraft remained steady (see Figure 4.5). 56 Aerospace Industry Report 2011

Figure 4 5. Imports of Aerospace Products and Parts

Military Civil 40

15 Billion of Dollars 10

0 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Based on data from the U.S. Department of Commerce.

Figure 4.6 is a color-coded display of aerospace imports into the United States. Those countries with the most aerospace exports to the United States are highlighted in red, while countries with the second highest levels of export to the U.S. are displayed in green.

Figure 4 .6 Map of U S. . Aerospace Import Countries

In 2010, the United States imported the most aerospace products and parts from France, Canada, the United Kingdom, Japan, and Germany. From 2006 through 2010, the countries on this list that increased The Global Aerospace Marketplace 57 exports to the United States the most in percentage terms were Mexico, Russian, China, Turkey, and Italy, respectively (see Table 4.3).

Table 4.3 U.S. Imports of Aerospace Products and Parts Value in Millions of Dollars Percent Change Percent 2006– World Country 2006 2007 2008 2009 2010 2010 Imports World 28,628 34,742 35,453 30,885 31,579 10 100 France 7,271 9,238 9,114 7,990 9,000 24 29 Canada 6,538 8,315 7,837 6,805 6,344 -3 20 UK 3,587 3,725 3,808 3,407 3,424 -5 11 Japan 2,359 2,917 2,666 2,904 3,054 29 10 Germany 2,532 2,393 2,773 3,144 2,103 -17 7 Italy 684 880 953 952 1,182 73 4 Israel 951 1,292 1,344 761 747 -21 2 Brazil 1,213 1,729 2,296 747 715 -41 2 Mexico 178 378 557 469 694 290 2 China 246 350 387 397 497 102 2 South Korea 453 506 371 387 467 3 1 Poland 258 207 171 178 386 50 1 Netherlands 181 194 207 230 299 65 1 Switzerland 246 226 350 279 292 19 1 Singapore 194 256 335 268 278 44 1 Turkey 147 190 214 251 270 84 1 Belgium 193 235 328 263 268 39 1 Sweden 208 256 261 178 229 10 1 Taiwan 114 152 175 166 173 52 1 Russian 81 113 86 117 170 111 1 Federation

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

U.S. Balance of Trade in Aerospace Products and Parts The United States has had an annual surplus in aerospace trade for more than 50 years, with a generally positive rate of growth. While exports did decline in 2009 and 2010, the overall balance of trade in aerospace products and parts remained relatively stable (see Figure 4.7). 58 Aerospace Industry Report 2011

Figure 4 .7 Balance of Trade Aerospace Products and Parts

Exports Imports Balance 90 80 70 60 50 40 30

Billions of Dollars 20 10 0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Figure 4.8 is a color-coded map of aerospace trade balances for 2010. The countries listed in green are those with which the United States has the most positive trade balances, while the countries in red are those with which the United States has negative trade balances.

Figure 4 8. Map of U .S . Aerospace Trade Balances

Figure 4.9 highlights the fact that the U.S. trade balance, by commodity classification, is led byairplanes, engines, and parts (i.e., aerospace). While several agricultural classifications maintain trade surpluses, aerospace holds a significant lead over other manufacturing groups. The Global Aerospace Marketplace 59

Figure 4 .9 U .S . Trade Balance by Commodity 2009

Airplanes, engines, and parts Chemicals–plastics Chemicals–n.e.s. Corn Animal feeds General industrial machines Iron and steel mill products Fish and preparations Gem diamonds Chemicals–organic Footwear Chemicals–medicinal Furniture and bedding Electrical machinery Clothing ADP equipment and office machines Crude oil (200,000) (150,000) (100,000) (50,000) - 50,000 Millions of Dollars

Source: U.S. Census Bureau FT 900 Exports and Imports of Goods by Principal SITC Commodities.

Based on the top 20 trading partners in 2010, almost 56 percent of the U.S. positive trade balance in aerospace was with emerging-market nations. Of this, almost 21 percent came through trade with Brazil, India, and China. Russia, the other BRIC country, did not make it into the top 20 trading partners (see Table 4.4).

Summary and Conclusions For decades, aerospace has accounted for a significant share of U.S. exports, generating a positive balance of trade for the aerospace industry. Civil aerospace exports are expected to improve as the global economy recovers, and cuts to U.S. defense spending are likely to be partially offset by additional U.S. military exports. As emerging-market GDP growth generally outpaces that of developed nations, the rate of growth in U.S. exports of aerospace products and services to emerging markets is expected to continue to outpace the rate of growth to legacy countries. 60 Aerospace Industry Report 2011

Table 4.4 Balance of Trade in Aerospace Products and Parts Value in Millions of Dollars Percent Percent Change World 2006– Trade Country 2006 2007 2008 2009 2010 2010 Balance World 47,772 50,021 50,228 53,593 49,474 4 100 China 4,595 4,873 3,530 4,947 5,268 15 11 Brazil 2,060 2,803 3,272 3,934 3,707 80 7 Singapore 4,120 3,461 3,567 2,707 3,600 -13 7 Germany 1,836 2,868 2,904 2,371 3,304 80 7 UK 1,927 2,890 3,344 2,678 2,571 33 5 Japan 3,595 3,615 4,036 2,606 2,242 -38 5 Turkey 1,027 540 1,195 989 2,196 114 4 South Korea 3,216 2,989 2,341 1,639 2,181 -32 4 United Arab 4,079 2,627 2,774 3,506 1,812 -56 4 Emirates Indonesia 142 387 530 902 1,718 1,110 3 Qatar 158 500 742 1,366 1,702 974 3 Ireland 1,116 1,333 1,279 1,852 1,691 52 3 Australia 1,387 1,026 1,573 1,633 1,473 6 3 Hong Kong 562 1,261 1,175 2,197 1,406 150 3 India 1,438 3,690 1,820 2,270 1,286 -11 3 Netherlands 1,751 1,588 1,767 1,617 1,230 -30 2 Taiwan 1,346 1,365 1,001 641 1,185 -12 2 Egypt 421 471 269 583 1,105 163 2 Mexico 1,639 832 973 1,188 923 -44 2 Saudi 322 354 782 1,130 906 181 2 Arabia

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Chapter Endnotes

1 U.S. Department of Commerce, Office of Transportation and Machinery, International Trade Administration. (2011). Flight plan 2011: Analysis of the U.S. aerospace industry (p. 8). Washington, DC: Author. 2 Historically, Canada, France, Germany, Japan, and the United Kingdom have consistently ranked among the top export markets for U.S. aerospace goods. 3 The CIA World Factbook, for example, rates the U.S. 24th in terms of percent of GDP. For more information, see https://www.cia.gov/library/publications/the-world-factbook/ rankorder/2034rank.html 4 The World Bank. Military expenditure (% of GDP). Retrieved from http://search. worldbank.org/data?qterm=Defense%20spending&language=EN&format=html The Global Aerospace Marketplace 61

5 Ringstrom, A. (2011, April 10). Global military spending hits high but growth slows. Reuters. Retrieved from http://www.reuters.com/article/2011/04/10/ us-military-spending-idUSTRE73937Y20110410 6 See SIPRI Military Expenditure Database.(2011). Stockholm International Peace Research Institute. Retrieved from http://www.sipri.org/ 7 Anselmo, J. C. (2011, February 21). Defense budgets: The calm before the storm. Aviation Week & Space Technology, p. 173. 8 Middle East defense market worth US73 billion this year; aerospace market worth US$63 billion over next decade. (2001, May 3). defenseWeb. Retrieved from http:// www.defenceweb.co.za/index.php?option=com_content&view=article&id=15115:mi ddle-east-defence-market-worth-us73-billion-this-year-aerospace-market-worth-us63- billion-over-next-decade&catid=7:Industry&Itemid=116 9 C-17s for India. (2011, June 15). Defense Industry Daily. Retrieved from http://www.defenseindustrydaily.com/C-17s-for-India-05924/ 10 United Arab Emirates cuts back Lockheed Martin missile defense package. (2011, June 24). Bloomberg. Retrieved from http://www.al.com/42/index.ssf/2011/06/post_91.html 11 Israeli plans to buy F-35s moving forward. (2011, July 14). Defense Industry Daily. Retrieved from http://www.defenseindustrydaily.com/ israel-plans-to-buy-over-100-f35s-02381/ 12 U.S. foresees $46 billion in 2011 military sales. (2011, June 11). Defense News. Retrieved from http://www.defensenews.com/story.php?i=6785341&c=AME&s=BUD 13 Shalal-Esa, A. (2011, April 13). U.S. reviewing Mideast arms sales. Reuters. Retrieved from http://uk.reuters.com/article/2011/04/13/ us-mideast-usa-arms-idUKTRE73C6DM20110413

The Workforce

Introduction One of the most problematic long-term challenges facing the aerospace industry is its aging workforce. Even though the shortage of talent has been moderated somewhat by older workers delaying their retirement because of the recession, the declining number of qualified workers remains a serious concern.1 This concern is likely to become acute when the global economy returns to full strength, driving up aircraft orders and, subsequently, production rates. The shortage of workers has already forced many U.S. aerospace manufacturers to look abroad. Contributing to this workforce dilemma is the pervasive lack of interest by American youth in science, technology, engineering, and math (STEM)—skills that are critical to the aerospace industry.2 Given the unique education and skill requirements of the aerospace industry, if this trend is not reversed, the lack of a STEM-educated workforce could have far-reaching effects on the U.S. economy and national security. 64 Aerospace Industry Report 2011

Engineers in Short Supply A recent Wall Street Journal article highlighted an important irony in today’s economy: 13.9 million people were looking for work in May 2011, but manufacturing firms could not find enough people with the right skills (i.e., engineering skills) to fill important jobs.

Difficulty Filling Positions of Strategic Importance in Manufacturing

15 t n e c

r 10 e P

0 2008 2009 2010 2011

Source: Mattioli, D. (2011, June 6). Engineers in short supply as some sectors try to hire. Wall Street Journal, p. B7.

Employment Statistics Still feeling the effects of a sluggish economy and cautious aircraft purchasers, aerospace employment declined for the second straight year in 2010, falling to 624,000.3 The industry lost 20,000 jobs— slightly more than were lost in 2009. Looking at the bigger picture, the overall manufacturing industry has shed jobs every year since 1998, losing 34 percent of its workforce. Over the same period, the aerospace industry, which is a subset of manufacturing, lost only 16 percent of its workforce.4 As of mid-2011, aerospace employment had decreased to 620,000. Given that the decline of the overall manufacturing industry has outpaced the decline of the aerospace industry, the latter has—as expected—accounted for an increasing share of total manufacturing employment. The 2010 level, 5.4 percent, tied that of the previous year, which was a 15-year high. The bottom line is that aerospace is an increasingly important contributor to the national economy. Looking at aerospace employment by sector, in 2010, the aircraft, engines and engine parts, and other aircraft parts and equipment subsectors together employed 402,500 workers; the missiles and space sector employed 74,700; and search, detection, and navigation instruments accounted for another 146,800 jobs.5 The Workforce 65

Figure 5 .1 . Employment in the U S. . Aerospace Industry by Sector

Search & Navigation Instruments Missiles, Space & Parts Other Parts & Equipment

Engines & Parts Aircraft

700

600

500 rkers o f W

s o 400 housan d

T 300

200

100

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Bureau of Labor Statistics.

Of the total aerospace jobs lost in 2010, the engines and parts manufacturing subsector registered the most significant shift as measured by percentage change (-6.9 percent), while the larger complete aircraft manufacturing subsector accounted for the greatest overall loss, 6,400 employees (see Figure 5.1). These results tend to mirror the information presented in Chapter 8, which highlights the declining index of net sales for smaller aerospace manufacturers.

Earnings and Productivity Payroll statistics also indicate that the aerospace industry has out- performed the overall manufacturing industry both over the long term and in recent years. Aerospace’s total payroll declined slightly in 2010, but this was coming off a record high in 2009. Over the past year, the total annual payroll for both the aerospace and manufacturing industries fell by about 1 percent. However, aerospace posted a 2004–2009 CAGR of nearly 5 percent, while the CAGR for manufacturing over the same period declined by 1 percent. Further, since 2000, the annual 66 Aerospace Industry Report 2011

payroll for the aerospace industry increased nearly 70 percent, while that of overall manufacturing fell nearly 15 percent.6 Earnings of aerospace production workers hit another record high in 2010, averaging $33.65 per hour, up 4.4 percent from $32.25 in 2009 (see Figure 5.2). The gain lagged behind the 2004–2009 CAGR of 6.7 percent, as annual increases have been less robust in recent years. Production workers performing aircraft final assembly activities earned $35.95 per hour, up 2.7 percent from the previous year.7 Average weekly earnings of production workers also improved in 2010, for the eleventh consecutive year. Weekly earnings were up 3.8 percent from 2009, reaching $1,452, which was slightly behind the 2004–2009 CAGR of 7.3 percent. The average workweek for all aerospace production workers remained steady, while the aircraft, engines, and parts sector contracted to 43.8 hours from 44.2. Average weekly overtime hours edged up from 4.6 to 4.7 (see Workforce Appendix Table, Average Hours in the Aerospace Industry).8 Declining employment combined with increased profits suggests a rise in productivity—a point that was recently emphasized by Boeing’s CEO.9

Figure 5 .2 . Average Hourly Earnings in the Aerospace Industry

Total Aerospace Aircraft 40.00

35.00

30.00

25.00

Dollars 20.00

15.00

10.00

5.00

0.00 1996 1998 2000 2002 2004 2006 2008 2010

Source: Bureau of Labor Statistics. The Workforce 67

Top Employers by State In 2009, the top five states as ranked by the number of aerospace employees remained unchanged from 2008. California, which accounted for 18 percent of the industry total, again topped the list, with 112,903 workers, a drop of 4,054. Arizona, which gained 2,137 aerospace workers, was the only state among the top five to register an increase in 2009. Reflecting the difficult market for general aviation aircraft, Kansas was the hardest hit among the top five, with employment falling by nearly 6,000 workers, a 13.4 percent drop. Employment trends across the top five states are highlighted in Figure 5.3.

Figure 5 .3 . Aerospace Employment in Top Five States Percent Change State 2007 2008 2009 2008–2009 California 118,532 116,957 112,903 -3.5 Washington 81,932 84,697 84,600 -0.1 Texas 55,069 55,996 55,926 -0.1 Kansas 42,122 44,383 38,432 -13.4 Arizona 35,837 36,561 38,698 5.8

Source: Bureau of Labor Statistics.

Employment by Age The distribution of aerospace employees by age group changed little in 2010, with the 45–64 age brackets remaining the largest (see Figure 5.4). As mentioned previously, demographic trends within the aerospace industry continue to concern employers, as they recognize that a sizable portion of their highly skilled workforce is quickly nearing retirement. According to a recent Aviation Week survey, 40 percent of the employees in aerospace firms with more than 100,000 employees will be eligible to retire in 2014.10 As shown in Figure 5, more than half of the industry workforce will be eligible for retirement in 20 years or less. Such concerns may seem counterintuitive, given the declines in demand for aerospace workers over the past few years as a con- sequence of slowing production within some aircraft segments. However, in difficult economic times, the consequences of losing intellectual capital are often deferred, as workers migrate to other, more promising industries or are perhaps laid off. However, as pro- 68 Aerospace Industry Report 2011

duction picks up in the coming years, employers may find that the needed aerospace workers have been lost permanently. When stronger growth inevitably returns to the industry, the demand for qualified U.S. aerospace workers is likely to exceed supply. Once this happens, quickly refilling the ranks with workers new to the aerospace industry will not be a viable option since the skills needed require years of training and experience to acquire. For example, to be eligible for an FAA certificate examination, a potential airframe mechanic must have at least 18 months of experience after completing training.

Figure 5 .4 . Aerospace Employment by Age

4% 4% 20–24 16% 20% 25–34 35–44

45–54

55–64

65+

22%

34%

Source: Aerospace Industries Association.

Education and Training Needs In addition to innate talent, an effective aerospace manufacturing workforce requires considerable education and training in the STEM fields.* Yet U.S. students are not performing as well in these areas as students in many other countries. In international comparisons, U.S. students rank 25th in math and 17th in science.11 These results suggest that American youth are not being prepared to meet the needs of the U.S. aerospace industry. Reversing this situation will require a fundamental transformation of the U.S. education process.12 Fortunately, the National Science Foundation, as well as numerous high schools,

* STEM refers to programs designed to teach science, technology, engineering, and math. Embry-Riddle Aeronautical University has added an “M,” which stands for manufacturing, to raise awareness of the lack of young people entering the workforce with manufacturing skills. As a result, many are now using the term STEM+M. The Workforce 69 colleges, universities, vocational schools, and other agencies, are beginning to respond to this need. The expected demand for pilots and technicians exemplifies the need for education and training within the aerospace industry. The Boeing Company’s Current Market Outlook, 2011–2030 foresees the world’s airlines needing as many as 460,000 additional pilots and 650,000 skilled maintenance personnel to operate and maintain the fleet within the next 20 years.13 A significant portion of these new hires will replace current pilots and technicians who retire or are lost through attrition. According to the forecast, Airplane manufacturers and the aviation industry must keep pace with technology—including online and mobile computing—in order to match the learning styles of tech-savvy pilots and technicians. The growing diversity of pilots and maintenance technicians in training will require instructors to have cross-cultural and cross-generational skills in addition to digital training tools and up-to-date knowledge of the airplanes. Training programs will need to be tailored to enable airplane operators to gain the optimum advantage of the innovative features offered on the latest generation of airplanes, such as the 787 Dreamliner. (Boeing Current Market Outlook, 2011–2030, p. 13) The need for more rigorous STEM+M-based education and training reaches far beyond the national aerospace marketplace. The National Science Board reports that the American workforce will find it increasingly difficult to compete globally without some degree of compe- tence in science and technology,14 and the lack of interest in manufacturing compounds the problem. If the number of STEM+M qualified workers does not begin to increase, the U.S. aerospace industry may be forced to shift even more engineering and manufacturing-related work to countries with a more technically educated workforce.

2010 Aviation Week Workforce Recommendations As part of Aviation Week’s continuing workforce study program, the 2010 Workforce Advisory Board recommendations include the following:15

■■ Assure adequate investment in research, development and innovation to attract best and brightest to the industry and to facilitate the creation of high-priority jobs as well as the economic foundation provided by product export. 70 Aerospace Industry Report 2011

■■ Assure that front-line supervisors and leaders understand the piv- otal role and appropriate processes to attract and retain employees.

■■ Assure the value of aerospace and defense as an economic driver is understood by the breadth of stakeholders, and that future generation employees understand the opportunity and challenges provided by the aerospace and defense enterprise.

■■ Work with higher education institutions to assure adequate exposure to work applicability of curriculum through class, lab, and intern/co-op experiences, as well as appropriate and relevant research and basic science investigation.

■■ Continue to forge alliances and collaborative efforts across the economy and society to assure the future workforce has the com- petencies required for future innovation, production, and delivery of services in support of mobility, communication, security/ defense, and exploration.

Summary and Conclusions The lingering effects of the financial crisis and global recession have decreased the demand for workers within certain sectors of the aerospace industry. On balance, however, the aerospace industry has fared better than most other manufacturing sectors—and aerospace remains one of the highest paying sectors in manufacturing. However, the lack of interest in the profession by students and younger workers has the potential to put America’s leadership role in aerospace at risk. Fortunately, this is now well understood, and collaborative STEM+M- based efforts by the government, industry, and the academic community are being initiated to recruit and educate America’s youth. The success of these initiatives is critical to the future of the U.S. aerospace industry.

Chapter Endnotes

1 Hedden, C. (2010, August 16). Demand for talent grows despite shrinking economy. Aviation Week & Space Technology, p. 45. Retrieved from http://www.aviationweek.com/ 2 President’s Council of Advisors on Science and Technology (2010, September). Report to the president: Prepare and inspire: K-12 education in science, technology, engineering, and math (STEM) for America’s future (prepublication version). Washington, DC: Author. 3 Blakely, M. C. (2010, December 15). Year-end review and forecast. Aerospace Industries Association. Retrieved from http://www.aia-aerospace.org/assets/YE_speech.pdf The Workforce 71

4 Second to None Campaign Aerospace and Defense Statistics, National Aerospace Week (2011, September 11–17). Aerospace Industries Association. Retrieved from http://www.google.com/search?q=aerospace+lost+16+percent+of+its+workforce&rls =com.microsoft%3Aen-us&oe=UTF-8&startIndex=&startPage=1&oq=aerospace+lost +16+percent+of+its+workforce&aq=f&aqi=&aql=&gs_sm=e&gs_upl=10640l14281l0 l25500l10l10l0l0l0l1l328l1987l0.4.4.1l9l0 5 Total employment: Annual calendar years 1992 to 2011. (2011). Aerospace Industries Association. Retrieved from http://www.aia-aerospace.org/assets/stat12.pdf 6 U.S. Bureau of Labor Statistics. Various surveys: Quarterly census of employment and wages and Current employment statistics (National). Retrieved from http://www.bls.gov/data/ 7 U.S. Bureau of Labor Statistics. Employment, hours, and earnings from the “Current Employment Statistics” survey (national), Average hourly earnings of production and nonsupervisory employees, NAICS Code: 3364. Retrieved from http://www.bls.gov/data/#employment. 8 Ibid. 9 AFP. (2011, July 27). Boeing hikes 2011 outlook as profit soars. Yahoo News. Retrieved from http://au.finance.yahoo.com/news/Boeing-hikes-2011-outlook- afp-279329713.html?x=0 10 Hedden, C. (2010, August 16). Demand for talent grows despite shrinking economy. Aviation Week & Space Technology, p. 45. Retrieved from http://www.aviationweek.com/ 11 Bruce, M. (2010, December 7). China debuts at top of international education rankings. ABC New Politics. Retrieved from http://abcnews.go.com/wn 12 National Science Board. (2010, January). Science and engineering indicators 2010. Arlington, VA: Author. 13 The Boeing Company. (2011). Current market outlook 2011–2030. Seattle, WA: Author. 14 National Science Board. (2010, January). Science and engineering indicators 2010. Arlington, VA: Author. 15 Aviation Week and Hitachi Consulting. (2010, July 20). 2010 Workforce Study. Published in association with the Aerospace Industries Association, American Institute of Aeronautics and Astronautics, and the National Defense Industries Association (p. 3). New York, NY: Aviation Week.

Finance and Capital Markets

Introduction There are several broad categories of finance available to companies doing business in the aviation and aerospace industry: commercial banks; export credit agencies; private equity and debt; public offer- ings of equity and debt; commercial paper; retained earnings; and, as often is the case with the airlines, a variety of lease and ownership options for property, plant, and equipment. This chapter examines two categories of financing: traditional bank lending and alternative lending sources. Large aerospace companies with established reputations and solid credit ratings (e.g., Boeing, Lockheed Martin, and Raytheon) are often publicly held. Consequently, they may avail themselves of public and private placements of debt and equity, as well the issuance of commercial paper, to finance new opportunities and growth. This chapter focuses on some of the financial challenges and opportunities facing small to medium-size manufacturers (SMMs) and service providers. 74 Aerospace Industry Report 2011

Financing The Small Business Administration (SBA) defines a small business loan as “a loan originated for $1 million or less at some point in time over the last several years.”1 In 2010, approximately 60 percent of small business loans were made through depository lenders. Asset- backed loans and lines of credit were the most typical form of borrowing. Sources such as original equipment manufacturers, suppliers, other businesses, finance companies, brokerage houses, and personal and family funds made up the remaining 40 percent.2 During the recent credit crisis and recession, the availability of commercial bank loans to SMMs declined dramatically. Furthermore, underwriting criteria became more rigorous for SMM borrowers (see section on Changes in Loan Underwriting Criteria for further discussion). The aggregate levels of commercial and industrial loans at all commercial banks were at an all-time high in the middle of the most recent recession. At that time, commercial and industrial loans outstanding exceeded $1.6 trillion. During the recession, the volume of commercial and industrial loans bottomed out at $1.2 trillion, for a decrease of $400 billion. This drop is illustrated in Figure 6.1. Figure 6.1 also shows the first quarter 2011 uptick in business lending by commercial banks. Over time, this may evolve into a sustained upward trend, but it is too early to be sure. Moreover, many commercial banks are still working through asset-quality issues (problem loans) and increased capital requirements. These factors complicate the lending environment for SMMs. By the middle of 2010, approximately 829 of 7,800 Federal Deposit Insurance Corporation (FDIC)-insured banks and thrifts, or 11 percent, were on the FDIC’s problem bank list. These institutions are facing severe asset-quality issues, which in turn affect capital and lending availability to SMMs. These institutions also face tightened regulatory review standards. Under these circumstances, the institutions’ boards of directors and management may be hesitant to take on additional risk associated with making new loans to small business, or the perceived risk of increased regulatory scrutiny.3

Traditional Lending Sources The majority of loans to SMMs are from FDIC-insured commercial banks and thrifts.4 For 2000–2008, the overall business loan portfolios of FDIC-insured commercial banks and thrifts grew, on average, 7.2 percent per year. For this same period, small business loan balances Finance and Capital Markets 75

Figure 6 .1 Aggregate Level of Commercial and Industrial Loans at All Commercial Banks

1,600

1,400

1,200

r 1,000 a ll

D o 800

f o

n 600 o

B illi 400

200

0 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: Board of Governors of the Federal Reserve System Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

(loans less than $1 million) grew at a slower annual rate of 5.5 percent. Furthermore, from the first quarter of 2010 to the first quarter of 2011, small business loan portfolios fell by 8.6 percent while overall business loan portfolios fell by only 0.9 percent (see Figure 6.2).5 This has continued to put downward pressure on small business loan availability.

Figure 6 .2 Annual Percentage Change in Small Business Loan Balances

All Business Loans Business Loans Under $1 million

10 t

n 5 e r c e

P 0

-5

-10

-15 2000 2002 2004 2006 2008 2010

Source: Based on material from Federal Reserve Bank of Cleveland. (2011, June 27). Small business lending continues to struggle. Cleveland, Ohio: Author. 76 Aerospace Industry Report 2011

Figure 6.3 illustrates a similar pattern in small business loan holdings. In 2008, total holdings of small business loans peaked at $711 billion. Following that, total holdings of small business loans declined 14.3 percent through the first quarter of 2011 to just under $610 billion. Furthermore, declines were seen across all categories of loans. According to a report published by the Cleveland Federal Reserve, “loans under $100,000 declined 18.1 percent, loans between $100,000 and $250,000 declined 16.7 percent, and loans between $250,000 and $1 million declined 12.1 percent.”6 Small business loans as a percentage of total business loans peaked in 2004, demonstrating that small business loan growth lagged that of total business loan growth over much of the decade.

Figure 6 .3 Business Loan Balance by Size

Business Loans Under $100K Small Business Share of Total Loans Business Loans $100K to $250 Business Loans Over $250K 800 60

50 s 600

lla r o t n D 40

e f c o r

400 e s n 30 P illi o B 200 20

0 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Based on material from Federal Reserve Bank of Cleveland. (2011, June 27). Small business lending continues to struggle. Cleveland, Ohio: Author.

As can be seen in Figure 6.3, there was a decline in the portfolio of small business loans from 2008 to 2010. This can be attributed to declining loan balances as well as a decline in the number of loans provided.7 Figure 6.4 shows the trend in the volume of loans as well as loan balances for business loans under $1 million. Although the volume of loans decreased from 2008 to 2010, the overall growth in the number of the loans since 2000 may point to the increasing availability of loans for SMMs.8 Finance and Capital Markets 77

Figure 6 .4 Small Business Loans Under $1 Million

Average Loan Balance Volume of Loans

50 30

25 40

s 20 30 s and o n s

15 illi o u M h

T 20 10

10 5

0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Based on material from Federal Reserve Bank of Cleveland. (2011, June 27). Small business lending continues to struggle. Cleveland, Ohio: Author.

Changes in Loan Underwriting Criteria Small business borrowers have experienced credit tightening through the impact of “additional collateral requirements, a greater focus on cash flow in analyzing credit worthiness, the requirement for more equity in the proposal or a request for personal guarantees.”9 Many borrowers cannot meet these conditions. Credit spreads also affect both the demand for loans and the borrower’s ability to qualify for the loan. Furthermore, due to businesses’ concern over the sustainability of the economic recovery and the direction government policies will take, many applicants seek only to renew existing loans and not to receive new loans for capital investment or business expansion. Recent Federal Reserve survey data indicate that large and medium lenders continue to see a relaxing of credit standards, but small firm lenders perceive the opposite.10 In the case of commercial and industrial loans to small firms, most recent data show an uptick in perceived tightening credit standards, followed by a downturn (see Figure 6.5). This may indicate an improvement in securing small business loans. 78 Aerospace Industry Report 2011

Figure 6 .5 . Percentage of Respondents on the Tightening Standards for Commercial and Industrial Loans for Large, Medium, and Small Firms

Large and Medium Firms Small Firms 100

40 t

n e c r 20 e P

-20

-40 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source: Board of Governors of the Federal Reserve System Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org

Aggregate Loan Value by Depository Lender Asset Size The SBA Office of Advocacy highlights the increasing importance of large lenders to small business borrowers. These lenders, with $10 billion or more in assets, held 48 percent of all small business loans and accounted for more than 55 percent of the decline in aggregate loan value between 2009 and 2010. From 2003 to 2008, mega-lenders—lenders with more than $50 billion in assets—increased their small business loan portfolios by 78 percent, to more than $280 billion in 2008, up from $157.5 billion in 2003. But 2009 to 2010 were marked by substantial declines in new loans.11 Since 2003, Wells Fargo and the Bank of America have led the market in small business loan origination, holding just over 6 percent of the value of all small business loans. By 2010 they had increased their market share to approximately 11 percent. Other mega-lenders increased their small business loans substantially in 2009 to 2010. According to the SBA report, “Ally Financial, Inc., increased its lending share seven- fold, from $1.5 billion in 2009 to more than $11.1 billion in 2010. First Niagara Financial Group and GE Money Bank each increased their lending by over $1 billion.”12 Despite the large market share held by the above mega-lenders, the overall small business credit market declined. Given the significant market share of lenders with more than $50 billion in assets, the 6.6 Finance and Capital Markets 79 percent decline in their lending from 2009 to 2010 accounted for more than 42 percent of the overall market decline for small business loans. Figure 6.6 illustrates the trend in the number of small business loans held by depository institutions from 2003 through 2010. Overall, about 900,000 loans were eliminated, accounting for a decline of 3.9 percent. The largest decline occurred in lenders with assets ranging from $10 billion to $50 billion. Over this same period, the number of small business loans made by lenders with assets over $50 billion increased by 7 percent. In 2010, commercial and industrial loans of less than $100,000 constituted nearly 90 percent of all loans held by depository institutions. Since 2003, the largest lenders have increased their number of loans in this category by more than 100 percent, but loans made by smaller lending institutions have declined over the same time frame. According to the SBA, . . . in 2003, the largest banks held 41 percent of the smallest loans and more than 38 percent of all small business loans; by 2010, they held nearly 80 percent of the smallest loans and over 70 percent of all small business loans. The concentration of loans in this category reflects the growth in credit cards offered by the largest banks. (Haynes & Williams, 2011, p. 15)

Figure 6 .6 Trends in Small Business Lending by Banks of Different Sizes

Less than $100 M $100 M to $499.9 M $500 M to $999.9 M $1 B to $9.9 B $10 B to $49.9 B $50 B or more 30,000

25,000

20,000 a n o L

s 15,000 a nd s u o

T h 10,000

5,000

0 2003 2004 2005 2006 2007 2008 2009 2010

Source: SBA Office of Advocacy. (2011, March). Lending by depository lenders to small businesses, 2003 to 2010. Washington, DC: Author. 80 Aerospace Industry Report 2011

As can be seen in Table 6.1, the largest depository lenders were the only depository-size group to increase small loans between 2009 and 2010. Furthermore, by virtue of the size of their depository bases, they are more likely than their smaller competitors to have credit available for SMMs. This data illustrates the importance of SMMs developing strong working relationships with mega commercial lenders.

Table 6 .1 Number of Small Loans by Bank Depository Size Total Assets & Thousands of Loans Change 2009–2010 Lender (Total Assets) 2009 2010 Difference Percent Less than $100 M 409 309 -100.3 -24.5 $100 M to $499.9 M 1,380 1,220 -159.7 -11.6 $500 M to $999.9 M 1,853 1,847 -6.5 -0.4 $1 B to $9.9 B 1,223 1,131 -91.7 -7.5 $10 B to $49.9 B 3,189 1,563 -1,626.4 -51.0 $50 B or more 15,128 16,206 1,078.3 7.1 All Small Loans, All Lenders 23,182 22,276 -906.4 -3.9

Source: SBA Office of Advocacy. (2011, March). Lending by depository lenders to small businesses, 2003 to 2010. Washington, DC: Author.

Interest Rates One of the key indicators of corporate borrowing rates is the 10-year Treasury note. At the time of this report, the constant maturity rates on 10-year Treasury notes are lower than at any point since the 1950s (see Figure 6.7). On February 1, 2011, the interest rate on 10-year Treasury notes was 3.58 percent. The actual interest rate that a given company will pay is a function of its creditworthiness, size, cash flow, and other related financial measures, as well as the anticipated overall economic and business environment over the term of the loan. The “points” above a 10-year Treasury note rate are referred to as the loan “spread.” The interest rate on Treasuries plus the spread deter- mines the rate a borrower will pay. Lenders, as well as investors, define interest rate spread as the difference between a risk-free investment such as a Treasury security and a riskier investment such as corporate bond or a loan to an SMM. The 10-year Treasury note is the bench- mark risk-free investment. The U.S. Federal Reserve has kept interest rates low to help stimulate the U.S. economy. For example, economic stimulus occurs when businesses can borrow at low rates of interest, as can consumers of such items as homes and cars. This benefits both producers and consumers Finance and Capital Markets 81

Figure 6 .7 10-Year Treasury Constant Maturity

18.0

16.0

14.0

12.0

10.0 t

n e c r 8.0 e P 6.0

4.0

2.0

0.0 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Source: Board of Governors of the Federal Reserve System Note: Shaded areas indicate U.S. recessions. 2011 research.stlouisfed.org by keeping the cost of production and the cost of borrowing lower. The confounding factor, at present, is that many SMMs do not have sufficient access to available capital.

Income Statement, Balance Sheet, and Key Ratios for Aerospace Manufacturers The financial performance of the aerospace industry is closely related to the ability of aerospace firms to obtain capital at favorable rates. This section focuses on how banks and other institutions assess the financial health of the industry and individual firms. Balance sheets, income statements, and ratios of various types are among the most common tools used to assess the financial well-being of firms and industries. Banks and lenders analyze these and other documents to determine the creditworthiness, interest rates, collateral, and other terms for loans. For publicly traded firms, these factors also influence stock prices and ratings. This section includes an abbrevi- ated balance sheet, an income statement, and a few ratios to document the current state of the industry and explore some of the differences between large and small to medium-size aerospace manufacturers. (A more detailed income statement, balance sheet, and additional financial information are included in the Finance section of the Appendix.) The information in Figure 6.8 is published by the U.S. Census Bureau. It contains financial data and ratios on the overall industry as well as 82 Aerospace Industry Report 2011

firms with assets less than $25 million. Several things are evident from looking at Figure 6.8. Small manufacturers experienced losses in the last two quarters of 2010. This has an impact on raising capital since their ability to service debt may be questionable. Credit terms from traditional lenders could be more restrictive, requiring many of these firms to seek capital from other sources. While this information is useful, we found that it was necessary to break the data down even further to truly understand what is happening inside the core of the U.S. aerospace supply base. Figures 6.9 and 6.10 compare differences between aerospace manufacturing firms with assets less than $25 million and those with assets of $25 million or more.

Figure 6 .8 Income Statement, Operating Ratios, and Balance Sheet Ratios for Aerospace Manufacturers in 2010 All Total Asset Sizes Total Asset Sizes Under $25 million

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2010 2010 2010 2010 Year 2010 2010 2010 2010 Year Item (million dollars) (million dollars) Net Revenue 56,390 60,354 61,372 63,747 241,863 854 668 706 782 3,010 Income (loss) from operations 4,650 5,332 5,171 4,724 19,877 78 42 0 (7) 113 Income (loss) after income taxes 3,481 4,567 3,902 4,429 16,379 65 23 (26) (22) 40

Income Statement in Ratio Format (percent of net sales) (percent of net sales) Income (loss) from operations 8.25 8.83 8.43 7.41 8.23 9.18 6.33 (0.07) (0.95) 3.62 Income (loss) after income taxes 6.17 7.57 6.36 6.95 6.76 7.58 3.42 (3.75) (2.81) 1.11

Operating Ratios (percent) (percent) Annual rate of profit on stockholders’ equity at end of period: After income taxes 20.53 26.23 21.17 23.97 22.98 21.98 10.77 (12.02) (9.98) 2.69 Annual rate of profit on total assets: After income taxes 4.71 6.18 5.20 5.79 5.47 11.21 4.94 (5.45) (4.19) 1.63

Balance Sheet Ratios Total current assets to total current liabilities 1.28 1.29 1.31 1.31 1.30 2.74 2.54 2.73 2.42 2.61 Total cash, U.S. Gov’t and other securities, to total 0.16 0.15 0.15 0.16 0.16 0.65 0.60 0.57 0.41 0.56 current liabilities Total stockholders’ equity to total debt 1.22 1.26 1.31 1.35 1.29 2.19 1.87 1.74 1.48 1.82

Source: U.S. Census Bureau (2010, Quarters 1–4). Quarterly Financial Report. Note 1: Net revenue, income from operations, and income after taxes are the sums of Q1 (first quarter) through Q4 (fourth quarter). All ratios are the average for Q1 through Q4. Note 2: NAICS Manufacturing Industry Group 3364: All Total Asset Sizes and Total Assets under $25 million. Finance and Capital Markets 83

One of the most obvious differences between SMMs and the larger firms is the greater relative stability of the revenue stream of the larger firms. Not surprisingly, another difference can be seen in the declining net income and working capital of the smaller firms between 2008 and 2010. What makes this interesting is the different trajectories of the larger firms versus those with fewer assets. Figures 6.11 and 6.12 highlight these differences. The “Income from Operations Ratio“ in Figure 6.11 is calculated by dividing Operating Income by Revenue. The “Net Income After-Tax Ratio” in Figure 6.12 is calculated by dividing Net Income After Taxes by Revenue.

Figure 6 .8 Income Statement, Operating Ratios, and Balance Sheet Ratios for Aerospace Manufacturers in 2010 All Total Asset Sizes Total Asset Sizes Under $25 million

Figure 6 .9 Income Statement and Balance Sheet for Firms with Assets Equal to or Greater Than $25 Million Firms with $25 Million or More in Assets Aerospace Income Statement (Millions of US Dollars) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2008 2008 2008 2008 2010 2010 2010 2010 Revenue 56,933 62,096 58,753 56,704 55,535 59,685 60,666 62,965 Operating Income 6,028 6,470 5,536 4,316 4,572 5,290 5,172 4,731

Net Income After Taxes 4,783 5,181 4,182 (100) 3,416 4,544 3,928 4,451 Aerospace Balance Sheet (Millions of US Dollars) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2008 2008 2008 2008 2010 2010 2010 2010 Total Assets 312,529 305,897 308,034 298,503 293,123 293,874 298,205 303,913 Total Liabilities 225,191 219,739 226,269 247,605 226,497 225,094 225,380 230,890

Net Working Capital 87,338 86,158 81,765 50,898 66,626 68,780 72,825 73,023

Source: U.S. Census Bureau, Quarterly Financial Report.

Figure 6 .10 Income Statement and Balance Sheet for Firms with Assets Less Than $25 Million Firms with Assets Under $25 Million Aerospace Income Statement (Millions of US Dollars) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2008 2008 2008 2008 2010 2010 2010 2010 Revenue 1,179 1,865 1,447 1,236 854 668 706 782 Operating Income 104 230 283 (16) 78 42 0 (7)

Net Income After Taxes 95 187 257 (18) 65 23 (26) (22) Aerospace Balance Sheet (Millions of US Dollars) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2008 2008 2008 2008 2010 2010 2010 2010 Total Assets 3,245 3,807 3,730 3,068 2,312 1,847 1,941 2,095 Total Liabilities 1,557 1,867 1,665 1,304 1,133 999 1,060 1,217

Net Working Capital 1,688 1,940 2,065 1,782 1,179 848 881 878

Source: U.S. Census Bureau, Quarterly Financial Report.

Regardless of whether the decline in revenue and net income of the smaller firms is the result of the overall recession, competition from foreign suppliers, or pressure by the larger firms to hold down costs, it is clear that something is happening to the smaller firms that make up America’s aerospace supply base. Finance and Capital Markets 85

Net Working Capital 87,338 86,158 81,765 50,898 66,626 68,780 72,825 73,023

Source: U.S. Census Bureau, Quarterly Financial Report.

Net Working Capital 1,688 1,940 2,065 1,782 1,179 848 881 878

Source: U.S. Census Bureau, Quarterly Financial Report.

Figure 6.13 shows that the SMMs’ ratio of total current assets to total current liabilities is at least double that of the larger firms. When comparing total cash and U.S. government and other securities, to total current liabilities, the SMMs’ ratio is even higher (see Figure 6.14). While the U.S. Census Bureau provides no clear explanation for these differences, one reason may be the lack of credit available to SMMs, forcing them to use more cash while larger companies use credit. 86 Aerospace Industry Report 2011

Figure 6 .11 Income from Operations Ratio

Firms with Assets Equal to or Greater Than $25 Million Firms with Assets Under $25 Million

t n e

c 6 r e P 4

0 2008 2009 2010

Source: U.S. Census Bureau, Quarterly Financial Report.

Figure 6 .12 Net Income After-Tax Ratio

Firms with Assets Equal to or Greater Than $25 Million Firms with Assets Under $25 Million

t 6 n e c r e P 4

0 2008 2009 2010

Source: U.S. Census Bureau, Quarterly Financial Report.

Alternative Lending Sources In this section, four alternative lending categories are discussed: collateral-based loans, small business investment companies, venture lenders, and hedge funds. These sources may assist SMMs to bridge the increasing gap between loan demand and traditional lending sources. In the first quarter of 2011, “middle-market lending rose 61%, compared with the same quarter in 2010, to $34.9 billon.” (Middle-market companies are generally considered to be those with revenues ranging Finance and Capital Markets 87

Figure 6 .13 Total Current Assets to Total Current Liabilities Ratio

Firms with Assets Equal to or Greater Than $25 Million Firms with Assets Under $25 Million 3.50

3.00

2.50

2.00 o i t a

R 1.50

1.00

0.50

0.00 2008 2009 2010

Source: U.S. Census Bureau, Quarterly Financial Report.

Figure 6 .14 Total Cash and U .S . Government and Other Securities to Total Current Liabilities Ratio

Firms with Assets Equal to or Greater Than $25 Million Firms with Assets Under $25 Million

0.80

0.70

0.60

0.50 o i t 0.40 a R 0.30

0.20

0.10

0.00 2008 2009 2010

Source: U.S. Census Bureau, Quarterly Financial Report. from $50 million to $1 billion.) In 2010, alternative lending sources had a strong showing; many small businesses, feeling constrained at banks and facing increased customer orders, turned to these sources for more capital.14

Collateral-Based Loans Collateral-based loans are those that are backed by something of value at the company. They can come from a variety of nonbank lenders 88 Aerospace Industry Report 2011

and often serve as “credit stepping stones.” Three important types of collateral-based lending are cash flow lending, invoice factoring, and asset-based lending.

Cash Flow Lending Cash flow loans are a type of collateral-based loans in which the debt is secured by future cash flows generated by the borrowing company. Cash flow loans are especially important to companies without hard assets to serve as collateral. As of October 2010, there were 18 active cash flow lenders, according to Ronald Khan of Private Equity Hub.15 One such lender is Gladstone Companies, a Virginia-based publicly traded company. Gladstone invests in businesses with the following characteristics:16

■■ $3 million plus in earnings before income tax, depreciation, and amortization

■■ Experienced management team

■■ Proven business model

■■ Predictable and stable cash flow with consistent earnings

■■ Minimal market risk or technology risk

■■ Potential to expand cash flow

■■ Long-term customer relationships

■■ Continental U.S. location Gladstone provides customers with second-lien debt. In the Q2 earnings call to shareholders, senior management described six new investments of more than $35 million and three new investments totaling $17.2 million since quarter’s end. Management described its future outlook as optimistic and looking to take on smarter investments.17 American Capital Strategies, another publicly traded lender, notes that lenders will have a more conservative outlook on cash flows as opposed to the optimistic outlook that characterizes many borrowers.

Invoice Factoring Invoice factoring is the practice of selling accounts receivable (AR) from the SMM to a lender at a discounted price. The lender will, in Finance and Capital Markets 89

Business Development Companies: Another Source of Capital for Small to Medium Firms Business development companies (BDCs) essentially provide venture capital that is open to the public. BDCs borrow at long-term rates and lend money to developing companies that may be unable to borrow from more traditional venues. As in venture capital, BDCs can raise money by selling shares or securing lines of credit, but BDCs can also receive loans issued by the SBA. BDCs typically make loans to private companies with annual revenues less than $500 million. The BDC marketplace is currently composed of 27 companies, most of which were formed in the last eight years. Their loan portfolio sizes range from 155 to 23. Nine of the BDCs have significant experience in aerospace lending and others have listed aerospace as an area of increased focus for future lending. BDCs are an attractive way to borrow money for small and mid-sized companies primarily because BDCs make loans to small businesses that most banks would not even consider. This lending is possible because federal loans to BDCs typically carry 6 percent interest rates. BDCs can pocket the spread by lending at 10 percent to 14 percent. No other lending source can borrow such low-cost capital with the intention of lending to private markets. Small firms that rely mainly on bank credit are in need of smaller, alternative lenders as bank financing remains tight. BDCs hold an investment stake in borrowers that allows them to turn their debt capital into an equity stake in small, successful businesses. Many BDCs are given warrants that allow them to buy stock at a specified price and time in an indebted company that gains value.

Source: Duncan Young. (2011). Columbia Partners, LLC. turn, be responsible for collecting the AR. Factoring is particularly useful to companies that carry large accounts receivable. The demand for factoring is growing. In 2010, the volume of factors increased to $74.3 billion, up from $65.9 billion in 2009.18 This may be a viable financing option for SMMs. The factoring market has consolidated; there are six major factors lenders, only two of which are bank owned. Some believe opportunities for entrepreneurs to enter the factoring market will open up, especially in niche and international sectors, as the access to bank credit remains constricted for small to medium-sized businesses. Stuart Bristers, CEO and president of Wells Fargo Trade Capital, has a positive outlook on 2011, seeing more competition and growth from the factoring industry. This means factor lenders will be competing against one another for the strongest clients. Donald Barrick, president of RMP Capital, says the industry is “seeing a higher credit quality than we did in the past.”19 Even though the demand for factoring may be growing, there is some hesitation among SMMs to use this technique. For SMMs that rely heavily on strong customer relationships, the outsourcing of debt collection can strain relationships and cause uncertainty among customers. 90 Aerospace Industry Report 2011

Asset-Based Lending Asset-based lending is a loan that is secured by an asset.20 According to The Commercial Finance Association, asset-based loans (ABLs) are a “life-line to borrowers” and “new credit commitments among asset- based lenders increased by 13.2% in the 4th Quarter [of 2010].”21 The ABL market has seen substantial growth since the credit crunch of 2008, reaching nearly 20 percent of noninvestment-grade corporate lending in 2010.22 In the first half of 2010, there was an issuance of $28.4 billion in loans. As can be seen in Figures 6.15 and 6.16, asset-based lending is a significant part of collateral (or leveraged) lending.23

Figure 6 .15 Asset-Based Lending Picks Up

Volume Deal Count 25 140

120 20 100 )

s n

15 n illi o 80 u o (B

C e c al e

a n 60 D

u 10 Iss 40 5 20

0 0 1Q 2004 1Q 2005 1Q 2006 1Q 2007 1Q 2008 1Q 2009 1Q 2010

Source: Based on material from Dikeos, M. C. (2010). Thomson Reuters Gold Sheets.

According to Thomson Reuters, Bank of America Merrill Lynch was the lead arranger for asset-based lending in 2010, with 33 percent market share. It also topped the charts for number and volume of deals, 149 and $20.5 billion, respectively.24 GE Capital is a leader in middle-market financing. Some of GE Capital’s solutions to provide companies with additional working capital include “asset-based & cash flow loans, accounts receivable and factoring, structured finance, franchise finance, sponsor finance and distribution finance.”25 Capital Source, a smaller publicly traded lender, offers floating rate asset-based and senior stretch credit (which bridges the gap between Finance and Capital Markets 91

Figure 6 .16 ABL as Percentage of Total Leveraged Issuance Remains Steady

Volume ABL as % of Leveraged Volume 80 20 18

70 e

m u

16 l o

60 s) V

n 14 d o e 50 12 g r a (B illi

e e v e

m 40 10 L u

l f o o

V 8

30 % s B L

6 a A 20 4 B L A 10 2 0 0 2004 2005 2006 2007 2008 2009 2010

Source: Based on material from Dikeos, M. C. (2010). Thomson Reuters Gold Sheets. bank lending and equity) to middle-market companies. Their typical asset-based loan is between $10 million and $100 million. First Capital, a specialized commercial finance company, announced that it has provided more than $330 million in new credit lines to small and medium- size businesses since May 18, 2010.

Small Business Investment Companies The Small Business Investment Company (SBIC) program established by the Small Business Association (SBA) partners with privately man- aged funds to provide financing for small businesses. There are restrictions that come along with SBIC funds. SBICs, for example, cannot invest in other SBICs, finance and investment companies or finance- type leasing companies, unimproved real estate, companies with less than 51% of their assets and employees in the United States, passive or casual businesses, or companies that will use the proceeds to acquire farm land. SBICs may also not provide funds for small concerns whose primary business is deemed contrary to the public interest.26 The SBA has been instrumental in facilitating loans since the 2008 recession. In the past two years the SBA has provided $42 billion in loan guarantees to small businesses. To enhance credit security, the SBA increased its guarantee on some loans to 90 percent, up from 75 and 85 percent.27 Since December 31, 2010, loan levels have continued to rebound. According to SBA’s chief Karen G. Mills, “[they] are back at 2008 lending levels.”28 In fact, 2010 was a record-breaking year for the SBA: providing $1.59 billion through the SBA SBIC debenture program.29 92 Aerospace Industry Report 2011

Capital Structure Dilemma Facing Aerospace and Defense Sub Contractors Recent data confirms that the difference between small (less than $25 million in sales) and larger Aerospace and Defense (A&D) subcontractors continues to become more pronounced. In particular, the balance sheets of the middle-market companies show a marked decline in cash. This is due, in part, to a reduction in revenues attributable to OEM pricing pressure as well as the loss of contracts to off-shore manufacturers. Added to this is the continuing pressure from OEMs for sub contractors to own raw material and work-in-progress, meet just-in-time delivery requirements, and expand durations for accounts receivable. Faced with dwindling cash and the need to invest in capital equipment and cover other non-recurring costs, many A&D companies are seeking assistance from investment banking firms that support the middle market. The role of the investment bank is to assist clients in determining the best capital structure and amount of cash that can be obtained, given the sales, profit, and cash flows of the underlying business. Once the capital needs are determined, the investment bank identifies commercial lenders that can provide the most favorable terms to the client. It is not uncommon for the investment bank to obtain competitive proposals from 25–30 lenders during this process. The negotiation of credit terms in addition to interest rates is critical. Some of the most important terms and conditions include: debt term; interest rate structure; covenants; facility leasing terms; inventory and accounts receivable advance rates; inventory appraisals; and personal guarantee requirements. Even in a difficult market, successful refinancing can significantly expand a company’s cash position and improve credit terms – providing the firm with the ability to fund current operations, pursue new contracts, and seek growth opportunities.

Source: Joseph Lubenstein. (2011). Marcum Cronus Partners LLC.

Venture Lenders Venture capitalists are well known for their role in providing financial and managerial assistance to startup firms. Today, there are a growing number of venture firms that do not just focus on equity investments—they also provide startups with something called venture debt.30 As noted in a 2008 Bloomberg BusinessWeek article: Often it is for companies with strong financial backing, such as from VCs. Or it could suit nonfunded companies that have a customer base. (In this case, the venture debt provider can fund against inventory/receivables). Venture debt is also available from other funders, not just VCs. (Taulli, 2008) Venture debt is particularly useful to companies that need excess cash flow. According to the National Venture Capital Association, in Q1 2011 there were 407 deals (with companies in the “expansion” or “later stage” of development) for a total of just over $4 billion invested.31 There are numerous venture lenders; for illustration purposes we will highlight two: Silicon Valley Bank and Vulcan Capital. Finance and Capital Markets 93

Silicon Valley Bank, a California-based venture capital firm, provides lending products (including asset-based loans) to the technology and life sciences sectors (among others).32 In their Q1 2011 review they reported record loan numbers of $5.65 billion.33 Seattle-based Vulcan Capital, a venture capital firm, provides three types of investing: “Direct Investing, Fund Investments and Public Securities.”34 These equity investments typically run between $25–$250 million or more. Some of their expertise lies in energy and natural resources, life sciences, and technology industries.

Hedge Funds Hedge funds are a last resort for SMMs. Typically, when dealing with middle-market companies, hedge funds are looking for distressed debt. It might be too difficult for the middle market to find hedge funds as lenders. One option that hedge funds (and some private equity groups) offer is business development companies (see insert). Since the beginning of 2010, eight BDCs have gone public and raised $770 million.35

Summary and Conclusions The still tenuous economic recovery continues to present challenges for SMMs and, in particular, the availability of and access to capital. The Federal Reserve Bank and other sources indicate that stricter underwriting standards are likely to remain in existence into the foreseeable future.36 Yet many SMMs cannot meet the underwriting criteria. While the need for strict underwriting criteria is understood from a lending perspective, in the current environment of reduced liquidity, this represents a serious hardship for small to medium aerospace manufacturers. For small to medium manufacturers, being able to access money is often essential for capital investments and productivity improvements. The data presented in the chapter indicate that firms under $25 million in assets are not performing as well as larger firms. This may account for why many smaller firms are finding it difficult to obtain credit for capital investments. Non-depository lenders, such as GE Capital, venture lenders, and hedge funds, may provide viable alternative financing options such as sale-leasebacks, and asset-based and cash-flow loans. 94 Aerospace Industry Report 2011

As prime contractors and first-tier suppliers continue to devolve risk and financial responsibility down the supply chain, the shortage of credit available to SMMs creates a unique set of business challenges. It seems highly likely that credit will become more available over the medium-term, but the short-term needs of the SMMs are of serious concern. These conditions may require creative solutions between supply chain tiers and the investment community.

Chapter Endnotes

1 Haynes, G. W., & Williams, V. (2011). Lending by depository lenders to small businesses, 2003 to 2010. Washington, DC: U.S. Small Business Administration. Retrieved from http://www.sba.gov/content/lending-depository-lenders-small-businesses-2003-2010 2 Ibid. 3 Stackhouse, J. L. (2010). Understanding the small business “Credit Crunch”: Perspectives from a Fed Regulator. St. Louis, MO: Federal Reserve Bank of St. Louis. 4 Haynes, G. W., & Williams, V. (2011). Lending by depository lenders to small businesses, 2003 to 2010. Washington, DC: U.S. Small Business Administration. Retrieved from http://www.sba.gov/content/lending-depository-lenders-small-businesses-2003-2010 5 Koepke, M., & Thompson, J. B. (2011, June 27). Small business lending continues to struggle. Cleveland, OH: Federal Reserve Bank of Cleveland. Retrieved from http://www.clevelandfed.org/research/trends/2011 /0711/01finmar.cfm 6 Ibid. 7 Ibid. 8 Ibid. 9 Stackhouse, J. L. (2010). Understanding the small business “Credit Crunch”: Perspectives from a Fed Regulator. St. Louis: Federal Reserve Bank of St. Louis. 10 The information in Figure 6.5 is from the Senior Loan Officer Opinion Survey. The Senior Loan Officer Opinion Survey on Bank Lending Practices is administered quarterly by the Federal Reserve. The survey includes approximately 60 large domestic banks and 24 U.S. branches and agencies of foreign banks. For more information see http://www.federalreserve.gov/boarddocs/snloansurvey/ 11 Haynes, G. W., & Williams, V. (2011). Lending by depository lenders to small businesses, 2003 to 2010. Washington, DC: U.S. Small Business Administration. Retrieved from http://www.sba.gov/content/lending-depository-lenders-small-businesses-2003-2010 12 Ibid., p. 14. 13 Frumes, M. (2011). Anatomy of a Middle-market Lender. The Deal Magazine. Retrieved from Anatomy of a Middle-market Lender website: http://www.thedeal.com/magazine/ ID/039310/2011/anatomy-of-a-middlemarket-lender.php 14 Eden, T. (April 2011). What’s the current state of commercial lending? The Secured Lender, 67, 78. 15 Khan, R. (2010). Cash flow loans still not abundant. Private Equity Hub. Retrieved from http://www.pehub.com/86054/cash-flow-loans-still-not-abundant/ 16 The Gladstone Companies. (2011). Debt/Equity Solutions. Retrieved from http://gladstonecompanies.com/debt_solutions.html Finance and Capital Markets 95

17 Gladstone, D. (2011, May 4). Gladstone Capital CEO Discusses Q2 2011 - Earnings Call Transcript. Seeking Alpha. Retrieved from http://seekingalpha.com/ article/267627-gladstone-capital-ceo-discusses-q2-2011-earnings-call-transcript 18 Commercial Finance Association. (2011, April 27). Annual Asset-Based Lending and Factoring Survey Highlights, 2010. Retrieved from https://www.cfa.com/eweb/upload/ CFA.Member.ABL.Factoring.2010.Reports.pdf 19 Ibid. 20 Cummings, N., Thompson, J., & Paparo, V. (2010). To the rescue. International Law Review, 29(6). 21 PR Web. (2011, February 17). Asset-Based Lenders Are Playing a Key Role in Economic Turnaround for U.S. Businesses. Retrieved from http://www.prweb.com/ releases/2011/02/prweb5080484.htm 22 Arth, R. (2011, March 2011). What Can We Expect?: The Landscape for U.S. Asset-Based Lending in 2011. The Secured Lender. Retrieved from http://www.thesecuredlender-digital.com/thesecuredlender/201103?pg=11#pg70 23 Dikeos, M. C. (2010, August 23). Despite lender hopes and enhanced liquidity, ABL new money remains limited in 2010. Thomson Reuters Gold Sheets. Retrieved from http://www.gelending.com/Clg/CapitaLens/9-2010/ABL_TRLPC.pdf 24 Bank of America. (2011, January 27). Bank of America Merrill Lynch Ranked No. 1 in Asset-Based Lending in 2010. Retrieved from http://mediaroom.bankofamerica.com/ phoenix.zhtml?c=234503&p=irol-newsArticle_pf&ID=1520935 25 GE Capital. (2011) Corporate Financing. Retrieved from http://www.gecapital.com/en/ solutions/corporate-financing.html?gemid2=footer0101 26 U.S. Small Business Administration. (2011). Seeking SBIC Financing for your Small Business. Retrieved from http://www.sba.gov/content/sbic-program-0 27 Ransom, D. (2011). The State of the SBA. Entrepreneur. Retrieved from http://www.entrepreneur.com/article/219620 28 Ibid. 29 U.S. Small Business Administration. (2010, October 14). SBA Growth Capital Program Provides Record $1.59 Billion in Financing for Small Businesses in FY10. Retrieved from http://www.sba.gov/content/sba-growth-capital-program-provides-record-159- billion-financing-small-businesses-fy10 30 Taulli, T. (2008, September 19). How venture debt financing works and how to get it. Bloomberg BusinessWeek. Retrieved from http://www.businessweek.com/smallbiz/ content/sep2008/sb20080919_927652.htm 31 National Venture Capital Association. (2011, April 15). Venture Capital Investment Dollars Increase Modestly While Number of Deals Declines in Q1 2011. Retrieved from Document2 http://www.pwc.com/us/en/press-releases/2011/venture-capital- investment-dollars.jhtml 32 SVB Financial Group. (2011). SVB Growth. Retrieved from http://www.svb.com/ growth 33 SVB Financial Group. (2011). Corporate Overview and First Quarter 2011 Financial Results. Presentation by SVB Financial Group. Retrieved from http://files.shareholder. com/downloads/SIVB/1285381014x0x438578/440c32a3-ab4f-4e5c-a7b6- 3ad6d11b11dc/Corporate_Presentation.pdf 34 Vulcan Capital. (2011). Approaches. Retrieved from http://capital.vulcan.com/Approaches/ 35 Colter, A. B. (2011). Investors drawn to specialty lenders; some see froth in middle market. The Investment Dealers’ Digest, 77, 1. 96 Aerospace Industry Report 2011

36 U.S. Federal Reserve Bank. (2011). Addressing the Financing Needs of Small Businesses: Summary of Key Themes from the Federal Reserve System’s Small Business Meeting Series. Retrieved from http://www.federalreserve.gov/events/ conferences/2010/sbc/downloads/small_business_summary.pdf 97

Regional Manufacturing and Exporting Trends

Introduction This chapter includes a brief discussion of aerospace manufacturing across the United States and then addresses, in some detail, regional exporting trends. Every state supports some level of aerospace manufacturing, often located in one of the several clusters that specialize in aerospace manufacturing. While aerospace clusters are discussed in more detail in the next chapter, many of the figures presented in this chapter are driven by firms operating in clusters. The data relating to state and regional exporting in this chapter are provided to demonstrate the linkages among exports, job creation, and economic growth. Policy recommendations set forth in the National Export Initiative (NEI), coupled with the devaluation of the U.S. dollar, represent a new level of opportunity for U.S. firms interested in exporting. The Export-Import (Ex-Im) Bank of the United States will also play a crucial role in meeting the NEI’s objectives and supporting U.S. 98 Aerospace Industry Report 2011

exporters. In 2010, the bank supported $34.3 billion worth of U.S. exports and an estimated 227,000 American jobs at more than 3,300 U.S. companies.1 This role of the Ex-Im Bank is addressed in more detail later in the chapter.

Rising Expectations The KPMG Global Business Outlook Survey, also called the “Pulse” survey, measures expectations of business leaders on a tri-annual basis.2 The survey is designed to determine the “net balance” of business optimism versus pessimism. The net balance is calculated by subtract- ing the percentage of responses that are pessimistic from the percentage that are optimistic. The potential scale thus runs from +100 to -100, with a result of zero indicating a neutral view. A positive net balance indicates overall optimism, while a negative net balance indicates overall pessimism. The larger the positive or negative net balance, the stronger the optimistic or negative dominance, respectively. The most recent Pulse survey was conducted in February 2011, with about 11,000 companies in 17 countries (including 526 firms in the United States) participating. That survey revealed that global business optimism concerning several important indicators has reached the highest levels ever recorded by the survey. Among U.S. manufacturing companies, a net balance of +61.2 percent expect revenues to increase in the next year, and a net balance of +56.3 percent expect profits to increase in the next year as well. Mark A. Goodman, vice chairman and head of advisory for KPMG in the United States, observed, Business leaders have clearly shifted focus from cost cutting to growth in a post-recession environment, though some remain cautious about hiring and are not convinced improved business conditions will lead to higher prices. This is consistent with continued emphasis on increased productivity we’re seeing throughout the marketplace, as businesses work to leverage new operations and IT models that improve efficiencies and the effectiveness of their organizations. (KPMG Global Business Outlook Survey, Spring 2011) These responses are substantially more optimistic than the viewpoints expressed in the October 2010 survey. The survey reports that manufacturing executives expect new orders to grow strongly and capacity utilization to improve over the coming year, but it also notes that input prices are beginning to rise (see Figure 7.1).*

* It should be noted that the survey was conducted well before Standard & Poor’s downgrade of the U.S. credit rating and the subsequent decline in the market and overall economic conditions. Regional Manufacturing and Exporting Trends 99

Figure 7 .1 Net Balances of U S. . Manufacturing Expectations, 2011

Revenue Rising

Profits Rising

Inuput Prices Increasing

Output Prices Increasing

Employment Increasing

0 10 20 30 40 50 60 70 Percent

Source: KPMG, Global Business Outlook Survey (2011, Spring).

Regional Manufacturing Trends Figure 7.2 illustrates changes in regional manufacturing from 2000 to 2009. These data indicate that the North-Central region maintained its lead from 2000 to 2009, but the South-Central region increased its manufacturing activity substantially over the same period.3 All regions suffered from the recession, as indicated by the declining value of shipments between 2008 and 2009.

Figure 7 .2 Regional Manufacturing Trends (2000–2009)

2000 2009 1,600 1,400 s 1,200 lla r o

D 1,000

f o

800 s

n 600

illi o 400 M 200 0 Pacific Mountain S. Central N. Central S. Atlantic Mid Atlantic New England

2000 2008 2009 2009 2000-2009 Growth Region Millions of Dollars % of U.S. U.S. = 9.53% Pacific 593,687 717,167 604,068 13 2 Mountain 169,128 221,347 187,868 4 11 S. Central 838,203 1,440,897 1,090,455 24 30 N. Central 1,343,217 1,640,810 1,325,072 29 -1 S. Atlantic 638,911 719,767 610,507 13 -4 Mid Atlantic 444,893 530,450 444,977 10 0 New England 189,812 197,656 173,249 4 -9

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce. 100 Aerospace Industry Report 2011

Regional Aerospace Manufacturing Trends In 2008, the U.S. Census Bureau announced that it had reached an agreement with the aerospace industry to protect certain sales and shipment-related information that had previously been available to the public. One of the consequences of this revision is that it is no longer possible to determine the value of aerospace shipments from one state to another using public Census Bureau data.

Regional Aerospace Exporting Trends Even though it is no longer possible to determine the value of aerospace products produced by most states, it still possible to assess and compare the value of U.S. aerospace exports by region and state.4

Pacific Region Aerospace Exports For the purpose of this report, the Pacific region includes Alaska, California, Hawaii, Oregon, and the state of Washington. Aerospace exports from this region are dominated by deliveries of Boeing’s large civil aircraft.

Figure 7 .3 Pacific Region Aerospace Exports to World

37,000

35,000 s

a r 33,000 ll D o

of 31,000

s n o 29,000 M illi

27,000

25,000 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

As can be seen in Figure 7.3, there was substantial variation in the value of aerospace exports from the Pacific region to world markets over the past five years, resulting in a slight decline (5.48 percent) in the value of exports from 2006 to 2010. The sharp dip in 2008 coincided with a major strike that shut down Boeing’s production lines for about two months. Despite the slight overall decline from 2006 to 2010, the numbers are still quite impressive, totaling more than $30 billion in exports per year. Note that in the case of large civil aircraft, customers Regional Manufacturing and Exporting Trends 101 typically buy specific production line sequences (slots) for aircraft years in advance of delivery. Consequently, the level of exports typically rises or falls depending on the mix of deliveries in a particular year. Figure 7.4 illustrates trends in the export of aerospace products and parts from the Pacific region to its top five markets over the past five years. The top recipients of aerospace products from the Pacific region are China and Japan, with Indonesia, Ireland, and Qatar essentially tied for third place in 2010. This figure also reflects a relatively steady increase in exports to Indonesia and Qatar in 2010, with a slight decline in exports to Ireland. Again, these variations in exports are driven more by production line delivery sequences purchased by specific customers than by local market demand in any given year.

Figure 7 .4 Pacific Region Aerospace Exports to Top Five Markets

China Japan Indonesia Ireland Qatar 5,000 4,500 4,000 s a r

ll 3,500 D o 3,000 of

n 2,500 o

M illi 2,000 1,500 1,000 500 0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Figure 7.5 highlights the dominant role of Washington in the export of aerospace products and parts over the past five years. Despite some variance from year to year, on average, Washington’s exports have remained relatively stable. This figure also indicates a gradual decline in exports from California over the same five years. 102 Aerospace Industry Report 2011

Figure 7 .5 Pacific Region Aerospace Exports by State

Alaska California Hawaii Oregon Washington 30,000

25,000 s

a r

ll 20,000 D o

of 15,000 s n o 10,000 M illi

5,000

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Mountain Region Aerospace Exports The Mountain region includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming. Figure 7.6 indicates that aerospace exports from the Mountain region have been relatively stable over the past five years, but with a slight increase occurring in the past year. The Mountain region’s exports total about 10 percent of those of the Pacific region.

Figure 7 .6 Mountain Region Aerospace Exports to World

5,000 4,500 4,000 3,500 s a r ll 3,000 D o

of 2,500

s n

o 2,000

M illi 1,500 1,000 500 0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce. Regional Manufacturing and Exporting Trends 103

Figure 7.7 displays the top five aerospace export markets for the Mountain region. Canada has been the leading market for the Mountain region over the past five years, followed by Singapore in 2010.

Figure 7 .7 Mountain Region Aerospace Exports to Top Five Markets

Canada Singapore Germany United Kingdom France 600

500

s 400 a r ll D o

300 s n o

M illi 200

100

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Figure 7.8 shows that Arizona leads the region in aerospace exports. However, by 2010, exports had decreased by more than 21 percent from what they were in 2006. This figure also shows that there is at least some level of export activity among all states in the region.

Figure 7 .8 Mountain Region Aerospace Exports by State

Arizona Colorado Idaho Montana Nevada New Mexico Utah Wyoming

3,500

3,000

2,500 s a r ll

D o 2,000

s n

o 1,500 M illi 1,000

500

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce. 104 Aerospace Industry Report 2011

South-Central Region Aerospace Exports States in the South-Central region are Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, Tennessee, and Texas. Aerospace exports for the South-Central region gradually increased from 2006 to 2009 and then dropped significantly in 2010, resulting in almost a 7 percent decline from 2006 (see Figure 7.9).

Figure 7 .9 South-Central Region Aerospace Exports to World

16,000 15,000 14,000 s 13,000 a r ll 12,000 D o

11,000 s n

o 10,000 9,000 M illi 8,000 7,000 6,000 5,000 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Figure 7 .10 South-Central Region Aerospace Exports to Top Five Markets

United Kingdom Singapore France Canada Brazil 3,000

2,500

s a r

ll 2,000 D o

s 1,500 n o

M illi 1,000

500

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce. Regional Manufacturing and Exporting Trends 105

Figure 7 .11 South-Central Region Aerospace Exports by State

Alabama Arkansas Kentucky Louisiana Mississippi Oklahoma Tennessee Texas

7,000

6,000

s 5,000 a r ll

D o 4,000

n 3,000 o

M illi 2,000

1,000

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

As can be seen in Figure 7.10, there was a gradual increase in exports to the region’s top five countries with the exception of France, which declined significantly in 2010. Figure 7.11 indicates that by 2010 aerospace exports from the region were dominated by Texas and Kentucky, followed by Tennessee at a distant third.

North-Central Region Aerospace Exports The North-Central region includes Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. Aerospace exports from the North-Central region increased significantly from 2006 to 2008, dropped in 2009, and increased again in 2010 for a net increase of slightly more than 11 percent over the past five years (see Figure 7.12). There was, in fact, a slight increase in exporting to four of the five markets 2010, with a dramatic increase in exports to France. These changes are illustrated in Figure 7.13. 106 Aerospace Industry Report 2011

Figure 7 .12 North-Central Region Aerospace Exports to World

16,000 15,000 14,000 s

13,000 a r ll 12,000 D o

of 11,000

s n

o 10,000

M illi 9,000 8,000 7,000 6,000 5,000 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Figure 7 .13 North-Central Region Aerospace Exports to Top Five Markets

France Canada Brazil United Kingdom Singapore 2,000 1,800 1,600 s

a r 1,400 ll D o

1,200

s 1,000 n o 800 M illi 600 400 200 0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Figure 7.14 is divided into two parts because of the large number of states in the region. Leaders in exporting include Kansas in the upper chart and Ohio in the lower chart. However, while Kansas suffered a 26 percent decline in exports, Ohio registered a 91 percent increase over the same five years. Regional Manufacturing and Exporting Trends 107

Figure 7 .14 North-Central Region Aerospace Exports by State

Illinois Indiana Iowa Kansas Michigan Minnesota

5,000 4,500 4,000

3,500 s a r ll 3,000 D o

2,500 of

s n

o 2,000

M illi 1,500 1,000 500 0 2006 2007 2008 2009 2010

Missouri Nebraksa N. Dakota Ohio S. Dakota Wisconsin

5,000 4,500 4,000

s 3,500 a r ll 3,000 D o

2,500 of

n 2,000 o 1,500 M illi 1,000 500 0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

South-Atlantic Region Aerospace Exports In addition to the District of Columbia, the South-Atlantic region includes Delaware, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and West Virginia. As illustrated in Figure 7.15, the South-Atlantic region is one of the few regions that maintained a positive trend in exporting over the past five years. 108 Aerospace Industry Report 2011

Figure 7 .15 South-Atlantic Region Aerospace Exports to World

15,000

14,000

13,000

12,000 s a r ll 11,000 D o

10,000 of

s n

o 9,000

M illi 8,000

7,000

6,000

5,000 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Figure 7 .16 South-Atlantic Region Aerospace Exports to Top Five Markets

Brazil United Kingdom France Germany Singapore 1,600

1,400

1,200 s a r

ll 1,000 D o

800 s n o 600 M illi 400

200

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

While some exports to top markets declined between 2006 and 2010, aerospace exports increased to France, Germany, and Singapore, which contributed to a net increase in overall aerospace exports of 42 percent for the South-Atlantic region (see Figure 7.16). Once again, because there are so many states in this region, Figure 7.17 is divided into two parts. In the upper chart Florida and Georgia Regional Manufacturing and Exporting Trends 109 dominate, while in the lower chart Maryland, North Carolina, and Virginia appear to be the strongest.*

Figure 7 .17 South-Atlantic Region Aerospace Exports by State

Delaware Dist of Coumbia Florida Georgia 5,000 4,500 4,000

3,500 s a r

ll 3,000 D o

2,500

s 2,000 n o 1,500 M illi 1,000 500 0 2006 2007 2008 2009 2010

Maryland N. Carolina S. Carolina Virginia W. Virginia 1,600

1,400

s 1,200 a r ll 1,000 D o

800 s n o 600 M illi 400

200

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

Mid-Atlantic Region Aerospace Exports The Mid-Atlantic region includes New Jersey, New York, and Pennsylvania.

* As the lower graph (Part II) in Figure 7.17 indicates, South Carolina currently trails Florida, Georgia, North Carolina, and Virginia in aerospace exports. However, South Carolina aerospace exports are expected to dramatically in-crease in the future as Boeing’s new 787 manufacturing and assembly facility reaches full production. More than 800 new Dreamliners have already been sold. 110 Aerospace Industry Report 2011

Figure 7 .18 Mid-Atlantic Region Aerospace Exports to World

6,000

5,000

s 4,000 a r ll D o

3,000 of

s n o 2,000 M illi

1,000

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

As can be seen in Figure 7.18, exports increased from 2006 to 2008, then declined in 2009 and 2010. However, exports still increased almost 10 percent over 2006. Germany was clearly the leading export market for the mid-Atlantic region from 2006 to 2010, with exports to Israel, the United Kingdom, and France remaining about the same. Exports to South Korea, on the other hand, almost doubled over the same period (see Figure 7.19).

Figure 7 .19 Mid-Atlantic Region Aerospace Exports to Top Five Markets

Germany Israel South Korea United Kingdom France 1,000 900 800

a r 700 ll

D o 600

s 500 n o 400 M illi 300 200 100 0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce. Regional Manufacturing and Exporting Trends 111

Figure 7 .20 Mid-Atlantic Region Aerospace Exports by State

New Jersey New York Pennsylvania 3,500

3,000 s

2,500 a r ll D o

2,000

n 1,500 o

M illi 1,000

500

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

New York, New Jersey, and Pennsylvania all have relatively strong aerospace exporting programs. As can be seen in Figure 7.20, New Jersey and New York clearly dominate, although Pennsylvania’s aerospace exports continued to rise over the period of review.

New England Region Aerospace Exports The New England region includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.

Figure 7 .21 New England Region Aerospace Exports to World

9,000

8,000

7,000

s 6,000 a r ll

D o 5,000

s 4,000 n o 3,000 M illi 2,000

1,000

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce. 112 Aerospace Industry Report 2011

As in the South-Atlantic region, aerospace exports continued to increase in the New England region, resulting in a 35 percent increase over the past five years.

Figure 7 .22 New England Region Aerospace Exports to Top Five Markets

France Germany Canada Singapore Belgium 2,500

2,000 s a r

D o 1,500

s n

o 1,000 M illi

500

0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce.

The top five markets for New England aerospace exports are France, Germany, Canada, Singapore, and Belgium, with exports to France totaling more than twice those to Germany by the end of 2010 (see Figure 7.22).

Figure 7 .23 New England Region Aerospace Exports by State

Connecticut Maine Massachusetts New Hampshire Rhode Island Vermont

8,000 7,000

s 6,000

a r ll 5,000 D o

4,000 s n o 3,000

M illi 2,000 1,000 0 2006 2007 2008 2009 2010

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce. Regional Manufacturing and Exporting Trends 113

The data in Figure 7.23 clearly show that Connecticut is the dominant exporter in the New England region. Even with the recession, exports continued to increase between 2006 and 2010, driven largely by the aerospace business units of United Technologies Corporation.

The Export-Import Bank of the United States As the previous analysis shows, exports play a substantial role in supporting the growth of the U.S. aerospace manufacturing industry, and the Export-Import Bank of the United States substantially contributes to the industry’s ability to remain globally competitive.

For 77 years, the Export-Import Bank of the United States has enabled U.S. companies, large and small, to turn export opportunities into real sales that help to maintain and create U.S. jobs and contribute to a stronger national economy. The Ex-Im Bank does not compete with private sector lenders but provides export financing products that fill gaps in trade financing. It undertakes, for a fee, credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing guarantees that other governments provide to their exporters. Figure 7.24 illustrates the comparative activity of similar export credit agencies in other major exporting countries. While the Ex-Im Bank is very helpful in promoting sales of U.S. products abroad, several other countries are even more aggressive in supporting exports of their own products. The competition from China, Brazil, Germany, and France is especially formidable.

Figure 7 24. New Medium- and Long-Term Official Export Credit Volumes in 2010

50 45 40 35 rs ll a

o 30 D

o f 25

n s 20

Billi o 15 10 5 0 China Germany Brazil France United India Italy Japan Canada United States Kingdom

Source: Export-Import Bank of the United States. (2011 June). Report to the US Congress on export credit competition and the Export-Import Bank of the United States. Washington, DC: Author. 114 Aerospace Industry Report 2011

Summary and Conclusions The information in this chapter suggests a number of things. First, manufacturing executives in the United States are optimistic about the future, with approximately 60 percent of those sampled in a recent KPMG survey expecting revenues and profits to increase over the next 12 months. Second, aerospace manufacturing, in general, has continued to grow in the New England, North-Central, Mid-Atlantic, and South-Atlantic regions over the past five years. Third, there is substantial variation across the regions in the exporting of aerospace products and parts. This variation reflects both the history of the industry as well as the importance of maintaining healthy aerospace clusters across states and regions. These numbers and graphs also vividly illustrate how data can be used to inform, validate, or readjust one’s vision as circumstances change. Finally, for many firms, the regional and state export data reported here can be used as a starting point to build on the President’s National Export Initiative, which is addressed in the next chapter.

The Economic Impact of Boeing’s Dreamliner Plant in Charleston, South Carolina Boeing’s new Dreamliner facility in North Charleston, South Carolina, opened in June 2011. The choice of location was somewhat controversial, but the benefits of the plant are expected to be substantial. Benefits will accrue in two phases: the construction phase and the operational phase. During the first year, construction costs are expected to total $1.4 billion or more, and as many as 9,885 jobs will be created to support the construction of the facility. Approximately 3,800 permanent employees will be required to operate the facility. It is anticipated that another 11,478 jobs will be created across multiple sectors for a total of 15,278 new permanent positions. Experts say that the direct, indirect, and induced benefits associated with operations will total more than $5.9 billion per year for the life of the plant. Boeing indicated that it chose to locate in South Carolina because of the quality of the workforce; the business climate; reliable and abundant power; proximity to Charleston’s airport, seaport, and interstate highways; the presence of existing facilities; and the government’s commitment to Boeing. The incentive package for Boeing is reported to be similar to other economic development packages where there is a state component and a local component. The state component is estimated to be worth $417 million. The value of the local component is based on the number of jobs created and amount of capital invested. A cost-benefit analysis conducted by the Coordinating Council on Economic Development found that the net present value (NPV) at the local level in the fifteenth year was more than $13 million, while the NPV at the state level totaled more than $4.4 billion.

Source: Miley & Associates, Inc. (2010, May). The Economic impact of Boeing in South Carolina. Columbia, SC: Author. Regional Manufacturing and Exporting Trends 115

Chapter Endnotes

1 Export-Import Bank of the United States. (2010). 2010 Annual Report (p. 14). Washington, DC: Author. 2 KPMG. (2011). The KPMG Global Business Outlook Survey, Spring 2011, Analysis by Country, USA. Retrieved from https://www.kpmg.com/Global/en/WhatWeDo/ Special-Interests/Business-outlook-survey/spring-2011/analysis-by-country/Pages/ USA.aspx 3 Derived from Value of Manufacturing Shipments, U.S. Census Bureau, Statistical Abstract of the United States: 2011 using regions defined by TradeStats Express, International Trade Administration, U.S. Department of Commerce. 4 The information in this section for NAICS 3364, Aerospace Products and Parts, was obtained from TradeStats Express, International Trade Administration, U.S. Department of Commerce. Retrieved from http://tse.export.gov/TSE/TSEHome.aspx

117

Topics to Watch in 2011 and Beyond

Introduction This chapter addresses a number of topics that are important to the aviation and aerospace industry. In business terms, these are often referred to as “influencers” of business strategy. They do not necessarily “drive” the industry, but are nevertheless important and can impact the planning and execution of business strategy and viability of the enterprise. The topics addressed in this chapter include the evolving role of clusters in the aerospace industry, extreme manufacturing, the importance of rare earth elements, the impact of rising fuel prices on aviation, the environmental challenge, the danger of counterfeit parts, and trends in research and development (R&D). The need for a national manufacturing strategy, Small Business Innovation Research (SBIR) for manufacturing, and the NEI are also addressed. 118 Aerospace Industry Report 2011

The Evolving Role of Clusters in the Aerospace Industry Even though industry clusters have been studied for many years, the critical role of clusters did not achieve widespread acceptance until the concept was linked to Michael Porter’s work on competitive advantage in the 1990s.1 Twenty years later, we have a much better understanding of the role of clusters in industry and in aerospace manufacturing in particular. Historically, clusters have been thought of as “geographic concentra- tions of competing, complementary, or interdependent firms that do business with each other and/or have common needs for talent, technology, and infrastructure.”2 Stated another way, “clusters encompass an array of linked industries and other entities important to competition.”3 They include suppliers of products and services as well as government agencies, universities, and other organizations that provide specialized training, information, or other types of support.4 Porter also notes that the “geographic scope of the cluster can range from a single city or state to a country or even a network of neighbor- ing countries.”5 In the aerospace industry, there are different types of clusters. For example, in the United States, Seattle tends to focus on large commercial aircraft assembly; Dallas-Ft. Worth produces state-of-the-art fighters; Wichita is known for producing corporate and general aviation aircraft as well as major sections of large civil aircraft; while Cincinnati produces some of the world’s finest jet engines. Due to the enormous human and financial capital invested in these clusters, they also tend to be long-term in nature. As stated by Niosi and Zhegu, “aerospace clusters are characterized by major geographi- cal inertia due to heavy sunk costs in large plants with costly and complex sophisticated equipment that cannot be easily moved from one location to another.”6 Hence, location is still important in the aerospace manufacturing industry, and once a major manufacturing plant is established, sub-tier suppliers tend to locate in close proximity to the main plant, increasing the density and efficiency of the overall cluster. Recent experience in the aerospace industry tends to confirm the importance of geographic proximity and the limits of global network- ing, but at the same time, new models for collaborative innovation are being explored. This topic will be discussed in more detail later. Topics to Watch in 2011 and Beyond 119

Why Clusters Are Important Washington State’s Aerospace Innovation Cluster Porter points out that clusters At the end of 2010, Washington state’s are important because they aerospace cluster included more than 650 companies. Boeing is the central player, but make firms more competitive. proponents of the cluster say that it now According to Porter, the geo- touches virtually every aspect of the aerospace graphic proximity of competi- supply chain. The following are some of the characteristics that have made Washington tors, customers, and suppliers state’s aerospace cluster so effective: promotes efficiencies and spe- ■■ High Levels of R&D: Washington has cialization, as well as product been a consistent leader in aerospace improvements and innovation. R&D. The University of Washington alone has spent $125 million on As stated in a Harvard Business aerospace-related research since 2006. Review article on clusters and ■■ Educated Workforce: The state competition, “a cluster allows employs more than 17 percent of each member to benefit as if all U.S. aerospace workers. More than 80,000 workers are employed it had greater scale or as if it directly in aerospace, including 6,500 had joined with others with- aerospace engineers—the second highest 7 concentration of aerospace engineers in out sacrificing its flexibility.” the United States. Furthermore, since clusters ■■ Active in International Trade: Washington exported more than $26 tend to possess higher levels billion in aerospace products in 2009, of talent and information, a third of all U.S. aerospace exports. During the same year, the state they also tend to attract the imported $3.5 billion in aerospace attention of universities, parts, more than any other state. as well as higher levels of ■■ Culture of Innovation: Aerospace initiatives research and development.8 often stimulate non-aerospace activities in other industry sectors, resulting in cross- There is also evidence sug- sector synergies. As a result, Washington gesting that members of had the second highest number of patents a cluster tend to be more per worker in 2009. profitable, on average, than ■■ Encouraging Incentives: Low energy costs, sophisticated infrastructure, their isolated nonmember low business taxes, tax exemptions on counterparts.9 equipment, a skilled workforce, and a high quality of life are but a few of the At the regional level, Porter incentives frequently mentioned. reminds us that “the nation’s ■■ Strong State Support: The governor has made aerospace a priority, and the ability to produce high- Washington Council on Aerospace value products and services helps coordinate the state’s aerospace training, education, and R&D programs. that support high wage jobs The Council is also active in promoting depends on the creation the aerospace industry, supporting job and strengthening of these growth, and providing a collaborative regional hubs of competitive- forum for industry, labor, and government. 10 ness and innovation.” Source: Weed, R. (2010, December 2). Aerospace in Washington State. Presented at USA Seminar at Aeromart Toulouse, 2010. 120 Aerospace Industry Report 2011

Effective clusters drive prosperity and increase the standard of living for the city, region, and ultimately, the nation.11 But when we talk about aerospace, we are also talking about national security. Thus, aerospace manufacturing clusters are a critical element of national defense. In sum, aerospace clusters are important because they—

■■ Promote efficiencies

■■ Encourage innovation

■■ Enhance product improvements

■■ Promote specialization

■■ Allow members to benefit as if they had greater scale

■■ Attract the attention of universities and R&D funding

■■ Tend to be more profitable for members of the cluster

■■ Create high-wage jobs

■■ Drive prosperity for the city or region

■■ Sustain and enhance national security

Clusters in the Aerospace Industry A recent Congressional Research Service report noted that “aerospace manufacturing is an important part of the U.S. manufacturing base.”12 This report also acknowledged the important role of clusters in the aerospace industry when it stated that— More than half (61 percent) of the nation’s aerospace industry jobs are located in six states: Washington, California, Texas, Kansas, Connecticut, and Arizona. Several smaller aerospace manufacturing clusters are found in states such as Florida, Georgia, Ohio, Missouri, and Alabama. Other aerospace centers are beginning to emerge in southern states, such as South Carolina, where Boeing is now building a second production line to produce the 787 Dreamliner. (Platzer, 2009, Summary) Table 8.1 lists the top 15 aerospace and defense clusters in the United States as of 2008.13 Even though this material is somewhat dated, it is still useful for highlighting the scale, scope, and diversity of aerospace clusters in the United States. Topics to Watch in 2011 and Beyond 121

Table 8 .1 Top Aerospace and Defense Clusters in the United States 2008 2008 Share Employment 2008 2008 Total of National CAGR Location Average State Employment Employment of Em Quotient Wages California 70,265 19.53 -4.3 1.72 $76,448 Washington 49,804 13.84 -6.1 6.6 $56,776 Texas 42,239 11.74 0.8 1.54 $69,475 Kansas 35,000 9.73 -1.4 9.92 DS* Arizona 25,514 7.09 4.1 3.67 $53,358 Connecticut 25,395 7.06 -0.1 5.5 DS* Colorado 19,060 5.30 7.4 3.02 DS* Georgia 16,127 4.48 -1.1 1.49 $71,989 Pennsylvania 9,299 2.58 -1.7 0.6 $54,862 Missouri 8,422 2.34 -15 1.14 $54,758 Utah 8,334 2.32 -0.4 2.51 $48,274 Florida 7,500 2.08 -1.8 0.34 $55,019 Alabama 7,461 2.07 0.6 1.46 $54,850 Ohio 6,301 1.75 -4 0.45 $63,232 Arkansas 5,533 1.54 3.6 1.81 $40,722

Source: Based on material from the Cluster Mapping Project, Institute for Strategy and Competitiveness, at the Harvard Business School. Copyright © 2010 President and Fellows of Harvard College. All rights reserved. * Some wage data suppressed (DS) for confidentiality; see project methodology for further discussion.

Table 8.2 is a list of the top 15 aerospace engine clusters in the United States as of 2008. As stated on Harvard’s Cluster Mapping Website, the employment location quotient (ELQ) is a ratio measuring the concentration of employment in a particular location relative to the national average. A location with ELQ greater than 1 indicates a higher than average concentration in that location. The information in Figure 8.1 shows the percentage change in share of national employment from 1998 to 2008 and the share of national employment in 2008 for aerospace vehicles and defense, as well as aerospace engines. The trends depicted in this figure are consistent with the information in Tables 8.1 and 8.2, which indicate a significant loss of jobs over the past 10 years in some of the largest aerospace clusters, including Seattle, Los Angeles, and St. Louis. 122 Aerospace Industry Report 2011

Table 8 .2 Top Aerospace Engine Clusters in the United States 2008 2008 Share CAGR of Employment 2008 2008 Total of National Employment Location Average State Employment Employment 1998–2008 Quotient Wages Ohio 11,966 14.81 1.61 3.79 $75,455 Connecticut 9,409 11.65 -6.16 9.08 $67,147 Arizona 8,250 10.21 0.12 5.29 DS* Indiana 5,962 7.38 -2.35 3.41 $85,365 Massachusetts 5,017 6.21 -3.53 2.44 $82,684 New York 4,612 5.71 2.8 0.91 $53,848 California 3,276 4.06 -3.53 0.36 $54,510 Michigan 3,192 3.95 4.53 1.31 $62,497 Texas 2,941 3.64 -3.33 0.48 $45,812 Florida 2,868 3.55 -10.23 0.58 $52,840 Illinois 2,563 3.17 3.54 0.7 $56,997 Maine 2,413 2.99 2.29 7.09 $44,190 New 2,275 2.82 -4.22 5.72 $41,725 Hampshire Vermont 2,125 2.63 -1.61 11.67 DS* North Carolina 1,969 2.44 0.18 0.82 $79,720

Source: Based on material from the Cluster Mapping Project, Institute for Strategy and Competitiveness, at the Harvard Business School. Copyright © 2010 President and Fellows of Harvard College. All rights reserved. * Some wage data suppressed for confidentiality; see project methodology for further discussion.

Figure 8 .1 Change in National Share of Employment, 1998–2008

5 Business Services

3 Education & Knowledge Creation

Financial Services 2 Transportation & Logistics

Aerospace Vehicles & Defense 1

Apparel Textiles Aerospace Engines Share of National Employment 2008 0 -100 -80 -60 -40 -20 0 20 40 Percent Change in National Share 1998-2008

Source: Based on information obtained from the Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School. Copyright © 2010 President and Fellows of Harvard College. All rights reserved. Topics to Watch in 2011 and Beyond 123

Aerospace manufacturing clusters are also an important force outside the United States. Over the years, aerospace clusters have developed in Canada, Japan, the United Kingdom, France, Germany, Italy, Spain, Sweden, and other European countries. New clusters are emerging in Mexico, India and Abu Dhabi, while existing clusters are expanding in Brazil, China, and Russia and other locations. The Civil Aviation Authority of Singapore recently announced its intention to build an aviation cluster in Singapore and promote Singapore as an aviation hub of excellence,14 and the European Aerospace Cluster Partnership was recently created, with co-funding from the European Commission, to coordinate activity across 24 aerospace research clusters in Europe.15 Over the years, clusters have also formed in the MRO market. North America still has the largest market share, but the combined Eastern and Western European markets are expected to surpass the North American market in the next 10 years. The Asia-Pacific MRO market is growing equally rapidly and is expected to match North American levels by the end of the same period. Significant MRO clusters are evolving in Brazil, Mexico, and the United Arab Emirates.16

The Changing Nature of Clusters Clearly, geographic proximity is important, since it plays a key role in facilitating the sharing of knowledge and talent. In fact, some say that proximity is crucial.17 Others have gone so far as to say that it may be difficult for non-cluster member firms to become leaders in their sector when their competitors are the ‘‘preferred customers’’ of core suppliers located in another cluster.18 At the same time, however, it is important to acknowledge that the U.S. government and others are starting to explore whether the aerospace industry can benefit from the trend toward distributed innovation. Within the United States, the Defense Advanced Research Projects Agency (DARPA) and NASA are both experimenting with ways to tap into the trend toward open or distributed innovation. Under the concept of distributed innovation, companies systemati- cally collect, analyze, and use external research, as well as their own research, to develop new products or modify existing systems. While this approach may seem to contradict traditional thinking about the need to protect sensitive information, others acknowledge that it may be helpful to look outside of the industry for ideas that can help companies stay innovative in the face of reduced budgets and gaps in next-generation programs.19 124 Aerospace Industry Report 2011

Thus, even though geographic proximity will continue to be important, technology may very well change the innovation process and expand our thinking about the scale and scope of future aerospace clusters.

What Governments Can Do As Porter stated more than a decade ago, “the cluster concept represents a new way of thinking about the national, state, and city economies, and points to new roles for companies, governments, and other institutions striving to enhance competitiveness.”20 With this thought in mind, the following suggestions are offered for what governments, firms, and other institutions can do to encourage the development of aerospace clusters in their city or region. Many of these comments are based on Porter’s work on regional clusters of innovation, and have been streamlined and updated for the purpose of this report. At the federal level:

■■ Provide funds for state and regional economic development strategies that encourage innovation and the creation of clusters in aerospace manufacturing.

■■ Support recent initiatives that strengthen the teaching of STEM+M in high schools, colleges, and universities.

■■ Provide incentives that encourage investments in research and development, industry-university collaboration, and the commercialization of research projects in the aerospace industry. At the state level:

■■ Provide incentives for the creation and operation of aerospace research and business incubators.

■■ Sponsor programs that encourage the development of aerospace clusters in and between cities and across regions.

■■ Encourage collaboration and the sharing of information among firms, universities, and government agencies involved in aerospace manufacturing. At the local level:

■■ Conduct local and regional benchmarking activities. Topics to Watch in 2011 and Beyond 125

■■ Develop a local or regional vision and strategy that involves all stakeholders.

■■ Create the infrastructure and processes that will enable collaboration and innovation while encouraging city, university, and business leaders to steadfastly work toward a common aerospace vision.

What Firms Can Do Based on earlier work by Porter and others, actions firms can take include the following:21

■■ Remember that location does matter and where a firm decides to locate can affect the competitiveness of the firm as well as the city and region.

■■ Take an active role in improving the competitive environment in the cluster. This includes communicating the firm’s needs and desires to local universities, research institutes, and training centers that are part of the cluster.

■■ Identify issues of common concern and mutual gain for cluster participants, and support efforts to bring in companies that will fill in gaps in the cluster.

What Other Institutions Can Do Borrowing from the work of Porter and others, actions that universities, associations, and other institutions can take include the following:22

■■ Work with federal, state, and local governments, as well as private industry, to promote cluster awareness.

■■ Engage in ongoing benchmarking by comparing the capabilities of a cluster to other clusters and identifying gaps, constraints, obstacles, advantages, and potential improvements.

■■ Work with local or regional institutions, including the government, to develop and deliver education, training, seminars, and other programs to fill in the gaps identified above. Looking back, it is clear that clusters have played a key role in helping the United States become a world leader in the aerospace industry. Looking forward, it is important to recognize the value of geographic proximity, but it is also important to recognize that geographic proximity, by itself, may not be sufficient to achieve and sustain a leadership position in the years to come. As technology continues to evolve, it is 126 Aerospace Industry Report 2011

apparent that new skills may be required to identify and nurture new suppliers and that new organizational models may be required to leverage the latest in global best practices.23 It is also important to recognize that the government has a key role to play by creating policies that enable the development and operation of local and regional clusters that can sustain America’s history of innovation in aerospace manufacturing.

Extreme Manufacturing The National Institute of Standards (NIST), in conjunction with DARPA, the National Science Foundation, and NASA, has established a project called “Extreme Manufacturing.”24 The purpose of this project is to identify the long-term technology advances needed to make U.S. manufacturing more competitive. The term “extreme” is used to describe what manufacturing might look like if pushed to the extreme, and, just as important, to identify and describe what technology advances would be needed to make extreme manufacturing possible. The project team is also exploring how to overcome the barriers to achieving what might be possible, and how the United States can use its innovative capabilities to foster and sustain manufacturing leadership. During introductory remarks at the kickoff workshop, Kaigham J. Gabriel, deputy director of DARPA, summed up the challenge by saying, “The reality is that innovation happens when you try to make something. To innovate, you must make.”25 The need for the extreme manufacturing is based on the following:

■■ The United States faces increasing global competition as other countries seek to establish prominence in advanced manufacturing and the products of the future.

■■ The United States needs to offset the globalization of traditional manufacturing based on low-cost, high-volume production by creating a comparative advantage in producing high-value items based on product and processes innovation and the implementation of emerging technologies. Ultimately, the project seeks to define and focus U.S. priorities on providing the means to develop and implement new technology-based concepts for future U.S. manufacturing as a basis for high-value jobs, wealth creation, sustained economic growth, and national security. To date, four areas of research have been established: Topics to Watch in 2011 and Beyond 127

■■ Future intelligent manufacturing systems

■■ Extremely efficient and effective manufacturing, based on the principles of affordability and sustainability

■■ Projects that are on the frontier of manufacturing science, such as self-assembly and bio-manufacturing

■■ The Future Manufacturing Enterprise, based, in part, on multilevel dynamic collaboration across reconfigurable supply chains An initial meeting of government, industry, and academic manufacturing professionals was held in January 2011. The meeting identified major manufacturing imperatives and technology opportunities, along with opportunity road maps and investment requirements. The workshop also initiated a process for establishing an industry-government-academia Extreme Manufacturing community of interest. Next steps include con- solidating the team’s recommendations and working with other agencies to develop a strategy for moving this important project forward.

The Importance of Rare Earth Elements and Minerals Background Since the oil embargo of 1973, the United States has been keenly aware of the potential impact of the world’s diminishing energy resources. However, with the exception of gold, public consciousness has not generally focused on nonfuel mineral resources. But rare earth elements, and the minerals in which they are found, are vital to many existing and emerging technologies, especially in the aerospace and defense industries.26 Public awareness of the issue began in 2005 when the China National Offshore Oil Corporation offered to buy Unocal. On the surface, U.S. objections to the acquisition seemed to be based purely on oil and energy security.27 A number of critics were also opposed to the purchase based on free trade issues with the Chinese.28 However, a little-reported objection was also made to House Armed Services Committee based on concerns about Chinese control of the supply of rare earth minerals—a concern that has grown over the years.29 The issue came to a head in September 2010, when China stopped exporting rare earth elements to Japan following a dispute over a colli- sion between a Chinese fishing trawler and two Japanese Coast Guard 128 Aerospace Industry Report 2011

ships in Japanese waters claimed by China.30 This action touched off a storm of protests and concerns about China’s monopoly control over the world’s supply of rare earth minerals.31 Figure 8.2 is a graphic representation of China’s growing production of rare earth elements (REEs) in relation to the rest of the world.32 What is clear is that the United States was a leading world producer of rare earth elements for almost 40 years, producing at one point more than 70 percent of the world’s supply of REEs.33 All U.S. mining stopped in 2002 with the closure of the California Mountain Pass mine. The closure was a result of the Chinese undercutting the mine on cost, and problems with radioactive wastewater in 1998. The mine received a permit to operate for 30 years and passed another inspection in 2007.34 With the price of REEs rising globally, the mine is scheduled to resume operations in 2012.

Figure 8 .2 Rare Earth Element Production

Other USA China 140,000

120,000

s 100,000 on T c i r

t 80,000 e M

on i 60,000 c t odu r 40,000 P

20,000

0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: Based on material from U.S. Geological Survey (2011).

REE production is not new to the Chinese. In 1927, they first found large deposits in Inner Mongolia, and started production of rare earth concentrates in 1957. It is now known that at least 21 of China’s prov- inces and autonomous regions have rare earth resources.35 Since the 1980s, the Chinese have identified REE as an important resource and set a course to mine the minerals for export, concentrate the oxides for use in manufacturing advanced products, and ultimately produce the advanced products themselves. The Chinese could Topics to Watch in 2011 and Beyond 129 become net importers of REEs should this plan be fully pursued.36 In 1990, the Chinese government declared all REEs to be strategic and protected—an action that effectively prohibited foreign mining or smelting operations, except in joint ventures with Chinese firms.37 Although some “rare” earth elements are not all that rare, they can be difficult to find and are often collocated with other minerals, such as uranium and thorium. Extracting and refining them is difficult, and the process is environmentally sensitive. These characteristics make mining and processing expensive. However, as REEs are being used in more technologically advanced products, new environmentally safe and price-competitive methods for mining and refining are being explored. The Chinese have stated that part of the reason for the recent reductions in export quotas and price increases is that many of the environmental costs were previously not passed on to consumers. Consequently, they now claim that today’s prices and limited supplies are related to the true cost of extraction.38 Figure 8.3 shows the global supply and demand for REEs, illustrat- ing the relationship of China’s production to its demand, and world production to world demand. This graphic makes it clear that China produces much of the world’s REEs and is also the largest consumer.

Figure 8 3. Global Supply and Demand for Rare Earth Elements

China Supply ROW Supply Adjusted Global Demand China Demand

) 250,000 m nnu a

r 200,000 pe

s o n t ( 150,000 and m e

D 100,000 de xi O

h t

r 50,000 a E

e r a R 0 2004 2005 2006 2007 2008 2009f 2010f 2011f 2012f 2013f 2014f

Source: Industrial Minerals Company of Australia Pty Ltd., China Rare Earth Information Center, Roskill Information Services, Ltd. (2009, November).

Because of the significant role that REEs play in the defense industry, and with China’s near monopoly on rare earth mining and refining, 130 Aerospace Industry Report 2011

Congress has required the DOD and the General Accountability Office to assess the use of REEs in defense supply chains.39 Rare earth metals are used in military guidance and control systems, electronic warfare systems, and targeting systems and are integral to weapons systems such as the Joint Strike Fighter.40 Many of the displays in military aircraft use REEs for high resolution and brightness. REEs are also used in alloys for aerospace metals to improve corrosion resis- tance and strength. In propulsion systems, alloys with REEs are able to withstand higher temperatures. Table 8.3 lists some of the common uses of REEs. Should the demand for REEs continue to grow, and if new mines and refining facilities are not available for years, costs are likely to become more volatile for products using REEs.

Table 8 .3 REEs, Their Chemical Symbols, and Their Current Common Uses Symbol Rare Earth Element (Atomic Weight) Common Uses Scandium SC (21) Aerospace components; mercury-vapor lamps Lasers; microwave filters; high-temp Yttrium Y (39) superconductors Camera lenses; catalyst for refining oil; Lanthanum La (57) battery electrodes; catalytic converters Batteries; glass and ceramics; polishing Cerium Ce (58) powder Praseodymium Pr (59) RE magnets; lasers; carbon arc lighting Neodymium Nd (60) RE magnets; lasers; hard disk drives Promethium Pm (61) Nuclear batteries Samarium Sm (62) RE magnets; lasers; masers Europium Eu (63) Lasers; Mercury vapor lamps RE magnets; lasers; x-ray tubes; MRI; Gadolinium Gd (64) Computer memory Terbium Tb (65) Lasers; fluorescent lamps; CFL’s Dysprosium Dy (66) RE magnets; lasers Holmium Ho (67) Lasers Erbium Er (68) Lasers; vanadium steel Thulium Tm (69) X-ray machines Ytterbium Yb (70) Lasers Lutetium Lu (71) PET scanners; high refractive glass

Source: www.investopedia.com — Understanding Rear Earth Metals and USGS Topics to Watch in 2011 and Beyond 131

Given current prices and the growing demand for REEs, the Mountain Pass mine in California is reopening, and other mines outside China are being planned.41 Production from these mines will not occur for several years, and the Mountain Pass mine will not be fully operational until 2012.42 Thus, there appears to be the potential for price volatility and shortages over the next five years or so.

The Impact of Rising Fuel Costs on Aviation The 2010 Aerospace Economic Report and Outlook discussed the impact of fuel prices on the industry and the fuel efficiency of many commercial aircraft.43 The high oil prices of 2008 added costs to airline operations and reduced their profitability. The U.S. Refiners Crude Oil Composite Acquisition Cost44 reached $129.03 a barrel in July 2008, and then dropped to $37.45 in February 2009. In February 2011, it reached $89.40,45 and on April 8, 2011, the price was $143.10 a barrel, an increase of 50 percent from a year ago.46 Figure 8.4 shows how commercial airline profitability dipped in response to the oil price increases and the Great Recession of 2008–2009.

Figure 8 .4 Global Commercial Airline Profitability

Percent Revenues $ Billions 8.0 20 EBIT Marg in (left scale) 6.0 15

4.0 10 e

enu 2.0 5 s v e on R

illi t 0.0 0 B

$ c en r

e -2.0 -5 P -4.0 -10 Net Post Tax Losse s -6.0 (right scale) -15

-8.0 -20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

Source: Based on material from IATA Economics (2011, June).

The cost of fuel is a significant driver of industry profitability, and fuel cost growth may retard growth in the industry. The International Air Transport Association (IATA) stated in its forecast for 2011 that, “… 2011 may see smooth upward progression being interrupted as oil and jet fuel prices rise.”47 Indeed, in March 2010, as oil prices began to rise, IATA lowered its estimate of commercial airline profitability in 2011 132 Aerospace Industry Report 2011

by $1.5 billion. In its March 2011 forecast, IATA stated that “The ability to offset high fuel prices depends critically on a combination of strong economies, leading to strong demand for air transport, and limited capacity growth.”48 Likewise, Airbus has cautioned in its Global Market Forecast (GMF) that fuel costs are an important issue influencing commercial airline growth and profitability. Figure 8.5 shows Airbus’s actual and oil price projections. The Airbus forecast anticipates a somewhat gradual increase in prices. Airbus also points out in its GMF that increasing fuel efficiency is of growing importance. Airbus announced the coming introduction of the A320 NEO (New Engine Option) upgrade, which is targeted to improve engine fuel efficiency by 15 percent.

Figure 8 .5 Airbus Oil Price Projections

Oil price (Current US $ per bbl) 140 History Forecast 120

100

0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Source: Based on material published in Airbus’s Global Market Forecast 2010–2029

An increase in the price of oil translates into a fairly significant increase in the price of jet fuel. Jet fuel is a petroleum distillate that can easily cost as much as a third more per barrel than crude oil. Jet fuel also competes with other fuels, such as heating fuel, for refining capacity, and, of course, rising oil prices affect consumers worldwide.49 The result could be reduced demand for air travel, as more money is used to pay for gasoline, heating fuel, and increased business costs. Even if the airlines pass on some of the price increases to customers, their profits are likely to suffer. Fuel is now approaching 40 percent of operating costs, and any significant increase in oil prices could dampen growth over the next several years.50 Topics to Watch in 2011 and Beyond 133

Aviation and the Environment: Toward Cleaner, Quieter Skies Safely expanding the capacity of our national airspace system and addressing growing environmental and energy concerns are the two most significant challenges facing U.S. civil aviation today. The two challenges are inextricably linked. Modernizing the nation’s air transportation system so it can safely and efficiently accommodate greater numbers of aircraft is vital to reducing civil aviation’s environmental impact and energy use. While the science around civil aviation’s role in climate change continues to evolve, it is widely accepted by industry participants and environmental stakeholders alike that, on a global basis, the sector contributes a relatively modest 2 percent of total man-made carbon emissions.51 Nevertheless, in 2009, the aviation industry voluntarily set for itself the ambitious goal of carbon-neutral growth from 2020 and beyond, known as CNG 2020+, demonstrating its strong commitment to environmental stewardship. Solutions to the environment challenge have been identified and continued efforts to address emissions reductions are under way, each with its own challenges. The solutions include implementation of the Next Generation Air Transportation System, developing sustainable biofuels, and identifying global environmental solutions. In 2010, the Aerospace Industries Association released a report on these challenges: Civil Aviation Growth in the 21st Century: Meeting Capacity and Environmental Challenges, available at www.aia-aerospace.org under the Research Center tab.

Environmental Benefits of the Next Generation Air Transportation System The system wide operational improvements ultimately afforded by the Next Generation Air Transportation System (NextGen) will take emissions reduction to a new level. By fostering more efficient aircraft operations through all phases of flight, literally from gate to gate, FAA analyses indicate that full implementation of NextGen could reduce aircraft greenhouse gas emissions up to 12 percent by 2025—the equivalent of taking 2.2 million cars off the road for one year. NextGen includes ground-based transmitters scheduled for installation by 2013. However, the aircraft avionics that are needed to make the system fully operational are not mandated until 2020, delaying the full benefits of NextGen by seven years. Although the future economic and environmental benefits of NextGen are well substantiated, the current financial state of the civil aviation industry makes capital 134 Aerospace Industry Report 2011

investments difficult for airlines and private aircraft owners. A major challenge for NextGen implementation is funding aircraft equipage through either the government or public-private partnerships.

The Promise of Sustainable Biofuels Fuel is one of the largest operating expenses incurred by the aviation industry, and the volatility of crude oil prices makes it particularly challenging for large airline operators to manage and budget for this critical cost component. The development of sustainable, secure biofuels—produced from renewable, globally abundant biological resources rather than traditional fossil fuels like coal, oil, and natural gas—may reduce the industry’s exposure to oil price fluctuations and have far-reaching environmental benefits, while at the same time enhancing U.S. energy security. And due to the lack of alternative propulsion sources, aviation—unique among transportation modes—has a clear need for biofuels development. While biofuels are not entirely carbon-neutral, over their life cycle they

have the potential to reduce CO2 emissions by up to 85 percent over conventional jet fuel, depending on the feedstock selected and processing methodology. Because they contain fewer impurities, they also have the ability to reduce other emissions such as sulfur dioxide and soot that have local air quality impacts. It will take many years, more investment in R&D, and scaling up of production and refinery capacity before biofuels can completely supplant traditional, kerosene-based jet fuel for large-scale use in civil aviation. Public policy initiatives aimed at growers, processors, and end users are important in enabling this nascent industry to commercialize at the rate

needed to enable the industry to meet its aggressive CO2 reduction goals. Both industry and government are making substantial investment in biofuels, with the U.S. Air Force taking a leading position in its development. President Obama recently made the acceleration of biofuel production over the next two years a centerpiece of his plan to reduce dependence on foreign oil.

Global Environmental Solutions Further adding to the complexity of the environmental issue is a myr- iad of organizations at the domestic, regional, and international levels involved in shaping aviation environmental policies and regulations. As aviation environmental policy continues to evolve, it is becoming increasingly clear that a patchwork of regional schemes is ill-suited to Topics to Watch in 2011 and Beyond 135 addressing this inherently global industry. The current situation with the European Union’s Emissions Trading Scheme (ETS) exemplifies the problems with regional approaches to mitigating the environmental impact of aircraft operations. ETS is the most expansive carbon trading program in existence today, and in 2008, the European Union (EU) voted to further expand its coverage to aviation. Although the expansion does not take effect until 2012, its anticipated negative economic impact on foreign air carriers has already provoked one lawsuit, and more are sure to follow. The measure will impose a cap on aircraft emissions in EU airspace and penalize aircraft operators that exceed their allowance, regardless of the operator’s country of origin. Moreover, airlines will have to buy allowances for the carbon emitted during the entire distance of flights that land or take off in the European Union. Airlines object to the plan, arguing that on a flight from Los Angeles to London, for example, the majority of the emissions would occur outside EU airspace. The Air Transport Association and three of its member airlines have challenged the legality of the unilateral extension of the EU ETS to international aviation, arguing that it violates international law as established by the Chicago Convention, along with the Kyoto Protocol and the terms of the U.S.-EU Open Skies agreement. Regardless of the ultimate outcome of the case, the issues it raises provide perhaps the most compelling rationale for a global approach to aviation emissions monitoring.

Conclusion In 2007, civil aviation was directly or indirectly responsible for contributing more than $1.3 trillion—or 5.6 percent of GDP—to the U.S. economy.52 Travel is forecast to increase, and addressing the environmental impacts of that increased demand is crucial. Solutions have been identified, but sustained commitment is needed to see them through—including, most important, a strong government-industry partnership. Consequently, unifying and aligning the various jurisdic- tions and approaches to emissions reduction remains a major priority of the aviation industry.

The Threat of Counterfeit Parts The volume of counterfeit parts in the supply chain is increasing, necessitating mitigation plans.53 Counterfeit parts adversely affect the U.S. supply chain, whether for electronics, automobiles, or mobile phones. Potential effects of counterfeit parts include safety concerns 136 Aerospace Industry Report 2011

and the cost to mitigate risk and to replace failed parts. Effects such as these are particularly relevant in the aerospace industry, as they may have life-or-death consequences. While various governments and industries have studied the prolif- eration and economic impact of counterfeits,54 until recently, none has specifically addressed the aerospace and defense industry. At the request of the Naval Air Systems Command, the Department of Commerce Bureau of Industry and Security Office of Technology Evaluation conducted a survey to assess “the infiltration of counterfeit electronic parts into U.S. defense and industrial supply chains, provide an understanding of industry and government practices that contribute to the problem and to identify best practices and recommendations for handling and preventing counterfeit electronics.”55 Commerce surveyed all major segments of the supply chain—original component manufacturers, distributors and brokers, circuit board assemblers, prime contractors and subcontractors, and DOD agencies—focusing on electronic parts such as discrete electronic components, microcircuits, bare circuit boards, and assembled circuit boards.56 The survey results were significant. As illustrated in Figure 8.6, original component manufacturers (OCMs) reported that the incidents of counterfeit electronics more than doubled from 2005 through 2008, increasing from 3,369 to 8,644.57 Although the survey focused on parts in the defense aerospace supply chain, electronic parts are widely used throughout the aerospace industry and the insight gained is generally applicable to the entire industry.

Figure 8 .6 Increase in Rate of Counterfeit Incidents at OCMs

Microcircuit Discretes 10,000 9,000 8,000 1,530 7,000 1,843 2,429 6,000 5,000

4,000 7,114 3,000 329 5,452 5,057 2,000 3,040 1,000 0 2005 2006 2007 2008 (est.)

Source: U.S. Department of Commerce, Office of Technology Evaluation, Counterfeit Electronics Survey (2009, November) as reproduced in Counterfeit Parts: Increasing Awareness and Developing Countermeasures, published by the Aerospace Industries Association (2011, March). Topics to Watch in 2011 and Beyond 137

Numerous unique conditions make aerospace products susceptible to counterfeiting, particularly their long life cycle. The first model of the B-52, for example, went into service in February 1955. A total of 744 B-52s were built, with the last aircraft procured in 1963. The anticipated retirement date of the aircraft still in the fleet is 2040 (see table 8.4).58 Consequently, many original equipment replacement parts for these planes may already be obsolete or unavailable.

Table 8 .4 Examples of Life Cycles of Aircraft Aircraft In Service Date Anticipated Retirement Date DC-3 Dec 1935 Not determined B-52 Feb 1955 2040 C-130 Dec 1957 Not determined B737 Feb 1968 Not determined L-1011 Apr 1972 Not determined F-16 Aug 1978 Not determined Space Shuttle Apr 1981 2011

Source: Aerospace Industries Association. (2011, March). Counterfeit Parts: Increasing Awareness and Developing Countermeasures.

According to AIA’s report, Counterfeit Parts: Increasing Awareness and Developing Countermeasures (2011, March), for aerospace companies to avoid purchasing counterfeit parts, procurement, quality control, and disposition processes must be improved. Aerospace companies could further reduce the risk of counterfeit parts entering the supply chain by applying a rigorous, standardized policy to the selection of suppliers. Procurement policies could include the adoption of standards such as SAE AS5553, Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition,59 qualifying suppliers with a survey and a follow-up on-site visit and developing a list of pre-qualified suppliers. Standardized procurement practices generally include guidelines such as requiring a counterfeit electronic parts control plan that includes the following: documentation of risk mitigation, disposition and reporting of counterfeit parts processes; purchasing and quality requirements; verification of the purchased product; defining how suspect counterfeit parts are detected, verified, and controlled; and information sharing, both internally and externally.60 Although AS5553 was written for electronic parts, its requirements could easily be applied to the aerospace industry. 138 Aerospace Industry Report 2011

Developing a list of qualified suppliers would be a particularly effective deterrent. Once the list was in place, higher-tier firms would be able to easily—and confidently—identify suppliers that have the processes in place that mitigate the risk of receiving, storing, and ship- ping potential counterfeit parts. Upgrading quality control measures is another tool that must be considered. Quality processes should ensure that incoming parts are checked not only for meeting purchase requirements but also for possible counterfeiting. Companies need to determine where and to whom they report known or suspected counterfeit parts. Posting notices on internal databases allows employees to be aware of possible supplier issues. Sharing information beyond internal databases is crucial, as it allows other aerospace companies to identify suspected counterfeit parts within their own inventory. External databases can also be searched to review for qualification of a potential supplier.61 Aerospace companies may also need to identify counterfeit parts to law enforcement and legal authorities for prosecution. Once identified, the next step in counterfeit control is proper disposition. Simply returning known or suspected counterfeit parts allows their reintroduction into the supply chain. Also, returning parts allows the counterfeiters to learn that their attempts were detected. Companies should develop disposition plans with the assistance of their procurement, legal, and quality personnel and should also address supplier payment conditions when counterfeit material is discovered. Disposition of counterfeit parts should also be coordinated with reporting to law enforcement, as the suspect parts may be required for investigations. By putting these procedures and processes into place, aerospace firms can reduce the risk of counterfeit parts. For anti-counterfeiting programs to be most effective, firms need to install appropriate safe- guards at all stages of the manufacturing process. Companies should develop programs and conduct training on the procurement, detection, reporting, and disposition of counterfeit parts. Coordination among aerospace firms is also critical to eliminating counterfeit parts from the supply chain. The AIA report and its full set of recommendations can be accessed at www.aia-aerospace.org under the Research Center tab. Topics to Watch in 2011 and Beyond 139

Trends in Research and Development Innovation is at the heart of the aerospace industry, and R&D is what drives much of that innovation. R&D creates more advanced aerospace systems and leads to life cycle extensions, modifications, and new applications. R&D also contributes to improvements in safety, effectiveness, and efficiency, as well as to fundamental transformations in aerospace design, manufacturing, and performance. The Battelle Global R&D Funding Forecast predicts global R&D spending will increase by 3.6 percent in 2011 to $1.2 trillion.62 The United States continues to lead the world in absolute R&D spending, and within the United States, R&D is expected to grow by 2.4 percent in 2011 to $405.3 billion. Battelle estimates that the U.S. government will spend more on defense R&D in 2011 than the total R&D funding (funding from all sources for all applications) for nearly all other countries combined (see Figure 8.7).

Figure 8 7. Relative Amount of Annual R&D Spending by Country

8,000

7,000 Size of circle represents the approximate relative amount of annual R&D spending by 6,000 country noted. Japan US 5,000 France 4,000 Russia

3,000 Germany 2,000 UK Brazil 1,000 Mexico China

Scientists and Engineers per Million People India 0 0 0.5 1 1.5 2 2.5 3 3.5 4 R&D as Percent of GDP

Source: Based on material presented in Battelle’s R&D Magazine (2010, December).

The Battelle report also points out that firms around the world are decentralizing their R&D organizations and building new R&D facilities in offshore locations. Within the aerospace, defense, and national security communities, the report identifies the following important R&D trends: 140 Aerospace Industry Report 2011

■■ Moving from long-term basic research to short-term deliverable- based research

■■ Shifting the focus on innovation down into the supply chain

■■ More collaborative, cost-sharing research More than 20 U.S. government departments and agencies engage in R&D activities. In fiscal year 2010, the total appropriation for R&D was $147.1 billion. In FY 2011, the government operated under a series of seven continuing resolutions, which ultimately reduced the FY 2011 R&D budget from the requested $149 billion to about the level of FY 2010. The 2012 request totaled $147.9 billion, which is 1 percent more than the FY 2010 appropriation. Essentially, the requested increase for FY 2012 is less than needed to account for inflation since 2010. Nevertheless, the levels of federal R&D spending in FY 2010–2012 are the highest on record in both current and constant dollars (see Figure 8.8).63 The vast majority of aerospace R&D spending occurs within DOD and NASA, which had FY 2010 R&D appropriations of $80.6 and $9.3 billion, respectively. The FY 2011 full year Continuing Appropriation for DOD resulted in a $1.2 billion reduction from the request, while NASA’s R&D budget survived intact, but with some significant shifts in specific program allocations. The DOD and NASA FY 2012 R&D requests, totaling $76.6 and $9.8 billion, respectively, reflect both the budget stress of the current federal debt and deficit crisis and the practical effect of several major DOD programs progressing from R&D into procurement. DOD’s research, development, test, and evaluation budget plays an important role in enabling rapid and cost-effective improvements in modern military aircraft. This investment funds a broad range of aircraft, missile, missile defense, and space systems. RDT&E activities that are categorized as Basic Science, Applied Research, Advanced Technology Development, Advanced Component Development and Prototypes, System Development and Demonstration (aka Engineering Development), Management Support, and Operational Systems Development. Topics to Watch in 2011 and Beyond 141

Figure 8 .8 Federal Funds for R&D

Department of Defense Other NASA Department of Energy

160,000

140,000

120,000

100,000

80,000

60,000 Millions of Dollars

40,000

20,000

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (E) (E) Fiscal Year

Source: OMB, The Budget of the United States Government.

A preliminary review of the FY 2011 Continuing Resolution finds that Defense Department R&D programs fared relatively well, given the confluence of events, including the sluggish economy, the federal debt crisis, and increasing scrutiny of discretionary spending such as DOD R&D (see Figure 8.9). Overall, Congress increased defense- wide RDT&E from the requested $20.7 billion to $20.8 billion. U.S. Air Force RDT&E was funded at $26.5 billion compared to a request of $27.2 billion, Navy RDT&E was funded at $17.7 billion compared to a request of $17.7 billion, and Army RDT&E was funded at $9.7 billion compared to a request of $10.3 billion, with nearly $500 million of the reduction due to delay in beginning the Manned Ground Vehicle program. Figure 8.10 shows actual and expected Defense Department outlays for RDT&E through FY 2012. 142 Aerospace Industry Report 2011

Figure 8 .9 DOD Funds for RDT&E

Operational Test & Evaluation Defense Agencies Air Force Navy Army

90,000

80,000

70,000 s r

a 60,000 l l

50,000

s of Do 40,000 ion l l i

M 30,000

20,000

10,000

0 2008 2009 2010 2011(E) 2012(E) Fiscal Year

Source: Department of Defense, RDT&E Programs (R-1).

Figure 8 .10 Actual and Expected DOD Funds for RDT&E

Navy Air Force Army Other 90,000

80,000

70,000

s 60,000

50,000

40,000

Millions of Dolla r 30,000

20,000

10,000

0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 201020112012 (E) (E) Fiscal Year Source: Office of Management and Budget, Budget of the United States Government.

Troubling Trends for Small to Medium Aerospace Manufacturers Even though the United States maintains a surplus in aerospace trade, there are danger signs in the data.64 Figure 8.11 shows the diverging sales of aerospace products and parts for large and small to medium- Topics to Watch in 2011 and Beyond 143 sized firms over the past 10 years. Despite the spike in mid-2008,* it is clear that sales of small to medium-size aerospace manufacturers have declined compared to those of larger firms. Possible reasons include mergers and acquisitions of smaller firms; growth of small firms into firms with more than $25 million in sales; or small firms going out of business during the recession.

Figure 8 .11 Index of Net Sales by Size of Manufacturer

Assets Equal to or Greater Than $25 Million Assets Less Than $25 Million 180 160 140 120

10 0 x e

nd 80 I 60 40 20 0 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 4Q 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Based on data from the U.S. Census Bureau, Quarterly Financial Report 2010 NAICS Group 3364.

Another reason could be that the U.S. aerospace industry is becoming more dependent on foreign suppliers. This is consistent with the outsourcing strategies of many original equipment manufacturers and prime aerospace firms, and lends credibility to claims that the U.S. supply base is eroding.65 Regardless, it is clear that more research is needed to understand what is driving the differences between SMMs and larger aerospace firms. Finally, Figure 8.11 also helps explain the diverging financial performance of large versus small to medium-size firms seen in Chapter 6.

National Manufacturing Strategy for Aerospace Over the years, there has been substantial debate about the need for a national manufacturing strategy. As one of the crown jewels of the U.S. manufacturing industry, the aerospace industry has often been at the center of the debate. Even as this is being written, the debate continues, with logical arguments being made on both sides of the issue. On the one hand, many prefer a laissez-faire approach that allows free markets to determine the future of the industry; others have identified

* The 2008 spike in sales for both small and large manufacturers corresponds to a spike in the PPI during the same period. 144 Aerospace Industry Report 2011

compelling reasons for implementing some form of national industrial or manufacturing strategy. Despite what is often heard in the press today, the United States still has the most productive workforce in the world, supporting more than 18 million jobs in the world’s largest manufacturing economy.66 However, as stated in a recent report by the National Association of Manufacturers, … U.S. leadership in manufacturing is under fire, facing its toughest competition in the nation’s history. States used to battle each other to recruit new factories and manufacturing jobs. Today, states go head-to- head against foreign governments that can use all the tools of government to support industry. (National Association of Manufacturers, 2010, Introduction). This same report goes on to state that some appear to have given up on manufacturing, while others seem to assume that things will just work out.67 Regardless of one’s position, it is clear that the United States’ place as the world’s leading producer of military and commercial aircraft is being challenged by state-supported enterprises in Europe, Brazil, Russia, India, and China.

The Unique Nature of the U.S. Aerospace Industry There can be no doubt that part of what has made America great is its reliance on free markets and capitalism to drive innovation and competition. At the same time, however, there are legitimate questions about the unique role of the aerospace industry in the U.S. economy and national security. This issue recently surfaced when Ashton Carter, undersecretary of defense for acquisition, technology and logistics, described new guidelines for dealing with lower-level suppliers. While Carter has made it clear that he will not allow any further consolidation among the prime weapon contractors, he opened the door for smaller contractors to merge with or be acquired by the higher-tier manufacturers.68 Some industry observers consider this to be a threat to our industrial base and note that the aerospace and defense industry “is not just another collection of companies.”69 In fact, some cite the decline in critical defense manufacturing capabilities as evidence of the need for a coherent national industrial base strategy.70 Others, such as Henry Birdseye Weil from the Massachusetts Institute of Technology, provide ample evidence that relying on market forces Topics to Watch in 2011 and Beyond 145 alone can produce disastrous business results. In his article “Why markets make mistakes,” Weil notes that relying on market forces alone can result in misestimating demand, unrealistic business planning, poor financial discipline, erroneous assumptions about technical trajectories, giving up too soon, waiting too long, and other dysfunctional behaviors.71 And although Weil does not directly address or endorse the need for a national manufacturing strategy, others do. A recent article in the Wall Street Journal suggests that there seems to be growing support for some form of industrial policy that can provide capital, trade assistance, and other incentives to help new businesses and existing manufacturers compete with state-supported industries.72 Senator Sherrod Brown (D-OH) and Representative Daniel Lipinski (D-IL) have been working on this for years and have introduced bills to strengthen America’s manufacturing base.73

Creating a National Manufacturing Strategy While the purpose of this report is not to endorse one position over another, the National Association of Manufacturers provides the following checklist for creating a national manufacturing strategy:74

■■ Create a pro-manufacturing tax climate.

■■ Encourage a dynamic labor market.

■■ Implement a commonsense, fair approach to legal reform.

■■ Create a regulatory environment that promotes economic growth.

■■ Enact tax provisions that will stimulate investment and recovery.

■■ Encourage the federal government’s continued critical role in basic R&D.

■■ Recognize intellectual property as one of America’s competitive strengths that must be defended at all levels, domestically and globally.

■■ Attract the best talent from here in the United States and from around the world.

■■ Promote progressive international trade policy that opens global markets, reduces regulatory and tariff barriers, and reduces distor- tions in currency exchange rates, ownership restrictions, and various “national champion strategies.” 146 Aerospace Industry Report 2011

■■ Modernize the outdated U.S. export control system to encourage exports and strengthen national security.

■■ Assist exporting by small to medium-sized manufacturing companies through expanded export promotion programs as well as export credit assistance for small and large firms.

■■ Create a comprehensive energy strategy that embraces an “all of the above” approach to energy independence.

■■ Promote policies that protect the environment, encourage additional investment and innovation, and recognize the global scope of many environmental issues.

■■ Invest in infrastructure to help manufacturers in the United States more efficiently move people, products, and ideas.

■■ Encourage innovation through education reform, improvement, and accountability.

■■ Support health care reform that drives down costs. At the time of writing, the need for a national manufacturing strategy was still being debated, with a number of senators, representatives, and interest groups proposing various solutions for strengthening America’s manufacturing base. Regardless of whether a national manufacturing strategy for aerospace is implemented, it is clear that exporting will continue to play a key role in the future of the industry.

The National Export Initiative In January 2010, President Obama launched the NEI, which set the goal of doubling U.S. exports in five years and supporting several million jobs.75 To meet this objective, the president has focused on five pillars for the NEI:

■■ Improving advocacy and trade promotion

■■ Increasing access to export financing

■■ Removing barriers to trade

■■ Enforcing our trade rules

■■ Promoting strong, sustainable, and balanced growth Topics to Watch in 2011 and Beyond 147

An NEI Strategy for Aerospace The Department of Commerce’s International Trade Administration (ITA) is developing a strategy to achieve the president’s NEI goals. Aerospace—as one of the leading U.S. export sectors—is a priority sector for the NEI. ITA is developing an aerospace NEI strategy to advance the international competitiveness of the U.S. aerospace industry, increase U.S. aerospace exports, and support aerospace jobs. ITA has identified a number of priority markets, including India, Brazil, China, Russia, Canada, Japan, the European Union, Korea, Turkey, and the Gulf Region (including the United Arab Emirates and Saudi Arabia). These are seen as markets where U.S. government engagement can make a significant difference in creating and growing export opportunities for U.S. aerospace suppliers. For example, ITA is aiming to eliminate India’s combined tariff and other charges on general aviation aircraft. In addition to this bilateral approach, ITA is encouraging India to accede to the World Trade Organization (WTO) Agreement on Trade in Civil Aircraft, which would require India to eliminate all tariffs on aerospace products. Through the Aviation Infrastructure Working Group, ITA is addressing the barriers to expanding India’s airport infrastructure and also facilitating U.S. supplier participation in this $20 billion dollar market. In Brazil, ITA is working with an interagency team and aerospace industry groups to put together an Aviation Cooperation Program like the one in which ITA participates with India and China. The WTO-bound rate for aerospace products in Brazil is high, and ITA is seeking to have it brought down to zero. ITA will work with current and potential U.S. suppliers to Embraer to identify additional export opportunities for them in third countries. In Canada, ITA is looking at ways to expand U.S. supplier participation in the Bombardier supply chain. In Korea, ITA is encouraging congressional approval of the U.S.- Korea Free Trade Agreement by educating the public on the agreement’s economic benefits. The agreement will create thousands of new manufacturing jobs, further the national goal of doubling exports in five years, and demonstrate U.S. leadership on global trade efforts. The International Trade Administration recognizes that to maintain the United States’ strong export position in the future, it is important to address “over the horizon” segments of the industry, including commercial space, NextGen, alternative aviation fuels, and unmanned 148 Aerospace Industry Report 2011

aircraft systems. These segments are projected to grow significantly over the next decade, creating a strong export platform that will contribute to the U.S. economy and U.S. jobs. ITA’s export strategies, developed by the Manufacturing and Services unit, will serve as the basis for an interagency effort to focus the full resources of the U.S. government in support of U.S. export competitiveness in these high-growth areas.

SBIR for Manufacturing The SBIR and Small Business Technology Transfer (STTR) programs were established by Congress in 1982. Eleven federal departments participate in the SBIR program; five departments participate in the STTR program, awarding $2 billion to small high-tech businesses. The DOD is the largest participant, funded at approximately $1.23 billion in FY 2009. The SBA administers the program for small businesses (with 500 or few employees). Executive Order (EO) 13329, Encouraging Innovation in Manufacturing, was signed in 2004 to help ensure that federal agencies assist the private sector in implementing manufacturing innovation to sustain a strong manufacturing sector in the U.S. economy.76 EO 13329 recognizes and mandates the need for SBIR involvement, and the SBA requires each agency within the SBIR program to develop a written plan on how to implement EO 13329. Since EO 13329 was executed, the need to strengthen the U.S. manufacturing base has increased. Manufacturing is vital to America’s economic prosperity and national security. Growing manufacturing can ease lingering unemployment, and emphasizing innovation can strengthen U.S. global manufacturing competitiveness. Today, there is some debate regarding the effectiveness of the SBIR program in supporting manufacturing. Some of this uncertainty may be due to the perceived weak link between innovation and commercialization. Finding a way to strengthen this connection could stimulate participation of manufacturers in the SBIR program and lead to increased commercialization. In response to this situation, the Aerospace States Association has established a pilot project with the Connecticut SBIR Office to improve innovation and the chances of commercialization. This initiative intends to evaluate the manufacturing readiness levels of SBIR Phase II topics that were not commercialized. The results would be Topics to Watch in 2011 and Beyond 149 used to determine whether early assessment and advancement of the manufacturing readiness level during the innovation process (Phases I and II) could lead to greater commercialization. The aim of the project is to increase the number of SBIR initiatives that reach commercialization and subsequently grow America’s industrial base.

Summary and Conclusions This chapter addressed a number of topics that may be particularly important to the U.S. aerospace industry over the next several years. The chapter began with a discussion about the role and importance of clusters in the aerospace industry and what industry, government, and academia can do to enhance the effectiveness of clusters now and into the future. The next section dealt with the concept of extreme manufacturing and what must be done to implement the long-term technology advances necessary to keep America competitive. This section also addressed the four area of research that have been identified, and the fact that government, industry and academia are now working together to identify opportunities for moving this important initiative forward. America’s dependence on rare earth elements and oil was also discussed. Rare earth elements are essential for manufacturing vital components for the Joint Strike Fighter and other military systems, and rising fuel prices represent another threat to the viability of the aerospace industry. The discussion then turned to environmental issues such as carbon- neutral growth, the impact of biofuels on the industry, the role of NextGen in reducing aircraft-related emissions, and the need for a global approach to aviation emissions monitoring. Other topics included the growing challenge of counterfeit parts, the state of R&D in aerospace, and other issues related to small-to medium manufacturers. The final portion of this chapter dealt with the SBIR program, the need for a national manufacturing strategy, and how the National Export Initiative can be used to stimulate U.S. aerospace exports. The next and final chapter summarizes the findings from numerous industry forecasts and concludes by presenting an outlook for 2011 and beyond. 150 Aerospace Industry Report 2011

Chapter Endnotes

1 See, for example, Porter, M. E. (1990). The competitive advantage of nations. New York, NY: The Free Press; or Porter, M. E. (1990). On competition. Boston, MA: Harvard Business School Press. 2 U.S. Economic Development Agency. Retrieved from http://www.eda.gov/Research/ ClusterBased.xml 3 Porter, M. E. (1998, November–December). Clusters and the new economics of competition. Harvard Business Review, 76(6), 78. 4 Ibid. 5 Porter, M. E. (1990). On competition (p. 199). 6 Niosi, J., & Zhegu, M. (2005, March). Aerospace clusters: Local or global knowledge spillovers? Industry and Innovation, 12 (1), 1–25. 7 Porter, M. E. (1998). Clusters and the new economics of competition (pp. 80–81). 8 Porter, M. E. (1990). The competitive advantage of nations (p. 157). 9 Schiele, H. (2008). Location, location: The geography of industry clusters. Journal of Business Strategy, 29(3), 31. 10 Porter, M. E., Monitor Group, ontheFRONTIER and the Council on Competitiveness. (2001). Clusters of innovation: Regional foundations of U.S. competitiveness. Retrieved from http://www.compete.org/publications/detail/220/ clusters-of-innovation-initiative-regional-foundations-of-us-competitiveness/ 11 Ibid. (p. ix). 12 Platzer, M. D. (2009). U.S. aerospace manufacturing: Industry overview and prospects (Summary). Washington, DC: Congressional Research Service. 13 For more information on the Cluster Mapping Project, see https://secure.hbs.edu/login/ isc-cmp-us/index.html?http://data.isc.hbs.edu/isc/ 14 Mathews, N. (2010, February 1). Singapore aviation authority launches development initiatives. Aviation Daily, 19. 15 Cluster Net. (2009, May 11). Aviation Week and Space Technology, 20. 16 Tegtmeier, L. A. (2010, January 26). MRO market predicted to grow, consolidate as recession wears on. Aviation Daily, 3. 17 Pisano, G. P., & Shih, Willy C. (2009. July–August). Restoring American competitiveness. Harvard Business Review, 87(7/8), 114–125. 18 Schiele, H. (2008). Location, location: The geography of industry clusters. Journal of Business Strategy, 29(3), 29–36. 19 Warwick, G. (2010, November 1). DARPA, NASA tap crowd sourcing for aerospace and defense ideas. Aviation Week and Space Technology, 75. 20 Porter, M. E. (1990). On competition (p. 198). 21 Porter, M. E., et al. (2001). Clusters of innovation (p. 82). 22 Ibid. (pp. 81–82). 23 Scheel, C. (2002). Knowledge clusters of technological innovation systems. Journal of Knowledge Management, 6(4), 356–367. 24 Harary, H. (2011, February 24). Findings from the NIST Extreme Manufacturing Workshop. PowerPoint presentation. Retrieved from http://www.ndia.org/Divisions/ Divisions/Manufacturing/Documents/119b%20presentations/10%20Harray.pdf Topics to Watch in 2011 and Beyond 151

25 Jusko, J. (2011, January 14). Workshop tackles ‘extreme’ manufacturing. Industry Week. Retrieved from http://www.industryweek.com/ articles/workshop_tackles_ extreme_manufacturing_23665.aspx 26 Committee on Critical Mineral Impacts on the U.S. Economy. (2008). “Minerals, critical minerals, and the U.S. economy. Washington, DC: The National Academies Press. 27 Iritani, E. (2005, June 25). Chinese bid for Unocal stirs up issues. Los Angeles Times. Retrieved from http://articles.latimes.com/2005/jun/25/business/fi-uschina25 28 Crawford, P., and Young, T. (2005). Fair trade of strategic concern: The Unocal war. Graziadio Business Review, 8(4). Retrieved from http://gbr.pepperdine.edu/2010/08/ fair-trade-or-strategic-concern-the-unocal-war/ 29 Gaffney, F. Jr. (2005, July 13). ‘CNOOCERED’: The adverse national security implications of the proposed acquisition of Unocal by the China National Offshore Oil Corporation. Submitted testimony, House Armed Services Committee. Washington, DC: Center for Security Policy. 30 Bradsher, K. (2010, September 22). Amid tension, China blocks crucial exports to Japan. The New York Times. Retrieved from http://www.nytimes.com/2010/09/24/ business/global/ 24rare.html 31 Ibid. 32 Tse, Pui-Kwan. (2011). China’s rare-earth industry. Open-File Report 2011-1042. United States Geological Survey. 33 Bourzac, K. (2010, October 29). Can the U.S. rare-earth industry rebound? MIT Technology Review. Retrieved from http://www.technologyreview.com/ energy/26655/?a=f 34 Biggs, S. (2011, January 6), Rare earth metals leave toxic trail to Toyota, Vestas. Bloomberg Businessweek. Retrieved from http://www.businessweek.com/news/2011- 01-06/rare-earth-metals-leave-toxic-trail-to-toyota-vestas.html 35 Tse, Pui-Kwan. (2011). China’s rare-earth industry. 36 Dross, N. (2011, March 9). Molycorp says China may be net rare-earths importer by 2015. Bloomberg Businessweek. Retrieved from http://www.businessweek.com/ news/2011-03-09/molycorp-says-china-may-be-net-rare-earths-importer-by-2015.html 37 Tse, Pui-Kwan. (2011). China’s rare-earth industry. 38 Sternberg, J. (January 13, 2011). China’s risky rare-earth gamble. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052748704803604 576077320070523728.html 39 Grasso, V. (2011, March 31). Rare earth elements in national defense: Background, oversight issues, and options for Congress. CRS Report for Congress. Washington, DC: Congressional Research Service. 40 Ibid. 41 McBride, S. (2010, December 13). Rare earth producer wins OK for mine. Reuters. Retrieved from http://www.reuters.com/article/2010/12/13/ molycorp-california-idUSN1321376420101213 42 Kanellos, M. (2011, April 18). Molycorp moving from miner to manufacturer. Greentechentrerprise. Retrieved from http://www.greentechmedia.com/channel/ enterprise/ 43 Barr, S., & Mansfield, R. (2010). Aerospace economic report and outlook 2010: Manufacturing indicators for the aviation and aerospace industry (2nd ed.). Dayton Beach, FL: Embry-Riddle Aeronautical University. 44 ICAP Energy. Crude Oil and refined products glossary. Refiner acquisition cost of crude oil: The cost of crude oil, including transportation and other fees, paid by the 152 Aerospace Industry Report 2011

refiner. The composite cost is the weighted average of domestic and imported crude oil costs. Retrieved from www.icapenergy.com/us/docs/crudeglossary.pdf 45 U.S. Energy Information Administration. Refiner acquisition cost of crude oil.Petroleum & Other Liquids. Retrieved from http://www.eia.doe.gov/dnav/pet/pet_pri_rac2_dcu_ nus_m.htm 46 IATA. Jet fuel price monitor. Retrieved from http://www.iata.org/whatwedo/economics/ fuel_monitor/Pages/index.aspx 47 IATA Economics. (2010, December). Strong but cyclical recovery in profits. Financial Forecast. Retrieved from http://www.iata.org/whatwedo/Documents/economics/ Industry-Outlook-Dec-10.pdf 48 IATA Economics. (2011, March). High fuel prices squeeze airline profits. Financial Forecast. Retrieved from http://www.iata.org/whatwedo/Documents/economics/ Industry-Outlook-March2011.pdf 49 Martin, T. (2011, February 25). Airlines brace for increases in jet-fuel prices. The Wall Street Journal Online. Retrieved from http://online.wsj.com/article/SB1000142405274 8703905404576164741506652956.html 50 Ibid. 51 Government Accountability Office. (2009, June 8). Summary: Aviation and climate change: aircraft emissions expected to grow, but technological and operational improvements and government policies can help control emissions. Retrieved from http://www.gao.gov/ products/GAO-09-554 52 Federal Aviation Administration. (2009, December). The economic impact of civil aviation on the U.S. economy. Retrieved from: http://www.faa.gov/air_traffic/ publications/media/FAA_Economic_Impact_Rpt_2009.pdf 53 Aerospace Industries Association. (2011, March). Counterfeit parts: Increasing awareness and developing countermeasures. Washington, DC: Author. 54 See, for example, Business Action to Stop Counterfeiting and Piracy. (2011, February). Estimating the global economic and social impacts of counterfeiting and piracy. Retrieved from http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/Global%20 Impacts%20-%20Final.pdf. See also Organisation for Economic Co-operation and Development. (2008). The economic impact of counterfeiting and piracy. Retrieved from http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/OECD-FullReport.pdf 55 U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation. (2010, January). Defense industrial base assessment: Counterfeit electronics. Retrieved from http://www.bis.doc.gov/ defenseindustrialbaseprograms/ osies/defmarketresearchrpts/final_counterfeit_electronics_report.pdf 56 Ibid. (p. 3). 57 Ibid. (p. 11). 58 Federation of American Scientists. (2010). B-52 Stratofortress. Retrieved from http://www.fas.org/programs/ssp/man/uswpns/air/bombers/b52.html 59 Available for purchase from http://www.sae.org/ 60 Aerospace Industries Association. (2011, March). Counterfeit parts: Increasing awareness and developing countermeasures (pp. 18–19). Washington, DC: Author. 61 An example of an external database is the Government-Industry Data Exchange Program. Available at http://www.gidep.org/ 62 Batelle. (2010, December). 2011 global R&D funding forecast. R&D Magazine. Retrieved from http://www.battelle.org/aboutus/rd/ 2011.pdf Topics to Watch in 2011 and Beyond 153

63 OMB Historical Table 9.7. (2011, February). Summary of outlays for the conduct of research and development: 1949–2012. Retrieved from http://www.whitehouse.gov/ omb/budget/Historicals 64 Materna, R., & Mansfield, R. (in press). Preserving a crown jewel: Strengthening the U.S. aerospace supply base. Logistics Spectrum. 65 Defense Metals Technology Center. (2010, July). Strategic Materials Newsletter. Retrieved from http://www.defensemetals.org/dmtc/pdf/DMTC _NewsLetter_Issue1.pdf 66 National Association of Manufacturers. (2010, June). Manufacturing strategy for jobs and a competitive America (Introduction). Washington, DC: Author. 67 Ibid. 68 Editorial. (2011, February 21). Shrink to fit is not a good strategy. Aviation Week and Space Technology, 66. 69 Ibid. 70 Editorial. (2009, July 10). Critical capabilities at risk. Aviation Week and Space Technology. Retrieved from http://www.aviationweek.com/aw/generic/story_generic. jsp?channel=defense&id=news/EDIT071009-4.xml&headline=Critical%20U.S.%20 Defense%20Capabilities%20At%20Risk 71 Weil, H. (2010). Why markets make mistakes. Kybernetes, 39(9/10), 1429–1451. 72 Wiesen, J. (2010, September 13). The U.S. needs its own industrial policy. The Wall Street Journal, p. A19. 73 Brown, S. (2011, March 9). Re: Fighting for a national manufacturing policy. Retrieved from: http://brown.senate.gov/ issues_and_agenda/ issues/ issue/?id=0ad51c7b-00ac-4bdf-bc51-a69c24ef47b8 74 National Association of Manufacturers. (2010, June). Manufacturing strategy for jobs and a competitive America (p. 8). Washington, DC: Author. 75 For more information on the National Export Initiative, see U.S. Department of Commerce. (2010, September). Report to the president on the National Export Initiative. Retrieved from http://www.whitehouse.gov/sites/default/files/nei_ report_9-16-10_full.pdf 76 Executive Order 13329. (2004, February 26). Encouraging innovation in manufacturing. The Federal Register. Retrieved from http://www.acq.osd.mil/osbp/sbir/execorder/ EO13329.pdf

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Industry Forecasts and Outlook

Introduction There are numerous forecasts that attempt to predict what the future may hold for the aerospace industry. Taken together, they provide a reasonably clear view of what the industry may look like in the near term as well as decades into the future. This chapter summarizes the essence of these forecasts, which are then combined with the information from previous chapters to provide an overall outlook for the industry.

Government Aerospace Forecasts International Trade Administration Flight Plan Every year, the ITA’s Office of Transportation and Machinery at the U.S. Department of Commerce produces Flight Plan: Analysis of the U.S. Aerospace Industry. This document reports on business trends and developments in the U.S. aerospace manufacturing industry, includes country profiles on key trading partners and competitors, and emphasizes issues related to U.S. interests in international trade and investment. 156 Aerospace Industry Report 2011

Flight Plan 2009, for example, predicted that while the effects of the global recession would linger, the U.S. aerospace industry would remain relatively strong.1 This prediction turned out to be correct. The following represents the most current data from the ITA as of July 2011.* In 2010, the estimated value of U.S. aerospace shipments totaled $171 billion, a 4.5 percent decrease from 2009. The value of civil aircraft and aircraft parts shipped in 2010 was $85 billion, a decrease of almost 13 percent from 2009 ($97 billion). While shipments of civil aircraft and aircraft parts were down in 2010, orders were up by 66 percent to more than $90 billion.2 In 2010, U.S. exports of aerospace products were valued at $77.8 billion, while imports totaled $34.2 billion. This produced a trade surplus in aerospace of $43.6 billion—somewhat less than the 2009 surplus of $48.3 billion.3 This surplus is the largest of any manufacturing sector, and, according to a 2008 study by the U.S. Department of Commerce, aerospace exports support more U.S. jobs than any other industry.4 Equally important, aerospace workers are well paid, earning 80 percent more than the average for all manufacturing workers and more than twice as much as all U.S. private sector workers.5 Overall, the U.S. aerospace industry directly supports about 624,000 jobs.6 AIA estimates that the industry indirectly supports more than a million additional jobs. Other highlights are as follows:

■■ Over the past two decades, the average annual growth rates in U.S. civil aerospace exports to the largest, legacy export markets (such as France, the United Kingdom, Japan, and Canada) have been on the order of 5 to 10 percent. Average annual growth rates of U.S. civil aerospace exports to smaller, emerging markets (such as India, Saudi Arabia, Israel, and Indonesia) have been dramatically higher, on the order of 50 percent.

■■ U.S. aerospace manufacturers’ primary foreign competitors are European. In many of the major national aerospace markets, the United States and Europe have roughly equal market shares.

■■ Among the factors accelerating growth in the global supply chain are government policies aimed at fostering indigenous aerospace manufacturing industries, the need to spread risk across compo-

* Some of the information in this section may be somewhat different from what is currently published in Flight Plan since the data and issues are continuously updated. Industry Forecasts and Outlook 157

nent suppliers, and an interest by airframers in having a diversity of suppliers.

■■ An overarching industry trend is the move away from a duopoly of producers in the United States and Europe to multiple producers in several regions. Regional aircraft manufacturers in Brazil and Canada are beginning to produce aircraft that will compete with Boeing and Airbus. Other countries with emerging aerospace industries include China, Japan, India, Israel, and Russia.

■■ The U.S. dollar’s value against the euro and other major foreign currencies makes U.S. products more affordable internationally. This strengthens U.S. exports and tends to discourage imports.

■■ Rising oil prices—which drive fuel expenses—are stimulating ways to reduce fuel expenses and driving demand for more fuel-efficient aircraft and engines.

■■ There is a growing trend toward joint ventures and consolidation in the United States and other markets.

■■ U.S. export control policies continue to affect competitiveness. These policies have led foreign firms to “design out” U.S. components, as well as purchase products with no U.S. parts, and look to non-U.S. manufacturers for partners. Current initiatives are being taken by the Obama administration to reduce the impact of export controls on competitiveness.

■■ The MRO market will remain strong, with the growing fleets in India, Eastern Europe, South America, and China driving growth in global MRO.

Sector-Specific Comments ■■ Large civil aircraft (LCA): Boeing, the only U.S. LCA manufacturer, continues to recover from a 2004 cyclical low and 2008 strike. Airbus is Boeing’s major LCA competitor, but there are clear signals of the emergence of new LCA competitors overseas. In November 2010, the Commercial Aircraft Corporation of China announced the first orders for its C919 model jetliner, and in early 2010, Montreal-based Bombardier received its first order from a U.S. customer for its C-Series aircraft, the first LCA to be manufactured in Canada. Brazil’s Embraer does not currently produce LCA aircraft, though it has announced that it is considering projects to compete with Boeing and Airbus in the narrow-body 158 Aerospace Industry Report 2011

LCA market. Russia has also announced its entry into the LCA market with deliveries projected in 2016. To respond to this pressure, Airbus is reengining its current generation of narrow-body aircraft, and Boeing is evaluating whether to reengine its current generation of 737s or launch a completely new replacement narrow-body aircraft.

■■ Regional jets: Bombardier and Embraer are the dominant regional jet manufacturers, but China, Russia, and Japan are entering the market. The regional jet market began with a focus on 50-seat jets, but the market is moving to jets with more than 100 seats. Embraer’s ERJ 190 seats up to 114. Regional jets of this size are beginning to compete with Boeing’s and Airbus’s smaller aircraft. Bombardier’s C-series will compete in seating with the Boeing 737 and Airbus A-320. The United States has been the largest market for regional jets, and while the market will remain strong, the U.S. share of the market will likely drop as demand in Europe, Russia, and China grows. Whether there is enough global demand to sustain all these programs remains to be seen.

■■ General aviation: Of all the segments of the aviation and aerospace industry, general aviation (GA) is most closely tied to general economic conditions. GA sales fell again in 2010 and are expected to be flat in 2011. Large business jet deliveries continue to be unaffected by the downturn, while smaller jet sales are more volatile. GA manufacturers in the United States continued to shed jobs, and U.S. manufacturers’ share of the market dropped from 69 percent in 2009 to 66 percent in 2010. Embraer is emerging as a strong competitor in the small jet area and is opening a facility to assemble executive jets in Florida in 2011. Due to supply chain constraints and the significant number of layoffs at original equipment manufacturers (OEMs), it is unclear how the industry will respond to new orders as the economy continues to improve. Sales of business jets tend to lag economic recovery by one year; piston aircraft tend to track in real time.

■■ Rotorcraft: Industry analysts expect recovery in the rotorcraft sector to lag behind the recovery of fixed-wing GA manufacturing, given that the downturn in GA manufacturing preceded that of helicopters. Helicopter shipments are expected to begin increasing in 2012, with China and India as prominent markets owing to their lack of infrastructure. Industry Forecasts and Outlook 159

■■ Unmanned aircraft systems: The market for unmanned aircraft systems (UASs) continues to be dominated by the Defense Department. This is expected to continue as DOD plans to invest more than $24 billion between 2010 and 2015 in new systems and expanded capabilities in its existing fleet. In March 2009, DOD published the second edition of its FY2009–2034 Unmanned Systems Integrated Roadmap, identifying critical capabilities, challenges, and priorities. The DOD Quadrennial Defense Review report released in February 2010 called for increasing the use of unmanned aerial vehicles in military operations—particularly in intelligence, surveillance, and reconnaissance operations. Most governments are seeking to integrate UAS capabilities into their defense forces, either through acquisition of foreign systems or development of indigenous systems. At least 40 other countries are currently developing unmanned systems technology. Israel’s Elbit Systems and European Aerospace Defense and Space are among the significant foreign producers. Civil use of UASs is being held back by the lack of standards, regulations, and procedures for integrating these systems into civil airspace. The FAA imposes strict limitations on UAS operations in the national airspace until proper standards and regulations can be developed. The FAA’s Unmanned Aircraft Program Office is expected to publish a Notice of Proposed Rulemaking for small UASs in late 2011, which will provide a process for small UASs to operate in the national airspace under low-risk conditions without undergo- ing the case-by-case approval process that is currently required. The FAA hopes to publish the final rule by the end of 2012. Given the military growth of UASs and the potential for civilian use, the long-term forecast is optimistic but not totally clear.

■■ Engines: The aircraft propulsion market is dominated by three firms—GE Aviation, Pratt & Whitney, and Rolls-Royce—which produce engines for both military and civil aircraft, either alone or in joint ventures. The performance of the LCA market (and to a lesser degree the GA market) has a significant impact on the performance of the engine manufacturers. Since Russian jet engines are installed on a small part of the LCA market their impact is negligible, but Russian manufacturers are interested in participating in joint ventures to gain access to the global aircraft engine market. China is also beginning to enter the engine market, with a growing number of domestic parts manufacturers seeking to produce engines for China’s ARJ21 regional jet and the C-919 narrow-body airliner. However, both these aircraft will use engines 160 Aerospace Industry Report 2011

manufactured by GE Aviation and CFM International. Companies continue to develop new engine technologies that reduce engine fuel consumption, noise, and emissions. These engines are the primary options on a number of new aircraft in development, including Russia’s United Aircraft Corporation/Irkut MS-21, Japan’s Mitsubishi Regional Jet, Canada’s Bombardier C-Series aircraft, and the Airbus A320 NEO. The outlook here is for increasing joint ventures, and as the LCA market goes, the aircraft engine market will generally follow.

■■ Airport infrastructure and aviation security: The economic recovery, evolving security conditions, and expected increases in air traffic point to growth. Capital expenditures are growing worldwide, and U.S. airports will need to expand capacity to meet future demand. Passenger traffic increased 6.3 percent and freight rose by 15.5 percent from April 2009 to April 2010. The NextGen will support a tripling of air traffic by 2025. The FAA budget pro- poses $1.14 billion for NextGen in FY 2011, a 32 percent increase from FY 2010. Throughout Europe and Asia, many new airports are either planned or under construction. China plans to add more than 80 civil airports to its aviation system by 2020. India plans to increase the number of commercial air service airports from 80 to more than 500 over the next decade. This growth in new construction, expansion of existing airports, and numerous modernization initiatives will provide many opportunities for aviation and aerospace manufacturers and related infrastructure providers. While employment at airports has declined, they are still are significant employment centers. According to a 2008 report, about 380,000 people are employed directly by airport operators; 2 million are employed by airlines using the airports; and another 2.3 million work on-site at retail outlets, restaurants, hotels, and related establishments.7

■■ Civil space: This market segment is dominated by a few large companies, much like the LCA market.* Four U.S. and two foreign companies dominate the civil launch market. The U.S. firms are the United Launch Alliance (a joint venture of Boeing and Lockheed Martin), Boeing, Lockheed Martin, and Orbital Sciences Corporation. The foreign companies are Arianespace (European Union) and International Launch Services (Russia). A new U.S. entrant, SpaceX, is developing a new family of launch vehicles

* Civil space includes all nondefense space systems. Industry Forecasts and Outlook 161

and spacecraft with funding from NASA and private investors and currently has contracts or options for more than 30 launches.

■■ The June 2010 National Space Policy directed U.S. government departments and agencies to rely more heavily on commercial suppliers and international cooperation than in the past. The policy supports the U.S. civil space sector and business interests more than any previous policy by promoting U.S. exports, working to minimize the regulatory burden on the industry, and fostering fair and open international trade through suitable standards and regulations. NASA’s decision to rely on commercial firms to deliver future cargo to the International Space Station could provide increased business opportunities and lead to a more competitive commercial space industry. While U.S. prices in the launch and satellite sectors have been competitive, as in other sectors of the U.S. aerospace industry, export licensing laws have a dampening effect. Europe’s Thales has developed new “ITAR-free” satellites, which will allow China, for example, to compete in the market. Working with Brazil and Europe, China has developed low-cost, mid-sized satellites that could be on the market within five years. India and Japan are also interested in the satellite market. Satellite manufacturers are benefiting from a sudden turnaround in the market, which has included a return to historic satellite order levels. U.S. companies will continue to rely on government satellite and launch purchases to balance the highs and lows of the commercial sector. Entrepreneurial firms are showing interest in low-cost launch alternatives, as well as space tourism. Due to competitive pricing and reliable service, Europe’s Arianespace is expected to remain a leader in commercial space launches.

Federal Aviation Administration Forecast Every year, the FAA of the Department of Transportation produces an operational view of the aviation and aerospace industry, which forecasts conditions years into the future. In 2000, these forecasts covered the next 10 years, but the most recent report projects 20 years into the future.8 The FAA Aerospace Forecast provides a good overview of aviation today and goes into considerable detail about what to expect in the future. It touches on the key aspects of the U.S. and world economy and delves into commercial, general aviation, and FAA workload. Unmanned aircraft systems and commercial space transportation are also treated. 162 Aerospace Industry Report 2011

The 2010 report briefly recounts the issues of the past decade and the efforts of the carriers to reduce costs and minimize their losses. This period also marked an important shift in the business model for passenger carriers: from a focus on market share to a focus on shareholder value. This change in focus resulted in three years of capacity reductions and generating revenue from new services and fees. As the economy recovers, the FAA is cautiously optimistic that the industry has transformed “from one of a boom-to-bust cycle to one of sustainable profits.”9 The forecast for 2011–2031 estimates one billion passengers a year will be flown by 2021, with a 3.7 percent average growth over the next five years and an average growth of 2.5 percent for the remaining years of the report’s forecast period. The FAA estimates that available seat miles (ASMs) will increase in 2011 and grow at a rate of 3.6 percent through 2031. Revenue passenger miles (RPMs) for domestic commercial air carriers are projected to grow 3.5 percent in 2011, and grow from 2012 through 2031 at an average rate of 3.1 percent. A very useful part of the report is the alternative forecast scenarios. Given rising fuel costs and uneven global economic recovery, these scenarios provide some insight into where challenges and opportunities may exist through the forecast period. Significant elements of the report for aerospace manufacturers and service providers include the following:

Current State ■■ Commercial aviation: Despite rising jet fuel prices in 2010, the global industry posted net profits, which, after the final accounting is done, could reach $15.1 billion. Net profits for U.S. commercial air carriers were $3 billion in 2010, up from a $7.8 billion net loss in 2009.

■■ The passenger industry: This portion of the industry continued to consolidate and restructure in 2010. As a result, in 2010, 53 fewer carriers reported traffic data than in 2000. Notable airline mergers included Northwest with Delta and Midwest with Frontier. Additional mergers and acquisitions announced in 2010 included Continental and United, Southwest and AirTran, and the acquisition of ExpressJet by SkyWest Airlines. Consequently, this decade of consolidations and restructuring resulted in 6.4 percent fewer domestic ASMs and 1.0 percent fewer passengers in 2010 than in 2000. While overall domestic capacity was reduced by 6.4 percent over the decade, capacity shifted from the mainline carriers Industry Forecasts and Outlook 163

to regional carriers. Mainline carriers provided 15.5 percent less capacity and flew 16.1 percent fewer passengers, while regional carriers’ capacity increased 150 percent—flying 100 percent more passengers. The conversion of the regional fleet from turboprop and piston aircraft to larger regional jets has been the major factor in this shift.

■■ Commercial air cargo: 2010 saw U.S. carriers fly 35.9 billion revenue ton miles (RTMs), up by 15.7 percent from 2009.

■■ Aircraft fleets: Mainline carriers are retiring their older, less fuel- efficient airplanes. Earlier models of Boeing 737 and MD-80 aircraft are being replaced with the more advanced 737-700/800/900 models. Regional carriers are reducing their 50-seat jets and adding larger 70- to 90-seat regional jets. In 2010, the number of U.S. commercial aircraft decreased by 126 to 7,096.

Sector-Specific Forecasts ■■ Mainline carriers and regionals: Total (domestic and foreign) revenue passenger miles (RPMs) for both mainline and regional carriers are forecast to increase in 2011 by 3.5 percent, and then through 2031 at an annual rate of 3.8 percent. Mainline carriers are expected to grow 3.4 percent in 2011 and at an average annual rate of 2.9 percent to 2031. U.S. mainline carrier international RPMs are forecast to increase 8.4 percent in 2011, with an average growth rate of 4.9 percent through 2031. The Asia-Pacific region is predicted to be the fasting growing region at 5.0 percent a year, followed by Latin America at 4.9 percent a year and the Atlantic region at 3.7 percent a year. Regional carriers’ RPMs are forecast to increase 4.3 percent over 2010 levels in 2011 and to have an annual growth rate through 2031 of 4.1 percent. The aircraft fleet of regional passenger carriers is expected to increase by 807 between 2010 and 2031. Of the fleet of 3,384 in 2031, 2,764 are projected to be jet aircraft, many in the 70- to 90-seat category.10

■■ Cargo: Revenue ton miles are forecast to grow from 2010 levels of 35.9 billion to 93.2 billion by 2031—an average of 4.7 percent a year. This total reflects a projected domestic increase of 2.8 percent a year and a 5.5 percent international increase. Cargo aircraft are forecast to increase by 445 by 2031—an average increase of 2.1 percent a year.

■■ General aviation: The GA fleet is forecast to grow at the rate of 0.9 percent a year through 2031, to a total of 270,920 aircraft, or 164 Aerospace Industry Report 2011

a net increase of 46,748. The report points out that the growth in general aviation is expected to be driven by higher corporate profits, as well as by continued concerns about safety, security, and flight delays. The FAA expects that in the long term, mainline carriers will replace wide-body and larger narrow-body aircraft used for domestic routes with smaller, next-generation, narrow-body aircraft. This will allow mainline carriers to increase flight frequency and better match seats available (supply) with passengers (demand). While the mainline carriers are projected to reduce their aircraft size, the regional carriers are increasing their aircraft size. Regionals are retiring their smaller 50-seat and under aircraft, and replacing them with 70- to 90-seat regional jets. This is narrowing the difference between the size and types of aircraft operated by the regionals and the mainline carriers. The strong growth forecast by the FAA is directly related to “favorable U.S. and world economic activity.”11

Aerospace Industry Forecasts Boeing Current Market Outlook 2011–2030 Since 1964, the Boeing Company has shared its view of the demand for air travel and aircraft.12 The Boeing report provides a comprehensive view of the industry and the global economic conditions that affect demand for its products—principally a passenger and freighter aircraft look into the future. Each year, Boeing’s forecast is based on current conditions and the long-term drivers for air travel. As illustrated in Figure 9.1, economic growth, represented by GDP, plus global trade are the most important drivers of demand for commercial aviation. Figure 9.1 depicts the drivers of air travel used in Boeing’s Current Market Outlook (CMO). In its 2011 CMO, Boeing projects an average global GDP growth of 3.3 percent. The report points out that, … countries whose economies are tied to trade tend to have higher rates of air travel. Air travel revenues consistently total about 1 percent of GDP in countries around the world, regardless of the size of the national economy. Globally, air travel has historically trended toward this consistent share of GDP, such that countries that are below or above this level will generally move toward it over the long term. (Boeing Current Market Outlook 2011–2030, p. 8) Industry Forecasts and Outlook 165

Figure 9 .1 Boeing’s Air Travel Drivers

60%–80% 20%–40%

Travel Additional demand travel demand Airline strategies

Global Economic growth Value of service Emerging trade markets

Market evolution Fuel Capability Safe, efficient, Market competitive liberalization Environment Infrastructure industry

Source: Based on material in Boeing’s Current Market Outlook 2011–2030.

Figures 9.2 and 9.3 address Boeing’s fleet and freighter forecasts.

Figure 9 .2 Boeing’s Fleet Deliveries Forecast

Delivery Units

40,000

30,000

20,120–60% 20,000 33,500 13,380–40% 10,000 6,030

0 2010 2030 Airplanes Airplanes 19,410 39,530

Fleet growth Fleet replacement Fleet retained

Source: Based on material in Boeing’s Current Market Outlook 2011–2030. 166 Aerospace Industry Report 2011

Figure 9 .3 Boeing’s 20-Year Freighter Forecast

Share of Fleet Delivery Units

100% 310 690 75%

50%

25% 440 1240

0% 280 2010 2030 Freighters Freighters 2011 to 2030 1,760 3,500 Freighters 2,960

Large Medium Standard More than 80 tonnes 40 to 80 tonnes Less than 45 tonnes

New Converted New Converted C onverted

Source: Based on material in Boeing’s Current Market Outlook 2011–2030.

In a nutshell, for 2011–2030 Boeing forecasts that the commercial market will return to its traditional 5 percent per year long-term growth rate. Additionally,

■■ Passenger traffic is projected to grow at 5.1 percent a year.

■■ Cargo traffic growth is forecast to grow at 5.6 percent per year.

■■ The current number of aircraft will nearly double from around 19,400 to more than 39,500—of which 33,500 will be new airplanes with a value of $4.0 trillion to be delivered over the next 20 years.

■■ Due to the expanding growth of China, emerging economies, and low-cost carriers, Boeing expects the single-aisle market to account for 70 percent of the total fleet and 48 percent of the value over the next 20 years.

■■ A significant number of single-aisle aircraft retirements is expected to begin around 2016, as many aircraft will be approaching 25 years of service, which is a typical retirement age for jet aircraft. Industry Forecasts and Outlook 167

■■ Twin-aisle aircraft should account for 22 percent of the aircraft deliveries and 43 percent of the value.

■■ Boeing notes that high fuel costs are driving airlines to accelerate the replacement of older, less fuel-efficient airplanes.

■■ The greatest growth in the demand for air passenger and cargo (78 percent) will come outside North America over the next 20 years. Boeing’s projection is that about 34 percent of demand will come from the Asia-Pacific region.

■■ Freighter aircraft are also forecast to grow as the need for time- sensitive and perishable commodities and products grows to meet global demand for such items. Figure 9.3 shows the CMO projection of 2,960 freighter aircraft delivered over the forecast period, with about two-thirds being conversions.

■■ A significant point made in Boeing’s CMO is that the growth in the numbers of airplanes and normal personnel retirements will necessitate training an additional 460,000 pilots and 650,000 maintenance technicians. Overall, at the global level, the CMO sees the world fleet growing at an average of 3.6 percent a year; passenger traffic measured in revenue passenger kilometers (RPKs) growing at 5.1 percent a year, and cargo traffic measured in revenue ton per kilometer at 5.6 percent a year over the forecast period.

Airbus Global Market Forecast 2010–2029 The Airbus Global Market Forecast (GMF), published in December 2010, presents a very bright business picture for both aircraft manufacturers and airline operators.13 The authors explain that their forecast is aimed at “reducing risk through analysis.” Their analysis takes into consideration a broad set of factors that drive their forecast. Figure 9.4 depicts the key elements that inform the GMF. 168 Aerospace Industry Report 2011

Figure 9 .4 Airbus Industry Drivers

Economics Demographics Networks • Growth • Population growth • Global cities • Emerging markets • Age profiles • Hubs • Trade • Middle class • New routes • Cycles • Urbanisation • Deregulation

Passengers Airlines Aircraft • Ticket price • Fuel • Seats, speed, utilisation • Comfort • Range • Frequency, load factor • Origin and destination • Fleet mix • Range, fleet mix • Connectivity • Business models • Replacement • Environment • Environment • Environment

Source: Based on material in Airbus’s Global Market Forecast 2010–2029.

The GMF is based on 20-year demand forecasts for aircraft with more than 19 seats; forecast modeling for 155 distinct traffic flows; studying the impact of new routes, markets, and deregulation; modeling the impact of evolving airline business models; and studying the fleet buildups of 938 passenger carriers and 217 freight carriers. In the GMF, Airbus takes into account what it believes are the key drivers: emerging markets, population growth, urbanization, global cities, new routes, passenger origin and destination, fuel costs, different airline business models, and aircraft frequency and load factors. Overall, Airbus sees air travel growing as measured by RPKs, given its view of current global economic conditions (see Figure 9.5). Airbus predicts that new aircraft deliveries will be close to 26,000 by 2029, an increase of more than 14,000 over 2009 with a market value of $3.2 trillion. Driving this is a projected increase in RPKs and new passenger aircraft and freighter deliveries. Airbus points out that air travel has been very resilient to external shocks over the past 40 years, weath- ering oil crises, flu scares, terrorist attacks, and the latest recessions. Industry Forecasts and Outlook 169

Figure 9 .5 World Annual Traffic Growth in RPKs

ICAO AIRBUS

10.0 total traffic GMF 2010

8.0 Air traffic has doubled Air traffic every 15 yea rs will double ) in the next

o n 15 years illi

r 6.0 t (

K P R 4.0 20-year world annual traffic g rowth 2.0 4.8%

0.0 1970 1980 1990 2000 2010 2020 2030

Source: Based on material in Airbus’s Global Market Forecast 2010–2029.

Highlights of the GMF for manufacturers and service providers include the following:

■■ While all regions are currently experiencing increased passenger traffic (see Figure 9.6), the 54 emerging economies measured by Airbus have grown in available seat kilometers (ASKs) by 13.7 percent from 2007 through November 2010; the United States is up 5.4 percent; and Western Europe is up 4.9 percent. This is being driven primarily by GDP growth.

■■ When looking at various regions of the world, the GMF sees mature regions of Western Europe, North America, Japan, and Australasia air travel growth at 3.7 percent annual growth to 2029, with the expanding regions (China, India, Middle East, etc.) growing at an annual rate of 6.1 percent.

■■ The GMF specifically points out China’s and India’s passenger airline industry expansion in the first decade of the 21st century. China’s in-service fleet of aircraft with more than 100 seats has grown more than threefold to 1,386 planes, with a backlog of orders expanding from 47 planes in 2000 to 565 in 2010. India’s in-service fleet has grown threefold as well, to 322 planes, and a backlog of 12 in 2000 expanding to 280 planes in 2010. 170 Aerospace Industry Report 2011

■■ Airbus expects a worldwide 20-year annual growth measured in trillions of RPK of 4.8 percent, with air traffic doubling in the next 15 years.

■■ New commercial aircraft demand will average 1,300 per year, with single-aisle and small jet freighters being about 69 percent of the total number and 40 percent of the value. These totals are slightly higher than estimated in the 2009 edition of the GMF.

■■ Airbus expects deregulation, rapid urbanization, the rise of a strong middle class, and the expansion of low-cost carriers in various parts of the world over the next 20 years to accelerate growth in air travel.

■■ The GMF expects the Asia-Pacific region to be the largest market, with 33 percent of new passenger aircraft deliveries over the

20-year forecast period, followed by Europe (23 percent) and

North America (23 percent). The forecast also points out that

“aircraft delivered continue to be larger than those they replace.”

Figure 9 .6 Growth in ASKs by Market

Emerging Economies Western Europe United States

Traffic up

13.7%

c f i f a r

t 8

r e r-over-year) g ea

y 4 en Traffic up s ss K 5.4% S pa

t 0 4.9% A

n ly e h c t r

e -4 o n P m ( -8

-12 J M M J S N J M M J S N J M M J S N J M M J S N 2007 2008 2009 2010

Source: Based on material in Airbus’s Global Market Forecast 2010–2029.

According to Airbus, the main drivers of the growth in air service will be the growth of emerging markets; the replacement of in-service aircraft in mature markets; continued growth of low-cost carriers, especially in Asia; market liberalization/deregulation; and growth on existing routes where adding capacity rather than additional flights is more efficient. Industry Forecasts and Outlook 171

Honeywell Business Aviation Outlook Honeywell is a major supplier of products, systems, and components for many types of commercial and military aircraft. Its forecast is based on industry data and operator surveys, and the 2010 report is its nineteenth consecutive release to the public.15 Highlights from the 2010 Business Aviation Outlook include the following:

■■ Nearly 11,000 new business jets will be delivered from 2010 to 2020, representing sales in excess of $255 billion.

■■ 2011 deliveries of business jets will be under 700, which is roughly what Honeywell forecast for 2010. Actual deliveries reported by the General Aviation Manufacturers’ Association in 2010 were 763.16

■■ Potential demand for business aviation aircraft will exceed 5,000 between 2011 and 2015, with a “modest but steady shift to large cabin models.”

■■ A modest improvement in used jet purchases worldwide will occur over the next five years. Reasons for replacing current aircraft are related to age, increased range, and cabin size, as well as technology improvements in engines and avionics. Overall, Honeywell expects the business aviation market to start expanding in 2012.

Bombardier Business Aircraft Market Forecast 2010–2029 The 2010 edition of the Bombardier Business Aircraft Market Forecast is the first time the company has released a 20-year forecast.17 The rationale for this change was to provide a long-term view of the corporate jet market that matches the life cycle of aircraft programs. The forecast predicts 26,000 business jets worth $661 billion to be delivered over the forecast period. Of that number, it estimates deliveries worth $254 billion (10,500 units) between 2010 and 2019, and worth $407 billion (15,500 units) between 2020 and 2029. Bombardier points out that a 2009 study by the National Business Aviation Association and the General Aviation Manufacturers Association (GAMA) indicated that 1.2 million jobs generating $150 billion are tied to business aviation. According to Bombardier, wealth creation, emerging markets, the globalization of trade, increased market access, and replacement demand are the key drivers of demand for business jets. Bombardier points to the Morgan Stanley Capital International (MSCI) index as a good estimate of wealth creation, and the index has been highly correlated with 172 Aerospace Industry Report 2011

orders over the past 10 years. A significant dip occurred in 2007–2008 with the recession, but the index has begun to grow again. The Bombardier forecast also points out that high net worth individuals and private corporations have accounted for approximately two-thirds of business aircraft sales—a market that is growing rapidly, especially in China, India, and Russia. Bombardier also believes that—

■■ The industry backlog of orders will begin to stabilize and grow.

■■ The largest numbers of deliveries will be in North America and Europe.

■■ More than 60 percent of new orders for business jets will be replacement orders by current owners, and, as demand picks up, the residual values of preowned aircraft should increase and replacement orders should rebound.

Bombardier Commercial Aircraft Market Forecast 2010–2029 In the commercial aircraft sector, Bombardier forecasts deliveries of 12,800 aircraft with 20 to 149 seats over the next 20 years.18 This represents $612 billion in revenue for OEMs. Like others, Bombardier sees a close linkage with economic growth and airline passenger demand. While 20- to 59-seat passenger aircraft account for most of the regional airline fleet, aircraft with 60 to 99 seats are growing in numbers. Aircraft with 100 to 149 seats represent the strongest component for future growth. The forecast expects—

■■ Developing markets will see a continued growth in airline traffic, at a proportionately higher rate than North American and European markets. Economies outside North America and Europe will represent nearly 48 percent of global GDP by 2029.

■■ Over the forecast period, the 20- to 149-seat aircraft fleets are anticipated to grow by 75 percent.

■■ Older aircraft that have been parked and inactive during the recession are not likely to be returned to commercial airline service. Some of these aircraft may transition to cargo operations.

■■ Bombardier expects more than half of the current commercial fleet to be replaced in the next 20 years, creating a demand for more new aircraft. It forecasts that in 28 years, an average of 80 Industry Forecasts and Outlook 173

percent will retire from commercial service and smaller aircraft will be replaced by larger ones.

■■ Overall, given new deliveries and retirements, the 20- to 149-seat fleet is projected to grow from 11,200 in 2009 to 17,300 in 2029.

Embraer Market Outlook 2010–2029 Embraer starts its 20-year commercial market forecast with the reversal of an old saying by Paulo Cesar, executive vice president, commercial, “What goes down must, eventually, come back up” as a description of the commercial aviation industry business cycles.19 As others also point out, GDP growth is a key driver of prosperity for the airline industry. The forecast projects that air transport demand will be nearly 2.7 times higher in 2020 than in 2010. Revenue passenger kilometers should exceed 12 trillion—an annual growth rate of 4.9 percent. GDP is forecast to grow at a 3.1 percent annual rate over the forecast period. Overall, the mature markets’ share of world traffic will decrease to 44 percent from 57 percent; by 2029 China and the Asia Pacific region are expected to represent more than one-third of world air traffic (see Figure 9.7). Embraer embraces the need to improve fuel efficiency and reduce emissions. It is part of a joint project with Azul Airline, GE, and Amyris to study deriving jet fuel from fermented sugar cane. It expects increased pressure to accelerate the production of more fuel-efficient aircraft (which will also reduce carbon emissions), and the retirement of older, less fuel-efficient aircraft.

Figure 9 .7 Projected Traffic and Economic Growth, 2010–2029

Annual Growth Rate RPK (Billion) by Regi on 2010-2029 2009 Traffic Additional Traffic 2010-29 RPK GDP North America 3.2% 2.6% Europe 4.2% 2.0% Asia Pacific 5.7% 3.2% China 7.3% 6.7% Middle East 6.6% 4.0% Latin America 6.0% 4.0% CIS 6.0% 3.3% Africa 5.1% 4.4% World 0 500 1000 1500 2000 2500 4.9% 3.1%

Source: Based on material in Embraer’s Market Outlook 2010–2029. 174 Aerospace Industry Report 2011

Key observations and trends from Embraer’s Market Outlook include the following:

■■ Market liberalization in Asia and Latin America, and the Open Skies agreement between the United States and Europe, are providing more opportunities for the airlines to grow.

■■ The size of the world fleet of 30- to 120-seat jet aircraft will increase from 4,385 aircraft in 2009 to 7,780 in 2029, a 77 percent increase.

■■ For new jet aircraft in the 30- to 120-seat category, Embraer predicts a global demand for 6,875 new jets. The expectation is that 2,895 aircraft will be delivered between 2010 and 2019, with the remaining 3,980 aircraft delivered between 2020 and 2029.

■■ World narrow- and wide-body jet fleets will grow from a base of 11,870 in 2009 to 22,645 in 2029. Of these 9,225 will be replacement aircraft and 10,775 new aircraft, for a total of 20,000 new aircraft to be built in the forecast period.

■■ Turboprop aircraft numbers will grow from 2,130 in 2009 to 3,085 in 2029, with 2,260 new aircraft delivered for replacement and growth. The Embraer Market Outlook looks at forecasted air traffic in China, Latin America, Asia-Pacific, Russia and the Commonwealth of Independent States, North America, and Europe. All of these markets are anticipating solid growth over the forecast period.

General Aviation Outlook 2011 The GAMA does not provide detailed forecasts. However, its annual Statistical Database and Industry Outlook provides an excellent overview of where this sector of the industry has been and where it is headed.20 In its report, GAMA also addresses government regulatory and policy issues that affect the GA sector of the aerospace industry. General aviation was hit particularly hard by the recession and financial crisis. Figure 9.8 shows the large decline in shipments of GA aircraft in 2009. Although the recession officially ended in July 2009, GAMA has found that the general aviation market usually takes 18 months to recover. But given the severity of the latest recession, it may take longer. On the bright side, GA billings increased 1.2 percent to $19.7 billion in 2010, representing the third-best billing year on record. Exports were 62 percent of U.S. billings, an 11 percent Industry Forecasts and Outlook 175 increase over 2009. The increase in billings was primarily due to large business jet sales.

Figure 9 .8 Total General Aviation Shipments

World Shipments US Shipments 4,500 4,000 3,500 3,000 s

t n

e 2,500 m

i p 2,000 S h 1,500 1,000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: GAMA.

As with other industry forecasts, the market for general aviation aircraft is growing in the Asia-Pacific, Latin America, and Middle East/ Africa regions. While North America and Europe are still the largest markets for general aviation aircraft (more than 50 percent of the market), they are declining as a percentage of world market share. Key points in the GAMA report include the following:

■■ U.S. business jet flight activity increased 10.8 percent over 2009, and climbed 5.5 percent in Europe.

■■ Corporate profits in the United States were up by 26 percent in 2010, and globally corporate profits increased 46 percent. Corporate profits are a significant driver of GA aircraft purchases.

■■ In 2010, depreciation allowances helped boost fourth quarter sales, and the 100 percent expensing of investments for 2011– 2012 was signed into law. The R&D tax credit extension through 2011 is also positive for manufacturers.

■■ The used aircraft market is recovering very slowly. Inventories are slow to decline, prices are still depressed, and the average time to sell is still too long. 176 Aerospace Industry Report 2011

■■ Credit is still very scarce—particularly at the low end of the market. Cash transactions in 2010 were up 13 percent from 2009 levels. In the United States, business jet purchases were 78 percent cash. Overall, GAMA sees the first three indicators as positive, the used market as improving, and credit availability as negative. GAMA President and CEO Pete Bunce is optimistic but cautious about 2011. According to Bunce, backlogs should begin to increase and new markets should continue to expand, but he also stressed concern about government reductions in spending and increased regulation.21 To deal with these realities, GAMA is pursuing greater collaboration with government agencies and other aviation advocacy and industry groups. Specific areas being addressed include security, safety, the transition to

unleaded avgas, CO2 emission standards, and the effective certification of NextGen programs. The GAMA report also notes that given the rapid pace of technological change in the industry, more efficient ways of updating policies and regulations are required.

Outlook for 2011 and Beyond As stated in the Introduction, our aim is to provide aerospace manufacturers and service providers with data and information to help make better decisions. The teams at the Aerospace Industries Association and at Embry-Riddle’s Center for Aviation and Aerospace Leadership have reviewed a significant amount of data and believe that we can offer some insights that may be of value to the market. Everyone desires to know the future, and a good portion of economics is based on trying to forecast what will happen. But modeling the future can be difficult in complex systems. For this reason we avoid using the term “forecast” and prefer to use the term “outlook” to describe the general direction or vector in which the industry is heading. While our intention is to help reduce uncertainty about the future, each decision-maker must ultimately decide what is significant and relevant to his or her situation. Given what has been documented in this report, our outlook for 2011 and beyond is as follows.

Opportunities The outlook for the aviation and aerospace industry is promising. Although not all nations are recovering at an equal pace, there is good reason for optimism. The threat of a double-dip recession has waned. The United States’ GDP is growing, and even though Japan Industry Forecasts and Outlook 177 and certain European countries are struggling, China, India, and many emerging economies are positioned for significant growth. As the forecasts of the major aerospace manufacturers, their suppliers, and the associations that represent them indicate, the industry can expect impressive growth over the next 20 years. This creates opportunities in many segments of the aerospace industry. The following factors are driving these opportunities:

■■ As the economies of the developed world improve and the emerging economies evolve, the demand for both passenger and air freight will grow over the next two decades.

■■ Demand growth will drive the need for new aircraft manufacturing, and industry experts predict that thousands of aircraft will be needed over the next 20 years. As stated by at least one OEM, their forecasts for long-term growth tend to be conservative. Should growth patterns continue, the need for new passenger aircraft may be understated by as much as 10 to 15 percent, and major new aircraft manufacturing programs may continue well into 2035.

■■ Energy costs have become a significant portion of operating costs—approaching 40 percent—and will drive the need for more fuel-efficient propulsion and design. This could mean that more in-service aircraft will retire earlier than planned, pushing new engine and aircraft production above current projections.

■■ Building new aircraft takes time, and bringing new fuel-efficient designs to the market takes even longer. So, while new aircraft are being designed and built, current fleets must be maintained, creating an opportunity for MRO providers and those supplying them.

■■ Military aircraft continue to age, and planned defense budgets are not supporting a replacement rate that will reverse the growing age of the fleets. As a result, suppliers of spare parts and MRO services to the military should do relatively well over the next decade. Service “reset” programs for replacing and repairing equipment used in Iraq and Afghanistan will likely drive growth as well.

■■ Like the commercial aviation industry, the military will be search- ing for ways to reduce operating costs. Such an environment creates opportunities for innovation, which in turn creates opportunities for entrepreneurial SMMs. 178 Aerospace Industry Report 2011

■■ Unmanned aerial systems will continue to grow in importance.

■■ General aviation appears to be on the edge of a period of sales growth, particularly at the high end of the market.

■■ Finally, space seems poised to enter a period of increasing commercial opportunity as NASA moves toward greater reliance on the private sector. A key determinant of success will be whether these new entrants can provide safe, reliable, and more affordable access to space, as the risks that have been borne by the government are shifted to the private sector. As noted previously, most forecasts are tied to GDP growth and the Federal Reserve’s forecasts of 2.7 percent growth for 2011 and 3.0 percent growth for 2012 seem reasonable (see Chapter 3).

Threats Unfortunately, there are some significant threats to what appears to be an extended period of growth in the global aviation and aerospace industry. These threats are as follows:

■■ Rising fuel costs are beginning to threaten profitability. Air carriers may not be able to pass on all increases to customers, and increased costs can dampen demand and cause carriers to reduce capacity. This could cause the airlines to postpone plans for fleet expansion and delay or even cancel new aircraft orders. On the other hand, high fuel costs may also cause airlines to replace older, less fuel-efficient aircraft with newer, more thrifty models.

■■ From a manufacturing perspective, the aging workforce is a problem that must be aggressively addressed. Given that many U.S. aerospace employees will be retiring in the next decade, the lack of qualified workers is a significant issue. STEM+M initiatives must be encouraged and maintained.22

■■ Boeing and Airbus have been the dominant firms producing large passenger and cargo aircraft for years. They are now being challenged by firms such as Bombardier and Embraer—and China is poised to enter the commercial aircraft market as well.

■■ As discussed in Chapter 8, access to rare earth materials at affordable prices may soon become a critical issue for aerospace manufacturers. Industry Forecasts and Outlook 179

■■ Government regulations and policies have an influence on competitiveness and the ability of firms to operate. Taxes, export controls, and environmental regulations present challenges for U.S. firms in today’s global environment.

■■ As mentioned in Chapter 5, the rate of growth in military spending by China and Russia now exceeds the rate of growth in the United States—raising the bar for development of new military aerospace systems.

■■ The decline in U.S. defense spending, as well as efforts to reform the acquisition process, could affect the industry. Military aircraft exports could help dampen the impact of DOD budget cuts for those segments of the aerospace industry that are tied to the Defense Department.

■■ Finally, the commercialization of space will create turbulence for many traditional providers, but will also create opportunities for the next generation of entrepreneurs.

General Assessment In our opinion, the opportunities for the aerospace industry far out- weigh the challenges for the foreseeable future. While the recovery may be slow through the remainder of 2011, by 2013 we believe that the overall growth of the industry will exceed U.S. GDP growth.

Chapter Endnotes

1 Office of Transportation and Machinery, International Trade Administration, U.S. Department of Transportation. (2009, March). Flight flan 2009: Analysis of the U.S. aerospace industry (p. 2). Washington, DC: Author. 2 Office of Transportation and Machinery, International Trade Administration, U.S. Department of Transportation. (2011, March). Flight plan 2011: Analysis of the U.S. aerospace industry (p. 3). Washington, DC: Author. 3 Ibid. (p. 8). 4 Ibid. (p. 3). 5 Office of Transportation and Machinery, International Trade Administration, U.S. Department of Transportation. (2010, March). Flight plan 2010: Analysis of the U.S. aerospace industry (p. 2). Washington, DC: Author. 6 Bureau of Labor Statistics. (2011). National current employment statistics database. Retrieved from http://www.bls.gov/data/#employment 7 Air Transport Action Group. (2008).The economic & social benefits of air transport 2008 (p. 4). Geneva, Switzerland: Author. 180 Aerospace Industry Report 2011

8 Federal Aviation Administration, U.S. Department of Transportation. (2010, December 23). FAA aerospace forecast: Fiscal years 2011–2031. Washington, DC: Author. 9 Ibid. (p. 29). 10 Data in this section is derived from both the full FAA aerospace forecast and from the FAA Forecast Fact Sheet [1]—Fiscal Years 2011–31, (2011, February 15). 11 FAA aerospace forecast: Fiscal years 2011–2031. (p. 39). 12 The Boeing Company. (2011). Current market outlook 2011–2030. Seattle, WA: Author. 13 Leahy, J., & Emerson, C. (2010, December 13). Global market forecast 2010–2029. Toulouse, France: Airbus. 14 Ibid. (p. 46). 15 Honeywell News Release. (2010, October 17). Honeywell Aerospace Business Aviation Outlook forecasts next period of industry expansion to begin by 2012. Retrieved from http://honeywell.com/News/Pages/10.17.102010NBAABizAvForecast.aspx 16 MonitorDaily.com. (2011, February 23). Business jet shipments decline in 2010; signs of recovery emerging. Retrieved from http://www.monitordaily.com/story_page. asp?News_id=27426&type=TopStories 17 Bombardier. (2010). Bombardier business aircraft market forecast 2010–2029. Montreal, Canada: Author. 18 Bombardier. (2010). Bombardier commercial aircraft market forecast 2010–2029. Montreal, Canada: Author. 19 Embraer. (2010, July). Market outlook 2010–2029. Sao Jose de Campos, Brazil: Author. 20 General Aviation Manufacturers Association. (2010). General aviation statistical databook & industry outlook. Retrieved from http://www.gama.aero/media-center/ industry-facts-and-statistics/statistical-databook-and-industry-outlook 21 Miller, A. (2011). GAMA: Things are looking up. AOPA Online. Retrieved from http://www.aopa.org/aircraft/articles/ 2011/110222gama_says_things_looking_up.html 22 As mentioned previously, STEM refers to programs designed to teach science, technology, engineering, and math. Embry-Riddle has added an “M,” which stands for manufacturing, to raise awareness of the lack of young people entering the workforce with manufacturing skills. 181

Acronyms and Other Terms

AERO: Aerospace Economic Report and ER: Exchange Rate Outlook ERI: Exchange Rate Index AMEX: American Stock Exchange EU: European Union ASA: Aerospace States Association FAA: Federal Aviation Administration AVIC: Aviation Industry (or sometimes “Industries”) of China FDIC: Federal Deposit Insurance Corporation BRIC: Brazil, Russia, India, and China FRB: Federal Reserve Bank CAB: Current Account Balance FTA: Federal Trade Administration CFO: Chief Financial Officer G-7: A group of seven industrialized nation, COMAC: Commercial Aircraft Corporation which includes Canada, Japan, U.K., U.S., of China France, Italy, and Germany

CPI: Consumer Price Index GDP: Gross Domestic Product

CU: Capacity Utilization GE: General Electric

DOD: U.S. Department of Defense IMF: International Monetary Fund

EBIT: Earnings or profit before income taxes 182 Aerospace Industry Report 2011

IP: Industrial Production or Intellectual OPW: Output per Worker Property OTC: Over the Counter ISRO: Indian Space Research Organization PNFI: Private Nonresidential Fixed ITA: International Trade Association Investment

LCA: Large Civil Aircraft PPI: Producer Price Index

LTIR: Long-term Interest Rates PRFI: Private Residential Fixed Investment

M1: Money Supply One Q1-4: Quarters 1 through 4

MENA: Middle East and North Africa ROA: Return on Assets

MRO: Maintenance, Repair, and Overhaul ROE: Return on Equity

NAICS: North American Industry SBA: Small Business Administration Classification System SEC: U.S. Securities and Exchange NAIRU: Non-accelerating Inflation Rate of Commission Unemployment SMBs: Small- to Medium-Size Businesses NASDAQ: National Association of Security Dealers Automated Quotations SMMs: Small- to Medium-Size Manufacturers NEI: National Export Initiative UAC: United Aircraft Corporation NYSE: New York Stock Exchange UAS: Unmanned Aerial System OCM: Original Component Manufacturer UAV: Unmanned Aerial Vehicle OECD: Organization for Economic Cooperation and Development UNEM: Unemployment

OEM: Original Equipment Manufacturer 183

Glossary

10-Year Treasury: U.S. Government security of aerospace systems including: manned with maturity in 10 years. and unmanned aircraft; missiles; spacecraft; space launch vehicles; propulsion, guidance, Advanced Economies: also referred to as and control units for all of the foregoing; developed and industrialized economies is used and a variety of airborne and ground-based to describe countries that have a high equipment essential to the test, operation, level of development based on economic and maintenance of flight vehicles. criteria such as per capita GDP and level of industrialization. Aerospace Payroll: estimated on the basis of average weekly earnings for a given calendar Aeronautics: the science and art of year for production workers plus an estimated designing and constructing aircraft, also, the annual salary for other employees. art or science of operating aircraft. Aerospace Sales: the AIA estimate of Aerospace Employment: annual average aerospace industry sales, developed by summing: calculated as one-twelfth of sum of monthly DOD expenditures for aircraft, missiles, and estimates of total number of persons space-related procurement and RDT&E; employed during a designated pay period by NASA expenditures for research and the aircraft, missile, space vehicle (NAICS development and space flight control and data 33641), and search, detection, and navigation communications; outlays for space activities instruments (NAICS 334451) manufacturing by other U.S. government departments and industries. agencies; commercial sales of space-related products; net domestic and export sales Aerospace Industry: the industry engaged of civil aircraft, engines, and parts; Foreign in research, development, and manufacture Military Sales and commercial exports of 184 Aerospace Industry Report 2011

military aircraft, missiles, propulsion, and program. (Source: http://www.fdic.gov/ related parts; sales of related products and regulations/safety/manual/section3-1.html) services including: electronics, software, and ground support equipment; and sales of Assets, Net: the sum of all recorded assets non-aerospace products which are produced after reducing such amount by allowance in aerospace-manufacturing establishments of reserve for bad debts, depreciation, and and which use technology, processes, amortization, but before deducting any and materials derived from the aerospace liabilities, mortgages, or other indebtedness. industry. Astronautics: the art and science of Air Carriers: the commercial system of air designing, building, and operating manned transportation, consisting of domestic and or unmanned space objects. international scheduled and charter service. Average Hourly Earnings: on a “gross” Aircraft Agreement (Agreement on Trade basis, reflecting not only changes in basic in Civil Aircraft): negotiated in the Tokyo hourly and incentive wage rates, but also Round of the Multilateral Trade Negotiations such variable factors as: premium pay for and implemented January 1, 1980, providing overtime, late shift work, and changes in for elimination of tariff and non-tariff trade output of workers paid for an incentive plan. barriers in the civil aircraft sector. Average Weekly Earnings: derived by Aircraft Industry: the industry primarily multiplying average weekly hours by average engaged in the manufacture of aircraft, hourly earnings. aircraft engines, and parts, including propellers and auxiliary equipment—a sector Average Weekly Hours: average hours for of the Aerospace Industry. which pay was received; different from standard or scheduled hours. Aircraft: all airborne vehicles supported either by buoyancy or by dynamic action. Avionics: communications, navigation, flight Used in this volume in a restricted sense controls, and displays. to mean an airplane—any winged aircraft including helicopters, but excluding gliders Backlog: the sales value of orders accepted and guided missiles. (supported by legal documents) that have not yet passed through the sales account. Airframe: the structural components of an airplane, such as: fuselage, empennage, Balance of Payment: the total of all wings, landing gear, and engine mounts, but financial transfers for whatever purpose, excluding such items as: engines, accessories, including goods and services and all financial electronics, and other parts that may be transactions by private and public entities replaced from time to time. in and out of a country, which results in balance where all outflows must equal all Airlines: see Air Carriers. inflows.

Applied Research: with the objective Balance of Trade: the difference between the of gaining knowledge or understanding value of all exports of goods and the import necessary for determining the means by of goods. which a recognized and specific need may be met. Balance Sheet: the combined statement of assets, liabilities and stockholder’s equity of Appropriation (Federal Budget): an act of an entity or industry. Congress authorizing an agency to incur obligations and make payments out of funds Bank Risk Assets: bank assets that are held by the Department of the Treasury. subject to change in value, due to changing market conditions or the credit quality of the Asset Quality: one of the most critical borrower or the underlying asset. areas in determining the overall condition of a bank. The primary factors effecting Basic Research: with the objective of overall asset quality are the quality of the gaining fuller knowledge or understanding loan portfolio and the credit administration of the fundamental aspects of phenomena Glossary 185 and of observable facts without specific or reference year. Constant dollars do not applications toward processes or products contain adjustments for inflation that occur in mind. or are forecast to change outside the base year. BRIC Countries: refers to the nations of Brazil, Russia, India, and China. Consumer Price Index (CPI): shows the change over time in the price of a fixed Budget Authority (BA): value of the annual basket of goods and services that would new authority to incur legally binding be bought by a typical consumer. This obligations of the government which will is the main measure of inflation in the result in immediate of future outlays. It economy. (Source: http://lexicon.ft.com/ allows for the spending of money. Term?term=consumer-prices)

Bureau of Economic Analysis (BEA): part of Consumer Prices: the prices of consumer the Department of Commerce. goods.

Bureau of Labor Statistics (BLS): part of the Credit Spread: the risk premium commercial Department of Labor. bank lenders charge corporate borrowers above the risk-free rate of return, typically Bureau of the Census: part of the based on the 10-year Treasury securities, and Department of Commerce. based on the term of the loan. Credit spread is also referred to as loan spread. Capacity Utilization: percentage of effective manufacturing capacity that is currently Currency Hedge: a position established being utilized for manufacturing. in one currency in an attempt to offset exposure to exchange-rate changes or Commercial Banks: also known as business fluctuation in another currency. The typical banks, are a type of financial institution objective is to attempt to minimize exposure and intermediary. It is a bank that provides to currency risk. transactional, savings, and money market accounts and that accepts time deposits. Deflator: index used to convert a price level Commercial banks may offer services to to one comparable with the price level at individuals, but their primary function is a different time, offsetting the effect of receiving deposits and lending to businesses. inflation. The base period, which equals 100, (Source: http://www.investorwords. is usually specified as either a given fiscal or com/955/commercial_bank.html) calendar year.

Commercial Paper: short-term unsecured Demographic Gifts: peaks in national obligation, normally issued at a discount economic output resulting from low- and fully repayable on maturity. One of dependency ratio demographics. the methods favored by companies to raise working capital. Unlike certificates Dependency Ratios: the proportion of of deposit, commercial paper does not working-age population coupled with normally pay interest. Commercial paper is economic dependents; e.g., dependent negotiable, which means it can be sold or children and elderly parents. transferred to another party. (Source: http:// lexicon.ft.com/Term?term=commercial- Depreciation: the general conversion of paper—CP) the depreciable cost of a fixed asset into expense, spread over its remaining life. There Consolidated Income Statement: the are a number of methods, all based on a combined income statements of an entire periodic charge to an expense account and a entity or industry. corresponding credit to a reserve account.

Constant Dollars: calculated by dividing Development: the systematic use of current (“then-year”) dollars by appropriate scientific knowledge directed toward the price deflator and multiplying the result by production of useful materials, devices, 100. Constant dollars are used to measure systems, or methods including design and the dollar value of goods and services at development of prototypes and processes. price levels which are the same as the base 186 Aerospace Industry Report 2011

Direct and Indirect Purchases: direct U.S. Congress. It is directed by statute to: refers to direct purchases by DOD from (1) offer financing that is competitive with contractors, while indirect purchases are that offered exporters of other countries by not contracted directly through DOD but their official export credit institutions, (2) indirectly through DOD contractors. determine that the transactions supported provide for a reasonable assurance of Durable Goods Industry: comprised of repayment, (3) supplement, but not compete major manufacturing industry groups with with, private sources of export financing, NAICS codes 321, 327, and 33. All major and (4) take into account the effect of its manufacturing industry groups in NAICS activities on small business, the domestic codes 31 and 322-326 are considered non- economy, and U.S. employment. durable goods manufacturing industry groups. Exports: domestic merchandise including Earnings: the actual return to the worker for commodities which are grown, produced, a stated period of time. Irregular bonuses, or manufactured in the United States and retroactive items, payments of various commodities of foreign origin which have welfare benefits, and payroll taxes paid by been changed in the United States from the employers are excluded. form in which they were imported, or which have been enhanced in value by further Emerging Markets: also referred to as emerging manufacture in the United States, and which economies, are nations with social, economic, are traded or sold to other nations. or business activity in the process of rapid growth, expansion, and Industrialization. FAA: Federal Aviation Administration Antoine van Agtmael originally coined the (formerly the Federal Aviation Agency), a term in 1981. (See: The Emerging Markets part of the Department of Transportation. Century: How a New Breed of World Class Companies is Overtaking the World. (2007)) Facility: a physical plant or installation including real property, building, structures, Establishment: the basis for reporting to improvements, and plant equipment. the Census of Manufacturers; an operating facility in a single location. FDIC-Insurance: Federal Deposit Insurance Corporation (FDIC) insurance covers all Euro Area: the official term for the group of deposit accounts, including checking and 17 countries that have adopted the euro as savings accounts, money market deposit their single currency. It is also referred to as accounts, and certificates of deposit. FDIC the Euro Zone. (Source: http://publications. insurance does not cover other financial europa.eu/code/en/en-370300.htm) products and services that banks may offer, such as stocks, bonds, mutual fund shares, Euro: the currency issued by the European life insurance policies, annuities, or securities. Central Bank (ECB) and used as currency The standard insurance amount is $250,000 by many of the 27 European nations in per depositor, per insured bank, for each the European Union (EU). However, not account ownership category. (Source: http:// all members of the European Union use www.fdic.gov/deposit/deposits/dis/) the Euro as their currency. The ECB acts in many ways like the U.S. Federal Reserve Federal Reserve: the amount on deposit by System as a regulator for the European area. U.S. Banks required by the Federal Reserve Bank and the amount in excess of required Evaluation (Department of Defense): amounts held by the Federal Reserve Bank. determination of technical suitability of This amount is sometimes called the Federal material, equipment, or a system. See RDT&E. Reserve Requirement or the reserve ratio.

Expenditures (Federal Budget): see Outlays. Federal Reserve System: the U.S. National Banks are regulated and organized as Export-Import Bank of the United States stockholders in a public corporation that (Eximbank): created in 1934 and established not only regulates, but also controls size and as an independent U.S. government agency circulation of U. S. Federal Reserve Notes in 1945, Eximbank is designed “... to aid of Dollars. This is the U.S. central banking in financing and to facilitateexports ...” system comprised of 12 regional banks. Eximbank receives no appropriations from the Glossary 187

Fiscal Year (Federal Budget): beginning as: helicopter parking, hangar, waiting room, October 1, 1976, the fiscal years run from fueling, and maintenance equipment. October 1 through September 30 and are designated by the year in which they end. Helistop: a minimum facility heliport, but without such auxiliary facilities as: waiting Flyaway Value: includes the cost room, hangar parking, etc. of the airframe, engines, electronics, communications, armament, and other ICBM: InterContinental Ballistic Missile, with installed equipment. a range of more than 5,000 miles.

Foreign Military Sales (FMS): refers to Imports: goods, services, or both, bought the official process for selling U.S. defense abroad. equipment, services, and training to foreign governments. Income: total sales less total operating costs.

FY: see Fiscal Year. Independent Research and Development (IR&D): a term devised by the Department G-7 (Group of Seven): the seven largest, of Defense and used by Federal agencies most powerful industrialized countries. The to differentiate between a contractor’s G-7 includes the United States, Japan, Great research and development technical effort Britain, France, Germany, Italy, and Canada. performed under a contract, grant, or other They meet routinely (usually quarterly) arrangement (R&D) and that which is self- to discuss national and global economic initiated and self-funded (IR&D). and monetary policies. In 1991 Russia was added, making the G-8. In 1999 eleven other Industrial Production: term used to nations were added to create the G-20, to be talk about the total production from all more representative of the global economy. industrial activities in a particular period of time. (Source: http://lexicon.ft.com/ General Agreement on Tariffs and Trade Term?term=industrial-production) (GATT): a multilateral treaty among more than 100 governments whose primary Industrial Research and Development: mission is the reduction of trade barriers. research and development work performed The World Trade Organization was established within company facilities, funded by January 1, 1995 to implement the agreement company or Federal funds, and excluding and provide a forum to discuss trade issues. company financed research and development contracted to outside organizations such General Aviation: all civil flying except that as: research institutions, universities and of air carriers. colleges, or other non-profit organizations.

Gross Domestic Product (GDP): the total Initial Jobless Claims: the number of market value of all final goods and services individuals each week who file for the first produced in a country in a given year, time for unemployment benefits. equal to total consumer, investment, and government spending, plus the value of International Trade Administration (ITA): exports, minus the value of imports. part of the U.S. Department of Commerce, the International Trade Administration’s Helicopter: a rotary-wing aircraft which mission is to strengthen the competitiveness depends principally for its support and of U.S. industry, promote trade and motion in the air upon the lift generated by investment, and ensure fair trade through one or more power-driven rotors, rotating the rigorous enforcement of U.S. trade laws on substantially vertical axes. A helicopter is and agreements. (Source: http://trade.gov/ a V/STOL. about.asp)

Heliport: an area, either at ground level Joint Venture: an agreement by two entities or elevated on a structure, that is used for to share in the costs and benefits of a the landing and take-off of helicopters business operation. and includes some or all of the various facilities useful to helicopter operations such Lagging Indicators: economic measures that measure past performance but are indicators 188 Aerospace Industry Report 2011

mainly of past performance and give little Mega Lenders: Commercial bank lenders insight into future performance. with more than $50 billion in assets.

Large Civil Aircraft (LCA): aircraft which have Merchandise Trade Balance: the difference more than 100 seats or an equivalent cargo between the value of U.S. goods exported to capacity. (Source: Flight Plan 2010: Analysis other countries and foreign goods imported of the U.S. Aerospace Industry. http://trade. into this country. The trade balance is gov/mas/manufacturing/OAAI/Flight_ generally regarded as “favorable” when Plan_2010_sections.asp) exports exceed imports—a trade surplus — and “unfavorable” when imports exceed Leading Indicators: economic measures that exports—a trade deficit. measure past performance but are indicators of future performance. Middle-market Companies: companies with revenues between $50 million and $1 billion. Legacy Demand: the demand from established customers or markets. Missile: sometimes applied to space launch vehicles, but more properly connotes Liabilities: what a company or other entity automated weapons of warfare, that is, a owes. weapon which has an integral system of guidance, as opposed to an unguided rocket. Loan Spread: lenders, as well as investors, define interest rate spread as the difference Money Multiplier: the number of times between a risk-free investment such as a U.S. the basic money supply circulates in the Treasury security and a riskier investment economy. such as a corporate bond or a commercial loan. Loan spread is also referred to as credit Mortgage Securitization: the process by spread. which securities are created through the aggregation of a large amount of individual Long Term Interest Rates: the interest rate mortgages into an investment pool. These earned by a note or bond that matures in 10 pooled mortgage loans serve as collateral to or more years. back a security. Investors buy the securities and receive principal and interest payments Low Dependency Ratios: refers to countries from the pool that are a proportional share that have proportionately large working-age of the mortgage principal and interest populations, with relatively few economic payments. (See: http://www.ehow.com/ dependents; e.g., dependent children and about_6702428_mortgage-securitization- elderly parents. definition.html)

Lump-Sum Wage Payment: a one-time NAICS (North American Industry payment given in lieu of general wage Classification System): a system developed increases and/or cost of living adjustments by Canada, Mexico, and the U.S. government in labor settlements. that groups establishments into industries based on a production-oriented concept Manufacturing Industries: those establishments in order to provide uniformity and engaged in the mechanical or chemical comparability of statistical data and facilitate transformation of inorganic or organic economic analyses between industries and substances into new products, and usually the three North American countries. described as plants, factories, or mills, which characteristically use power-driven Net Income (After Income Taxes): Net Income machines and materials- handling equipment; (Before Income Taxes) less federal income taxes. also establishments engaged in assembling component parts of manufactured products Net Income (Before Income Taxes): Net if the new product is neither a structure nor Operating Income plus or minus Other Income other fixed improvement. and Expenses.

MDA: Missile Defense Agency, a part of the New Obligation Authority (Federal Budget): Department of Defense. see Budget Authority. Glossary 189

Non-Aerospace Products and Services: Payroll, All Manufacturing: includes the products and services other than aircraft, gross earnings paid in the calendar year to missiles, space vehicles, and related propulsion all employees on the payroll of operating and parts, produced or performed by manufacturing establishments. Includes all establishments whose principal business is forms of compensation paid directly to the development and/or manufacture of workers such as: salaries, wages, commissions, aerospace products. dismissal pay, all bonuses, vacation and sick leave pay, and compensation in kind; prior Non-Residential Private Fixed Investment: to such deductions as: employees’ Social investments by private interests in Security contributions, withholding taxes, commercial property. group insurance, union dues, and savings bonds. It does not include employers’ Social OASD: Office of the Assistant Secretary of Security contributions or other nonpayroll Defense. labor costs such as: employees’ pension plans, group insurance premiums, and workmen’s Obligations (Federal Budget): commitments compensation. made by Federal agencies to pay out money for products, services, or other purposes— Private Residential Fixed Investment: as distinct from the actual payments. investments by private interests in residential Obligations incurred may not be larger than property. budget authority. Procurement: the process whereby OECD: the Organization for Economic the executive agencies of the Federal Co-Operation and Development is an Government acquire goods and services international organization for nation states from enterprises other than the Federal that helps governments foster prosperity Government. and fight poverty through economic growth and stability. There are 30 member countries, Producer Price Index: the price level paid including primarily European countries as by business for inputs into the production well as the United States. process. The index gives a base-year measure of 100 and compares each period to the base Orders, Net New: the sales value of new year. For example, an index value of 110 orders (supported by legal documents) would mean an increase of 10 percent since minus cancellations during the period. the base year.

Other Aerospace Products and Services: all Production Workers: includes working conversions, modifications, site activation, foremen and all non-supervisory workers other aerospace products (including drones), (including lead-men and trainees) engaged services, plus research and development under in fabricating, processing, assembling, contract, defined as:basic and applied research inspection, receiving, storage, handling, in the sciences and in engineering and design janitorial services, product development, and development of prototype products and auxiliary production for plant’s own use, and processes. recordkeeping and services closely associated with the above production operations. Other Income and Expenses: includes interest income, royalty income, capital gains and Productivity: a measure of how much is losses, interest expense, cash discounts, etc. produced per unit of input. There are various kinds of productivity depending Outlays: checks issued, interest accrued on on the input, and various ways to calculate the public debt, or other payments made, net it. Labor productivity, for instance, can be of refunds and reimbursements. calculated per worker, per hour worked, etc. Capital productivity is similar to calculating a Overtime Hours: that portion of the gross return from an investment. (Source: http:// average weekly hours which was in excess lexicon.ft.com/Term?term=productivity) of regular hours and for which premium payments were made. RDT&E (Department of Defense): Research, Development, Test, and Evaluation. Passenger-Mile: one passenger moved one mile. 190 Aerospace Industry Report 2011

Real Estate Bubble: when the prices of rotating or revolving about an axis). See real estate, securities, or other assets rise so Helicopter. sharply and at such a sustained rate that they exceed valuations justified by fundamentals, Sales: net of returns, allowances, and making a sudden collapse likely—at which discounts, the dollar value of shipments, point the bubble “bursts.” Their subsequent including dealer’s commissions, if any, which bursting strained national and international have passed through the sales account. banking systems. (Source: http://lexicon. ft.com/Term?term=asset-bubble) Satellite: a body that revolves around a larger body, such as the Moon revolving Real GDP: Gross Domestic Product (GDP) around the Earth, or a man-made object adjusted for inflation. revolving about any body such as the Sun, Earth, or Moon. Real Income: the income of nations or individuals after adjusting for inflation. Seasonal Adjustment: a statistical technique which eliminates the influences of weather, Real Private Consumption: Real Private holidays, the opening and closing of schools, Consumption is defined as the value of and other recurring seasonal events from the consumption goods and services economic time series. This permits easier acquired and consumed by households, observation and analysis of cyclical, trend, adjusted for inflation. (Source: http://www. and other non-seasonal movements in the ntaccounts.org/web/nta/variable/Private data. By eliminating seasonal fluctuations, percent20Consumptionxxxx) the series becomes smoother and it is easier to compare data from month to month. Recession: a decline in the Gross Domestic (Source: http://www.bls.gov/dolfaq/ Product (GDP) for two or more consecutive bls_ques25.htm) quarters. SIC (Standard Industrial Classification): a Related Products and Services: sales of system developed by the U.S. government electronics, software, and ground equipment to define the industrial composition of in support of aerospace products, plus sales the economy, facilitating comparability of by aerospace manufacturing establishments of statistics—beginning in 1997, progressively systems and equipment which are generally superceded by NAICS (North American derived from the industry’s aerospace Industry Classification System). technological expertise in design, materials, and processes, but which are intended for Small Business Loan: a loan originated for applications other than flight. $1 million or less at some point in time over the last several years. (See reference for SBA Research: systematic study directed toward Office of Advocacy, March 2011.) fuller scientific knowledge or understanding of the subject studied. Research is classified Small- to Medium-sized Businesses as either basic or applied according to the (SMBs): small-sized businesses are objectives of the sponsoring agency. categorized as having less than 100 employees; Medium-sized Businesses have Reserve Balances: the monetary balances on between 100 and 499 employees. deposit by the member banks of the national banking system at the Federal Reserve Small- to Medium-sized Manufacturers Banks. (SMMs): small-sized manufacturers are categorized as having less than 500 Return on Assets: net profit divided by total employees; Medium-sized Manufacturers assets. have between 500 and 999 employees.

Return on Equity: ratio of net profit to total Space Vehicle: an artificial body operating equity. in outer space (beyond the Earth’s atmosphere). Rotorcraft: an aircraft which, in all its usual flight attitudes, is supported in the air wholly Stockholder’s Equity: assets minus all or in part by a rotor or rotors (i.e., airfoils obligations of the corporation, except those to stockholders. Annual data are average Glossary 191 equity for the year (using four end-of-quarter Unmanned Aerial Vehicle: a powered, aerial figures). For details, see “Quarterly Financial vehicle that does not carry a human operator, Report for Manufacturing, Mining and Trade uses aerodynamic forces to provide vehicle Corporations,” compiled by the Bureau of the lift, can fly autonomously or be piloted Census; sometimes called net worth. remotely, can be expendable or recoverable, and can carry a lethal or nonlethal payload. STOL: short take-off and landing aircraft. (Source: http://www.dtic.mil/doctrine/ dod_dictionary/data/u/94.html) Test (Department of Defense ): an experiment designed to assess progress in Unmanned Aircraft System (UAS): refers attainment or accomplishment of development to a system whose components include objectives (see RDT&E). the necessary equipment, network, and personnel to control an unmanned aircraft. Thrust: the driving force exerted by an (Source: http://www.dtic.mil/doctrine/ engine, particularly an aircraft or missile dod_dictionary/data/u/18956.html) engine, in propelling the vehicle to which it is attached. U-Shaped Recovery: an economic slump that recovers over a long period of time— Ton-Mile: one ton moved one mile. so named for how the data appear when graphed. Total Compensation: includes both wages or salaries and other benefits. Utility Aircraft: an aircraft designed for general purpose flying. Total Obligation Authority (TOA): a Department of Defense financial term V/STOL: vertical short take-off and/or expressing the dollar value of defense landing aircraft. programs for a fiscal year. It isnot budget authority. TOA can be adjusted bases on V-Shaped Recovery: an economic slump specific DOD and Congressional criteria. that recovers over a short period of time— so named for how the data appear when Trade Balance: see Merchandise Trade Balance. graphed.

Trade Deficit: the value of imports of goods World Trade Organization (WTO): exceeds the value of exports of goods. established in 1995 as a result of the “Uruguay Round” negotiations, which Trade Surplus: the value of exports of goods included a major revision of the General exceeds the value of imports of goods. Agreement on Tariffs and Trade (GATT). The WTO’s overriding objective is to help trade Transition Quarter (Tr. Qtr.): the three-month flow smoothly, freely, fairly, and predictably. interval from July 1, 1976 to September 30, 1976 belonging to neither Fiscal Year 1976 nor Fiscal Year 1977. See Fiscal Year.

U.S. Treasury Bond: a security issued by the U.S. Treasury.

Underwriting, Underwriting Criteria: Commercial Loan Underwriting and Underwriting Criteria, as used in Chapter 7, is the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan. Cash flow is paramount to underwriting commercial loans. The borrower’s personal and business credit worthiness is also important and is heavily scrutinized. (Source: http://definitions.uslegal.com/c/ commercial-loan-underwriting/)

193

Appendix

■■ Summary

■■ Aircraft Production

■■ Missiles

■■ Space

■■ Air Transportation

■■ R&D

■■ Foreign Trade

■■ Workforce

■■ Finance 194 Aerospace Industry Report 2011

Summary

AIA'S AEROSPACE INDUSTRY SALES BY PRODUCT GROUP Calendar Years 1996–2010

Aircraft Related TOTAL Products Year Missiles Space SALES Total and Civil Military Aircraft Services

Current Dollars (billions)

1996 $116.8 $60.3 $26.9 $33.4 $8.0 $29.0 $19.5 1997 131. 6 70. 8 37. 4 33. 4 8. 0 30. 8 21. 9 1998 148.0 84.0 49.7 34.3 7.7 31.6 24.7 1999 153.7 88.7 52.9 35.8 8.8 30.5 25.6 2000 144. 7 81. 6 47. 6 34. 0 9. 3 29. 7 24. 1 2001 151.6 86.5 51.3 35.2 10.4 29.5 25.3 2002 152.4 79.5 41.3 38.1 12.8 34.6 25.4 2003 146.6 72.8 32.4 40.4 13.5 36.9 23.4 2004 156.5 79.1 32.5 46.6 17.5 35.7 24.2 2005 167.3 86.7 37.2 49.5 18.4 36.7 25.5 2006 182.8 98.3 45.8 52.4 20.3 37.6 26.7 2007 197.0 105.2 52.6 52.7 22.2 39.9 29.6 2008 200. 2 102. 7 48. 2 54. 5 23. 4 43. 4 30. 8 2009 211.1 110.8 51.1 59.7 24.9 45.5 29.9 2010 212.7 112.3 47.9 64.5 25.1 45.9 29.3

Constant Dollars a (billions)

1996 $122.6 $63.3 $28.2 $35.1 $8.4 $30.5 $20.4 1997 136.6 73.5 38.8 34.6 8.3 32.0 22.8 1998 152.9 86.7 51.3 35.4 8.0 32.7 25.5 1999 157.5 90.9 54.2 36.7 9.0 31.3 26.3 2000 144.7 81.6 47.6 34.0 9.3 29.7 24.1 2001 147.7 84.2 49.9 34.3 10.1 28.7 24.6 2002 146. 0 76. 2 39. 6 36. 6 12. 3 33. 2 24. 3 2003 136.8 68.0 30.3 37.7 12.6 34.4 21.8 2004 141.8 71.7 29.5 42.2 15.8 32.3 21.9 2005 146. 0 75. 6 32. 4 43. 2 16. 1 32. 0 22. 3 2006 154.0 82.8 38.6 44.2 17.1 31.7 22.4 2007 160.9 86.0 42.9 43.0 18.1 32.6 24.2 2008 157.7 80.9 38.0 43.0 18.4 34.2 24.3 2009 162.3 85.2 39.3 45.9 19.1 35.0 23.0 2010 161.5 85.3 36.3 49.0 19.1 34.9 22.3

Source: Aerospace Industries Association (AIA), based on company reports and data from the National Aeronautics and Space Administration (NASA), the Bureau of the Census, the Office of Management and Budget, and the Department of Defense. Notes: Previous years’ data may have been revised to reflect updated and/or newly available information. a. Based on AIA's aerospace composite price deflator (2000=100). Appendix 195

AIA'S AEROSPACE INDUSTRY SALES BY CUSTOMER Calendar Years 1996–2010

Aerospace Products and Services Related TOTAL Products Year NASA and SALES Department Other and Total other Govt of Defense Customers Services Agencies

Current Dollars (billions)

1996 $116. 8 $97. 3 $42. 5 $12. 4 $42. 4 $19. 5 1997 131.6 109.7 43.7 12.8 53.2 21.9 1998 148.0 123.3 42.9 13.3 67.0 24.7 1999 153. 7 128. 1 45. 7 13. 4 69. 0 25. 6 2000 144.7 120.6 47.5 13.4 59.7 24.1 2001 151.6 126.4 50.1 14.5 61.8 25.3 2002 152.4 127.0 57.7 16.4 52.9 25.4 2003 146.6 123.2 64.0 16.5 42.7 23.4 2004 156.5 132.3 71.9 17.0 43.4 24.2 2005 167.3 141.8 75.6 17.3 48.9 25.5 2006 182.8 156.1 77.6 17.2 61.3 26.7 2007 197. 0 167. 3 80. 7 18. 7 68. 0 29. 6 2008 200.2 169.4 84.8 21.3 63.4 30.8 2009 211.1 181.2 94.5 22.5 64.2 29.9 2010 212. 7 183. 4 100. 3 22. 4 60. 6 29. 3

Constant Dollars a (billions)

1996 $122.6 $102.2 $44.6 $13.0 $44.5 $20.4 1997 136.6 113.8 45.4 13.2 55.2 22.8 1998 152. 9 127. 4 44. 4 13. 8 69. 3 25. 5 1999 157.5 131.3 46.8 13.7 70.7 26.3 2000 144.7 120.6 47.5 13.4 59.7 24.1 2001 147.7 123. 1 48. 8 14. 1 60. 2 24. 6 2002 146.0 121.7 55.3 15.7 50.7 24.3 2003 136.8 115.0 59.8 15.4 39.8 21.8 2004 141.8 119.8 65.2 15.4 39.3 21.9 2005 146.0 123.7 66.0 15.1 42.7 22.3 2006 154.0 131.5 65.4 14.5 51.6 22.4 2007 160.9 136.7 65.9 15.2 55.6 24.2 2008 157.7 133.5 66.8 16.8 49.9 24.3 2009 162. 3 139. 3 72. 7 17. 3 49. 4 23. 0 2010 161.5 139.3 76.2 17.0 46.0 22.3

AEROSPACE SALES AND THE NATIONAL ECONOMY Calendar Years 1996–2010

Gross Industry Sales Aerospace Sales as Percent of: Year Domestic Manufac- Durable Aero- Product turing Goods space Manufac- Durable GDP turing Goods Current Dollars (billions)

1996 $7,839 $3,587 $1,973 $117 1.49% 3.26% 5.92% 1997 8,332 3,836 2,148 132 1.58 3.43 6.13 1998 8,794 3,898 2,229 148 1.68 3.80 6.64 1999 9,354 4,033 2,328 154 1.64 3.81 6.60 2000 9,952 4,202 2,370 145 1.45 3.44 6.11 2001 10,286 3,972 2,175 152 1.47 3.82 6.97 2002 10,642 3,917 2,126 152 1.43 3.89 7.17 2003 11,142 4,016 2,142 147 1.32 3.65 6.84 2004 11,868 4,295 2,255 156 1.32 3.64 6.94 2005 12,638 4,742 2,425 167 1.32 3.53 6.90 2006 13,399 5,017 2,562 183 1.36 3.64 7.13 2007 14,062 5,340 2,697 197 1.40 3.69 7.30 2008 14,369 5,464 2,618 200 1.39 3.67 7.65 2009 14,119 4,612 2,198 212 1.50 4.60 9.64 2010 14,658 5,031 2,358 214 1.46 4.26 9.10

Real Annual Growth a Constant Dollars (billions) Manufac- Durable Aero- GDP turing Goods space 1996 $9,434 $4,318 $2,374 $141 17.0% 14.0% 14.7% 21.9% 1997 9,854 4,537 2,540 156 4.5 5.1 7.0 11.4 1998 10,283 4,559 2,607 175 4.4 0.5 2.6 12.0 1999 10,780 4,648 2,683 181 4.8 2.0 2.9 3.0 2000 11,226 4,740 2,673 166 4.1 2.0 (0.4) (8.1) 2001 11,347 4,382 2,399 169 1.1 (7.5) (10.3) 2.1 2002 11,553 4,252 2,308 167 1.8 (3.0) (3.8) (1.2) 2003 11,841 4,268 2,277 157 2.5 0.4 (1.4) (6.3) 2004 12,264 4,438 2,330 162 3.6 4.0 2.4 3.6 2005 12,638 4,742 2,425 167 3.1 6.9 4.1 3.0 2006 12,976 4,859 2,481 176 2.7 2.5 2.3 5.5 2007 13,229 5,024 2,537 184 1.9 3.4 2.3 4.5 2008 13,229 5,030 2,410 181 (0.0) 0.1 (5.0) (1.9) 2009 12,881 4,207 2,005 187 (2.6) (16.4) (16.8) 3.3 2010 13,246 4,546 2,131 187 2.8 8.1 6.3 (0.0)

Source: Aerospace Industries Association, based on data from: Council of Economic Advisers, Economic Indicators; and Bureau of the Census. Note: Parentheses indicate negative real annual growth. a. Aerospace industry constant dollar sales based on AIA’s aerospace composite price deflator (2005=100). Others based on GDP deflator (2005=100). Appendix 197

SALES OF AEROSPACE ESTABLISHMENTS AS REPORTED BY THE BUREAU OF THE CENSUS Calendar Years 1995–2009

Aircraft, Missiles, Other Aerospace Totals Space, & Non- TOTAL Engines, & Parts (includes R&D) Year Rocket Aero- SALES Non- Non- Propul- Non- space Military Military Military Military Military sion Military

Current Dollars (millions)

1995 $102,797 $52,476 $50,321 $22,944 $32,085 $18,366 $11,921 $4,462 $13,019 1996 103,115 53,153 49,962 24,804 32,722 18,506 12,171 4,624 10,287 1997 114,946 50,648 64,298 23,944 42,614 21,354 12,320 3,922 10,792 1998 119,258 45,110 74,148 23,795 52,708 16,109 7,818 5,035 13,796 1999 124,181 49,690 74,491 26,043 56,406 15,661 9,062 4,472 12,535 2000 109,311 43,256 66,055 23,196 46,477 15,603 6,035 4,785 13,215 2001 117,088 47,232 69,856 22,133 52,504 15,512 8,187 5,732 13,020 2002 115,202 55,422 59,781 25,249 43,435 15,636 11,030 5,251 14,601 2003 116,445 65,569 50,876 26,225 37,256 15,579 14,659 4,397 18,328 2004 124,329 69,027 55,301 26,008 39,667 14,239 20,480 4,403 19,531 2005 124,176 61,660 62,517 24,873 43,509 (S) 19,995 5,063 20,767 2006 155,893 72,934 82,959 27,261 (D) (D) 24,607 6,557 (D) 2007 126,824 42,386 84,438 17,102 (D) (D) (D) (D) 25,256 2008 135,157 55,469 79,688 (D) (D) (D) 14,722 7,027 (D) 2009 145,841 57,263 88,578 (D) (D) (D) (D) (D) (D)

Constant Dollars a (millions)

1995 $109,924 $56,114 $53,810 $24,535 $34,309 $19,639 $12,747 $4,771 $13,922 1996 108,229 55,789 52,440 26,034 34,345 19,424 12,775 4,853 10,797 1997 119,289 52,562 66,728 24,849 44,224 22,161 12,786 4,070 11,200 1998 123,206 46,603 76,602 24,583 54,453 16,642 8,077 5,202 14,253 1999 127,267 50,925 76,342 26,690 57,808 16,050 9,287 4,583 12,846 2000 109,311 43,256 66,055 23,196 46,477 15,603 6,035 4,785 13,215 2001 114,076 46,017 68,059 21,564 51,154 15,113 7,976 5,585 12,685 2002 110,386 53,105 57,282 24,193 41,619 14,982 10,569 5,031 13,991 2003 108,718 61,218 47,500 24,485 34,784 14,545 13,686 4,105 17,112 2004 112,632 62,533 50,098 23,561 35,935 12,899 18,554 3,989 17,694 2005 108,350 53,801 54,549 21,703 37,964 (S) 17,447 4,418 18,120 2006 131,301 61,429 69,872 22,961 (D) (D) 20,725 5,523 (D) 2007 103,600 34,624 68,976 13,970 (D) (D) (D) (D) 20,631 2008 106,453 43,689 62,764 (D) (D) (D) 11,596 5,535 (D) 2009 112,125 44,025 68,101 (D) (D) (D) (D) (D) (D)

Source: Bureau of the Census, Aerospace Industry (Orders, Sales, and Backlog). a. Based on AIA's aerospace composite price deflator (2000=100). D. Withheld by Census Bureau to avoid disclosing data for individual companies. S. Does not meet publication standards, as determined by the Census Bureau. Notes: In addition to AIA's own aerospace sales figure, AIA reports two unique aerospace sales figures derived from two different U.S. Census Bureau sources. Data reported on this page are derived from the Current Industrial Report . 198 Aerospace Industry Report 2011

ORDERS, SHIPMENTS, AND BACKLOG OF AIRCRAFT & PARTS AND SEARCH & NAVIGATION EQUIPMENT Calendar Years 2001–2010

Search & Combined Aircraft & Parts Navigation Period Equipment Total Defense Civil Total Defense Civil Defense Civil

Orders (millions of dollars)

2001 $146,820 $62,663 $84,157 $110,407 $36,262 $74,145 $26,401 $10,012 2002 129,620 56,819 72,801 102,962 38,536 64,426 18,283 8,375 2003 133,063 67,637 65,426 100,453 43,084 57,369 24,553 8,057 2004 148,995 63,598 85,397 105,625 31,341 74,284 32,257 11,113 2005 184,200 54,634 129,566 148,699 29,299 119,400 25,335 10,166 2006 215,028 73,717 141,311 167,305 38,067 129,238 35,650 12,073 2007 347,603 86,812 260,791 296,494 49,992 246,502 36,820 14,289 2008 247,346 96,146 151,200 193,085 58,037 135,048 38,109 16,152 2009 163,531 98,004 65,527 116,889 62,318 54,571 35,686 10,956 2010 202,497 99,626 102,871 153,351 62,828 90,523 36,798 12,348

Shipments (millions of dollars)

2001 $153,571 $52,160 $101,411 $118,226 $27,777 $90,449 $24,383 $10,962 2002 140,889 57,016 83,873 108,639 33,919 74,720 23,097 9,153 2003 135,955 62,884 73,071 102,931 38,458 64,473 24,426 8,598 2004 145,305 69,762 75,543 105,850 40,852 64,998 28,910 10,545 2005 152,081 65,305 86,776 114,061 37,357 76,704 27,948 10,072 2006 165,652 68,865 96,787 124,991 38,508 86,483 30,357 10,304 2007 203,612 76,708 126,904 157,441 43,352 114,089 33,356 12,815 2008 205,959 91,083 114,876 156,436 54,983 101,453 36,100 13,423 2009 212,339 102,877 109,462 162,627 65,603 97,024 37,274 12,438 2010 195,007 97,611 97,396 146,827 62,221 84,606 35,390 12,790

Backlog (as of End-of-Year, millions of dollars)

2001 $211,679 $84,467 $127,212 $172,777 $50,106 $122,671 $34,361 $4,541 2002 200,410 84,270 116,140 167,100 54,723 112,377 29,547 3,763 2003 197,518 89,023 108,495 164,622 59,349 105,273 29,674 3,222 2004 201,208 82,859 118,349 164,397 49,838 114,559 33,021 3,790 2005 233,327 72,188 161,139 199,035 41,780 157,255 30,408 3,884 2006 282,703 77,040 205,663 241,349 41,339 200,010 35,701 5,653 2007 426,694 87,144 339,550 380,402 47,979 332,423 39,165 7,127 2008 468,081 92,207 375,874 417,051 51,033 366,018 41,174 9,856 2009 419,273 87,334 331,939 371,313 47,748 323,565 39,586 8,374 2010 426,763 89,349 337,414 377,837 48,355 329,482 40,994 7,932

Source: U.S. Census Bureau, Manufacturers' Shipments, Inventories, and Orders (M3). Notes: Totals may not equal sum of terms due to rounding. To ensure comprehensive industry coverage, AIA reports backlog data from two different Census Bureau sources. Data on this page matches data used by AIA for its Year End Review and Forecast and may not match other pages in this book. Appendix 199

ORDERS AND BACKLOG OF AEROSPACE ESTABLISHMENTS AS REPORTED BY THE BUREAU OF THE CENSUS Calendar Years 1995–2009

Aircraft, Missiles, Other Aerospace Totals Engines, & Parts Space, & (includes R&D) Non- Year TOTAL Rocket Aero- Non- Non- Propul- Non- space Military Military Military Military Military sion Military

Orders (millions of dollars)

1995 $109,109 $49,350 $59,759 $19,854 $36,467 $19,181 $13,716 $5,261 $14,630 1996 126,267 62,127 64,140 25,343 45,281 27,067 12,136 5,070 11,370 1997 118,993 47,802 71,192 21,424 49,676 21,326 12,348 4,125 10,096 1998 109,993 38,678 71,314 16,870 47,613 19,699 7,628 4,468 13,715 1999 115,257 49,696 65,561 25,009 48,018 18,824 10,261 4,152 8,992 2000 140,086 54,723 85,363 31,396 65,459 18,368 7,046 3,900 13,917 2001 122,206 63,619 58,587 21,762 40,731 12,727 25,659 5,876 15,451 2002 114,830 66,437 48,393 28,498 31,482 17,288 11,156 4,985 21,420 2003 117,721 72,650 45,070 33,941 30,878 10,067 15,269 4,935 22,631 2004 131,674 76,747 54,927 26,785 44,984 17,677 19,088 3,611 19,529 2005 186,443 53,008 133,434 19,017 113,565 (S) 20,272 5,295 24,444 2006 202,842 67,709 135,133 31,285 110,967 (D) 16,724 8,620 (D) 2007 231,586 44,595 186,991 18,891 152,994 (D) 11,984 7,204 29,398 2008 189,273 74,396 114,877 (D) (D) (D) (D) (D) 29,961 2009 107,108 68,221 38,887 (D) (D) (D) (D) (D) 34,172

Backlog (as of End-of-Year, millions of dollars)

1995 $202,638 $82,309 $120,329 $44,642 $92,239 $27,113 $17,534 $8,214 $12,906 1996 229,871 89,500 140,371 47,635 106,341 35,440 16,176 9,339 14,940 1997 218,951 78,870 140,082 43,615 111,931 34,585 12,125 4,754 11,942 1998 200,288 69,962 130,326 37,530 106,166 31,174 9,665 3,488 12,264 1999 188,409 68,379 120,029 36,565 96,596 33,880 9,904 3,051 8,413 2000 214,966 73,741 141,225 41,250 115,241 36,283 10,028 4,081 8,083 2001 223,189 88,863 134,326 39,623 107,124 32,139 27,922 3,631 12,748 2002 222,452 99,948 122,505 42,934 96,515 33,503 30,533 3,944 18,224 2003 226,932 108,704 118,229 50,646 90,122 27,989 31,173 4,481 22,522 2004 234,272 116,509 117,763 51,428 95,356 31,337 29,707 3,690 22,755 2005 290,054 100,836 189,217 38,436 165,297 25,784 30,077 3,939 26,520 2006 334,489 92,924 241,565 42,459 (D) (D) 22,109 6,380 (D) 2007 437,092 93,971 343,121 44,205 (D) (D) (D) (D) 32,245 2008 482,068 105,279 376,789 (D) (D) (D) (D) (D) 34,028 2009 430,697 100,983 329,714 (D) (D) (D) (D) 4,463 38,053

Source: Bureau of the Census, Aerospace Industry (Orders, Sales, and Backlog). D. Withheld by Census Bureau to avoid disclosing data for individual companies. S. Does not meet publication standards, as determined by the Census Bureau. Notes: Totals may not equal sum of terms due to rounding. To ensure comprehensive industry coverage, AIA provides backlog data from two different Census Bureau sources. Data reported on this page are derived from the Current Industrial Report . 200 Aerospace Industry Report 2011

FEDERAL OUTLAYS FOR DEFENSE, NASA, AND AEROSPACE PRODUCTS AND SERVICES Fiscal Years 1986–2010 (Millions of Dollars)

Federal Outlays for Aerospace Products and Services Aerospace as Percent Total Total a of Sum of Year National Dept of Defense NASA Total Nat. Defense TOTAL NASAc Def. and Aerospace Total DoD Aircraft Missilesd Total NASA Aerospace

1986 $273,373 $7,403 $49,774 $7,215 $42,559 $30,828 $11,731 17.7% 1987 281,996 7,591 51,871 7,442 44,429 32,956 11,473 17.9 1988 290,360 9,092 48,848 8,926 39,922 28,246 11,676 16.3 1989 303,555 11,036 52,933 10,861 42,072 27,569 14,503 16.8 1990 299,321 12,429 53,195 12,202 40,993 26,142 14,851 17.1 1991(b) 273,285 13,878 53,630 13,541 40,089 25,689 14,400 18.7 1992(b) 298,346 13,961 50,569 13,484 37,085 23,581 13,504 16.2 1993(b) 291,084 14,305 45,496 13,733 31,763 20,359 11,404 14.9 1994 281,640 13,694 41,082 13,308 27,774 18,840 8,934 13.9 1995 272,063 13,378 36,696 13,058 23,638 16,125 7,513 12.9 1996 265,748 13,881 32,947 12,417 20,530 14,331 6,199 11.8 1997 270,502 14,360 32,808 12,920 19,888 14,663 5,225 11.5 1998 268,194 14,194 33,184 12,804 20,380 15,473 4,907 11.8 1999 274,769 13,636 32,968 12,404 20,564 16,484 4,080 11.4 2000 294,363 13,428 34,645 12,395 22,250 17,991 4,259 11.3 2001 304,732 14,092 37,212 13,761 23,451 17,979 5,472 11.7 2002 348,456 14,405 39,224 13,448 25,776 20,546 5,230 10.8 2003 404,744 14,610 39,430 12,857 26,573 21,280 5,293 9.4 2004 455,833 15,152 44,324 14,611 29,713 22,898 6,815 9.4 2005 495,308 15,602 44,655 14,749 29,906 23,284 6,622 8.7 2006 521,827 15,125 45,046 14,370 30,676 23,176 7,500 8.4 2007 551,271 15,861 46,021 15,216 30,805 23,349 7,456 8.1 2008 616,073 17,833 50,851 17,176 33,675 25,964 7,711 8.0 2009 661,049 19,168 57,687 18,344 39,343 30,575 8,768 8.5 2010 693,586 18,906 60,868 18,227 42,641 33,745 8,896 8.5

Source: Office of Management and Budget, The Budget of the United States Government. Notes: Totals may not equal sum of terms due to rounding. "National Defense” includes the military budget of the DoD and other defense-related activities. a. Outlays for aircraft and missile procurement, excluding RDT&E. b. 1991–1993 reflects transfers from the Defense Cooperation Account funded by foreign government and private cash contributions reducing total U.S.-funded military outlays. c. Excludes Construction of Facilities, Office of Inspector General, and Air Transportation. d. Beginning in 1987, DoD combined Navy Missile Procurement with torpedoes and other related products into Navy Weapons Procurement, of which missiles comprise approximately 80 percent. Appendix 201

DEPARTMENT OF DEFENSE MILITARY OUTLAYS BY FUNCTIONAL TITLEa Fiscal Years 2002–2011 (Millions of Dollars)

2002 2003 2004 2005

TOTAL ...... $331,845 $387,136 $436,439 $474,071

Procurement—TOTAL ...... $62,515 $67,926 $76,216 $82,294 Aircraft ...... 20,546 21,280 22,898 23,284 Missilesb ...... 5,230 5,293 6,815 6,622 Ships ...... 8,287 9,455 10,021 9,950 Weaponsb ...... 2,343 2,641 2,332 2,680 Ammunition ...... 2,587 2,571 3,502 4,061 Other ...... 23,522 26,686 30,648 35,697

Military Personnel ...... 86,799 106,744 113,576 127,463

Research, Development, Test, and Evaluation (RDT&E) ...... 44,389 53,098 60,759 65,694

Operations & Maintenance (O&M) ... 130,005 151,408 174,045 188,118

Military Construction ...... 5,052 5,851 6,312 5,331

Family Housing ...... 3,736 3,784 3,905 3,720

Other ...... (651) (1,675) 1,626 1,451

(Continued on next page) 202 Aerospace Industry Report 2011

DEPARTMENT OF DEFENSE MILITARY OUTLAYS BY FUNCTIONAL TITLEa Fiscal Years 2002–2011, Continued (Millions of Dollars)

2006 2007 2008 2009 2010 2011(E)

$499,297 $528,548 $594,632 $636,742 $663,671 $719,695

$89,757 $99,647 $117,398 $129,218 $133,603 $151,938 23,176 23,349 25,964 30,575 33,745 42,528 7,500 7,456 7,711 8,768 8,896 9,926 10,345 10,485 11,185 11,312 11,893 13,937 4,065 4,915 5,898 6,984 6,886 5,909 4,281 4,392 4,451 4,397 4,433 7,728 40,390 49,050 62,189 67,182 67,750 71,910

127,543 127,544 138,940 147,348 151,162 152,066

68,629 73,136 75,120 79,030 76,990 80,677

203,789 216,631 244,836 259,312 275,150 310,601

6,245 7,899 11,563 17,614 21,169 20,908

3,717 3,473 3,590 2,721 3,171 3,406

(383) 218 3,185 1,499 2,426 99

Source: Office of Management and Budget, The Budget of the United States Government. Notes: Data in parentheses are credit items. Totals may not equal sum of terms due to rounding. Previous years’ data may have been revised to reflect updated and/or newly available information. a. Includes all items in the DoD military budget; excludes the DoD civil budget for the Army Corps of Engineers and other non-defense related activities. b. Beginning in 1987, DoD combined Navy Missiles Procurement with torpedoes and other related products into Navy Weapons Procurement. Missiles comprise approximately 80 percent of the value of this category. E. Estimate. Appendix 203

FEDERAL PRICE DEFLATORS FOR GDP, DEFENSE, PPI, AND CPI Calendar and Fiscal Years 1981–2010

Federal Government GDP CPI, Defense Purchases PPI, Capital (Urban) Goods & Equipment Equipment Year FY GDP CY GDP All Items Services Investment

(FY 2005=100) (CY 2005=100) (CY 2005=100) (CY 2005=100) (CY 2005=100) (CY 2005=100)

1981 51.7 52.2 48.5 92.4 65.4 46.5 1982 55.3 55.4 52.0 98.9 69.2 49.4 1983 57.7 57.6 53.8 101.7 71.1 51.0 1984 59.8 59.8 57.6 103.0 72.8 53.2 1985 61.8 61.6 58.7 100.4 74.3 55.1 1986 63.2 62.9 58.6 95.4 75.9 56.1 1987 64.9 64.8 59.2 91.3 77.2 58.2 1988 66.9 67.0 60.3 90.5 79.0 60.6 1989 69.5 69.5 61.9 91.4 82.2 63.5 1990 72.1 72.2 63.9 93.1 85.0 66.9 1991 74.8 74.8 66.2 95.0 87.6 69.7 1992 76.8 76.5 68.5 95.8 89.3 71.8 1993 78.5 78.2 69.7 98.1 90.9 74.0 1994 80.1 79.9 71.4 101.0 92.7 75.9 1995 81.8 81.5 73.2 103.2 94.5 78.0 1996 83.4 83.1 75.4 103.5 95.6 80.3 1997 85.0 84.6 76.5 100.8 95.6 82.2 1998 86.0 85.5 77.3 99.6 95.2 83.5 1999 87.2 86.8 79.2 100.9 95.2 85.3 2000 88.9 88.6 81.8 100.4 96.0 88.2 2001 91.0 90.7 83.5 98.5 96.6 90.7 2002 92.5 92.1 86.6 97.1 96.2 92.1 2003 94.4 94.1 90.7 97.3 96.5 94.2 2004 96.8 96.8 94.9 98.6 97.8 96.7 2005 100.0 100.0 100.0 100.0 100.0 100.0 2006 103.4 103.3 104.4 101.4 101.6 103.2 2007 106.5 106.3 108.2 102.3 103.4 106.2 2008 109.0 108.6 112.1 104.5 106.4 110.2 2009 110.4 109.6 111.3 104.1 108.4 109.8 2010 111.3 110.7 113.5 104.9 108.8 111.7

Source: Bureau of Economic Analysis; Bureau of Labor Statistics; and Office of Management and Budget, The Budget of the United States Government. CPI. Consumer Price Index for All Urban Consumers. GDP. Gross Domestic Product. PPI. Producer Price Index for Capital Equipment. CY. Calendar Year. FY. Fiscal Year. 204 Aerospace Industry Report 2011

PRICE DEFLATORS FOR AEROSPACE INDUSTRY Calendar Years 1986–2010

Aerospace Deflators (2000=100)

Year AIA Engine and Other Aircraft Aircraft Aerospace Engine Parts Parts and Missiles Manufacturing Composite Manufacturing Equipment

1986 73.0 66.4 71.7 72.4 95.9 1987 73.3 66.0 72.2 73.9 96.0 1988 74.3 67.4 74.3 76.5 91.8 1989 77.9 73.2 76.3 78.9 93.2 1990 81.1 77.1 80.6 81.2 94.0

1991 84.3 80.0 84.4 83.9 97.5 1992 87.2 82.6 88.5 87.2 99.2 1993 90.0 85.4 90.0 89.3 104.8 1994 92.3 88.3 92.3 91.2 105.6 1995 93.5 91.2 93.7 91.9 102.3

1996 95.3 93.4 95.5 95.1 100.9 1997 96.4 94.6 96.5 97.0 100.6 1998 96.8 94.8 97.2 98.3 99.9 1999 97.6 95.7 97.9 99.2 100.1 2000 100.0 100.0 100.0 100.0 100.0

2001 102.6 103.5 103.1 102.3 100.0 2002 104.4 105.5 104.3 103.3 102.5 2003 107.1 109.1 109.4 103.0 103.3 2004 110.4 113.5 114.8 103.3 104.2 2005 114.6 120.2 117.0 105.9 106.6

2006 118.7 125.4 121.5 107.4 110.7 2007 122.4 128.8 126.8 111.5 111.9 2008 127.0 134.0 131.8 116.0 114.0 2009 130.1 136.1 138.7 118.4 114.9 2010 131.7 137.7 142.5 118.4 115.1

Source: Aerospace Industries Association, based on data from: Bureau of Labor Statistics and Bureau of Economic Analysis. Appendix 205

GROSS DOMESTIC PRODUCT, FEDERAL BUDGET, AND DEFENSE BUDGET Fiscal Years 1981–2010 (Billions of Dollars)

Defense Outlays as Federal Budget Outlays Fiscal Percent of: Year Year Total National Total GDP GDP Outlays Defense Outlays 1981 $3,057.0 $678.2 $157.5 5.15% 23.22% 1982 3,223.7 745.7 185.3 5.75 24.85 1983 3,440.7 808.4 209.9 6.10 25.97 1984 3,844.4 851.8 227.4 5.92 26.70 1985 4,146.3 946.3 252.7 (a) 6.10 26.71 1986 4,403.9 990.4 273.4 6.21 27.60 1987 4,651.4 1,004.0 282.0 6.06 28.09 1988 5,008.5 1,064.4 290.4 5.80 27.28 1989 5,399.5 1,143.7 303.6 5.62 26.54 1990 5,734.5 1,253.0 299.3 5.22 23.89 1991 5,930.5 1,324.2 273.3 (b) 4.61 20.64 1992 6,242.0 1,381.5 298.3 (b) 4.78 21.60 1993 6,587.3 1,409.4 291.1 (b) 4.42 20.65 1994 6,976.6 1,461.8 281.6 4.04 19.27 1995 7,341.1 1,515.7 272.1 3.71 17.95 1996 7,718.3 1,560.5 265.7 3.44 17.03 1997 8,211.7 1,601.1 270.5 3.29 16.89 1998 8,663.0 1,652.5 268.2 3.10 16.23 1999 9,208.4 1,701.8 274.8 2.98 16.15 2000 9,821.0 1,789.0 294.4 3.00 16.45 2001 10,225.3 1,862.8 304.7 2.98 16.36 2002 10,543.9 2,010.9 348.5 3.30 17.33 2003 10,979.8 2,159.9 404.7 3.69 18.74 2004 11,685.6 2,292.8 455.8 3.90 19.88 2005 12,445.7 2,472.0 495.3 3.98 20.04 2006 13,224.9 2,655.1 521.8 3.95 19.65 2007 13,891.8 2,728.7 551.3 3.97 20.20 2008 14,394.1 2,982.5 616.1 4.28 20.66 2009 14,097.5 3,517.7 661.0 4.69 18.79 2010 14,508.2 3,456.2 693.6 4.78 20.07

Source: Office of Management and Budget, The Budget of the United States Government. Notes: Totals may not equal sum of terms due to rounding. Previous years’ data may have been revised to reflect updated and/or newly available information. a. Beginning in 1985, the Federal Budget reflects establishment of a military retirement trust fund. Data for prior years adjusted for comparable treatment of the military retired pay. b. 1991-1993 reflects transfers from the Defense Cooperation Account funded by foreign government and private cash contributions reducing total U.S.-funded military outlays. 206 Aerospace Industry Report 2011

Aircraft Production

U.S. AIRCRAFT SHIPMENTS: CIVIL Calendar Years 1986–2010 (Number of Aircraft)

Domestic Exports Year TOTAL Trans- Heli- General Trans- Heli- General ports copters Aviation ports copters Aviation

1986 2,155 171 120 1,054 159 210 441 1987 1,800 187 116 646 170 242 439 1988 2,018 206 103 787 217 280 425 1989 2,448 138 221 969 260 294 566 1990 2,268 215 254 686 306 349 458

1991 2,181 204 253 639 385 318 382 1992 1,832 180 112 588 387 212 353 1993 1,630 130 83 615 278 175 349 1994 1,545 87 154 651 222 154 277 1995 1,625 119 82 762 137 210 315

1996 1,662 97 64 770 172 214 345 1997 2,269 122 87 1,100 252 259 449 1998 3,122 184 125 1,665 375 238 535 1999 3,485 279 180 1,942 341 181 562 2000 3,794 217 189 2,247 268 304 569

2001 3,575 273 106 2,129 253 309 505 2002 2,904 117 24 1,835 262 294 372 2003 2,935 121 118 1,801 160 399 336 2004 3,445 137 238 2,022 148 567 333 2005 4,094 130 242 2,300 160 705 557

2006 4,443 152 212 2,256 246 686 891 2007 4,729 153 108 2,137 288 901 1,142 2008 4,538 135 204 1,918 240 880 1,161 2009 2,630 154 D 853 327 D 732 2010 2,045 161 D 645 301 D 689

Source: Aerospace Industries Association, based on company reports; General Aviation Manufacturers Association; and Department of Commerce, International Trade Administration. D. Withheld by Census Bureau to avoid disclosing data for individual companies. Appendix 207

U.S. AIRCRAFT SHIPMENTS: MILITARY Calendar Years 1986–2009 (Number of Aircraft)

U.S. Military Year TOTAL Exportsa Agencies

1986 1,107 708 399 1987 1,210 725 485 1988 1,305 687 618 1989 1,261 614 647 1990 1,053 666 387 1991 911 556 355 1992 753 421 332 1993 954 437 517 1994 766 418 348 1995 816 354 462 1996 558 242 316 1997 511 151 360 1998 418 149 269 1999 357 133 224 2000 333 138 195 2001 347 196 151 2002 359 228 131 2003 383 234 149 2004 420 251 169 2005 587 324 263 2006 996 298 698 2007 1,062 467 595 2008 723 503 220 2009 868 617 251

Source: Department of Commerce, International Trade Administration. a. Includes FMS and military aircraft exported via commercial contracts, directly from manufacturers to foreign governments. 208 Aerospace Industry Report 2011

CIVIL AIRCRAFT SHIPMENTS Calendar Years 1997–2010

Transport General Year TOTAL Helicopters Aircrafta Aviation

Number of Aircraft Shipped

1997 2,269 374 346 1,549 1998 3,122 559 363 2,200 1999 3,485 620 361 2,504 2000 3,794 485 493 2,816 2001 3,575 526 415 2,634 2002 2,904 379 318 2,207 2003 2,935 281 517 2,137 2004 3,445 285 805 2,355 2005 4,094 290 947 2,857 2006 4,443 398 898 3,147 2007 4,729 441 1,009 3,279 2008 4,538 375 1,084 3,079 2009 2,630 481 564 1,585 2010 2,045 462 249 1,334

Value (Millions of Dollars)

1997 $31,753 $26,929 $231 $4,593 1998 41,676 35,663 252 5,761 1999 46,201 38,171 187 7,843 2000 39,155 30,327 270 8,558 2001 43,043 34,155 247 8,641 2002 35,450 27,574 157 7,719 2003 27,833 21,033 366 6,434 2004 27,815 20,484 515 6,816 2005 31,424 21,941 816 8,667 2006 37,085 25,875 843 10,367 2007 42,431 29,160 1,330 11,941 2008 38,910 24,076 1,486 13,348 2009 41,214 31,160 972 9,082 2010 36,354 27,689 791 7,875

Source: Aerospace Industries Association, based on company reports, data from the General Aviation Manufacturers Association (GAMA), and AIA estimates. a. U.S.-manufactured fixed-wing aircraft over 33,000 pounds empty weight, including all jet transports plus the four-engine turboprop-powered Lockheed L-100. Appendix 209

SHIPMENTS OF CIVIL TRANSPORT AIRCRAFTa Calendar Years 2006–2010

2006 2007 2008 2009 2010

TOTALS: Number of Aircraft 398 441 375 481 462 Value(E) (Millions of Dollars) $25,875 $29,160 $24,076 $31,160 $27,689

Company and Model:

Boeing: Total 398 441 375 481 462

B-717 (MD-95)b 5 - - - - B-737 302 330 290 372 376 B-747 14 16 14 8 - B-767 12 12 10 13 12 B-777 65 83 61 88 74 B-787 - - - - -

Source: Aerospace Industries Association, based on company reports. a. U.S.-manufactured fixed-wing aircraft over 33,000 pounds. b. Formerly reported as Douglas. E. Estimate. 210 Aerospace Industry Report 2011

CIVIL TRANSPORT AIRCRAFT BACKLOGa As of End-of-Year Calendar Years 2006–2010

2006 2007 2008 2009 2010

TOTAL AIRCRAFT ON ORDER: Number of Aircraft 2,451 3,427 3,714 3,375 3,443 Value(E) (Millions of Dollars) $184,610 $270,728 $296,217 $265,104 $266,745

Boeing (U.S. & Foreign):

B-737 1,560 2,076 2,270 2,076 2,186 B-747 116 125 114 108 107 B-767 28 52 70 59 50 B-777 299 357 350 281 253 B-787 448 817 910 851 847

TOTAL FOREIGN ORDERS: Number of Aircraft 1,733 2,581 2,891 2,682 2,679 Value(E) (Millions of Dollars) $139,554 $213,418 $240,092 $218,208 $216,701

Boeing (Foreign):

B-737 1,011 1,493 1,703 1,605 1,643 B-747 85 101 97 94 95 B-767 27 24 42 34 30 B-777 233 284 271 230 221 B-787 377 679 778 719 690

Source: Aerospace Industries Association, based on company reports. a. Unfilled announced orders excluding options for U.S.-manufactured transport aircraft over 33,000 pounds. Includes new transports contracted for lease from the manufacturer. E. Estimate. Appendix 211

CIVIL HELICOPTER SHIPMENTSa Calendar Years 2006–2010

2006 2007 2008 2009 2010 CIVIL SHIPMENTS: Number of Aircraft 898 1,009 1,084 564 249 Value (Millions of Dollars) $843 $1,330 $1,486 $972 $791

Enstrom—TOTAL 23 19 10 6 4 F-28/280 Series 10 6 1 1 1 480 Series 13 13 9 5 3

MD Helicoptersb—TOTAL 13 18 52 40 12 500 Series DNR 3 DNR DNR DNR 520 Series DNR 3 DNR DNR DNR 530 Series DNR 2 DNR DNR DNR 600 Series DNR 3 DNR DNR DNR 900 Series DNR 7 DNR DNR DNR

Robinson—TOTAL 749 823 893 433 162 R22 97 159 164 25 40 R44 652 664 729 408 112 R66 - - - - 10

Schweizer—TOTAL 61 70 51 27 29 300C 12 11 16 10 14 300CB/300CBi 44 51 27 13 6 330/333 5 8 8 4 9

Sikorsky—TOTAL 52 79 78 58 42 S-76 36 50 53 34 21 S-92 16 29 25 24 21

Source: Aerospace Industries Association, based on company reports. Note: All data exclude production by foreign licensees. a. Domestic and export helicopter shipments for non-military use. Please note that shipments from Bell Helicopter’s Canadian facilities are excluded as are other foreign-produced helicopters, but reported separately below for information purposes only. b. Formerly reported as McDonnell Douglas. DNR. Firm did not report information.

Bell—TOTAL 159 181 167 153 131 206B 20 28 18 22 5 206L/LT 21 24 21 16 15 210 - - 3 - - 407 67 73 79 81 62 412 35 39 36 28 28 427 7 10 7 4 1 429 - - - 2 20 430 9 7 3 - - 212 Aerospace Industry Report 2011

GENERAL AVIATION AIRCRAFT SHIPMENTS BY SELECTED MANUFACTURERS Calendar Years 2006–2010

2006 2007 2008 2009 2010 NUMBER OF AIRCRAFT SHIPPED: TOTAL 3,147 3,279 3,079 1,585 1,334

Single-Engine, Piston 2,208 2,097 1,700 770 679 Multi-Engine, Piston 79 77 91 32 67 Turboprop 256 290 333 269 224 Turbojet 604 815 955 514 364

VALUE OF SHIPMENTS: TOTAL (Millions of Dollars) $10,367 $11,941 $13,348 $9,082 $7,875

Piston $722 $712 $836 $389 $368 Turboprop 853 1,001 1,172 872 724 Turbojet 8,792 10,227 11,340 7,821 6,782

Number of Aircraft Shipped by Selected Manufacturers: Adam 4 3 - - - Alpha Aviation 5 13 1 - - American Champion 60 70 54 26 37 Aviat - - - - - Cessna 1,239 1,274 1,300 740 512 Cirrus Design 721 710 549 268 264 Columbia (formerly Lancair) 185 152 - - - Gulfstream 113 138 156 94 99 Learjet 71 80 74 46 28 Liberty 29 38 33 13 14 Maule 38 36 28 7 4 Mooney 75 79 65 19 2 Piper 238 221 268 90 160 Raytheon (formerly Beech) 398 430 431 273 214 Tiger 3 - - - -

Source: General Aviation Manufacturers Association. Notes: Totals may not equal sum of terms due to rounding. Previous years’ data may have been revised to reflect updated and/or newly available information. Appendix 213

MILITARY AIRCRAFT PROGRAM PROCUREMENTa Fiscal Years 2010, 2011, and 2012 (Costs in Millions of Dollars)b

2010 2011(E) 2012(E) Agency and Model No. Cost No. Cost No. Cost AIR FORCE F-35 10 $2,357.9 23 $4,315.1 19 $3,664.1 C-5 - 717.5 - 980.9 - 1,035.6 C-130 4 776.5 8 1,058.7 1 618.4 C-27J 8 318.1 8 351.2 9 479.9 V22 Osprey 5 474.2 5 421.5 7 444.6 C-17A 10 2,931.5 - 743.7 - 396.8 F-22A - 271.7 - 650.2 - 336.2 C-135 - 264.7 - 149.8 - 226.9 F-15 - 167.9 - 323.8 - 224.5 B-1 - 102.7 - 215.4 - 202.8 A-10 - 261.7 - 181.9 - 153.1 E-3 - 78.9 - 195.2 - 135.0 C-37A 1 66.6 2 64.2 3 99.8 B-52 - 61.3 - 72.5 - 93.9 B-2A - 291.2 - 89.6 - 90.7 F-16 - 273.6 - 185.0 - 77.9 MC-12W - 176.8 - 10.8 - 34.1 T-38 - 60.9 - 28.3 - 31.0 KC-10A (ATCA) - 9.4 - 17.3 - 27.2 T-6 - 36.2 - 34.1 - 15.1

ARMY UH-60 Blackhawk 81 $1,483.2 74 $1,391.6 75 $1,597.4 CH-47 Chinook 37 1,131.3 42 1,378.8 47 1,440.0 AH-64 Apache 8 842.3 16 1,086.8 20 1,074.8 Helicopter, Light Utility (LUH) 54 325.0 50 305.3 39 250.4

NAVY Joint Strike Fighter 20 $4,449.3 20 $4,463.1 13 $2,979.9 F/A-18E/F Hornet 18 2,087.8 22 2,323.3 28 2,978.3 V-22 Osprey 30 2,379.1 30 2,261.3 30 2,399.1 P-8A Poseidon 6 1,797.4 7 1,990.6 11 2,278.4 E-2D Hawkeye 3 792.3 4 984.8 6 1,265.5 EA-18G 22 1,627.3 12 1,083.9 12 1,107.5 MH-60R Strikehawk 24 931.7 24 1,059.9 24 1,000.5 UH-1Y/AH-1Z 25 746.0 31 896.6 26 798.6 MH-60S Knighthawk 18 471.5 18 548.7 18 483.0 JPATS 37 258.5 38 267.9 36 268.4 E-6 Series - 102.3 - 149.2 - 165.3 KC-130J - - - - 1 87.3

Source: Department of Defense Budget, Program Acquisition Costs by Weapon System and Procurement Programs (P-1). a. Total Obligational Authority for procurement, excludes RDT&E, includes modifications. b. Includes base and Overseas Contingency Operations budget requests. E. Estimate. 214 Aerospace Industry Report 2011

MILITARY UNMANNED AERIAL VEHICLE (UAV) PROCUREMENT a Fiscal Years 2009–2012 (Costs in Millions of Dollars)b

2009 2010 2011(E) 2012(E) Model No. Cost No. Cost No. Cost No. Cost

TOTAL 879 $1,455.5 1,450 $2,927.2 394 $2,968.2 1,371 $2,624.6

M/RQ-1 Predator 38 $190.5 ------RQ-4 Global Hawk 5 710.0 4 800.1 4 859.2 3 484.6 RQ-7 Shadow 4 20.5 4 759.8 - - - - MQ-8B VTUAV 3 50.2 5 136.9 4 47.5 12 192.0 MQ-9 Reaper 24 333.0 24 573.9 48 1,392.6 48 1,069.3 RQ-11 Raven 798 45.4 1,389 125.8 312 43.8 1,272 72.9 ER/MPc 7 105.9 24 530.7 26 625.1 36 805.8

Source: Department of Defense Budget, Fiscal Year 2010 Budget Request Summary Justification, Procurement Programs (P-1). Notes: Totals may not equal sum of terms due to rounding. a. Total Obligational Authority for procurement, excludes RDT&E. b. Includes base and Overseas Contingency Operations budget request. c. Previously MQ-1C Warrior E. Estimate. Appendix 215

DEPARTMENT OF HOMELAND SECURITY: EXPENDITURES FOR AIRCRAFT ACQUISITION AND MODIFICATION, AND OTHER SELECTED PROGRAMS Fiscal Years 2009–2012 (Thousands of Dollars)

2009 2010 2011(E) 2012(E) Aircraft Total $93,861 $204,295 $47,106 $53,250

HC-144 Maritime Patrol Aircraft $21,650 $99,610 $10,000 $30,000 CN-235 Maritime Patrol Aircraft 17,320 - - - HH-60 Pave Hawk 21,080 41,204 8,560 1,000 HH-65 Dolphin 13,700 29,315 - 15,000 HC-130H Hercules 8,453 29,667 26,997 7,250 HC-130J Super Hercules 9,658 4,499 1,549 - Unmanned Aerial System 2,000 - - -

Other $61,242 $101,908 $41,799 $14,100 C4ISR $17,620 $79,743 $6,100 $10,100 Deepwater Logistics System 10,481 8,182 30,699 - Systems Engineering and Integration 33,141 13,983 5,000 4,000

DEPARTMENT OF HOMELAND SECURITY: AIRCRAFT ACQUISITIONS Fiscal Years 2008-2012 (Number of Aircraft)

2008 2009 2010 2011(E) 2012(E) Aircraft 30 2 6 8 8 UAS 1 1 0 1 0

Source: U.S. Department of Homeland Security Budget. E. Estimate. UAS. Unmanned Aerial System. 216 Aerospace Industry Report 2011

DEPARTMENT OF DEFENSE OUTLAYS FOR AIRCRAFT PROCUREMENT BY AGENCY Fiscal Years 1983–2012 (Millions of Dollars)

Year TOTAL Air Force Army Navy 1983 21,013 11,799 1,724 7,490 1984 23,197 12,992 2,165 8,040 1985 26,587 15,619 2,705 8,263 1986 30,828 18,919 2,987 8,922 1987 32,956 20,036 3,306 9,614 1988 28,246 15,961 2,878 9,407 1989 27,569 14,662 2,834 10,073 1990 26,142 14,303 2,808 9,031 1991 25,689 13,794 2,840 9,055 1992 23,581 13,154 2,520 7,907 1993 20,359 11,438 1,675 7,246 1994 18,840 10,303 1,711 6,826 1995 16,125 8,891 1,549 5,685 1996 14,331 7,862 1,435 5,034 1997 14,663 7,799 1,542 5,322 1998 15,473 8,236 1,392 5,845 1999 16,484 8,928 1,532 6,024 2000 17,991 8,979 1,268 7,744 2001 17,979 8,217 1,358 8,404 2002 20,546 10,424 1,633 8,489 2003 21,280 11,303 1,781 8,196 2004 22,898 12,003 2,042 8,853 2005 23,284 11,999 2,491 8,794 2006 23,176 11,783 2,618 8,775 2007 23,349 10,858 3,532 8,959 2008 25,964 11,448 4,250 10,266 2009 30,595 13,523 5,076 11,996 2010 34,405 13,736 5,672 14,997 2011(E) 42,528 17,919 6,409 18,200 2012(E) 40,738 14,899 6,588 19,251

Source: Office of Management and Budget, Budget of the United States Government. E. Estimate. Appendix 217

MILITARY AIRCRAFT ACCEPTED BY U.S. MILITARY AGENCIES Calendar Years 1995–2009

Bomber/ Patrol/ Fighter/ Transport/ Heli- Year TOTAL Trainer Other Command/ Attack Tanker coptersa Control

NUMBER OF AIRCRAFT

1995 354 4 66 32 102 135 15 1996 242 4 46 28 54 110 - 1997 151 4 34 16 26 71 - 1998 149 8 26 30 33 52 - 1999 133 6 46 45 12 24 -

2000 138 2 51 30 33 22 - 2001 196 3 58 36 52 38 9 2002 228 4 75 30 55 46 18 2003 234 3 57 33 64 61 16 2004 251 5 67 44 75 38 22

2005 324 4 66 57 72 104 21 2006 298 - 69 45 76 81 27 2007 467 4 66 51 88 230 28 2008 503 1 35 38 96 301 32 2009 617 3 60 53 131 312 58

FLYAWAY VALUE (Millions of Dollars)

1995 10,444 3,585 1,975 2,759 460 1,568 98 1996 8,791 3,596 1,419 2,350 337 1,088 - 1997 6,277 1,921 1,204 2,248 270 635 - 1998 9,296 4,699 846 2,890 319 542 - 1999 7,211 415 2,733 3,588 219 256 -

2000 7,424 140 3,018 3,651 356 259 - 2001 7,537 218 3,480 2,962 376 440 61 2002 9,020 295 3,707 3,950 407 456 205 2003 9,736 204 3,960 4,447 371 626 128 2004 12,755 346 6,013 5,067 523 575 231

2005 14,666 281 6,901 5,863 518 1,062 41 2006 13,966 - 7,005 5,004 623 1,108 226 2007 13,079 385 4,798 4,329 341 2,803 423 2008 10,809 31 2,996 3,993 168 3,290 331 2009 18,485 292 6,148 6,723 396 4,384 542

Source: DOD: Air Force Aircraft Procurement; Aircraft Procurement, Navy; FY12 Budget Overview Briefing. Note: Data represent new U.S.-manufactured aircraft, excluding gliders and targets. Values include spares, spare parts, and support equipment that are procured with the aircraft. a. Beginning in 2005, values for helicopters include remanufactured aircraft. 218 Aerospace Industry Report 2011

MILITARY AIRCRAFT ACCEPTANCES BY UNITED STATES AIR FORCEa Calendar Years 2008–2009 (Costs in Millions of Dollars)

Number b Weapon System Flyaway Cost c of Aircraft Cost

2008 2009 2008 2009 2008 2009

TOTAL 113 162 $ 5,770 $ 8,220 $ 8,198 $ 9,535

Fighter/Attack: Total 23 19 $ 2,145 $ 2,980 $ 4,003 $ 3,540 F/A-22 23 19 2,145 2,980 4,003 3,540

Transports/Tankers: Total 19 26 $ 3,182 $ 4,497 $ 3,244 $ 4,603 C-17 11 12 2,396 2,634 2,166 2,526 C-130 variants 7 12 678 1,618 908 1,739 CV-22 1 2 107 245 170 338

Trainers: Total 39 59 $ 111 $ 201 $ 130 $ 237 T-6 39 59 111 201 130 237

Other: Total 32 58 $ 331 $ 542 $ 822 $ 1,155 Predator UAV 29 51 146 140 582 623 RQ-4A Global Hawk 3 7 186 402 239 532

Source: Department of Defense, Air Force Aircraft Procurement. a. Air Force acceptances for own use; excludes FMS/MAP shipments. b. Flyaway Cost includes airframe, engines, electronics, communications, armament, other installed equipment, and non-recurring costs associated with the manufacture of aircraft. c. Weapon System Cost includes flyaway costs, initial spares, peculiar ground equipment, training equipment, and technical data. Appendix 219

MILITARY AIRCRAFT ACCEPTANCES BY UNITED STATES ARMYa Calendar Years 2008–2009 (Costs in Millions of Dollars)

Number of Weapon System Flyaway Costb Aircraft Costc

2008 2009 2008 2009 2008 2009

TOTAL 116 159 $ 1,962 $ 3,056 $ 2,112 $ 3,259

Transports/Tankers: Total - - $ - $ - $ - $ - JCA ------

Helicopters: Total 116 159 $ 1,962 $ 3,056 $ 2,112 $ 3,259 CH-47 21 28 (d) 508 674 582 711 HH-60L 7 - 32 - 35 - TH-67 ------UH-60L 2 - 27 - 28 - UH-60M 19 74 (f) 835 1,182 858 1,239 AH-64D 42 57 (d) (g) 559 1,200 610 1,309

Source: USA survey responses and DOD, FY12 Budget Overview Briefing. a. Army acceptances for own use; excludes FMS/MAP shipments. b. Flyaway Cost includes airframes, engines, electronics, communications, armament and other installed equipment. c. Weapon System Cost includes flyaway cost, initial spares, ground equipment, training equipment and other support items. d. Includes remanufacured aircraft. f. Includes prototypes. g. Includes war replacement aircraft 220 Aerospace Industry Report 2011

MILITARY AIRCRAFT ACCEPTANCES BY UNITED STATES NAVYa Calendar Years 2008–2009 (Costs in Millions of Dollars)

Number of Weapon Flyaway Costb Aircraft System Costc

2008 2009 2008 2009 2008 2009

TOTAL 274 296 $ 3,138 $ 7,165 $ 3,535 $ 8,547

Patrol: Total 1 3 $ 91 $ 292 $ 125 $ 327 E-2 1 3 91 292 125 327

Fighter/Attack: Total 12 41 $ 851 $ 3,168 $ 989 $ 3,708 F/A -18 10 34 682 2,591 805 3,083 E/A-18G 2 7 169 577 184 624

Transports/Tankers: Total 19 27 $ 811 $ 2,226 $ 770 $ 2,734 C-37 ------C-40 ------KC-130 10 10 176 213 196 215 UC-35 ------MV-22 9 17 634 2,013 574 2,519

Trainers: Total 57 72 $ 57 $ 151 $ 68 $ 172 T-6 JPATS 51 63 57 151 68 172 T-45TS 6 9 195 294 232 337

Helicopters: Total 185 153 $ 1,328 $ 1,328 $ 1,584 $ 1,606 MH-60R 106 63 946 609 1,097 704 MH-60S 79 81 382 424 487 498 AH-1Z/UH-1Y - 9 - 294 - 404

Source: Department of Defense, Aircraft Procurement, Navy. a. Navy acceptances for own use; excludes FMS shipments. b. Flyaway Cost includes airframe, engines, electronics, communications, armament, other installed equipment, non-recurring costs, and ancillary equipment. c. Weapons System Cost (Investment Cost) includes flyaway cost, initial spares, ground equipment, training equipment, and other support items. Appendix 221

Missiles

DEPARTMENT OF DEFENSE OUTLAYS FOR MISSILE PROCUREMENT BY AGENCY Fiscal Years 1982–2011 (Millions of Dollars)

Year TOTAL Air Force Army Navy

1982 $6,782 $3,069 $1,269 $2,444 1983 7,795 3,383 1,600 2,812 1984 9,527 4,640 2,079 2,809 1985 10,749 5,409 2,399 2,941 1986 11,731 6,473 2,478 2,780 1987 11,473 6,002 2,314 3,157 1988 11,676 6,046 2,239 3,392 1989 14,503 7,349 2,709 4,445 1990 14,851 7,951 2,453 4,446 1991 14,400 6,906 2,540 4,954 1992 13,504 6,409 2,401 4,694 1993 11,404 5,424 2,187 3,794 1994 8,934 4,312 1,384 3,238 1995 7,513 3,845 974 2,694 1996 6,199 3,235 919 2,045 1997 5,225 2,743 936 1,546 1998 4,907 2,543 964 1,400 1999 4,080 2,299 783 998 2000 4,259 2,243 926 1,090 2001 5,472 2,982 1,248 1,242 2002 5,230 2,719 1,256 1,255 2003 5,293 2,802 1,273 1,218 2004 6,815 4,040 1,295 1,480 2005 6,622 3,733 1,373 1,516 2006 7,500 4,074 1,594 1,832 2007 7,456 4,182 1,316 1,958 2008 7,711 4,082 1,468 2,161 2009 8,768 4,338 2,057 2,373 2010 8,896 4,412 2,034 2,450 2011(E) 9,926 5,059 2,202 2,665

Source: Office of Management and Budget, The Budget of the United States Government . E. Estimate. 222 Aerospace Industry Report 2011

MISSILE PROGRAM PROCUREMENTa Fiscal Years 2010, 2011 and 2012 (Costs in Millions of Dollars)

2010 2011(E) 2012(E)

Base and OCOb Base and OCOb Base and OCOb

No. Cost No. Cost No. Cost

Air Force: AGM-88A Harm - $24.2 - $4.1 - $25.6 AIM-9X Sidewinder 219 78.5 178 64.5 240 88.8 AMRAAM 170 272.7 246 355.4 218 309.6 JASSM - 52.5 171 215.8 142 236.2 MM III Mods - 198.9 - 123.4 - 126.0 Missile Repl Eq-Ballistic - 58.0 - 60.6 - 67.7 Predator Hellfire 1,175 86.6 891 86.2 570 63.0 Small Diameter Bomb 2,694 141.7 2,985 134.9 100 19.8

Army: GMLRS 3,228 $353.3 2,592 $291.0 2,994 $333.2 HIMARS 46 279.3 44 250.9 - 43.3 Hellfire Sys Summary 2,165 227.1 240 222.3 907 109.0 Javelin (Aaws-M) 1,334 258.6 715 163.9 710 160.8 TOW 2 2,482 148.9 1,782 245.3 802 95.1 Patriot Mods 59 385.9 78 537.4 88 729.2

Navy: AIM-9X Sidewinder 161 $53.7 155 $55.2 132 $47.1 AMRAAM 71 138.1 101 155.6 161 188.5 ESSM 43 51.2 33 48.2 35 48.5 Hellfire 1,344 108.7 1,369 129.0 421 36.7 JSOW 313 142.0 333 131.1 266 137.7 Ram 90 69.7 90 75.0 61 66.2 Standard Missile 153 269.7 67 357.8 89 420.3 Tomahawk 196 276.5 196 300.2 196 303.3 Trident II Mods 24 1,046.7 24 1,106.9 24 1,309.1

Source: Department of Defense, Procurement Programs (P-1). a. Total Obligational Authority excluding initial spares and RDT&E. b. Overseas Contingency Operations budget request. E. Estimate. Appendix 223

MISSILE PROGRAMS: RESEARCH, DEVELOPMENT, TEST, AND EVALUATIONa BY AGENCY AND MODEL Fiscal Years 2010, 2011, 2012 (Millions of Dollars)

2010 2011(E) 2012(E)

Base and Base and Base and OCOb OCOb OCOb

Air Force: ALCM $3.5 $3.6 $0.8 AMRAAM 49.8 62.9 77.8 ICBM 127.5 138.6 225.7 JASSM 28.5 20.0 5.8 Joint Dual Role Air Dominance 6.9 9.8 29.8 Small Diameter Bomb (SDB) 150.1 153.5 132.9

Army: AIAMD $ - $251.1 $270.6 CAP* 570.8 467.1 406.6 Joint Air-to-Ground Missile (JAGM) 118.5 130.3 127.1 JAVELIN - 10.0 17.3 Missile Technology and Integration 563.0 197.4 231.5 PAC-3/MSE Missile - 62.5 89.0 SLAMRAAM - 23.7 19.9

Navy: AMRAAM $3.6 $2.6 $2.9 HARM Improvement 35.0 14.2 11.1 Joint Air-to-Ground Missile (JAGM) 61.8 100.8 118.4 Small Diameter Bomb (SDB) 17.5 44.1 47.6 Tomahawk 16.7 10.6 8.8

MDA: BDM $4,259.9 $4,394.4 $3,676.0 AEGIS BMD 1,666.8 1,786.1 1,508.2

Source: Department of Defense Budget, RDT&E Programs (R-1). a. Total Obligational Authority. b. Overseas Contingency Operations budget request. E. Estimate. * Patriot/MEADS Combined Aggregate Program. 224 Aerospace Industry Report 2011

MISSILE DEFENSE AGENCY: Funding by Appropriation and Program Element Fiscal Years 2008–2012 (Millions of Dollars)

Program Category and Title 2008 2009 2010 2011(E) 2012(E) Element TOTAL $8,766 $8,632 $7,891 $8,416 $8,626

MILCON – TOTAL $ - $18 $100$ - $67

Test & Targets 0603888C 18 6 - 8 MDA Infrastructure 0603890C - - - - 59 BDM Aegis 0603892C - - 25 - - Land-Based SM-3 0604880C - - 69 - -

RDT&E – TOTAL $8,652 $8,248 $7,059 $7,455 $6,577

BMD Technology 0603175C 106 118 189 132 75 BMD Terminal Defense 0603881C 1,034 951 716 437 291 BMD Midcourse Defense 0603882C 2,199 1,473 1,027 1,346 1,161 Boost 0603883C 503 384 182 - - BMD Sensors 0603884C 574 683 621 455 222 System Interceptor 0603886C 331 309 - - - BMD Test & Targets 0603888C 619 907 823 1,113 1,071 BMD Enabling Programs 0603890C 417 403 359 403 374 Special Programs 199 203 270 291 358 BMD Aegis 0603892C 1,214 1,054 1,436 1,467 960 STSS 0603893C 226 210 162 113 96 MKV 0603894C 223 226 - - - BMDS Space 0603895C 16 23 12 11 8 BMD C2BMC 0603896C 440 275 335 343 364 Hercules 0603897C 51 52 48 - - BMD Joint Warfighter 0603898C 45 66 61 69 41 Directed Energy Research 0603901C - - - 99 96 MDIOC 0603904C 77 103 86 86 69 Regarding Trench 0603906C 2 3 6 8 16 Sea Based X-Band Radar 0603907C 155 144 167 153 177 European Cooperative - 449 50 - - Israeli Cooperative 0603913C - - 201 122 106 Land-Based SM-3 0604880C - - 281 307 Aegis SM-3 Blk IIA - - 256 319 548 Precision Tracking Space Sensor 0604883C - - - 67 161 Airborne Infrared (ABIR) 0604884C - - - 112 47 SBIR 0605502C 137 125 - - - Management Headquarters 0901598C 84 87 52 30 29

PROCUREMENT – TOTAL $ - $207 $645 $953 $1,779

THAAD 0208866C - 105 419 859 833 AEGIS BMD - 102 226 94 565 BMDS AN/TPY-2 Radars - - - - 380

O&M – TOTAL $ - $ - $ - $ - $203

BRAC – TOTAL $110 $160 $87 $9$ -

Source: Missile Defense Agency. E. Estimate Appendix 225

Space

FEDERAL SPACE ACTIVITIES BUDGET AUTHORITY Fiscal Years 1981–2010 (Millions of Dollars)

Year TOTAL NASAa DoD Commerce Energy Otherb

1981 $10,054 $4,992 $4,828 $87 $41 $106 1982 12,520 5,528 6,679 145 61 107 1983 15,674 6,328 9,019 178 39 110 1984 17,448 6,858 10,195 236 34 125 1985 20,277 6,925 12,768 423 34 127 1986 21,768 7,165 14,126 309 35 133 1987 26,562 9,809 16,287 278 48 140 1988 26,742 8,322 17,679 352 241 148 1989 28,563 10,097 17,906 301 97 162 1990 27,582 11,460 15,616 243 79 184 1991 27,999 13,046 14,181 251 251 270 1992 29,020 13,199 15,023 327 223 248 1993 27,901 13,064 14,106 324 165 242 1994 26,820 13,022 13,166 312 74 246 1995 23,946 12,543 10,644 352 60 347 1996 24,911 12,569 11,514 472 46 310 1997 24,973 12,457 11,727 448 35 306 1998 25,519 12,321 12,359 435 103 301 1999 26,644 12,459 13,203 575 105 302 2000 26,518 12,521 12,941 575 164 317 2001 28,692 13,304 14,326 577 145 340 2002 30,807 13,871 15,740 644 169 383 2003 35,053 14,360 19,388 649 191 465 2004 34,901 14,322 19,115 745 209 510 2005 36,475 15,234 19,690 807 229 515 2006 39,526 15,765 22,114 860 245 542 2007 39,735 15,568 22,487 912 200 568 2008 42,995 16,502 24,795 862 195 641 2009(E) 44,810 17,282 25,595 1,074 191 668 2009 (RA) 18,564 18,179 0 74 5 306 2010(E) 29,540 852 26,463 1,350 234 641

Source: NASA, Aeronautics and Space Report of the President. a. Excludes amounts for air transportation. Beginning in 2009, NASA program budgets reflect only direct program costs. Indirect costs are budgeted within the Cross-Agency Support Programs account. b. Departments of Interior, Transportation, and Agriculture; the National Science Foundation; and the Environmental Protection Agency. E. Estimate. RA. Recovery Act 226 Aerospace Industry Report 2011

FEDERAL SPACE ACTIVITIES OUTLAYS Fiscal Years 1979–2008 (Millions of Dollars)

Year TOTAL NASAa DoD Commerce Energy Otherb

1979 $6,808 $3,744 $2,892 $97 $55 $21 1980 7,734 4,340 3,162 89 49 94 1981 9,238 4,877 4,131 81 47 102 1982 10,542 5,463 4,772 142 60 106 1983 12,668 6,101 6,247 178 40 103 1984 14,813 6,461 8,000 209 33 109 1985 17,353 6,607 10,441 155 34 115 1986 18,683 6,756 11,449 317 35 127 1987 21,948 7,254 14,264 262 37 130 1988 23,521 8,451 14,397 334 199 140 1989 25,255 10,195 14,504 306 97 153 1990 25,788 12,292 12,962 279 79 177 1991 28,484 13,351 14,432 266 251 184 1992 27,998 12,838 14,437 298 223 202 1993 27,537 13,092 13,779 295 165 206 1994 23,929 12,363 10,973 297 83 213 1995 24,700 12,593 11,494 330 70 213 1996 24,675 12,694 11,353 354 46 228 1997 25,620 13,055 11,959 336 37 233 1998 25,827 12,866 12,230 326 97 308 1999 25,771 12,466 12,453 431 103 318 2000 26,633 12,427 13,207 517 165 317 2001 27,226 13,197 13,046 525 143 315 2002 29,465 13,449 14,906 579 170 361 2003 33,321 13,553 18,612 579 191 386 2004 33,371 14,270 17,776 670 202 453 2005 35,838 14,747 19,662 727 223 479 2006 35,846 14,403 19,959 780 243 461 2007 38,812 15,247 22,060 803 188 514 2008 42,611 17,231 24,080 603 192 505

Source: NASA, Aeronautics and Space Report of the President. a. Excludes amounts for air transportation. b. Departments of Interior, Transportation, and Agriculture; the National Science Foundation; and the Environmental Protection Agency. Appendix 227

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION BUDGET AUTHORITY Fiscal Years 1987–2012 (Millions of Dollars)

Space Flight Research Research and Control and Construction Year TOTAL and Program Commun- of Facilities Development Managementa ications

1987 $10,923 $3,154 $6,100 $217 $1,453 1988 9,062 3,280 3,806 213 1,763 1989 10,969 4,213 4,555 275 1,927 1990 12,111 5,225 4,645 218 2,023 1991 14,005 6,024 5,271 498 2,212 1992 14,301 6,848 5,352 525 1,576 1993 14,310 7,074 5,059 526 1,652 1994 14,570 7,534 4,835 493 1,708

Science, Human Mission Year TOTAL Aeronautics, & Space Othera Support Technology Flight

1995(b) $13,854 $5,936 $5,515 ($130) $2,533 1996 13,886 5,929 5,457 17 2,483 1997 13,711 5,590 5,540 19 2,562 1998 13,649 5,690 5,560 19 2,380 1999 13,655 5,654 5,480 21 2,500 2000 13,602 5,582 5,488 21 2,511 2001 14,361 6,235 5,496 28 2,602 2002(c) 14,893 8,095 6,773 25 - 2003 15,391 9,215 6,149 27 -

Exploration, Space Mission Year TOTAL Science, & Othera Operations Support Aeronautics

2004 $15,379 $7,873 $7,478 $28 - 2005 16,198 7,891 8,275 31 - 2006 16,273 9,721 6,520 32 - 2007 16,264 9,545 6,146 573 - 2008 17,209 10,030 6,814 365 - 2009 18,784 9,458 5,765 3,561 - 2010 18,719 8,772 6,142 3,805 - 2011(E) 18,886 8,716 6,147 4,023 - 2012(E) 18,710 9,535 4,347 4,828 -

Source: Office of Management and Budget, Budget of the United States Government. a. Includes trust funds, Office of the Inspector General, National Space Grant Program, and GSA building delegation. b. 1995 features major budget account restructuring. c. Mission Support, as a separate category, discontinued; funds merged into other categories. E. Estimate. 228 Aerospace Industry Report 2011

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION OUTLAYS Fiscal Years 1996–2012 (Millions of Dollars)

Space Flight Research Research and Control and Construction Year TOTAL and Program Commun- of Facilities Development Managementb icationsa 1996(c) $1,022 $510 $241 $265 $6 1997(c) 317 101 92 122 2 1998(c) 138 40 34 64 - 1999(c) 47 18 2 27 - 2000(c) 31 18 1 12 -

Science, Human Mission Year TOTAL Aeronautics, & Space Otherb Support Technology Flight 1996(c) $12,858 $5,017 $5,452 $16 $2,373 1997(c) 14,043 5,891 5,656 19 2,477 1998(c) 14,068 6,015 5,551 19 2,483 1999(c) 13,617 5,785 5,417 20 2,395 2000(c) 13,411 5,477 5,497 21 2,416 2001(d) 14,199 5,752 5,829 32 2,586 2002(f) 14,430 7,532 6,337 27 534 2003(f) 14,552 8,358 6,034 25 135 2004(f,g) 5,826 3,944 1,842 - 40 2005(f,g) 884 667 198 - 19

Exploration, Office of Space Year TOTAL Science, & Inspector Otherh Operations Aeronautics General 2004(g) $15,152 $4,115 $5,218 $32 $5,787 2005(g) 15,602 6,957 7,743 28 874 2006 15,125 7,853 7,117 33 122 2007 15,861 9,303 6,375 32 151 2008 17,833 10,427 6,474 33 899 2009 19,175 4,871 6,721 31 7,552 2010 18,906 8,787 5,800 34 4,285 2011(E) 19,477 8,654 6,312 37 4,474 2012(E) 18,174 9,106 4,798 39 4,231

Source: Office of Management and Budget, Budget of the United States Government. a. Separate budget category beginning in 1984; funds formerly included under Research and Development. b. Includes trust funds, Office of Inspector General, National Space Grant Program, & GSA building delegation. c. 1995 featured major budget account restructuring; 1996–2000 outlays split between old and new account structure. d. Continuing minimal outlays reported under old account structure included under Other beginning in 2001. E. Estimate. f. Mission Support, as a separate category, is being discontinued; funds merged into other categories. g. 2004 featured another budget account restructuring; 2004-2005 outlays split between old and new account structure. h. In FY 2004, NASA again restructured accounts. Outlays authorized under old accounts but expended in later years are shown here, along with a few miscellaneous programs and accounts. Appendix 229

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION BUDGET AUTHORITY BY MAJOR BUDGET ACCOUNT FOR SELECTED PROGRAMS Fiscal Years 2009–2012 (Millions of Dollars)

2009 2010 2011 2012

Actuala Actualb Enacted Estimate

TOTAL $17,832 $17,996 $18,094 $17,250

Science, Aeronautics and Exploration: $11,865 $11,638 $12,403 $12,727 Science 4,503 4,498 5,006 5,017 Exploration Systems 3,506 3,626 3,706 3,949 Aeronautics Research 500 497 580 569 Cross-Agency Support Programs 3,356 3,018 3,111 3,192

Exploration Capabilities: $5,765 $6,142 $5,509 $4,347 Space Operations: $5,765 $6,142 $5,509 $4,347 Space Shuttle 2,980 3,101 1,610 665 International Space Station 2,060 2,313 2,780 2,842 Space and Flight Support 725 728 1,119 841

Education: $169 $180 $146 $138

Inspector General: $34 $36 $37 $38

Source: NASA, FY 2011 Budget Estimates. a. FY 2009 enacted column contains Recovery Act funding of $400M for Science, $150M for Aeronautics, $400M for Exploration, $50M for Cross Agency Support and $2M for Inspector General. b. Following the human spaceflight review, the Administration will provide an updated request for Exploration activities reflecting the review’s results. FY 2010 and outyear funding levels for Exploration activities shown here represent the budget request if there were no changes to ongoing activities. 230 Aerospace Industry Report 2011

DEPARTMENT OF DEFENSE SPACE PROGRAMS PROCUREMENT AND RDT&E Fiscal Years 2009–2012a (Millions of Dollars)

2009 2010 2011(E) 2012(E) Agency and Program Procure- Procure- Procure- Procure- RDT&E RDT&E RDT&E RDT&E ment ment ment ment AIR FORCE AEHF $182.6 $460.4 $1,836.7 $456.2 $246.6 $351.8 $552.8 $421.7 Defense Space Recon Pgm 158.5 - 104.9 - - - - - Defense Support Program ------DMSP 95.8 - 96.6 - 88.7 - 101.4 - EELV 1,334.3 43.6 1,094.8 43.9 1,154.0 30.2 1,740.2 20.0 Global Positioning System 127.9 289.7 124.2 292.0 64.6 - 67.7 - Medium Launch Vehicles 37.7 ------MILSATCOM 105.2 277.5 139.9 239.4 225.8 186.6 104.7 238.7 NPOESS - 287.5 3.9 395.0 26.3 325.5 - 444.9 NUDET Detection System 1.2 41.1 15.4 78.1 5.9 72.2 4.9 82.0 Satellite Control Network 62.8 54.5 58.2 19.5 60.4 21.7 61.4 18.3 SBIRS-High 2,054.4 542.4 463.9 521.5 970.7 530.0 324.9 621.6 Space Test Program (STP) - 44.7 - 46.5 - 47.6 - 47.9 Space Radar (SR) System (b) (b) (b) (b) (b) (b) (b) (b) Spacelift Range System 99.1 13.3 74.4 11.0 31.0 9.9 125.9 9.9 Titan Space Boosters ------TSAT - 428.6 ------Wideband Gapfiller Satellite 51.6 29.5 212.4 67.2 575.7 36.1 468.7 12.8

ARMY NAVSTAR GPS $94.2$ - $148.2$ - $45.7 $ - $29.6$ -

NAVY MUOS $342.9 $500.0 $509.9 $398.3 $505.7 $405.7 $238.2 $244.7 Satellite Communications 108.2 625.2 47.4 481.8 28.7 422.3 25.6 263.7

Source: Department of Defense: Program Acquisition Costs by Weapon System, Procurement Programs (P-1) , and RDT&E Programs (R-1) . a. The amounts listed for Procurement and RDT&E represent the combined value of the base budget amounts and the amounts allocated in the Overseas Contingency Operations budget request. b. Classified funding. E. Estimate. Key: AEHF = Advanced Extremely High Frequency DMSP = Defense Meteorological Satellite Program DSCS = Defense Satellite Communications System EELV = Evolved Expendable Launch Vehicle GPS = Global Positioning System MUOS = Mobile User Objective System NPOESS = National Polar-orbiting Operational Environmental Satellite System NUDET = Nuclear Detonation SBIRS = Space-Based InfraRed System TSAT = Transformational Satellite Communications System Appendix 231

ORDERS AND BACKLOG OF COMMERCIALa GEOSYNCHRONOUS SATELLITES BY MANUFACTURERb Calendar Years 2007–2010

2007 2008 2009 2010

ORDERS

Estimated Valuec (millions) $2,585 $3,631 $5,725 $4,800 Number of Satellites—TOTAL 21 19 39 28 Thales Alenia Space 2 3 4 3 Boeing Satellite Systems - 1 4 6 Chinese Academy of Space Tech. - 1 3 2 EADS Astrium 7 2 7 3 Israel Aircraft Industries 1 - - - Khrunichev - - - - LMCSS 1 2 1 1 MDA - - 1 - Mitsubishi - 1 - - OHB Sciences - - 1 - Orbital Sciences 5 3 5 3 Reshetnev - - 5 4 Space Systems Loral 5 6 8 6

BACKLOGd

Estimated Valuec (millions) $10,890 $13,102 $13,673 $12,873 Number of Satellites—TOTAL 98 68 82 82 Thales Alenia Space 20 8 8 7 Boeing Satellite Systems 10 4 6 9 Chinese Academy of Space Tech. 1 1 4 5 EADS Astrium 20 11 17 15 Israel Aircraft Industries 1 1 1 1 Khrunichev 4 3 2 2 LMCSS 8 3 3 3 MDA - - 1 1 Mitsubishi - 1 1 1 OHB Sciences - - 1 1 Orbital Sciences 10 11 11 10 Reshetnev Company 3 3 6 9 RSC Energia - 2 - - Space Systems Loral 21 20 21 18

Source: Futron Corporation. a. Satellites primary used for commercial service. b. Excludes canceled orders and orders on hold, without firm funding or business commitment, or with extended construction delay. c. Estimated using best available public information; where not available, Futron estimates used. d. Includes satellites on order during year. 232 Aerospace Industry Report 2011

ORDERS AND BACKLOG OF COMMERCIAL LAUNCH CONTRACTS BY PROVIDER-COUNTRY Calendar Years 2007–2010

2007 2008 2009 2010

ORDERSa

Total: 48 57 41 49 China 1 1 2 2 India - - - - Japan 1 2 - - Russia 17 4 11 11 United States 6 31 15 20 Europe 21 13 13 14 Other multinationalb 2 6 - 2

BACKLOGa,c

Total: 189 191 144 148 China 10 5 15 19 India 12 8 4 5 Japan 4 11 6 6 Russia 22 20 53 55 United States 78 99 35 36 Europe 43 42 23 24 Other multinationalb 20 6 8 3

Source: Futron Corporation. a. Includes announced government payloads. b. Sea Launch and Land Launch. c. Backlog total at end of calendar year. Appendix 233

Air Transportation

OPERATING REVENUES AND EXPENSES OF U.S. AIR CARRIERSa DOMESTIC AND INTERNATIONAL OPERATIONS Calendar Years 1985–2009 (Millions of Dollars)

TOTAL Domestic Operations International Operations

Oper- Oper- Oper- Oper- Oper- Oper- Oper- Oper- Oper- Year ating ating ating ating ating ating ating ating ating Profit Profit Profit Reve- Expen- Reve- Expen- Reve- Expen- (or (or (or nues ses nues ses nues ses Loss) Loss) Loss)

1985 $45,931 $44,595 $1,337 $37,629 $36,611 $1,018 $8,302 $7,984 $319 1986 49,622 48,442 1,223 41,001 39,984 1,060 8,621 8,458 163 1987 56,583 54,151 2,431 45,658 43,925 1,733 10,925 10,226 698 1988 63,589 60,142 3,446 50,187 47,739 2,448 13,402 12,403 998 1989 69,225 67,413 1,812 54,314 52,460 1,855 14,911 14,954 (43) 1990 75,984 77,898 (1,913) 57,994 58,983 (989) 17,990 18,914 (924) 1991 75,158 76,943 (1,785) 56,230 56,758 (528) 18,928 20,185 (1,257) 1992 78,140 80,585 (2,444) 57,654 58,801 (1,147) 20,486 21,784 (1,298) 1993 84,559 83,121 1,438 63,233 61,157 2,076 21,326 21,964 (637) 1994 88,313 85,600 2,713 65,949 63,758 2,191 22,364 21,842 522 1995 94,318 88,455 5,863 70,885 66,120 4,765 23,433 22,335 1,098 1996 101,937 95,728 6,209 76,891 71,573 5,317 25,047 24,155 892 1997 109,568 100,981 8,587 82,250 75,731 6,518 27,318 25,250 2,068 1998 113,465 104,137 9,328 86,494 78,389 8,105 26,971 25,749 1,223 1999 119,038 110,635 8,403 90,931 84,328 6,603 28,107 26,307 1,800 2000 130,299 123,314 6,985 98,896 93,579 5,317 31,403 29,736 1,668 2001 115,227 125,550 (10,323) 86,511 94,892 (8,380) 28,716 30,658 (1,943) 2002 106,702 115,260 (8,557) 79,220 86,697 (7,476) 27,482 28,563 (1,081) 2003 117,728 119,824 (2,096) 88,830 91,484 (2,654) 28,898 28,340 558 2004 134,296 135,778 (1,482) 100,811 104,353 (3,542) 33,486 31,425 2,061 2005 151,255 150,828 427 111,730 113,764 (2,034) 39,524 37,064 2,461 2006 164,913 157,400 7,513 120,330 116,188 4,142 44,583 41,212 3,371 2007 174,696 165,353 9,344 124,869 120,471 4,398 49,827 44,881 4,946 2008 185,081 188,422 (3,341) 128,722 132,319 (3,597) 56,359 56,103 256 2009 154,156 151,843 2,313 108,787 107,578 1,208 45,369 44,265 1,105

Source: Department of Transportation, Office of Airline Information, Air Carrier Financial Statistics Quarterly. a. Scheduled and non-scheduled service for all certificated route air carriers. Excludes supplemental air carriers, commuters, and air taxis. 234 Aerospace Industry Report 2011

SOURCES OF OPERATING REVENUES OF U.S. AIR CARRIERSa DOMESTIC AND INTERNATIONAL OPERATIONS Calendar Years 1995–2009 (Millions of Dollars)

Freightb Passenger Excess c Year TOTAL b Mail & Air Other Service Baggage Express DOMESTIC OPERATIONS

1995 $70,885 $53,971 $1,050 $6,546 $92 $9,227 1996 76,891 59,381 1,024 7,029 94 9,362 1997 82,250 62,549 1,087 7,497 99 11,017 1998 86,494 64,847 1,423 7,711 105 12,408 1999 90,931 67,777 1,475 8,053 118 13,509 2000 98,896 74,744 1,688 8,804 123 13,537 2001 86,511 64,324 824 8,170 111 13,082 2002 79,220 57,871 431 8,148 132 12,638 2003 88,830 62,442 545 8,983 201 16,660 2004 100,811 67,284 443 10,691 219 22,173 2005 111,730 72,142 318 12,530 263 26,476 2006 120,330 77,092 405 13,514 341 28,979 2007 124,869 80,113 269 14,344 358 29,786 2008 128,722 80,900 308 14,281 902 32,330 2009 108,787 66,914 259 10,543 2,322 28,749

INTERNATIONAL OPERATIONS

1995 $23,433 $16,788 $216 $3,994 $48 $2,387 1996 25,047 17,337 255 4,664 47 2,743 1997 27,318 18,320 275 5,156 56 3,511 1998 26,971 17,667 285 5,278 50 3,692 1999 28,107 18,011 264 5,921 46 3,865 2000 31,403 20,419 283 6,566 47 4,089 2001 28,716 18,227 240 6,444 42 3,763 2002 27,482 17,105 228 7,127 48 2,975 2003 28,898 17,253 358 8,206 58 3,023 2004 33,486 20,788 257 8,851 67 3,522 2005 39,524 23,891 405 10,651 79 4,499 2006 44,583 26,502 528 11,810 100 5,641 2007 49,827 29,810 439 12,493 107 6,978 2008 56,359 33,959 492 13,761 247 7,900 2009 45,369 27,483 376 9,734 405 7,372

Source: Department of Transportation, Office of Airline Information, Air Carrier Financial Statistics Quarterly. Note: Totals may not equal sum of terms due to rounding. a. Scheduled and non-scheduled service for all certificated route air carriers. Excludes supplemental air carriers, commuters, and air taxis. b. Scheduled and charter. c. Includes subsidy, reservation cancellation fees, miscellaneous operating revenues, and other transport-related revenues. Appendix 235

OPERATING EXPENSES OF U.S. AIR CARRIERSa DOMESTIC AND INTERNATIONAL OPERATIONS Calendar Years 1995–2009 (Millions of Dollars)

Aircraft & Depre- Flying Passen- Promo- Main- Traffic ciation & Year TOTAL Oper- ger tion and Otherb tenance Ser- Amorti- ations Service Sales vicing zation

DOMESTIC OPERATIONS

1995 $66,120 $18,926 $7,656 $5,281 $11,103 $9,974 $3,762 $9,417 1996 71,573 21,515 8,292 5,577 11,569 10,414 3,878 10,328 1997 75,731 22,156 9,475 5,854 12,058 10,780 3,940 11,469 1998 78,389 21,044 10,311 6,252 12,699 10,743 4,144 13,195 1999 84,328 22,820 11,161 6,763 13,796 10,760 4,657 14,372 2000 93,579 28,565 12,062 7,355 14,827 10,089 5,122 15,558 2001 94,892 27,908 12,113 7,219 15,390 8,949 6,230 17,081 2002 86,697 25,924 11,069 7,049 14,853 6,703 4,989 16,109 2003 91,484 28,339 10,369 6,499 15,245 6,299 5,028 19,704 2004 104,353 34,016 11,071 6,604 15,580 6,372 5,096 25,614 2005 113,764 39,805 11,466 6,317 15,671 6,369 5,038 29,099 2006 116,188 42,727 11,609 5,798 15,469 6,113 5,056 29,417 2007 120,471 44,507 12,395 5,909 16,193 6,145 5,190 30,133 2008 132,319 53,094 12,260 5,702 15,938 5,637 5,299 34,389 2009 107,578 35,848 11,478 5,778 15,206 5,358 5,273 28,637

INTERNATIONAL OPERATIONS

1995 $22,335 $6,181 $2,273 $2,467 $3,748 $3,527 $1,106 $3,033 1996 24,155 7,279 2,616 2,596 3,736 3,354 1,483 3,091 1997 25,250 7,462 2,899 2,736 3,823 3,476 1,281 3,571 1998 25,749 7,158 2,955 2,920 3,978 3,374 1,438 3,926 1999 26,307 7,472 2,902 3,067 4,207 3,201 1,614 3,845 2000 29,736 9,504 3,093 3,211 4,565 3,282 1,751 4,329 2001 30,658 9,652 3,196 3,254 4,599 2,828 2,168 4,960 2002 28,563 9,202 3,125 3,090 4,573 2,233 1,923 4,417 2003 28,340 9,805 3,294 2,741 4,456 1,959 1,748 4,337 2004 31,425 11,579 3,438 2,911 4,961 2,225 1,799 4,512 2005 37,064 15,172 3,994 3,006 5,613 2,281 1,734 5,264 2006 41,212 17,066 4,287 2,960 5,852 2,305 1,875 6,867 2007 44,881 18,444 4,463 3,049 6,193 2,414 1,988 8,331 2008 56,103 25,935 4,540 3,295 6,706 2,872 2,308 10,447 2009 44,265 17,075 4,448 3,064 6,209 2,205 2,264 9,001

Source: Department of Transportation, Office of Airline Information, Air Carrier Financial Statistics Quarterly. Note: Totals may not equal sum of terms due to rounding. a. Scheduled and non-scheduled service for all certificated route air carriers. Excludes supplemental air carriers, commuters, and air taxis. b. General and administrative, and other transport-related expenses. 236 Aerospace Industry Report 2011

TOTAL ASSETS AND INVESTMENT IN EQUIPMENT BY U.S. AIR CARRIERS Calendar Years 1980–2009 (Millions of Dollars)

Equals: Value of Less: Net Value Net Value Value of Ground Total Reserves for of Owned as a Year Flight Property & Assets Depreciation Operating Percent of Equipment Equipment & Overhaul Property & Total Assets & Othera Equipment

1980 $28,900 $20,859 $4,682 $10,309 $15,233 52.7% 1981 30,513 22,375 5,175 11,028 16,521 54.1 1982 31,525 23,786 5,424 11,405 17,804 56.5 1983 35,213 26,588 6,191 12,910 19,868 56.4 1984 36,769 28,509 6,061 14,043 20,527 55.8 1985 40,978 30,402 6,772 15,467 21,707 53.0 1986 47,105 31,750 8,468 14,764 25,454 54.0 1987 51,436 33,177 9,223 15,580 26,820 52.1 1988 56,047 35,781 10,248 17,450 28,579 51.0 1989 62,454 38,812 11,903 19,018 31,697 50.8 1990 67,769 40,215 13,523 20,593 33,144 48.9 1991 70,332 42,897 14,285 22,009 35,173 50.0 1992 75,426 48,563 15,219 24,445 39,337 52.2 1993 82,399 51,513 15,438 24,949 42,003 51.0 1994 84,442 51,951 15,844 26,476 41,319 48.9 1995 89,782 56,018 16,804 29,056 43,766 48.7 1996 95,184 59,206 16,661 30,029 45,838 48.2 1997 105,226 66,523 17,643 32,789 51,377 48.8 1998 118,308 75,385 19,980 35,992 59,373 50.2 1999 133,711 86,269 21,826 39,060 69,035 51.6 2000 146,300 98,404 22,095 41,880 78,620 53.7 2001 158,516 103,508 23,092 42,666 83,934 52.9 2002 158,186 106,297 24,224 44,366 86,155 54.5 2003 166,899 109,429 23,451 44,577 88,303 52.9 2004 165,116 115,006 24,320 48,468 90,858 55.0 2005 167,830 115,582 25,987 51,620 89,950 53.6 2006 178,070 115,926 23,391 48,188 91,129 51.2 2007 207,447 112,833 21,332 38,913 95,252 45.9 2008 183,841 115,211 21,637 39,639 97,208 52.9 2009 186,296 117,291 24,304 43,732 97,863 52.5

Source: Department of Transportation, Office of Airline Information, Air Carrier Financial Statistics Quarterly. a. Includes land and construction in progress. Appendix 237

TRAFFIC STATISTICS: WORLD AIRLINE SCHEDULED SERVICEa Calendar Years 1981–2010

Passen- Ton-Miles Performed Seat- Passen- Passen- Freight ger- Miles ger Year gers Tons Miles Avail- Load b Carried Carried Per- Total Freight Mail able Factor formed

(Millions) (Billions) (Percent) (Billions)

1981 752 12.0 695 1,092 64 92.81 21.15 2.60 1982 766 12.8 710 1,115 64 94.84 21.60 2.65 1983 798 13.5 739 1,151 64 100.28 24.05 2.74 1984 848 14.8 794 1,226 65 109.05 27.17 2.95 1985 899 15.1 850 1,293 66 114.86 27.29 3.01 1986 960 16.2 902 1,389 65 122.47 29.58 3.11 1987 1,028 17.7 988 1,471 67 134.57 33.10 3.22 1988 1,082 19.0 1,060 1,568 68 145.29 36.48 3.31 1989 1,109 19.9 1,102 1,621 68 152.73 39.14 3.46 1990 1,165 20.3 1,177 1,740 68 161.12 40.27 3.65 1991 1,135 19.3 1,147 1,727 66 158.04 40.11 3.48 1992 1,146 19.5 1,199 1,821 66 165.86 42.90 3.51 1993 1,142 19.9 1,211 1,873 65 171.67 46.88 3.58 1994 1,233 22.6 1,305 1,969 66 187.29 52.89 3.71 1995 1,304 24.5 1,397 2,087 67 201.34 56.94 3.86 1996 1,391 25.6 1,511 2,215 68 217.24 61.10 3.97 1997 1,457 29.1 1,599 2,316 69 235.75 70.47 4.10 1998 1,471 29.2 1,633 2,385 68 238.77 69.74 3.95 1999 1,562 31.0 1,739 2,517 69 253.72 74.43 3.92 2000 1,672 33.5 1,888 2,663 71 276.69 80.88 4.14 2001 1,640 31.7 1,833 2,655 69 265.86 75.89 3.64 2002 1,639 34.6 1,842 2,589 71 272.01 82.08 3.13 2003 1,691 36.9 1,876 2,627 71 279.23 86.14 3.10 2004 1,888 40.5 2,141 2,924 73 314.33 95.23 3.14 2005 2,022 41.4 2,313 3,092 75 334.16 97.62 3.19 2006 2,127 44.1 2454 3,241 76 355.10 104.07 3.10 2007 2,303 46.3 2643 3,445 77 376.73 108.94 3.08 2008 2,293 44.9 2688 3,546 76 380.36 107.54 3.28 2009 2,277 41.7 2638 3,472 76 363.88 96.31 3.00

Source: International Civil Aviation Organization (ICAO). a. Includes international and domestic traffic on scheduled service performed by the airlines of the 189 states that were members of ICAO in 2008. b. Passengers and baggage, and freight and mail. 238 Aerospace Industry Report 2011

PASSENGER STATISTICS: U.S. AIR CARRIER SCHEDULED SERVICE, DOMESTIC AND INTERNATIONAL OPERATIONS Calendar Years 1994–2008

Revenue Average Revenue Available Revenue Passenger Passenger Passenger Year Seat Miles Passenger Enplanements Trip-Length Miles (Millions) Load Factora (Thousands) (Miles) (Millions)

DOMESTIC OPERATIONS

1994 481,755 787 378,990 585,438 64.7% 1995 499,000 791 394,708 603,917 65.4 1996 530,708 802 425,596 626,389 67.9 1997 542,001 817 442,640 640,319 69.1 1998 559,653 812 454,430 649,362 70.0 1999 582,880 824 480,134 687,502 69.8 2000 610,601 833 508,403 714,454 71.2 2001 570,125 843 480,348 695,200 69.1 2002 560,107 850 476,004 676,949 70.3 2003 589,135 848 499,632 687,850 72.6 2004 640,698 862 551,937 741,677 74.4 2005 670,418 865 579,690 752,482 77.0 2006 671,796 871 585,391 740,909 79.0 2007 693,374 871 604,215 757,604 79.8 2008 664,714 873 580,468 729,073 79.6

INTERNATIONAL OPERATIONS

1994 47,093 2,981 140,391 198,893 70.6% 1995 48,773 2,992 145,948 203,160 71.8 1996 50,526 3,029 153,067 208,682 73.3 1997 52,724 3,049 160,779 216,913 74.1 1998 53,232 3,074 163,656 224,728 72.8 1999 53,079 3,239 171,913 230,917 74.4 2000 55,549 3,319 184,354 242,496 76.0 2001 52,003 3,295 171,352 235,311 72.8 2002 52,769 3,129 165,098 215,606 76.6 2003 53,863 2,908 156,638 204,755 76.5 2004 62,222 2,921 181,743 229,788 79.1 2005 68,210 2,922 199,324 250,854 79.5 2006 72,445 2,918 211,405 264,625 79.9 2007 75,996 2,959 224,866 279,574 80.4 2008 76,735 3,010 230,939 291,032 79.4

Source: Department of Transportation, Office of Airline Information, Air Carrier Traffic Statistics Monthly. a. Revenue passenger miles as a percent of available seat miles. Appendix 239

AIR CARGO STATISTICS: U.S. COMMERCIAL AIR CARRIERS Fiscal Years 1982–2011 (Millions of Revenue-Ton-Miles)

Freight / Express / Mail Year Total Domestic Internationala

1982 6,895 3,847 3,048 1983 7,715 4,539 3,177 1984 8,857 5,228 3,629 1985 8,653 4,994 3,659 1986 10,311 5,989 4,322 1987 12,130 7,010 5,119 1988 14,136 8,075 6,061 1989 15,954 8,821 7,133 1990 16,229 8,987 7,242 1991 16,327 8,913 7,414 1992 16,793 9,474 7,319 1993 18,420 10,374 8,046 1994 20,790 11,323 9,467 1995 23,228 12,416 10,812 1996 24,217 12,782 11,435 1997 26,954 13,455 13,499 1998 28,347 13,830 14,517 1999 28,102 13,975 14,127 2000 30,057 14,699 15,358 2001 28,485 13,938 14,547 2002 27,763 12,967 14,796 2003 33,514 14,972 18,542 2004 36,463 16,341 20,122 2005 39,219 16,090 23,129 2006 39,669 15,711 23,959 2007 40,032 15,818 24,214 2008 39,025 14,411 24,614 2009 31,005 11,900 19,105 2010(E) 35,885 12,848 23,037 2011(F) 37,903 13,385 24,518

Source: Federal Aviation Administration, Office of Aviation Policy & Plans. a. Beginning in 2003, includes contract service by U.S. carriers for foreign carriers. E. Estimate. F. Forecast. 240 Aerospace Industry Report 2011

JET FUEL COSTS AND CONSUMPTION BY U.S. AIR CARRIERSa Calendar Years 1981–2010

Total Jet Cost of Fuel Gallons Cost Fuel Cost Cost Index as Percent of Year Consumed Per Gallon (Millions of (2000=100) Cash Operating (Millions) (Cents) Dollars) Expenses

1981 10,494.2 9,838.7 106.7 143.7 29.6 1982 9,695.9 9,737.4 99.6 134.1 27.2 1983 9,006.7 10,225.3 88.1 118.7 24.5 1984 9,324.1 11,182.5 83.4 112.3 23.4 1985 9,352.7 10,324.9 90.6 122.0 21.7 1986 7,054.9 10,722.0 65.8 88.6 15.9 1987 7,607.5 11,542.2 65.9 88.8 15.5 1988 7,551.6 12,059.4 62.6 84.4 14.0 1989 8,572.7 14,255.4 60.1 81.0 14.4 1990 11,744.9 15,522.0 75.7 101.9 16.9 1991 9,689.9 14,340.1 67.6 91.0 14.2 1992 8,840.5 14,970.2 59.1 79.6 12.3 1993 8,583.4 14,666.2 58.5 78.8 11.8 1994 8,276.2 15,626.3 53.0 71.3 11.2 1995 8,503.6 16,105.1 52.8 71.1 11.3 1996 10,432.1 16,592.2 62.9 84.7 12.8 1997 10,402.1 16,900.8 61.5 82.9 12.4 1998 8,376.1 17,274.9 48.5 65.3 9.7 1999 9,078.2 17,409.8 52.1 70.2 9.9 2000 14,227.0 19,165.2 74.2 100.0 14.2 2001 13,220.4 19,371.3 68.2 98.6 12.8 2002 11,036.6 15,841.1 69.7 89.9 11.7 2003 13,070.5 15,487.0 84.4 107.9 13.4 2004 18,990.0 16,928.3 112.2 144.1 17.0 2005 27,293.2 17,099.5 159.6 206.6 22.5 2006 31,989.3 16,486.8 194.0 242.8 25.0 2007 34,022.7 16,760.5 203.0 258.0 25.8 2008 46,876.2 16,157.0 290.1 379.4 31.5 2009 32,290.0 17,023.4 189.7 233.6 22.4 2010 38,782.0 17,284.7 224.4 NA NA

Source: Air Transport Association of America, Airline Cost Index. a. Majors and Nationals. NA. Not available. Appendix 241

U.S. GENERAL AVIATION: TYPE OF AIRCRAFT AND HOURS FLOWNa Calendar Years 2005–2009

2005 2006 2007 2008 2009 NUMBER OF ACTIVE AIRCRAFT BY TYPE (Thousands)

All Aircraft: 224.4 221.9 231.6 228.7 223.9 Fixed-Wing: 185.4 182.2 186.8 183.0 177.4 Piston: 167.6 163.7 166.9 163.0 157.1 Single-Engine 148.1 145.0 147.6 148.5 140.6 Twin-Engine 19.4 18.7 19.3 17.5 16.5 Other 0.1 NA NA NA NA Turboprop: 7.9 8.1 9.5 8.9 9.1 Twin-Engine 5.3 5.5 5.5 5.5 5.1 Other 2.6 2.6 4.1 3.5 4.0 Turbojet: 9.8 10.4 10.4 11.0 11.3 Twin-Engine 9.1 10.4 NA NA NA Other 0.7 NA NA NA NA Rotorcraft: 8.7 9.2 9.6 9.9 10.0 Piston 3.0 3.3 2.8 3.5 3.5 Turbine 5.7 5.9 6.8 6.4 6.5 Balloons, Dirigibles, and Gliders 6.5 6.3 5.9 5.7 5.5 Experimental 23.6 23.0 23.2 23.4 24.4 Light-sport 0.2 1.3 6.1 6.8 6.5

HOURS FLOWN BY TYPE OF AIRCRAFT (Thousands)

All Aircraft: 26,982 27,705 27,852 26,009 23,763 Fixed-Wing: Piston 16,433 16,526 16,257 15,074 13,634 Turboprop 2,106 2,162 2,661 2,457 2,215 Turbojet 3,771 4,077 3,938 3,600 3,161 Rotorcraft: Piston 617 918 704 751 755 Turbine 2,439 2,528 2,541 2,470 2,248 Balloons, Dirigibles, and Gliders 267 211 215 209 178 Experimental 1,339 1,218 1,275 1,155 1,286 Light-sport 9 66 260 293 286

AVERAGE HOURS FLOWN ANNUALLY BY TYPE

All Aircraft: 120.3 124.8 120.3 113.7 106.1 Fixed-Wing: Piston 98.1 100.9 97.4 92.5 86.8 Turboprop 265.2 268.2 279.7 275.8 244.6 Turbojet 383.9 392.8 379.2 326.0 280.5 Rotorcraft: Piston 202.9 281.2 254.4 214.8 215.8 Turbine 428.8 428.8 373.8 387.3 346.7 Balloons, Dirigibles, and Gliders 41.4 33.6 36.2 36.9 32.5 Experimental 56.7 52.8 54.9 49.5 52.7 Light-sport 54.7 51.7 42.8 43.0 43.6

Source: Federal Aviation Administration. a. Excludes commuters. NA. Not available. 242 Aerospace Industry Report 2011

U.S. GENERAL AVIATION ACTIVE AIRCRAFT AND HOURS FLOWN BY PRIMARY USE Calendar Years 2005–2009

Primary Use 2005 2006 2007 2008 2009 ACTIVE AIRCRAFT AS OF END-OF-YEAR (Thousands)

TOTAL 224.2 221.9 231.8 228.7 223.9 Executive 10.6 11.1 10.9 11.7 10.5 Business 25.5 24.4 25.0 22.4 22.4 Air Taxia 6.9 7.4 7.9 6.9 7.0 Instructional 13.4 14.3 14.7 15.0 14.1 Personal 151.4 149.0 152.5 154.4 152.3 Aerial Application 3.5 3.4 4.2 3.1 3.2 Aerial Observation 4.7 4.4 5.2 5.3 5.3 Aerial Other 0.8 0.8 1.4 1.0 0.8 Sight Seeing 0.9 0.9 1.3 0.7 0.8 Air Tours 0.6 0.4 0.9 0.4 0.4 External Load 0.2 0.2 0.2 0.4 0.2 Medical 1.4 1.7 0.9 1.6 1.7 Other Work 0.7 0.7 0.9 0.9 1.2 Other 3.6 3.2 5.8 4.8 4.0

HOURS FLOWN (Thousands)

TOTAL 26,981 27,706 27,851 26,009 23,763 Executive 3,072 3,114 3,214 3,092 2,444 Business 3,244 3,234 3,094 2,505 2,532 Air Taxi(a) 2,857 2,746 3,113 2,371 2,198 Instructional 3,635 4,322 3,804 4,427 3,440 Personal 9,266 9,141 8,676 8,279 8,540 Aerial Application 1,031 946 1,415 922 960 Aerial Observation 1,265 1,197 1,364 1,427 1,211 Aerial Other 148 241 371 266 162 Sight Seeing 191 171 160 152 119 Air Tours 352 295 508 271 223 Medical 716 816 530 671 654 External Load 134 136 152 153 88 Other Work 176 198 145 317 222 Other 894 1,149 1,305 1,154 970

Source: Federal Aviation Administration, General Aviation and Air Taxi Activity Survey. a. Air taxis under 12,500 pounds. NA. Not available. Appendix 243

U.S. LANDING FACILITIES BY STATE AND BY TYPE As of December 30, 2010

State TOTAL Public Private Military State TOTAL Public Private Military Alabama 281 97 173 11 Nevada 124 49 70 5 Alaska 736 408 309 19 New Hampshire 141 25 116 - Arizona 302 78 216 8 New Jersey 311 46 258 7 Arkansas 301 99 199 3 New Mexico 177 62 110 5 California 965 255 682 28 New York 597 140 456 1 Colorado 451 76 370 5 North Carolina 430 113 306 11 Connecticut 141 23 118 - North Dakota 281 89 190 2 Delaware 41 11 29 1 Ohio 728 168 559 1 Dist. Of Col. 20 3 13 4 Oklahoma 387 140 241 6 Florida 850 128 696 26 Oregon 418 97 321 - Georgia 456 109 337 10 Pennsylvania 801 130 664 7 Hawaii 51 14 31 6 Rhode Island 31 8 16 - Idaho 281 120 160 1 South Carolina 192 68 119 5 Illinois 774 111 662 1 South Dakota 179 75 103 1 Indiana 583 106 472 5 Tennessee 316 79 235 2 Iowa 287 121 163 3 Texas 2,004 395 1,587 22 Kansas 383 141 240 2 Utah 140 47 90 3 Kentucky 222 60 179 2 Vermont 83 16 67 - Louisiana 467 75 388 4 Virginia 426 66 342 18 Maine 176 68 107 1 Washington 546 136 401 9 Maryland 222 37 178 7 West Virginia 121 35 85 1 Massachusetts 239 40 198 1 Wisconsin 553 133 418 2 Michigan 462 227 234 1 Wyoming 119 41 78 - Minnesota 465 154 310 1 Total - 50 States 19,537 5,142 14,124 271 Mississippi 238 80 152 6 Puerto Rico 53 12 40 1 Missouri 516 132 381 3 Virgin Islands 8 2 6 - Montana 267 126 139 2 S. Pacific(b) 21 10 9 2 Nebraska 243 85 156 2 TOTAL 19,619 5,166 14,179 274

FACILITIES BY CLASS

CLASS TOTAL Publica Private Military Airports 13,473 4,894 8,385 194 Heliports 5,650 67 5,503 80 Seaplane Bases 496 205 291 - Stolports - - - - TOTAL 19,619 5,166 14,179 274

Source: Federal Aviation Administration. a. “Public” refers to use, whether publicly or privately owned. b. American Samoa, Guam, and Trust Territories. 244 Aerospace Industry Report 2011

R&D

FEDERAL OUTLAYS FOR CONDUCT OF RESEARCH AND DEVELOPMENT Fiscal Years 1997–2012 (Millions of Dollars)

Year Total DoD NASA Energya Otherb

Current Dollars

1997 $71,073 $37,702 $8,137 $5,819 $19,415 1998 72,803 37,558 8,631 5,971 20,643 1999 74,136 37,571 8,316 6,077 22,172 2000 73,947 38,279 5,411 6,282 23,975 2001 80,089 41,157 5,611 6,613 26,708 2002 87,911 44,903 5,816 6,830 30,362 2003 101,440 53,778 6,002 7,355 34,305 2004 113,379 61,510 8,037 7,923 35,909 2005 119,846 66,467 6,880 8,260 38,239 2006 122,795 69,323 6,807 7,842 38,823 2007 129,689 73,716 8,508 7,725 39,740 2008 134,942 75,783 10,245 8,029 40,885 2009 139,829 79,708 9,160 8,403 42,558 2010 142,518 77,591 7,962 10,494 46,471 2011(E) 147,277 81,099 6,694 11,237 48,247 2012(E) 149,139 78,899 8,724 12,674 48,842

Constant Dollars c

1997 $83,665 $44,381 $9,579 $6,850 $22,855 1998 84,625 43,657 10,033 6,941 23,995 1999 85,048 43,101 9,540 6,971 25,435 2000 83,189 43,063 6,087 7,067 26,972 2001 88,020 45,232 6,167 7,268 29,353 2002 95,049 48,549 6,288 7,385 32,827 2003 107,435 56,956 6,357 7,790 36,332 2004 117,079 63,517 8,299 8,182 37,081 2005 119,846 66,467 6,880 8,260 38,239 2006 118,734 67,031 6,582 7,583 37,539 2007 121,728 69,191 7,986 7,251 37,301 2008 123,823 69,538 9,401 7,367 37,516 2009 126,622 72,180 8,295 7,609 38,538 2010 128,083 69,732 7,156 9,431 41,764 2011(E) 130,623 71,928 5,937 9,966 42,791 2012(E) 130,457 69,016 7,631 11,086 42,724

Source: Office of Management and Budget, The Budget of the United States Government. a. Includes defense and nondefense-related atomic energy R&D with nondefense energy R&D. b. Includes but not limited to NSF, National Institutes of Health, DoT, and Agriculture. c. Based on Fiscal Year GDP deflator (2005=100). E. Estimate. Appendix 245

FUNDS FOR INDUSTRIAL RESEARCH AND DEVELOPMENT IN ALL INDUSTRIES AND THE AEROSPACE INDUSTRY BY FUNDING SOURCE Calendar Years 1993–2007 (Millions of Dollars)

All Industriesa Aerospace Industryb Aerospace Aerospace Year Federal Company Aerospace Total Federal Company Funds Fundsc Total Funds Funds Current Dollars 1993 $117,400 $22,809 $94,591 $15,056 $9,372 $5,684 1994 119,595 22,463 97,131 14,260 8,794 5,466 1995 132,103 23,451 108,652 16,951 11,462 5,489 1996 144,667 23,653 121,015 16,224 10,515 5,710 1997 157,539 23,928 133,611 17,865 10,904 6,961 1998 169,180 24,164 145,016 16,359 9,838 6,521 1999 184,129 22,535 161,594 14,425 9,117 5,309 2000 201,962 19,118 182,844 10,319 6,424 3,895 2001 202,017 16,899 185,118 7,868 3,785 4,083 2002 193,868 16,401 177,467 9,654 4,306 5,349 2003 200,724 17,798 182,926 15,731 7,528 8,203 2004 208,301 20,266 188,035 13,086 3,862 9,224 2005 226,159 21,909 204,250 15,004 4,076 10,928 2006 247,669 24,304 223,365 16,367 4,372 11,995 2007 269,267 26,585 242,682 18,436 5,040 13,397

Constant Dollars d 1993 $132,835 $25,808 $107,028 $17,036 $10,604 $6,431 1994 132,471 24,881 107,589 15,795 9,741 6,054 1995 143,310 25,440 117,869 18,389 12,434 5,955 1996 153,983 25,176 128,808 17,269 11,192 6,078 1997 164,807 25,032 139,775 18,689 11,407 7,282 1998 174,863 24,976 149,887 16,909 10,168 6,740 1999 187,848 22,990 164,858 14,716 9,301 5,416 2000 201,962 19,118 182,844 10,319 6,424 3,895 2001 197,359 16,509 180,850 7,687 3,698 3,989 2002 185,840 15,722 170,118 9,254 4,128 5,127 2003 188,597 16,722 171,874 14,781 7,073 7,707 2004 190,752 18,559 172,193 11,984 3,537 8,447 2005 200,673 19,440 181,233 13,313 3,617 9,697 2006 212,555 20,858 191,697 14,047 3,752 10,294 2007 224,933 22,208 202,725 15,401 4,210 11,191

Source: National Science Foundation, Annual Survey of Industrial Research and Development. a. Includes all manufacturing industries, plus those non-manufacturing industries known to conduct or finance research and development. b. Companies classified in NAICS code 3364, having as their principal activity the manufacture of aerospace products and parts. Prior to 1999, data categorized using SIC system and reported combining codes 372 and 376. c. Company funds include all funds for industrial R&D work performed within company facilities except funds provided by the Federal Government. Excluded are company-financed R&D contracted to outside organizations such as research institutions, universities and colleges, or other non-profit organizations. d. Based on GDP deflator (2000=100). 246 Aerospace Industry Report 2011

FUNDS FOR INDUSTRIAL RESEARCH AND DEVELOPMENT IN THE AEROSPACE INDUSTRY BY TYPE OF RESEARCH AND FUNDING SOURCE Calendar Years 1975–2007 (Millions of Dollars)

Basic Research Applied Research Development

Com- Com- Com- Year Total Federal Federal Federal Total pany Total pany Total pany Funds Funds Funds Funds Funds Funds

1975 $5,713 $54 $17 $37 $614 $381 $233 $5,044 $4,119 $925 1976 6,339 54 21 33 666 365 301 5,619 4,521 1,098 1977 7,033 56 25 31 753 419 334 6,223 5,017 1,206 1979(a) 8,041 86 44 42 880 499 381 7,076 5,314 1,762 1981(a) 11,968 131 60 71 1,484 897 587 10,353 7,738 2,615 1983 13,853 146 (D) (D) 3,466 (D) (D) 10,241 7,668 2,573 1984 16,033 247 (D) (D) 3,067 (D) (D) 12,718 9,870 2,848 1985 17,619 304 162 142 3,785 2,776 1,009 13,530 10,483 3,047 1986 21,050 311 208 103 3,198 1,571 1,627 17,541 13,205 4,336 1987 24,488 425 335 90 2,949 1,709 1,239 21,115 16,475 4,640 1988 25,900 366 263 104 2,997 1,915 1,082 22,537 17,700 4,838 1989 25,638 668 553 116 3,081 2,113 968 21,889 16,967 4,921 1990 25,356 658 519 139 3,340 1,931 1,409 21,358 16,766 4,592 1991 16,983 364 302 62 2,091 1,105 986 14,528 10,043(b) 4,485 1992 17,158 270 235 35 1,739 976 763 15,148 9,076 6,072 1993 15,056 (D) (D) (D) 1,453 825 628 (D) (D) (D) 1994 14,260 (D) (D) (D) (D) (D) (D) 12,787 7,978 4,809 1995 16,951 252 250 2 1,987 564 1,423 14,712 10,648 4,064 1996 16,224 (D) (D) 108 (D) (D) (D) 13,259 9,264 3,995 1997 17,865 (c) (D) (D) 10 (D) (D) 1,508 13,275 9,115 4,159 1998 16,359 (c) (D) (D) 172 (D) (D) 272 12,800 8,136 4,664 1999 14,425 (D) (D) 173 (D) (D) 655 11,541 7,060 4,480 2000 10,319 (D) (D) (D) (D) (D) (D) 6,766 3,931 2,835 2001 7,868 (D) (D) 301 1,639 735 904 (D) (D) 2,877 2002 9,654 (D) (D) 347 (D) (D) 1,092 7,268 3,358 3,910 2003 15,731 725 417 308 3,234 2,456 778 11,772 4,655 7,117 2004 13,086 465 (D) (D) 2,582 (D) (D) 10,039 1,895 8,143 2005 15,005 510 (D) (D) 2,783 (D) (D) 11,712 2,143 9,569 2006 16,367 604 155 449 3,361 1,944 1,417 12,402 2,273 10,129 2007 18,436 590 169 422 3,989 2,502 1,487 13,857 2,369 11,488

Source: National Science Foundation, Annual Survey of Industrial Research and Development. Note: Totals may not equal sum of terms due to rounding. a. Break-outs by Research Type and Funding Source available only for odd-numbered years between 1977 and 1983. b. Computed by AIA as difference between total and company funds. Figure withheld by NSF because of imputation of more than 50 percent. c. Funding by type of research not revised nor published despite revised totals. D. Suppressed by NSF to avoid disclosure of confidential information. Appendix 247

RESEARCH AND DEVELOPMENT FUNDS AS PERCENT OF NET SALES, ALL MANUFACTURING INDUSTRIES AND THE AEROSPACE INDUSTRY Calendar Years 1983–2007

All Manufacturing Aerospace Industryb Industriesa Year Company Company Total Funds Total Funds Funds Funds

1983 3.9 2.6 15.2 4.1 1984 3.9 2.6 15.4 4.0 1985 4.4 3.0 14.9 3.9 1986 4.7 3.2 13.4 4.0 1987 4.6 3.1 14.7 3.6 1988 4.5 3.1 16.3 3.9 1989 4.3 3.1 13.5 3.3 1990 4.2 3.1 11.8 3.1 1991 4.2 3.2 12.1 4.0 1992 4.2 3.3 11.8 4.7 1993 3.8 3.1 12.5 4.7 1994 3.6 2.9 13.8 5.3 1995 3.6 2.9 12.9 4.2 1996 4.0 3.3 12.9 4.5 1997 3.9 3.3 8.4 3.3 1998 3.7 3.2 7.2 2.9 1999 3.8 3.2 8.8 3.2 2000 3.6 3.2 7.3 2.8 2001 4.1 3.7 5.7 3.0 2002 3.7 3.3 4.1 2.3 2003 3.5 3.1 6.8 3.5 2004 3.8 3.4 5.7 4.0 2005 4.0 3.6 6.6 4.8 2006 4.0 3.6 6.7 4.9 2007 4.1 3.7 7.0 5.1

Source: National Science Foundation, Annual Survey of Industrial Research and Development. a. Includes all manufacturing industries known to conduct or finance research and development. b. Companies classified in NAICS code 3364, having as their principal activity the manufacture of aerospace products and parts. Prior to 1999, data categorized using SIC system and reported combining codes 372 and 376. 248 Aerospace Industry Report 2011

TOTAL R&D FUNDING FOR TOP STATES (Millions of Dollars)

Percent State 2005 2006 2007 Change, 2006–07

United States: $226,159 $247,669 $269,267 8.7% California 50,683 58,424 64,187 9.9 Massachusetts 13,342 15,562 19,488 25.2 New Jersey 13,214 14,606 17,892 22.5 Michigan 16,752 16,477 15,736 (4.5) Texas 12,438 13,334 13,889 4.2 Washington 9,736 11,320 12,687 12.1 Illinois 9,712 10,765 11,362 5.5 New York 9,474 9,518 10,916 14.7 Pennsylvania 8,846 9,819 10,387 5.8 Connecticut 7,885 8,273 9,444 14.2 Ohio 5,900 6,852 7,265 6.0 North Carolina 5,158 5,486 6,829 24.5 Minnesota 6,340 6,296 6,636 5.4 Colorado 4,299 4,657 5,223 12.2 Indiana 4,610 4,858 4,939 1.7 Virginia 4,379 4,816 4,840 0.5 Florida 4,164 4,139 4,569 10.4 Arizona 2,980 3,590 3,846 7.1 Maryland 3,706 3,421 3,665 7.1 Oregon 3,252 3,419 3,629 6.1 Wisconsin 2,729 3,020 3,411 12.9 Georgia 2,282 2,786 2,788 0.1 Missouri 2,602 2,675 2,736 2.3 New Hampshire 1,435 1,774 1,814 2.3 Alabama 1,417 1,835 1,771 (3.5) Utah 1,234 1,274 1,764 38.5 Tennessee 1,246 1,428 1,638 14.7 Delaware 1,511 1,446 1,472 1.8 South Carolina 1,402 1,396 1,426 2.1 Kansas 1,993 2,064 1,304 (36.8)

Source: National Science Foundation, Annual Survey of Industrial Research and Development . ( ) Indicates negative growth. Appendix 249

FEDERAL AERONAUTICS RESEARCH AND DEVELOPMENT Fiscal Years 1995–2009 (Millions of Dollars)

Year Total NASAa DoDb DoTc

BUDGET AUTHORITY

1995 $10,718 $1,310 $7,196 $2,212 1996 10,159 1,315 6,792 2,052 1997 9,721 1,252 6,323 2,146 1998 9,682 1,327 6,256 2,099 1999 8,997 1,194 5,532 2,271 2000 9,848 1,060 6,587 2,201 2001 9,867 926 6,149 2,792 2002 10,932 997 6,995 2,940 2003 13,360 1,004 9,432 2,924 2004 14,339 1,057 10,301 2,981 2005 12,927 962 9,327 2,638 2006 12,824 893 9,295 2,636 2007 14,963 717 11,614 2,632 2008 14,134 615 10,873 2,646 2009 17,632 500 14,253 2,879

OUTLAYS

1995 $11,155 $1,153 $7,132 $2,870 1996 10,837 1,187 6,974 2,676 1997 10,430 1,302 6,600 2,528 1998 10,122 1,339 6,354 2,429 1999 9,499 1,217 5,913 2,369 2000 9,577 1,014 6,320 2,243 2001 9,735 867 6,297 2,571 2002 10,410 956 6,655 2,799 2003 12,127 974 8,314 2,839 2004 13,479 919 9,687 2,873 2005 13,095 866 9,586 2,643 2006 12,700 722 9,346 2,632 2007 13,680 614 10,640 2,426 2008 14,159 603 10,994 2,562 2009 N/A N/A N/A N/A

Source: NASA, Aeronautics and Space Report of the President. a. Research and Development, Construction of Facilities, Research and Program Management. b. Research, Development, Test, and Evaluation of aircraft and related equipment. c. Federal Aviation Administration: Research, Engineering, and Development; and Facilities, Engineering, and Development. 250 Aerospace Industry Report 2011

DEPARTMENT OF DEFENSE OUTLAYS FOR RESEARCH, DEVELOPMENT, TEST, AND EVALUATION Fiscal Years 1982–2011 (Millions of Dollars)

Year TOTAL Air Force Army Navy Other

1982 $17,729 $7,794 $3,230 $5,240 $1,465 1983 20,554 9,182 3,658 5,854 1,861 1984 23,117 10,353 3,812 6,662 2,289 1985 27,103 11,573 3,950 8,054 3,527 1986 32,283 13,417 3,984 9,667 5,215 1987 33,596 13,347 4,721 9,176 6,352 1988 34,792 14,302 4,624 8,828 7,038 1989 37,002 14,912 4,966 9,291 7,833 1990 37,458 14,443 5,513 9,160 8,342 1991 34,566 13,050 5,559 7,586 8,371 1992 34,632 11,998 5,978 7,826 8,830 1993 36,968 12,338 6,218 8,944 9,467 1994 34,786 12,513 5,746 7,990 8,537 1995 34,710 12,052 5,081 9,230 8,347 1996 36,561 13,056 4,925 9,404 9,175 1997 37,027 14,040 4,859 8,220 9,908 1998 37,420 14,499 4,881 7,836 10,204 1999 37,363 14,172 5,027 8,052 10,112 2000 37,606 13,839 4,777 8,857 10,133 2001 40,599 14,310 5,837 9,465 10,987 2002 44,389 14,228 6,569 10,360 13,232 2003 53,098 17,271 7,041 12,192 16,594 2004 60,756 19,529 8,302 14,136 18,789 2005 65,694 20,640 9,702 16,039 19,313 2006 68,628 20,870 10,846 17,423 19,489 2007 73,136 22,919 11,364 18,752 20,101 2008 75,119 24,666 11,285 18,563 20,605 2009 79,030 26,105 11,764 19,411 21,749 2010 76,991 26,215 10,714 19,201 20,860 2011(E) 80,677 27,970 11,704 20,169 20,834

Source: Office of Management and Budget, The Budget of the United States Government. E. Estimate. Appendix 251

DEPARTMENT OF DEFENSE APPROPRIATIONS FOR RESEARCH, DEVELOPMENT, TEST, AND EVALUATION Fiscal Years 2008–2012a (Millions of Dollars)

2008 2009b 2010 2011(E) 2012(E)

TOTAL $79,448 $80,651 $80,655 $80,905 $75,722

BY APPROPRIATION

Army $12,554 $12,154 $11,711 $11,472 $9,692 Navy 18,487 19,809 19,948 20,008 18,010 Air Force 26,347 26,767 27,917 28,440 27,880 Defense Agencies 21,883 21,736 20,890 20,797 19,948 Operational Test & Evaluation 178 185 188 188 191

RECAP OF BUDGET ACTIVITIES

Basic Research $1,600 $1,758 $1,815 $2,123 $2,078 Applied Research 4,855 5,072 4,984 4,677 4,687 Adv. Technology Dvlp. 5,788 6,425 6,507 5,539 5,481 Adv. Component Dvlp. & Prototypes 15,651 14,939 14,469 14,506 13,728 System Development & Demonstration 18,141 18,125 16,779 18,246 15,675 RDT&E Management Support 5,901 5,991 6,098 4,738 4,193 Operational Systems Development 27,512 28,340 30,003 31,078 29,878

RECAP OF FYDP PROGRAMS

Strategic Forces $711 $607 $1,194 $1,007 $1,144 General Purpose Forces 4,093 4,031 4,555 4,719 4,386 Intelligence and Communications 4,985 5,154 5,665 5,798 5,453 Mobility Forces 764 564 508 555 413 R&D (FYDP Program 6) 51,141 51,437 49,529 45,671 45,342 Central Supply and Maintenance 461 495 554 414 351 Training Medical and Other 11 28 58 100 62 Admn. and Associated Activities 179 182 173 4,268 158 Support of Other Nations 20 26 70 98 4 Special Operations Forces 452 463 553 330 483 Classified Programs 16,630 17,665 17,794 17,946 17,925

Source: Department of Defense Budget, RDT&E Programs (R-1). a. Includes base and Overseas Contingency Operations budget request. b. Includes Recovery Act funding. E. Estimate. 252 Aerospace Industry Report 2011

DEPARTMENT OF DEFENSE PRIME CONTRACT AWARDS FOR RESEARCH, DEVELOPMENT, TEST, AND EVALUATION Fiscal Years 2003–2007 (Millions of Dollars)

Program Categories 2003 2004 2005 2006 2007

TOTAL: $33,069 $32,564 $37,099 $39,423 $40,162

Research 3,841 3,744 4,898 5,121 5,842 Exploratory Development 3,664 3,700 4,014 4,125 4,766 Other Development / Support 25,564 25,120 28,186 30,176 29,554

Aircraft: Total $8,104 $8,489 $8,732 $9,445 $8,575 Research 534 519 405 308 517 Exploratory Development 343 486 371 304 327 Other Development / Support 7,219 7,484 7,957 8,833 7,731

Missile and Space Systems: Total $6,923 $7,365 $7,567 $6,392 $7,966 Research 347 331 390 468 621 Exploratory Development 1,355 970 900 792 711 Other Development / Support 5,220 6,065 6,277 5,133 6,634

Electronics and Communications Equipment: Total $3,780 $3,957 $4,778 $4,724 $6,107 Research 430 412 426 429 545 Exploratory Development 505 649 687 776 927 Other Development / Support 2,844 2,896 3,665 3,519 4,635 All Other:a Total $14,262 $12,754 $16,022 $18,861 $17,514 Research 2,520 2,482 3,678 3,916 4,159 Exploratory Development 1,461 1,596 2,056 2,253 2,800 Other Development / Support 10,280 8,676 10,288 12,692 10,555

Source: Department of Defense, Prime Contract Awards by Service Category and Federal Supply Classification. a. “All Other” includes ships, tank-automotive, weapons, ammunition, services, and other. Appendix 253

Federal Contracts for Research & Development Fiscal Year 2011 (Millions of Dollars)

State TOTAL State TOTAL Alabama $830.7 Nevada $5.8 Alaska 14.0 New Hampshire 36.2 Arizona 286.0 New Jersey 347.3 Arkansas 1.5 New Mexico 60.8 California 4,825.6 New York 252.0 Colorado 745.9 North Carolina 178.1 Connecticut 372.0 North Dakota 0.7 Delaware 1.5 Ohio 195.3 District of Columbia 154.0 Oklahoma 24.1 Florida 268.0 Oregon 8.4 Georgia 56.4 Pennsylvania 171.4 Hawaii 8.4 Rhode Island 5.0 Idaho 4.1 South Carolina 14.3 Illinois 273.4 South Dakota 1.2 Indiana 106.2 Tennessee 132.9 Iowa 42.6 Texas 1,345.4 Kansas 21.9 Utah 206.8 Kentucky 0.6 Vermont 4.8 Louisiana 15.0 Virginia 679.1 Maine 16.6 Washington 586.9 Maryland 1,040.4 West Virginia 6.0 Massachusetts 1,009.4 Wisconsin 27.9 Michigan 27.4 Wyoming 0.1 Minnesota 38.8 50 States: Mississippi 56.3 Total $14,939.8 Missouri 423.2 Puerto Rico 0.7 Montana 3.8 Other 0 Nebraska 5.4 TOTAL $14,940.5

Top Research and Development Products

R&D-Other Space-A Res/Expl Dev $1,476.6 Defense Aircraft - Operational Systems Development 1,111.7 Other Research and Development - Basic Research 905.2 Space Science and Applications 879.7 Defense Missile and Space Systems - Advanced Development 721.8

Source: Aerospace Industries Association, based on data from www.USAspending.gov . 254 Aerospace Industry Report 2011

MILITARY AIRCRAFT PROGRAMS RESEARCH, DEVELOPMENT, TEST, AND EVALUATIONa BY AGENCY AND MODEL

Fiscal Years 2009–2012 (Millions of Dollars)

Agency and Model 2009 2010 2011(E) 2012(E)

AIR FORCE

A-10 $4.0 $11.9 $5.7 $11.1 B-1B Lancer 158.1 178.3 33.2 33.0 B-2 Spirit 384.2 351.5 260.5 340.8 B-52 Stratofortress 39.8 101.9 146.1 133.3 C-5 Galaxy 110.2 82.3 59.0 24.9 C-17 Globemaster III 182.8 156.2 177.2 128.2 C-130J Hercules 25.2 29.1 26.8 39.5 CSAR-X 15.0 13.8 - - E-3 AWACS 122.4 138.1 239.8 136.0 E-8C JSTARS 97.6 180.7 168.9 121.6 F-15E Eagle 203.8 240.0 222.7 207.5 F-16 Falcon 123.7 118.5 129.1 143.9 F-22 Raptor 579.7 559.5 576.3 718.4 F-35 JSFc - - 217.6 47.8 KC-135 replacement 11.9 11.8 20.5 6.2

DEFENSE AIRBORNE RECONNAISSANCE OFFICE

UAVsb $1,175.8 $928.9 $636.2 $688.4

NAVY

AV-8B Harrier $33.7 $24.1 $22.9 $30.7 *CH-53X 543.9 503.9 577.4 629.5 EA-18G Growler 115.7 55.5 22.0 17.1 F/A-18E/F Hornet 70.8 114.1 148.4 153.0 H-1 Super Cobra 4.0 31.3 60.5 72.6 P-3 Modernization/MMA 3.5 3.5 3.6 3.4 V-22 Ospreyc 66.0 78.9 46.1 84.5 *VH-71 Executive Helo 756.6 31.9 159.8 180.1

Source: Department of Defense Budget, Research, Development, Test & Evaluation Programs (R-1). Note: See Aircraft Production Chapter for aircraft program procurement authorization data. a. Total Obligational Authority. b. Air Force, Navy, and Army funding. c. Air Force and Navy funding. E. Estimate * Programs in R&D only. Appendix 255

EMPLOYMENT AND COST OF R&D SCIENTISTS AND ENGINEERS ALL INDUSTRIES AND AEROSPACE INDUSTRY Calendar Years 1984–2008

a Employment Cost Per R&D Scientist and Engineerd Year Aerospace as All Industriesb Aerospacec a Percent of (Thousands) (Thousands) All c All Industries b Aerospace Industries

1984 584.1 111.5 19.1 $124,000 $156,000 1985 622.5 130.2 20.9 130,200 161,700 1986 671.0 144.8 21.6 128,500 149,800 1987 695.8 136.3 19.6 128,800 180,400 1988 708.6 136.4 19.2 132,300 193,300 1989 722.5 134.8 18.7 134,500 207,300 1990 743.6 115.3 15.5 141,300 213,700 1991 773.4 100.2 13.0 148,600 177,000 1992 779.3 92.9 11.9 157,912 180,552 1993 764.7 97.9 12.8 153,336 176,450 1994 768.5 72.8 9.5 157,459 186,898 1995 746.1 63.5 8.5 167,339 213,328 1996 832.8 95.5 11.5 168,362 170,733 1997 885.7 94.6 10.7 171,499 208,217 1998 951.5 77.0 8.1 173,589 228,159 1999 997.7 66.4 6.7 180,989 237,058 2000 1,037.0 55.3 5.3 193,719 256,692 2001 1,048.1 25.1 2.4 190,654 356,018 2002 1,071.1 19.1 1.8 180,628 374,186 2003 1,075.5 32.5 3.0 179,901 430,097 2004 1,156.0 40.6 3.5 183,744 333,401 2005 1,111.3 37.9 3.4 217,483 379,164 2006 1,097.7 41.5 3.8 235,208 419,381 2007 1,135.5 37.5 3.3 237,658 458,607 2008 1,130.5 42.9 3.8 NA NA

Source: National Science Foundation. a. Employment as of January. Scientists and engineers working less than full time have been included in terms of their full time equivalent number. b. All manufacturing industries and those non-manufacturing industries known to conduct or finance research and development. c. Companies classified in NAICS code 3364, having as their principal activity the manufacture of aerospace products and parts. Prior to 1999, data categorized using SIC system and reported combining codes 372 and 376. d. The arithmetic mean of the numbers of R&D scientists and engineers reported for January in two consecutive years, divided into the total R&D expenditures of each industry during the earlier year. NA. Not available. 256 Aerospace Industry Report 2011

Foreign Trade

U.S. TOTAL AND AEROSPACE FOREIGN TRADE Calendar Years 1981–2010 (Millions of Dollars)

Total U.S. Merchandise Trade Aerospace

Trade Trade Year Exports Imports Exports Imports Balance Balance

1981 (22,267) 238,715 260,982 13,134 17,634 4,500 1982 (27,510) 216,442 243,952 11,035 15,603 4,568 1983 (52,409) 205,639 258,048 12,619 16,065 3,446 1984 (106,702) 223,976 330,678 10,082 15,008 4,926 1985 (117,711) 218,815 336,526 12,593 18,725 6,132 1986 (138,279) 227,159 365,438 11,826 19,728 7,902 1987 (152,119) 254,122 406,241 14,575 22,480 7,905 1988 (118,526) 322,426 440,952 17,860 26,947 9,087 1989 (109,399) 363,812 473,211 22,083 32,111 10,028 1990 (101,719) 393,592 495,311 27,282 39,083 11,801 1991 (66,723) 421,730 488,453 30,785 43,788 13,003 1992 (84,501) 448,164 532,665 31,356 45,018 13,662 1993 (115,568) 465,091 580,659 27,235 39,418 12,183 1994 (150,630) 512,626 663,256 25,010 37,373 12,363 1995 (158,801) 584,742 743,543 21,561 33,071 11,509 1996 (170,214) 625,075 795,289 26,602 40,270 13,668 1997 (180,522) 689,182 869,704 32,239 50,374 18,134 1998 (229,758) 682,138 911,896 40,960 64,071 23,110 1999 (328,821) 695,797 1,024,618 37,381 62,444 25,063 2000 (436,104) 781,918 1,218,022 26,734 54,679 27,944 2001 (411,899) 729,100 1,140,999 26,035 58,508 32,473 2002 (468,263) 693,103 1,161,366 29,533 56,775 27,242 2003 (532,350) 724,771 1,257,121 27,111 52,504 25,393 2004 (654,830) 814,875 1,469,704 31,002 56,817 25,815 2005 (772,373) 901,082 1,673,455 39,783 67,432 27,649 2006 (827,971) 1,025,967 1,853,938 54,809 85,262 30,453 2007 (808,763) 1,148,199 1,956,962 60,614 97,224 36,610 2008 (816,199) 1,287,442 2,103,641 57,389 95,082 37,694 2009 (503,582) 1,056,043 1,559,625 56,034 81,166 25,132 2010 (633,903) 1,278,139 1,912,041 51,152 77,503 26,351

Source: Bureau of the Census, Foreign Trade Division; and Aerospace Industries Association, based on data from the International Trade Administration. Note: The Commerce Department began reporting international trade using the Harmonized Tariff Schedules of the United States in 1989. Previous years based on the Tariff Schedules of the United States Annotated. Appendix 257

TOTAL U.S. EXPORTS AND EXPORTS OF AEROSPACE PRODUCTS Calendar Years 1981–2010 (Millions of Dollars)

Exports of Aerospace Products Total Exports Year of U.S. Percent of Civil Merchandisea TOTAL Total U.S. Military Exports Total Transports 1981 $238,715 $17,634 7.4 $13,312 $7,180 $4,322 1982 216,442 15,603 7.2 9,608 3,834 5,995 1983 205,639 16,065 7.8 10,595 4,683 5,470 1984 223,976 15,008 6.7 9,659 3,195 5,350 1985 218,815 18,725 8.6 12,942 5,518 5,783 1986 227,159 19,728 8.7 14,851 6,276 4,875 1987 254,122 22,480 8.8 15,768 6,377 6,714 1988 322,426 26,947 8.4 20,298 8,766 6,651 1989 363,765 32,111 8.8 25,619 12,313 6,492 1990 392,976 39,083 9.9 31,517 16,691 7,566 1991 421,730 43,788 10.4 35,548 20,881 8,239 1992 448,164 45,018 10.0 36,906 22,256 8,111 1993 465,091 39,418 8.5 31,823 18,146 7,596 1994 512,626 37,373 7.3 30,050 15,931 7,322 1995 584,742 33,071 5.7 25,079 10,606 7,991 1996 625,075 40,270 6.4 29,477 13,624 10,792 1997 689,182 50,374 7.3 40,075 21,028 10,299 1998 682,138 64,071 9.4 51,999 29,168 12,072 1999 695,797 62,444 9.0 50,624 25,672 11,820 2000 781,918 54,679 7.0 45,566 19,615 9,113 2001 729,100 58,508 8.0 49,371 22,151 9,137 2002 693,103 56,775 8.2 47,348 21,626 9,427 2003 724,771 52,504 7.2 44,366 19,249 8,138 2004 814,875 56,817 7.0 47,772 18,577 9,045 2005 901,082 67,432 7.5 57,587 21,888 9,845 2006 1,025,967 85,262 8.3 71,857 32,897 13,405 2007 1,148,199 97,224 8.5 83,977 40,297 13,247 2008 1,287,442 95,082 7.4 82,264 33,326 12,819 2009 1,056,043 81,166 7.7 70,500 D 10,666 2010 1,278,139 77,503 6.1 67,128 D 10,375

Source: Bureau of the Census, Foreign Trade Division and Aerospace Industries Association, based on data from the International Trade Administration. Note: International trade reported using Harmonized Tariff Schedules after 1988. a. Includes DoD shipments and undocumented exports to Canada, free alongside-ship basis. D. Data surpressed by the Census Bureau 258 Aerospace Industry Report 2011

U.S. EXPORTS OF AEROSPACE PRODUCTSa BY MAJOR COUNTRIES OF DESTINATION Calendar Years 2006–2010 (Millions of Dollars)

Country of Destination 2006 2007 2008 2009 2010

Australia $1,846 $1,280 $1,893 $1,797 $1,637 Brazil 3,436 4,703 5,764 4,681 4,421 Canada 4,452 6,011 6,343 5,700 5,359 China 6,304 7,481 5,490 5,344 5,766 France 6,695 7,909 7,043 8,655 7,239

Germany 4,477 5,419 5,806 5,515 5,407 Hong Kong 462 1,319 1,155 2,199 1,408 India 1,725 6,223 2,710 2,302 1,318 Ireland 2,094 2,658 2,436 1,903 1,717 Israel 1,579 1,818 1,633 999 871

Japan 7,403 8,376 8,282 5,511 5,297 Korea, South 4,025 3,841 2,940 2,026 2,648 Mexico 2,127 1,274 1,594 1,657 1,617 Netherlands 2,102 2,028 2,592 1,847 1,529 Poland 570 1,245 1,317 351 463

Singapore 4,931 4,163 4,537 2,974 3,878 Taiwan 1,949 2,043 1,545 806 1,358 Turkey 1,588 831 1,899 1,240 2,465 UAE 5,200 3,625 4,082 3,507 1,812 United Kingdom 5,418 6,778 7,024 6,085 5,995

Source: Aerospace Industries Association, based on data from the International Trade Administration. a. Includes all civil products, free alongside-ship basis; excludes military products whose country of destination are not reported. Appendix 259

U.S. IMPORTS OF AEROSPACE PRODUCTSa BY MAJOR COUNTRIES OF ORIGIN Calendar Years 2006–2010 (Millions of Dollars)

Country of Origin 2006 2007 2008 2009 2010

Belgium $194 $237 $281 $263 $268 Brazil 1,218 1,737 2,304 747 715 Canada 6,902 8,714 8,294 6,805 6,344 China 255 368 406 397 497 France 7,513 9,463 9,278 7,990 9,000

Germany 2,739 2,642 3,055 3,144 2,103 Israel 961 1,304 1,352 761 747 Italy 716 939 994 952 1,182 Japan 2,498 3,055 2,915 2,904 3,054 Korea 456 514 376 387 467

Mexico 266 490 697 469 694 Netherlands 244 253 295 230 299 Singapore 203 284 391 268 278 Switzerland 253 238 368 279 292 United Kingdom 4,008 4,236 4,379 3,407 3,424

Source: Aerospace Industries Association, based on data from the International Trade Administration. a. Includes civil and military products, c.i.f. (Cost, Insurance, and Freight) basis. 260 Aerospace Industry Report 2011

U.S. EXPORTS OF AEROSPACE PRODUCTS Calendar Years 2006–2010 (Millions of Dollars)

2006 2007 2008 2009 2010

TOTAL $85,262 $97,224 $95,082 $81,166 $77,503

CIVIL ― TOTAL $71,857 $83,977 $82,264 $70,500 $67,128

Complete Aircraft ― TOTAL $39,461 $47,558 $42,422 NA NA Transports 32,897 40,297 33,326 General Aviationa 3,349 3,911 4,818 Helicopters 671 1,117 948 Other Aircraft 2,544 2,234 3,330 Aircraft Engines ― TOTAL 6,202 7,127 8,505 Turbine Engines 6,032 6,953 8,334 Piston Engines 170 174 171 Aircraft and Engine Parts incl. Spares ― TOTAL 25,588 28,469 30,777 Aircraft Parts & Accessories 16,165 17,570 19,023 Aircraft Engine Parts 9,423 10,899 11,754 Other Craft and Partsb 606 824 560

MILITARY ― TOTAL $13,405 $13,247 $12,819 $10,666 $10,375

Complete Aircraft ― TOTALc $4,464 $4,174 $4,520 $2,325 $1,742 Fighters & Fighter Bombers 3,351 2,303 1,930 1,208 432 Transports 375 789 1,548 276 140 Helicopters 618 791 300 520 832 Other Aircraft 121 290 742 321 338 Aircraft Engines ― TOTAL 414 415 423 517 357 Turbine Engines 312 277 344 381 271 Piston Engines 102 137 80 137 86 Aircraft and Engine Parts incl. Spares ― TOTAL 6,936 7,185 6,311 6,126 6,404 Aircraft Parts & Accessories 5,770 5,916 5,035 4,788 4,905 Aircraft Engine Parts 1,165 1,269 1,276 1,337 1,498 Missiles, Rockets, Engines, and Parts 1,452 1,359 1,425 1,509 1,741 Other Craft and Partsd 139 114 139 189 133

Source: Aerospace Industries Association, based on data from the International Trade Administration. Notes: Details include products not designated civil or military by the Harmonized Tariff Schedules. Historically, aircraft herein have been predominantly civil. Totals may not equal sum of details due to rounding. a. All fixed-wing aircraft under 33,000 pounds. b. Includes spacecraft, satellites, missiles, rockets, engines, and parts. c. Includes aircraft exported under Military Assistance Programs and Foreign Military Sales. d. Includes spacecraft, satellites, and parts. NA. Data suppressed by U.S. Census Bureau beginning in first quarter 2009. Appendix 261

U.S. IMPORTS OF AEROSPACE PRODUCTS Calendar Years 2006–2010 (Millions of Dollars)

2006 2007 2008 2009 2010 TOTAL $30,453 $36,610 $37,694 $25,132 $26,351 CIVIL ― TOTAL $27,843 $33,684 $34,349 $22,196 $23,020

Complete Aircraft ― TOTAL $10,772 $13,284 $12,428 $9,299 $8,979 Transports 4,946 6,916 6,461 4,955 3,258 General Aviation 3,986 4,532 4,066 2,337 2,191 Helicopters 682 889 1,143 833 838 Other Aircraft 1,159 947 758 1,173 262 Aircraft Engines ― TOTAL 3,533 3,664 4,072 3,507 3,537 Turbine Engines 3,467 3,621 3,986 3,435 3,515 Piston Engines 66 43 87 71 22 Aircraft and Engine Parts ― TOTAL 13,106 16,160 17,365 9,101 10,056 Aircraft Parts & Accessories 5,968 7,586 8,058 8,109 8,968 Aircraft Engine Parts 7,137 8,574 9,307 992 1,088

Other Craft and Partsa 432 577 484 291 393

MILITARY ― TOTAL $2,610 $2,926 $3,345 $2,935 $3,331

Complete Aircraft ― TOTAL $2.1 $12.3 $51.5 $0.4 $61.7 Aircraft Engines ― TOTAL 206.1 216.8 255.9 245.4 261.7 Turbine Engines 182.5 190.6 209.8 180.8 185.0 Piston Engines Including Parts 23.7 26.3 46.1 64.6 76.7 Aircraft and Engine Parts ― TOTAL 1,949.3 2,367.7 2,624.4 2,281.8 2,442.3 Aircraft Parts 1,364.2 1,736.7 1,945.3 2,115.8 2,295.0 Aircraft Engine Parts 585.1 631.0 679.1 166.1 147.3 Missiles, Rockets, Engines, and Parts 310.0 286.4 343.2 339.5 455.7

Other Craft and Partsb 142.1 42.4 69.5 68.4 109.4

Source: Aerospace Industries Association, based on data from International Trade Administration. Notes: Details include products not designated civil or military by the Harmonized Tariff Schedules. Historically, aircraft herein have been predominantly civil. Totals may not equal sum of details due to rounding. a. Includes spacecraft, satellites, missiles, rockets, engines, and parts. b. Includes spacecraft, satellites, and parts. 262 Aerospace Industry Report 2011

U.S. EXPORTS OF MILITARY AIRCRAFTa Calendar Years 2006–2010

2006 2007 2008 2009 2010

TOTAL NUMBER OF AIRCRAFT 747 690 262 269 338

Fighters and Fighter Bombers 88 51 46 29 16 Transports 8 10 9 3 5 Helicopters 508 374 28 39 79 New Aircraft, NEC 94 160 137 180 217 Used or Rebuilt Aircraft 49 95 42 18 21

Source: Aerospace Industries Association, based on data from the International Trade Administration. a. Includes aircraft exported under Military Assistance Programs and Foreign Military Sales. NEC. Not elsewhere classified. Appendix 263

U.S. EXPORTS OF CIVIL AIRCRAFT Calendar Years 2006–2010

Type of Aircraft 2006 2007 2008 2009 2010 NUMBER OF AIRCRAFT 2,755 3,713 3,583 D D

Helicopters ― TOTAL 686 901 880 D D Under 2,200 lbs 585 777 766 – – Over 2,200 lbs 101 124 114 – – General Aviation ― TOTAL 702 1,088 1,188 D D Single-Engine 295 587 612 – – Multi-Engine, under 4,400 lbs 95 125 105 – – Multi-Engine, 4,400-10,000 lbs 75 99 190 – – Multi-Engine, 10,000-33,000 lbs 237 277 281 – – Transports (over 33,000 lbs) ― TOTAL 321 384 321 D D Passenger Aircraft 300 369 313 – – Cargo Aircraft 21 15 8 – – Other, incl. Pass./Cargo Combination ––––– Other Aircraft ― TOTAL 1,046 1,340 1,194 D D Used or Rebuilt Aircraft 1,046 1,340 1,194 – – Other Aircraft(a) 626 817 1,735 – –

VALUE (Millions of Dollars) $39,428 $47,521 $42,376 D D

Helicopters ― TOTAL $671 $1,117 $948 D D Under 2,200 lbs 148 212 242 – – Over 2,200 lbs 523 905 706 – – General Aviation ― TOTAL 3,350 3,911 4,818 D D Single-Engine 217 204 397 – – Multi-Engine, under 4,400 lbs 40 49 45 – – Multi-Engine, 4,400-10,000 lbs 311 448 903 – – Multi-Engine, 10,000-33,000 lbs 2,782 3,210 3,473 – – Transports (over 33,000 lbs) ― TOTAL 32,896 40,297 33,326 D D Passenger Aircraft 28,630 37,154 31,322 – – Cargo Aircraft 4,266 3,143 2,004 – – Other, incl. Pass./Cargo Combination ––––– Other Aircraft ― TOTAL 2,511 2,197 3,284 D D Used or Rebuilt Aircraft 2,511 2,197 3,284 – – Other Aircraft(a) 33 37 46 – –

Source: Aerospace Industries Association, based on data from the International Trade Administration. a. Excluded from totals. D. Withheld by Census Bureau to avoid disclosing data for individual companies. 264 Aerospace Industry Report 2011

U.S. EXPORTS OF COMMERCIAL TRANSPORT AIRCRAFTa Calendar Years 2005–2009

Region of Destination 2005 2006 2007 2008 2009

NUMBER OF AIRCRAFT 237 321 384 321 D

Africa 11 14 5 7 - Asia 99 142 180 115 - Canada & Greenland 18 13 16 15 - Europe 69 67 117 106 - Latin America & Caribbean 14 35 31 28 - Middle East 15 37 29 41 - Oceania 11 13 6 9 -

VALUE (Millions of Dollars) $21,704.2 $32,902.7 $40,296.5 $33,326.0 D

Africa $1,037.1 $1,196.7 $489.0 $664.6 - Asia 10,860.9 16,082.3 22,080.6 14,488.6 - Canada & Greenland 757.0 688.4 1,490.0 1,462.6 - Europe 4,897.4 5,551.0 9,009.8 7,613.8 - Latin America & Caribbean 865.2 2,720.7 2,182.5 2,744.3 - Middle East 2,377.9 5,265.0 4,448.6 5,715.8 - Oceania 908.8 1,398.6 596.0 636.4 -

Source: Aerospace Industries Association, based on data from the International Trade Administration. Notes: Totals may not equal sum of terms due to rounding. Previous years’ data may have been revised to reflect updated and/or newly available information. a. Airframe weight exceeding 33,000 pounds. D. Withheld by Census Bureau to avoid disclosing data for individual companies. Appendix 265

U.S. IMPORTS OF COMPLETE AIRCRAFT Calendar Years 2006–2010

Use and Type 2006 2007 2008 2009 2010

NUMBER OF AIRCRAFT 2,505 2,539 2,163 1,430 1,584

Civil Aircraft ― TOTAL 2,495 2,513 2,155 1,427 1,580 New Complete Aircraft: Helicopters 256 306 364 241 269 General Aviation: Single-Engine 394 388 376 200 212 Multi-Engine, under 4,400 lbs 37 81 37 11 4 Multi-Engine, 4,400-10,000 lbs 19 20 20 71 50 Multi-Engine, Turbojet / Turbofan, 10,000-33,000 lbs 195 224 188 85 91 Transports, Multi-Engine, over 33,000 lbs 140 187 211 133 85 Other New Civil Aircrafta 1,243 1,103 796 534 626 Used or Rebuilt 211 204 163 152 243 Military Aircraft ― TOTAL 10 26 8 3 4 New Complete Aircraft 5 6 7 1 3 Used or Rebuilt 5 20 1 2 1

VALUE (Millions of Dollars) $10,774.5 $13,296.2 $12,479.6 $9,298.9 $9,040.9

Civil Aircraft ― TOTAL $10,772.4 $13,283.9 $12,428.1 $9,298.5 $8,979.1 New Complete Aircraft: Helicopters 681.6 888.6 1,143.0 832.7 838.2 General Aviation: Single-Engine 334.4 302.8 456.0 310.6 272.7 Multi-Engine, under 4,400 lbs 17.5 37.7 17.2 6.0 2.9 Multi-Engine, 4,400-10,000 lbs 87.8 105.4 104.1 263.7 160.7 Multi-Engine, Turbojet / Turbofan, 10,000-33,000 lbs 3,546.6 4,086.2 3,489.2 1,757.1 1,754.5 Transports, Multi-Engine, over 33,000 lbs 4,945.8 6,916.1 6,460.5 4,955.1 3,258.3 Other New Aircrafta 35.0 34.1 29.6 25.7 18.5 Used or Rebuilt 1,123.6 913.1 728.6 1,147.6 2,673.4 Military Aircraft ― TOTAL 2.1 12.3 51.5 0.4 61.7 New Complete Aircraft 0.2 0.8 51.3 0.2 61.6 Used or Rebuilt 1.9 11.5 0.2 0.2 0.1

EXPORT-IMPORT BANK TOTAL AUTHORIZATIONS OF LOANS AND GUARANTEES, AND AUTHORIZATIONS IN SUPPORT OF AIRCRAFT EXPORTS Fiscal Years 1994–2008 (Millions of Dollars)

Authorizations in Support of Aircraft Exports Total Year Percent of Total Commercial Other Authorizations Total Authorizations Jet Aircrafta Aircraftb LOANSc 1994 $3,016 $ – – % $ – $ – 1995 1,598 – – – – 1996 1,236 – – – – 1997 1,549 – – – – 1998 103 – – – – 1999 903 590.8 65.4 590.8 – 2000 933 75.7 8.1 75.7 – 2001 871 – – – – 2002 296 – – – – 2003 58 5.6 9.6 – 5.6 2004 227 58.5 25.8 – 58.5 2005 – – – – – 2006 57 41.0 72.4 – 41.0 2007 – – – – – 2008 356 – – – –

GUARANTEESd 1994 $7,609 $2,959.0 38.9% $2,959.0 $ – 1995 5,712 977.0 17.1 977.0 – 1996 6,412 1,155.0 18.0 1,155.0 – 1997 7,761 1,959.0 25.2 1,959.0 – 1998 6,151 2,542.5 41.3 2,542.5 – 1999 8,299 5,543.8 66.8 5,543.8 – 2000 8,413 3,647.4 43.4 3,437.8 209.6 2001 6,101 2,736.5 44.8 2,540.5 196.0 2002 7,408 3,823.1 51.6 3,800.9 22.2 2003 7,745 4,647.7 60.3 4,419.9 227.8 2004 8,533 4,305.6 50.5 4,247.1 58.5 2005 9,572 4,446.9 46.5 4,365.4 81.5 2006 12,094 4,450.5 36.8 4,419.4 31.1 2007 12,569 4,515.4 35.9 4,507.6 7.8 2008 14,043 5,623.0 40.0 5,500.0 123.0

Source: Export-Import Bank of the United States. a. Includes complete aircraft, engines, parts, and retrofits. b. Includes business aircraft, general aviation aircraft, helicopters, and related goods and services. c. Loans are commitments for direct financing by the Export-Import Bank to foreign buyers of U.S. equipment and services, which are made to commercial banks and may subsequently be guaranteed by the Export-Import Bank, in which case the value of the loans is also included with Guarantees. d. Guarantees by the Export-Import Bank provide assurances of repayment of principal and interest on loans made by private lending institutions, such as commercial banks, for major export transactions. Excludes insurance. Appendix 267

EXPORT-IMPORT BANK SUMMARY OF COMMERCIAL JET AIRCRAFT AUTHORIZATIONS FOR LOANSa AND GUARANTEESb Fiscal Years 1984–2008 (Values in Millions of Dollars)

No. of Jet c No. of New Gross c Export Value Aircraft Commitments Authorizations Year Guar- Guar- Guar- Guar- Loans Loans Loans Loans antees antees antees antees 1984 37 8 $1,023 $327 7 4 $532 $294 1985 – 14 19 481 1 5 13 289 1986 3 13 74 451 1 9 46 277 1987 – 27 22 1,449 1 14 13 808 1988 – 2 – 94 – 2 – 73 1989 3 5 253 459 1 2 158 390 1990 – 6 – 264 – 2 – 225 1991 – 12 – 665 – 3 – 567 1992 – 37 – 1,889 – 12 – 1,597 1993 – 70 – 4,122 – 27 – 3,489 1994 – 59 – 3,507 – 19 – 2,959 1995 – 27 – 1,205 – 12 – 974 1996 – 18 – 1,089 – 8 – 923 1997 – 34 – 2,357 – 14 – 1,959 1998 – 65 – 3,059 – 24 – 2,543 1999 17 106 1,170 6,464 2 32 591 5,544 2000 5 53 150 4,047 2 17 76 3,438 2001 – 60 – 3,052 – 12 – 2,540 2002 – 72 – 4,370 – 17 – 3,801 2003 – 74 – 5,083 – 22 – 4,420 2004 – 70 – 4,884 – 18 – 4,247 2005 – 78 – 4,886 – 25 – 4,365 2006 – 79 – 5,082 – 19 – 4,419 2007 – 75 – 5,184 14 – 4,508 2008 – 97 – 6,325 – 23 – 5,500

Source: Export-Import Bank of the United States, and AIA estimates. a. Loans are commitments for direct financing by the Export-Import Bank to foreign buyers of U.S. equipment and services, which are made by the Export-Import Bank to commercial banks and which subsequently may be guaranteed by the Export-Import Bank in which case the value of the loans is included with Guarantees. b. Guarantees by the Export-Import Bank provide assurances of repayment of principal and interest on loans made by private lending institutions, such as commercial banks, for major export transactions. Excludes insurance. c. For Export-Import Bank commitments including both loan and guarantee authorization, number of aircraft and export value reported under “Loans.” 268 Aerospace Industry Report 2011

U.S. EXPORTS OF MILITARY PRODUCTS Calendar Years 2009 and 2010 (Millions of Dollars)

2009 2010 Country of Destination Aerospace Othera Total Aerospace Othera Total World Total $31,733 $3,958 $35,690 $29,768 $4,319 $34,087 South Korea $1,621 $245 $1,867 $3,269 $469 $3,738 Japan 3,520 271 3,791 2,982 406 3,387 Greece 593 34 627 2,083 42 2,125 Iraq 2,262 10 2,271 1,877 16 1,893 Egypt 1,153 250 1,403 1,591 400 1,991 Saudi Arabia 787 56 844 1,285 84 1,369 Singapore 1,788 82 1,870 1,174 123 1,297 Israel 2,287 438 2,725 1,157 286 1,443 Germany 1,095 101 1,196 985 178 1,163 Canada 1,137 344 1,481 954 307 1,260 Turkey 475 49 524 940 62 1,002 Pakistan 741 71 813 682 177 858 United Kingdom 709 596 1,306 672 366 1,038 Taiwan 308 75 383 648 260 909 Poland 527 177 704 455 29 483 Denmark 200 10 210 436 10 445 United Arab Emirates 323 160 483 342 294 637 Italy 3,581 22 3,603 234 10 245 Kuwait 366 52 418 204 101 306 Netherlands 432 49 482 187 33 220 Qatar 144 1 146 50 0 50 Australia 0 304 304 0 93 93 Switzerland 0 24 24 0 8 8 Chile 0 2 2 0 13 13 Spain 0 6 6 0 42 42

Source: Aerospace Industries Association, based on data from the U.S. Census Bureau. a. Includes tank & other armored fighting vehicles, military weapons, bombs, grenades, etc., and vessels. Appendix 269

U.S. EXPORTS OF MILITARY AEROSPACE PRODUCTS Calendar Years 2006–2010 (Millions of Dollars)

Country of Destination 2006 2007 2008 2009a 2010a World Total $13,405 $13,247 $11,032 $31,733 $29,768 Japan $1,270 $1,369 $1,490 $3,520 $2,982 South Korea 2,270 1,900 1,426 1,621 3,269 Poland 528 1,158 1,085 2,262 1,877 United Kingdom 622 851 1,083 1,788 1,174 Israel 1,227 915 868 432 187 Canada 90 606 539 709 672 Australia 684 397 526 1,137 954 Turkey 383 377 374 1,095 985 Saudi Arabia 98 124 317 787 1,285 Germany 397 414 287 527 455 Singapore 717 367 225 2,287 1,157 United Arab Emirates 1,085 297 198 366 204 Italy 271 163 192 308 648 Pakistan 123 125 178 1,153 1,591 Netherlands 140 260 174 593 2,083 Spain 163 149 173 741 682 Iraq 176 329 165 323 342 Greece 219 736 146 200 436 Taiwan 200 165 100 475 940 Qatar 132 176 73 3,581 234 Egypt 154 149 42 144 50 Kuwait 249 219 38 120 599 Switzerland 47 133 29 47 36 Denmark 36 137 26 204 283 Chile 363 114 16 195 170

Source: Aerospace Industries Association, based on data from the U.S. Department of Commerce. a. Starting in 2009 data source is the U.S. Department of Commerce. Previous years' data is from the U.S. Census Bureau. 270 Aerospace Industry Report 2011

EXPORTS OF AEROSPACE PRODUCTS AND PARTS TOP 25 STATES (Value in Thousands of Dollars)

Compound Percent Annual State 2008 2009 2010 Change Growth Rate 2009-2010 2005-2010

All States $85,680,508 $84,477,575 $81,052,309 -4.1% 4.6% Washington 21,492,667 26,479,191 23,317,151 -11.9 8.9 Connecticut 6,284,084 6,241,407 6,812,324 9.1 12.2 California 7,865,308 6,682,727 6,095,410 -8.8 -8.1 Ohio 4,755,124 4,117,563 4,630,402 12.5 11.4 Texas 5,719,291 4,893,430 4,489,369 -8.3 -0.4 Florida 3,848,091 3,976,625 4,450,928 11.9 8.3 Georgia 3,314,494 3,442,375 4,283,182 24.4 8.3 Kentucky 4,080,965 4,720,585 3,571,313 -24.3 4.8 New York 3,072,767 2,700,771 2,429,637 -10.0 -6.0 Kansas 4,324,056 2,867,981 2,143,511 -25.3 -0.2 Arizona 2,749,138 2,148,278 2,002,675 -6.8 -2.9 North Carolina 1,066,053 1,311,913 1,451,691 10.7 22.9 New Jersey 1,551,875 1,461,491 1,315,447 -10.0 3.8 Tennessee 935,228 1,018,611 1,114,516 9.4 7.4 Illinois 1,417,329 1,125,943 1,036,393 -8.0 7.9 Pennsylvania 859,761 832,461 987,410 18.6 6.9 Indiana 808,244 750,963 960,096 27.8 7.2 Michigan 571,297 525,225 945,192 80.0 13.9 Virginia 1,095,330 848,600 892,978 5.2 9.5 Missouri 1,150,713 426,650 827,966 94.1 4.5 Massachusetts 803,545 835,084 686,117 -17.8 18.2 District of Columbia 429,800 521,326 677,678 30.0 10.0 Maryland 611,903 664,245 521,666 -21.5 -2.2 Arkansas 1,410,200 1,678,855 516,855 -69.2 -9.1 Minnesota 378,656,196 294,404 497,476 69.0 8.2

Source: Aerospace Industries Association, based on data from the U.S. Census Bureau. Note: Totals may not match totals provided in other AIA reports due to different Census Bureau survey methods. Appendix 271

Workforce

ANNUAL AVERAGE EMPLOYMENT IN ALL MANUFACTURING, DURABLE GOODS, AND AEROSPACE INDUSTRIES Calendar Years 1986–2010 (Thousands)

Aerospace Industrya Durable All Mfg. Year Goods As Percent of: Industries Industries Total Durable All Mfg. Goods 1986 17,552 10,795 1,241 7.1 11.5 1987 17,609 10,767 1,282 7.3 11.9 1988 17,906 10,969 1,294 7.2 11.8 1989 17,985 11,004 1,314 7.3 11.9 1990(b) 17,695 10,737 1,121 6.3 10.4 1991 17,068 10,220 1,040 6.1 10.2 1992 16,799 9,946 936 5.6 9.4 1993 16,774 9,901 825 4.9 8.3 1994 17,020 10,132 728 4.3 7.2 1995 17,241 10,373 673 3.9 6.5 1996 17,237 10,486 672 3.9 6.4 1997 17,419 10,705 714 4.1 6.7 1998 17,560 10,911 741 4.2 6.8 1999 17,322 10,831 709 4.1 6.5 2000 17,263 10,877 666 3.9 6.1 2001 16,441 10,336 661 4.0 6.4 2002 15,259 9,485 618 4.1 6.5 2003 14,510 8,964 587 4.0 6.5 2004 14,315 8,925 592 4.1 6.6 2005 14,226 8,956 612 4.3 6.8 2006 14,155 8,981 632 4.5 7.0 2007 13,879 8,808 647 4.7 7.3 2008 13,406 8,463 660 4.9 7.8 2009 11,847 7,284 644 5.4 8.8 2010 11,524 7,067 624 5.4 8.8

Source: Bureau of Labor Statistics and Aerospace Industries Association estimates. a. See Glossary for detailed explanation of Aerospace Employment . b. BLS discontinued reporting employment-related statistics using the SIC in 2003; the NAICS is now used. Prior years (back to 1990) revised for consistency. 272 Aerospace Industry Report 2011

ANNUAL PAYROLL: ALL MANUFACTURING AND AEROSPACE INDUSTRIES Calendar Years 1986–2010 (Millions of Dollars)

Aerospace Industry Aerospace All as Percent Year Manufacturing Production Other of All Industries TOTAL Workers Workers Manufacturing

1986 $480,700 $31,994 $11,825 $20,170 6.7 1987 496,900 33,677 12,534 21,143 6.8 1988 529,900 35,262 12,581 22,681 6.7 1989 547,900 36,982 13,327 23,655 6.7 1990 561,300 35,635 14,360 21,276 6.3 1991 562,300 34,643 13,839 20,804 6.2 1992 583,400 33,262 13,053 20,209 5.7 1993 592,300 30,521 11,821 18,700 5.2 1994 620,400 28,471 10,964 17,506 4.6 1995 647,400 26,696 10,267 16,430 4.1 1996 673,600 28,075 11,179 16,896 4.2 1997 717,600 31,687 13,374 18,313 4.4 1998 675,200 33,083 14,084 18,999 4.9 1999 697,100 31,276 14,275 18,396 4.5 2000 749,300 31,490 13,513 19,143 4.2 2001(a) 704,095 40,903 13,641 27,262 5.8 2002 670,677 40,700 12,330 28,370 6.1 2003 663,931 40,528 12,023 28,505 6.1 2004 682,379 42,727 12,490 30,237 6.3 2005 699,396 45,972 14,318 31,654 6.6 2006 725,669 50,389 18,748 31,641 6.9 2007 739,918 52,355 23,023 29,332 7.1 2008 728,017 54,131 (D) (D) 7.4 2009 648,066 54,196 (D) (D) 8.4 2010(P) 639,155 53,461 (D) (D) 8.4

Source: U.S. Department of Labor, Bureau of Labor Statistics; Bureau of Economic Analysis, Survey of Current Business ; and Aerospace Industries Association estimates. a. Due to changes in BLS survey methodology (the North American Industry Classification System (NAICS) replaced the Standard Industrial Classification (SIC)), some aerospace industry employment-related statistics reported prior to 2001 may not be directly comparable to those reported from 2001 onward, although overall trends should be retained. D. In 2008, BLS discontinued reporting 'Production Workers' within the data series 'Search, Detection, and Navigation Instruments,' a component of 'Total Aerospace.' P. Preliminary. Appendix 273

EMPLOYMENT IN THE AEROSPACE INDUSTRYa Calendar Years 1996–2010 (Thousands)

Aircraft Related Missiles, Search, Space Detection, & Year TOTAL Vehicles, & Navigation Other Parts Engines & Parts Instruments Total Aircraft & Parts Equipment ALL WORKERS 1996 672 432 249 92 91 82 158 1997 714 472 271 97 104 83 159 1998 741 495 282 101 113 84 163 1999 709 468 263 99 106 79 161 2000 666 438 243 98 98 78 149 2001 661 435 241 96 98 77 150 2002 618 397 220 88 89 74 148 2003 587 372 209 81 82 70 145 2004 592 370 207 79 84 72 151 2005 612 380 211 82 87 75 157 2006 632 399 222 84 92 76 158 2007 647 414 230 85 98 75 158 2008 660 429 237 87 104 78 153 2009 644 415 235 82 97 78 151 2010 624 403 229 77 98 75 147 PRODUCTION WORKERS 1996 317 226 127 55 52 24 67 1997 346 261 112 60 52 23 62 1998 361 275 115 61 57 23 63 1999 337 252 132 55 68 22 63 2000 304 227 139 54 75 21 56 2001 297 226 127 54 70 19 53 2002 263 204 110 50 63 16 44 2003 250 189 109 45 64 15 45 2004 244 185 97 44 57 13 46 2005 270 192 93 46 51 21 57 2006 327 214 89 54 52 39 74 2007 360 243 90 63 56 47 70 2008 367 (D) 112 (D) 75 (D) 64 2009 355 (D) 113 (D) 71 (D) 62 2010 336 (D) 111 (D) (D) (D) 60

Source: Bureau of Labor Statistics and Aerospace Industries Association estimates. Notes: BLS discontinued reporting employment-related statistics using the SIC in 2003; the NAICS is now used. Prior years revised for consistency. Values may not sum to total due to rounding.

a. Annual average. D. Series discountinued by BLS. 274 Aerospace Industry Report 2011

AVERAGE WEEKLY EARNINGS IN THE AEROSPACE INDUSTRY Production Workers Only Calendar Years 1996–2010

Aircraft, Engines, & Parts Missiles, Search, TOTALa Space Detection, & Year Other Aerospace Engines Vehicles, Navigation TOTALa Aircraft Parts & & Parts & Parts Instruments Equipment

AVERAGE WEEKLY EARNINGS

1996 $774 $808 $861 $837 $675 $745 $668 1997 818 851 919 863 708 792 687 1998 822 855 932 865 704 794 692 1999 816 849 923 883 686 803 687 2000 855 902 992 924 726 803 681 2001 882 929 1,025 955 744 848 694 2002 901 936 1,025 968 757 906 732 2003 927 963 1,033 1,024 780 941 771 2004 984 1,021 1,117 1,112 780 999 829 2005 1,020 1,075 1,205 1,131 818 1,038 829 2006 1,103 1,154 1,297 1,183 891 1,146 930 2007 1,230 1,227 1,349 1,294 966 1,368 1,146 2008 1,305 (D) 1,382 (D) 997 (D) (D) 2009 1,399 (D) 1,460 (D) 1,073 (D) (D) 2010 1,452 (D) 1,486 (D) (D) (D) (D)

AVERAGE HOURLY EARNINGS IN THE AEROSPACE INDUSTRY Production Workers Only Calendar Years 1996–2010

Aircraft, Engines, & Parts Missiles, Search, TOTALa Space Detection, & Year Other Aerospace Engines Vehicles, Navigation TOTAL Aircraft Parts & & Parts & Parts Instruments Equipment

1996 $17.82 $18.68 $20.48 $18.76 $15.00 $17.15 $15.13 1997 18.25 18.90 20.76 19.12 15.31 18.23 15.31 1998 18.60 19.18 21.09 19.48 15.55 18.71 15.87 1999 19.02 19.64 21.79 20.04 15.61 18.91 16.31 2000 19.81 20.52 23.07 20.76 16.23 19.31 16.69 2001 20.57 21.25 24.06 21.27 16.83 19.92 17.46 2002 21.46 22.08 24.94 21.95 17.68 20.65 18.37 2003 22.27 22.93 25.41 23.50 18.36 21.44 19.29 2004 23.36 23.93 26.87 24.87 18.36 22.90 20.90 2005 23.91 24.82 28.37 25.41 18.82 24.26 20.53 2006 25.43 26.31 29.84 26.23 20.17 26.84 22.39 2007 28.18 28.40 30.52 28.87 22.10 31.90 27.27 2008 29.93 N/A 31.78 (D) 23.03 (D) (D) 2009 32.25 N/A 33.06 (D) 24.35 (D) (D) 2010 33.66 N/A 33.95 (D) (D) (D) (D)

AVERAGE HOURS IN THE AEROSPACE INDUSTRY Production Workers Only Calendar Years 1996–2010

Aircraft, Engines, & Parts Missiles, Search, TOTALa Space Detection, & Year Other Aerospace Engines Vehicles, Navigation TOTAL Aircraft Parts & & Parts & Parts Instruments Equipment

AVERAGE WEEKLY HOURS

1996 43.5 43.4 42.0 44.6 45.0 42.5 44.2 1997 44.8 44.8 44.3 45.1 46.3 42.5 44.9 1998 44.2 44.3 44.2 44.4 45.3 41.4 43.6 1999 42.8 43.0 42.4 44.1 43.9 40.8 42.1 2000 43.1 43.6 43.0 44.5 44.7 41.1 40.8 2001 42.7 43.4 42.6 44.9 44.2 41.0 39.7 2002 41.9 42.3 41.1 44.1 42.9 41.8 39.8 2003 41.6 41.9 40.7 43.6 42.5 42.1 40.0 2004 42.1 42.6 41.6 44.7 42.5 42.8 39.7 2005 42.6 43.2 42.5 44.5 43.5 42.6 40.4 2006 43.3 43.8 43.5 45.1 44.2 42.2 41.6 2007 43.6 44.0 44.2 45.1 43.7 42.5 42.1 2008 43.6 N/A 43.5 (D) 43.3 (D) (D) 2009 43.4 N/A 44.2 (D) 44.1 (D) (D) 2010 43.1 N/A 43.8 (D) (D) (D) (D)

AVERAGE WEEKLY OVERTIME HOURS

1996 6.3 7.2 6.0 7.1 9.9 4.6 3.6 1997 7.7 8.5 8.0 7.4 11.4 5.7 4.0 1998 6.6 7.3 6.6 6.6 9.8 5.2 3.5 1999 5.1 5.6 4.7 5.9 6.8 6.3 3.0 2000 5.4 5.8 5.1 6.6 6.9 4.1 3.7 2001 5.2 5.6 4.6 6.7 6.9 3.8 3.2 2002 4.7 5.0 4.4 6.0 5.6 3.4 3.2 2003 4.7 5.2 4.8 6.1 5.5 3.9 2.7 2004 5.1 5.5 4.4 6.9 6.2 5.5 3.2 2005 5.2 5.7 4.8 6.7 6.4 5.5 3.3 2006 5.0 5.5 4.8 6.1 6.0 5.7 3.3 2007 4.7 5.1 5.0 5.4 5.9 3.7 3.0 2008 4.8 N/A 5.4 (D) 5.0 (D) (D) 2009 4.6 N/A 5.8 (D) 4.8 (D) (D) 2010 4.7 N/A 5.5 (D) (D) (D) (D)

WORK STOPPAGES IN THE AEROSPACE INDUSTRY Calendar Years 1986–2010

Number of Number of Work-Days Year Workers Strikesa Idle in Year Involved

1986b - - - 1987 - - - 1988 3 10,600 415,800 1989 2 58,500 1,848,000 1990 1 2,300 56,700

1991 1 1,500 - 1992 1 3,800 11,400 1993 2 27,800 34,600 1994 - - - 1995 1 33,000 1,551,000

1996 2 7,800 90,100 1997 - - - 1998 - - - 1999 - - - 2000 3 22,400 566,400

2001 1 5,000 45,000 2002 3 7,500 118,100 2003 1 4,000 40,000 2004 - - - 2005 3 22,800 441,300

2006 3 6,600 194,800 2007 - - - 2008 2 32,200 1,151,800 2009 1 2,500 67,500 2010 1 1,700 30,600

Source: Bureau of Labor Statistics, Compensation and Working Conditions. a. Strikes beginning during calendar year. b. Effective 1982, data not available for work stoppages involving fewer than 1,000 employees. 278 Aerospace Industry Report 2011

OCCUPATIONAL INJURY AND ILLNESS INCIDENCE RATESa ALL MANUFACTURING AND AEROSPACE INDUSTRIES Calendar Years 2006–2009

MANUFACTURING SECTOR 2006 2007 2008 2009

All Manufacturing: Total Cases 6.0 5.6 5.0 4.3 Lost Workday Cases 1.4 1.3 1.2 1.0 Non-Fatal Cases Without Lost Workdays 2.7 2.5 2.3 2.0

Total Aerospace: Total Cases 4.2 3.9 3.6 3.3 Lost Workday Cases 0.9 0.9 0.7 0.7 Non-Fatal Cases Without Lost Workdays 2.0 1.8 1.7 1.5

Aircraft Manufacturing: Total Cases 4.4 4.1 3.7 3.7 Lost Workday Cases 1.0 1.0 0.8 0.8 Non-Fatal Cases Without Lost Workdays 1.9 1.7 1.5 1.5

Aircraft Engine and Engine Parts Manufacturing: Total Cases 3.7 3.6 3.4 2.9 Lost Workday Cases 0.9 0.9 0.7 0.7 Non-Fatal Cases Without Lost Workdays 2.0 1.8 1.9 1.5

Other Aircraft Parts and Auxiliary Equipment Manufacturing: Total Cases 6.3 5.3 4.9 4.2 Lost Workday Cases 1.2 1.1 0.8 0.9 Non-Fatal Cases Without Lost Workdays 3.3 2.6 2.6 2.1

Guided Missile and Space Vehicle Manufacturing: Total Cases 1.2 1.3 1.1 1.0 Lost Workday Cases 0.3 0.3 0.3 0.2 Non-Fatal Cases Without Lost Workdays 0.6 0.6 0.5 0.5

Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing: Total Cases 2.0 2.1 1.8 1.7 Lost Workday Cases 0.5 0.5 0.4 0.4 Non-Fatal Cases Without Lost Workdays 0.9 0.9 0.9 1.0

Source: Bureau of Labor Statistics, Survey of Occupational Injuries and Illnesses. a. Defined as the number of injuries and illness cases per 100 full-time workers. Appendix 279

FEDERAL CIVILIAN EMPLOYMENT IN THE DEPARTMENT OF DEFENSE Fiscal Years 1981–2010

Civil Military Year Total Functions Functions

1981 984,183 34,400 949,783 1982 989,633 31,111 958,522 1983 1,026,461 30,816 995,645 1984 1,043,747 28,681 1,015,066 1985 1,084,549 28,754 1,055,795 1986 1,067,974 28,511 1,039,463 1987 1,090,018 28,352 1,061,666 1988 1,049,619 28,419 1,021,200 1989 1,075,437 28,081 1,047,356 1990 1,034,152 27,651 1,006,501 1991 1,012,716 27,385 985,331 1992 982,774 27,584 955,190 1993 921,179 27,055 894,124 1994 879,878 28,001 851,877 1995 831,806 27,790 804,016 1996 795,813 27,823 767,990 1997 749,461 26,429 723,032 1998 717,901 25,349 692,552 1999 690,706 25,027 665,679 2000 676,268 25,021 651,247 2001 668,364 24,027 644,337 2002 666,560 24,797 641,763 2003 660,267 25,081 635,186 2004 664,666 23,601 641,065 2005 667,946 22,455 645,491 2006 671,469 22,704 648,765 2007 669,539 21,644 647,895 2008 689,866 21,796 668,070 2009 731,205 23,750 707,455 2010 765,048 24,559 740,489

Source: Office of the Assistant Secretary of Defense - Public Affairs, DoD Personnel and Procurement Statistics. 280 Aerospace Industry Report 2011

U.S. AEROSPACE INDUSTRY EMPLOYMENT: TOP 25 STATES

Percent State 2007 2008 2009 Change 2008-2009

U.S. TOTAL 646,800 659,800 644,200 -2.4% California 118,532 116,957 112,903 -3.5 Washington 81,932 84,697 84,600 -0.1 Texas 55,069 55,996 55,926 -0.1 Kansas 42,122 44,383 38,432 -13.4 Arizona 35,837 36,561 38,698 5.8 Connecticut 32,767 33,463 32,366 -3.3 Florida 29,021 29,767 29,442 -1.1 Georgia 19,315 19,990 20,213 1.1 New York 19,043 19,413 19,181 -1.2 Ohio 17,456 18,198 17,428 -4.2 Massachusetts 17,457 17,885 17,907 0.1 Missouri 14,922 15,049 15,374 2.2 Alabama 13,723 14,278 14,728 3.2 Pennsylvania 10,297 11,715 11,934 1.9 New Jersey 10,194 10,222 9,699 -5.1 Colorado 10,815 10,091 9,966 -1.2 Indiana 8,843 8,735 8,635 -1.1 Oklahoma 5,732 6,121 5,421 -11.4 Michigan 5,713 5,849 5,380 -8.0 Illinois 5,282 5,508 5,475 -0.6 Arkansas 3,993 4,690 4,436 -5.4 North Carolina 4,301 4,018 3,900 -2.9 Oregon 3,704 3,963 3,405 -14.1 Louisiana 3,202 3,221 3,000 -6.9 Kentucky ND 3,014 3,286 9.0

Source: Aerospace Industries Association, based on data from the Bureau of Labor Statistics. ND: Not Disclosable – data do not meet BLS or State agency disclosure standards. Appendix 281

AEROSPACE MANUFACTURING EMPLOYMENT BY AGE GROUP (Thousands of Employees)

Calendar Year 2010

Aerospace Aircraft Percent Age Products Total & Parts of Total & Parts 16-19 2 1 3 0.4% 20-24 25 11 36 4.6 25-34 54 70 124 15.8 35-44 85 85 170 21.6 45-54 138 127 265 33.7 55-64 71 88 159 20.2 65+ 9 21 30 3.8 Total 16+ 383 403 786 100.0 Median Age 46.2 47.9

Calendar Year 2009

Aerospace Aircraft Percent Age Products Total & Parts of Total & Parts 16-19 3 1 4 0.5% 20-24 19 19 38 4.5 25-34 60 65 125 15.0 35-44 96 83 179 21.4 45-54 150 143 293 35.0 55-64 65 93 158 18.9 65+ 18 20 38 4.5 Total 16+ 411 425 836 100.0 Median Age 45.3 47.7

Source: Bureau of Labor Statistics, Current Population Survey. Note: This page uses employment data from a different BLS survey than is used elsewhere in Aerospace Facts & Figures . 282 Aerospace Industry Report 2011

U.S. DEGREES AWARDED IN SELECTED ENGINEERING DISCIPLINES

Percent Percent 2007 2008 2009 Change Change 2008-2009 1999-2009

Bachelors: Aerospace ...... 2,788 2,930 3,057 4.3% 160.4% Computer ...... 4,046 3,808 3,394 (10.9) 8.9 Electrical ...... 11,467 10,790 9,859 (8.6) (10.0) Mechanical ...... 16,701 17,324 17,375 0.3 35.1

Masters: Aerospace ...... 1,056 1,096 1,075 (1.9) 67.7 Computer ...... 1,479 1,662 1,880 13.1 59.7 Electrical ...... 5,026 5,735 6,137 7.0 55.0 Mechanical ...... 4,485 4,674 4,757 1.8 43.8

Doctoral: Aerospace ...... 259 252 276 9.5 32.7 Computer ...... 193 219 230 5.0 164.4 Electrical ...... 1,064 1,006 959 (4.7) 47.3 Mechanical ...... 1,161 1,140 1,216 6.7 44.4

Source: American Society for Engineering Education, Engineering By The Numbers. Appendix 283

Finance

INCOME STATEMENT AND OPERATING RATIOS FOR AEROSPACE COMPANIESa Calendar Years 2007–2010 (Millions of Dollars)

INCOME STATEMENT 2007 2008 2009 2010

Net Sales, Receipts, Operating Revenues ...... $229,622 $240,213 $238,571 $241,863 Less: Depreciation, Depletion, & Amortization of Property, Plant, and Equipment ...... 4,332 4,679 4,761 4,987 Less: All Other Operating Costs & Expenses, including Selling Costs & General & Administrative Expenses ...... 201,867 212,583 213,865 216,997 Income (or Loss) from Operations ...... $23,423 $22,952 $19,944 $19,877 Net Non-Operating Income (Expense) ...... 1,518 (2,164) 959 1,393 Income (or Loss) before Income Taxes (= Total Income) ...... $24,942 $20,789 $20,904 $21,271 Less: Provision for Current & Deferred Domestic Income Taxes ...... 6,225 6,220 4,702 4,891 Income (or Loss) after Income Taxes (= Net Profit) ...... $18,715 $14,568 $16,200 $16,379 Cash Dividends Charged to Retained Earnings ...... 4,835 5,820 6,038 6,411 Net Income Retained in Business ...... $13,882 $8,748 $10,163 $9,967 Retained Earnings at Beginning of Year(b) ...... 74,094 85,038 88,169 93,934 Adjustments to Retained Earnings(c) ...... (5,435) (2,101) (3,331) (4,888) Retained Earnings at End of Year(d) ...... $82,539 $91,685 $95,000 $99,014

OPERATING RATIOS

Income before Taxes as Percent of Net Sales ...... 10.9% 8.7% 8.8% 8.8% Provision for Current & Deferred Domestic Income Taxes as Percent of Income before Taxes (Total Income) ...... 25.0 29.9 22.5 23.0 Income after Taxes (Net Profit) as Percent of Net Sales ...... 8.2 6.1 6.8 6.8 Income after Taxes (Net Profit) as Percent of Stockholders’ Equity ...... 22.0 27.7 24.8 22.2 Income after Taxes (Net Profit) as Percent of Total Assets ...... 6.3 4.8 5.2 5.4

Source: Bureau of the Census, Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations. a. Based on sample of corporate entities classified in NAICS code 3364, having as their principal activity the manufacture of aerospace products and parts. b. Beginning-of-year retained earnings for any particular year do not equal end-of-year retained earnings for the previous year because of rotation of small companies in survey sample. c. Other direct credits (or charges) to retained earnings (net), including stock and other non-cash dividends, etc. d. Retained Earnings at End-of-Year CALCULATED AS Retained Earnings at Beginning-of-Year PLUS Income (Loss) after Income Taxes MINUS Cash Dividends Charged to Retained Earnings PLUS Adjustments to Retained Earnings. 284 Aerospace Industry Report 2011

BALANCE SHEET FOR AEROSPACE COMPANIESa As of End-of-Year, 2007–2010 (Millions of Dollars)

2007 2008 2009 2010

ASSETS: Current Assets: Cash ...... $13,401 $9,253 $14,903 $12,647 Securities, Commercial Paper, & Other Short-term Financial Investments ...... 2,904 2,217 6,449 5,432 Total Cash and US Government and Other Securities ...... $16,305 $11,470 $16,470 $19,950 Receivables (Total) ...... 67,191 67,981 75,132 46,296 Inventories (Gross) ...... 52,129 67,462 66,113 78,110 Other Current Assets ...... 21,533 14,080 14,099 14,623 Current Assets—TOTAL ...... $157,158 $160,993 $176,696 $158,980 Net Plant, Property, & Equipment ...... 29,103 31,407 30,916 33,549 Other Non-Current Assets ...... 110,459 109,189 106,864 113,479 Assets—TOTAL ...... $296,720 $301,589 $314,476 $306,008

LIABILITIES: Current Liabilities: Short Term Loans ...... $3,154 $3,060 $1,089 $1,011 Trade Accounts & Notes Payable ...... 17,306 18,666 17,735 19,192 Income Taxes Accrued ...... 264 496 773 63 Installments Due on Long Term Debts ...... 2,129 4,272 2,706 2,103 Other Current Liabilities ...... 113,418 116,806 121,799 99,044 Current Liabilities—TOTAL ...... $136,270 $143,299 $144,102 $121,413 Long Term Debt ...... 35,887 41,453 49,739 51,605 Other Non-Current Liabilities ...... 39,388 64,157 55,394 59,088 Liabilities—TOTAL ...... $211,546 $248,909 $249,233 $232,107

Stockholders’ Equity: Capital Stock ...... $814 ($36,010) ($28,875) ($25,642) Retained Earnings ...... 84,361 88,690 94,118 99,543 Stockholders’ Equity—TOTAL ...... $85,175 $52,680 $65,243 $73,901

Liabilities & Stockholders’ Equity TOTAL ...... $296,720 $301,589 $314,476 $306,008

Net Working Capital ...... $20,888 $17,694 $32,594 $37,567

NET PROFIT AFTER TAXES AS A PERCENT OF SALES, ASSETS, AND EQUITY FOR ALL MANUFACTURING CORPORATIONS AND THE AEROSPACE INDUSTRY Calendar Years 1996–2010

Percent of Sales All Non-Durable Durable Aerospacea Year Manufacturing Goods Goods Industry 1996 6.0 6.6 5.5 5.6 1997 6.2 6.6 5.8 5.2 1998 6.0 6.1 5.9 5.0 1999 6.2 6.2 6.2 6.5 2000 6.1 6.9 5.4 4.7 2001 0.8 5.7 (3.3) 3.9 2002 3.3 6.0 1.1 4.1 2003 5.4 7.1 3.9 4.2 2004 7.1 8.0 6.2 5.2 2005 7.4 9.0 5.9 6.4 2006 8.1 9.7 6.6 6.7 2007 7.3 9.3 5.3 8.2 2008 4.1 6.5 1.5 6.1 2009 5.5 8.6 2.0 6.8 2010 8.3 8.0 8.5 6.8

Percent of Assetsb Percent of Equityb All Aerospacea All Aerospacea Year Manufacturing Industry Manufacturing Industry 1996 6.5 5.1 16.8 17.1 1997 6.6 4.8 16.6 17.3 1998 6.1 4.8 15.7 18.0 1999 6.1 6.2 16.5 21.8 2000 5.9 4.3 15.2 14.2 2001 0.8 3.6 1.9 11.6 2002 2.9 3.7 7.7 11.7 2003 4.7 3.3 12.2 12.3 2004 6.5 4.0 15.9 14.3 2005 6.9 4.7 16.4 16.8 2006 7.6 5.1 17.5 18.4 2007 6.7 6.7 15.2 24.5 2008 3.8 4.7 8.8 16.6 2009 4.1 5.2 12.7 24.8 2010 6.6 5.5 15.1 23.0

Source: Bureau of the Census, Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations. a. Based on a sample of corporate entities classified in NAICS code 3364, having as their principal activity the manufacture of aerospace products and parts. Prior to 2001, data categorized using the SIC system and reported combining codes 372 and 376. b. Average of four quarters. ( ) Net loss after taxes. 286 Aerospace Industry Report 2011

CAPITAL EXPENDITURES Calendar Years 1981–2009 (Millions of Dollars)

All Year Manufacturing Aerospacea Aircraft Missiles Industries

1981 $78,632 $2,006 $1,637 $369 1982 74,562 2,142 1,680 462 1983 61,931 2,159 1,530 629 1984 75,186 3,050 2,091 960 1985 83,058 3,784 2,429 1,356 1986 76,355 4,145 2,818 1,327 1987 78,650 3,612 2,536 1,075 1988 81,593 3,388 2,362 1,026 1989 98,738 3,921 2,800 1,121 1990 105,018 3,490 2,621 869 1991 103,003 3,407 2,823 584 1992 103,188 3,860 3,384 476 1993 103,133 2,725 2,307 418 1994 112,784 2,363 1,969 395 1995 128,473 2,114 1,734 380 1996 139,323 2,513 2,023 490 1997(b) 151,511 3,132 2,380 752 1998 152,708 3,477 2,613 864 1999 150,325 3,422 2,338 1,084 2000 154,479 2,326 1,894 432 2001 143,083 2,449 2,059 390 2002 123,067 2,842 2,354 488 2003 112,176 2,389 1,859 530 2004 113,793 2,164 1,784 380 2005 128,292 2,981 2,247 734 2006 135,801 2,889 2,424 465 2007 155,776 3,125 2,711 414 2008 130,081 3,644 3,168 476 2009 166,086 3,040 2,541 499

Source: Bureau of the Census, Annual Survey of Manufacturers. a. Combined total for establishments in Aircraft, Missiles, Space Vehicles, and Parts Manufacturing. b. Prior to 1997, figures included only new capital expenditures. Appendix 287

KEY OPERATING COSTS FOR SELECTED AEROSPACE MANUFACTURING CENTERS As of 2011

Total Annual Hourly Land Cost Power State Location Operating Costa Labor per Acre (¢/kwh) (in millions) Cost (in thousands)

CA San Jose/Sunnyvale $29.31 $27.61 11.90 $1,181.71 CA Los Angeles/Torrance 28.42 26.21 10.64 1,400.00 MA Boston/Lexington 27.10 26.07 11.48 220.00 WA Seattle/Everett/Renton 27.00 25.69 7.24 530.00 CT East Hartford/Middletown/Cheshire 26.10 25.57 16.78 152.00 MD Bethesda/Rockville/Gaithersburg 25.83 24.77 10.16 600.00 MA Worcester/Marlborough 25.51 24.34 10.34 143.00 IL Chicago 25.37 25.17 10.95 425.00 CA Riverside/San Bernardino 25.23 25.03 10.64 339.00 PA Philadelphia/King of Prussia 24.99 24.80 7.47 290.00 NY Rochester 24.14 24.18 9.11 60.00 AZ Phoenix/Mesa 24.05 23.06 7.47 506.00 MN Minneapolis/St. Paul 24.04 24.33 5.94 270.00 ME North Berwick/Portland 23.66 22.59 13.66 109.00 CO Denver/Boulder 23.46 24.41 5.91 196.00 OH Cleveland 23.22 23.63 8.03 109.80 TX Houston 23.11 23.95 9.33 139.00 OH Cincinnati 22.60 23.20 7.00 74.00 MO St. Louis 22.54 23.16 4.52 201.00 TX Dallas/Ft. Worth/Irving 22.53 23.57 7.91 130.00 NC Charlotte 22.19 23.06 4.31 102.90 OK Tulsa 21.88 22.24 4.85 68.00 FL Pensacola 21.81 21.63 8.93 61.00 GA Savannah 21.71 22.06 6.86 58.80 SC Greenville/Spartanburg 21.03 22.01 4.96 55.00 IA Cedar Rapids 21.00 22.13 4.68 85.75

(Continued on next page) 288 Aerospace Industry Report 2011

KEY OPERATING COSTS FOR SELECTED AEROSPACE MANUFACTURING CENTERS As of 2011, continued

Construction Property Tax Sales Tax Location ($/sq ft) (per $1,000) (state and local)

$104.22 $11.00 $9.25 San Jose/Sunnyvale 97.17 11.50 9.75 Los Angeles/Torrance 100.22 32.68 6.25 Boston/Lexington 89.52 12.10 9.50 Seattle/Everett/Renton 92.22 37.69 6.00 East Hartford/Middletown/Cheshire 98.30 24.00 6.00 Bethesda/Rockville/Gaithersburg 92.44 26.92 6.25 Worcester/Marlborough 97.30 26.03 10.25 Chicago 93.27 10.90 8.75 Riverside/San Bernardino 95.55 25.40 8.00 Philadelphia/King of Prussia 86.60 31.10 8.00 Rochester 73.29 23.80 8.30 Phoenix/Mesa 91.03 40.39 7.75 Minneapolis/St. Paul 77.84 25.00 5.00 North Berwick/Portland 82.71 32.26 7.72 Denver/Boulder 87.60 21.54 7.75 Cleveland 72.36 22.50 8.25 Houston 92.20 23.41 6.50 Cincinnati 88.54 17.00 8.24 St. Louis 70.51 24.60 8.25 Dallas/Ft. Worth/Irving 62.16 12.40 8.25 Charlotte 66.35 14.60 8.52 Tulsa 62.14 16.90 7.50 Pensacola 63.44 20.30 7.00 Savannah 56.81 19.65 6.00 Greenville/Spartanburg 77.00 17.60 7.00 Cedar Rapids

Source: BizCosts.com. Twenty-six of 62 major U.S. aerospace markets surveyed in 2011 Comparative Aerospace Industry Manufacturing Costs. BizCosts® is the proprietary data bank of The Boyd Company, Inc., Location Consultants, Princeton, NJ. a. Based on a representative 250-worker aerospace manufacturing plant occupying 150,000 sq. ft. on a 25-acre industrially zoned site. Appendix 289

DEPARTMENT OF DEFENSE MAJOR CONTRACTORS Fiscal Years 2006–2010 (Millions of Dollars)

2006 2007 2008 2009 2010

TOTAL CONTRACT AWARDS $299,133 $333,055 $391,448 $378,346 $371,987

Lockheed Martin Corp. $26,992 $27,934 $28,896 $30,233 $26,951 The Boeing Co. 19,891 22,623 22,177 20,464 17,952 Northrop Grumman Corp. 15,727 17,023 17,132 16,064 14,305 Raytheon Co. 9,788 11,287 13,976 15,284 14,269 General Dynamics Corp. 12,122 14,036 15,155 15,997 14,261 Oshkosh Corp. 988 2,344 1,863 6,392 7,179 L-3 Communications Holdings 4,996 6,059 6,816 7,063 6,895 United Technologies Corp. 4,600 5,311 8,230 7,040 6,473 BAE Systems PLC 5,950 9,039 15,945 6,764 6,229 SAIC, Inc. 3,195 3,586 3,891 5,037 4,803 KBR, Inc. 5,979 4,809 5,997 4,681 3,577 Humana Inc. 2,645 (a) 2,958 3,434 3,216 Health Net, Inc. 2,119 (a) 2,438 2,834 2,960 General Electric Co. 2,461 2,520 3,525 3,442 2,890 Computer Sciences Corp. 2,088 2,414 2,904 2,827 2,812 Triwest Healthcare Alliance Corp. 2,022 (a) 2,367 2,661 2,713 ITT Corp. 2,312 2,148 4,551 3,708 2,545 Bell Boeing Joint Project Office 1,111 1,905 2,801 2,531 2,497 Harris Corp. 1,411 1,509 1,818 1,565 2,476 Textron Inc. 1,142 2,375 2,809 1,522 2,118 URS Corp. 1,880 2,000 2,098 2,212 2,110 Honeywell 1,643 1,647 1,747 1,864 1,855 Navistar Defense LLC 122 1,167 4,728 1,318 1,785 Finmeccanica Spa (a) (a) 2,088 1,802 1,675 The Public Warehousing Company 328 (a) 2,141 2,040 1,309 Booz Allen Hamilton Inc. 1,223 1,545 1,896 1,725 1,242 Macandrews & Forbes Holdings 2,138 3,361 4,713 2,726 1,079 Hewlett-Packard Company 216 228 1,932 1,606 811 Emerson Construction Co. Inc. (a) (a) 13,931 (a) (a) Northrop Grumman Ship Systems (a) (a) 2,616 899 (a)

Source: Department of Defense, 100 Companies Receiving the Largest Dollar Volume of Prime Contract Awards. Note: Listed by rank according to net value of prime contracts awarded during last fiscal year. a. Not in top 100 companies for indicated year(s). 290 Aerospace Industry Report 2011

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION MAJOR CONTRACTORS Fiscal Years 2007–2010 (Millions of Dollars)

2007 2008 2009 2010

TOTAL PROCUREMENTS $14,363 $16,785 $16,727 $17,417 Awards to Business Firmsa 10,549 12,372 12,782 13,612 % of TOTAL PROCUREMENTS 73% 74% 76% 78%

Lockheed Martin Corp. $804 $1,250 $1,687 $1,972 United Space Alliance LLC 1,823 1,748 1,523 1,808 Boeing Satellite Systems Inc. 30 283 308 890 Jacobs Technology Inc. 564 695 676 809 ATK Launch Systems Inc. 561 595 660 573 Pratt & Whitney Rocketdyne Inc. 372 497 360 503 Russian Space Agency 100 200 387 341 Science Applications Int’l Corp. 357 365 348 319 SGT Inc. 150 276 278 301 United Launch Services LLC (b) 107 276 296 Northrop Grumman Space & Mission 249 304 302 264 Honeywell Technology Solutions 303 169 277 249 Orbital Sciences Corp. 58 101 162 198 Boeing Co. 516 552 673 196 CSC Applied Technologies 116 111 138 155 Wyle Laboratories 131 152 140 144 ASRC Aerospace Corp. 101 132 146 128 Space Gateway Support 278 267 48 126 Ball Aerospace & Tech Corp. 100 143 139 125 EG&G Technical Services (b) (b) (b) 116 ITT Industries Space Sys. 117 93 104 103 ABACUS Technologies (b) (b) (b) 103 MEI Technologies Inc. (b) (b) (b) 97 McDonnell Douglas Corp. 102 179 105 92 Computer Sciences Corp. 59 115 116 85 Hamilton Sundstrand Corp. 101 103 11 85 Teledyne Brown Engineering Inc. 65 97 78 72 ANALEX Corp. (b) (b) (b) 68 TRAX International Corp. (b) (b) (b) 66 Raytheon (b) (b) (b) 65

Source: National Aeronautics and Space Administration, Office of Procurement, Annual Procurement Report for Fiscal Year 2010. Note: Listed by rank according to net value of prime contracts awarded during last fiscal year. a. Awards are also given to non-business firms, which include educational institutions, non-profit organizations, the Jet Propulsion Laboratory, government agencies, and outside U.S. contracts. b. Not in top 100 companies for indicated year(s). 291

About the Authors

William A. Chadwick, Jr. Mr. William “Bill” Chadwick has been the Director of Research at the Aerospace Industries Association (AIA) in Arlington, Virginia since 2007. At AIA, he is the point-of-contact for all economic research conducted at the association. He also prepares the annual handbook Facts & Figures, a compendium of statistics and other information relating to the aerospace industry. Before coming to AIA, Bill was an International Trade Analyst at the U.S. International Trade Commission (ITC) in Washington, DC, where he researched and wrote extensively on matters relating to international trade policy, global market access, and the competitive marketplace dynamics facing U.S. services firms. Bill has a BA in Economics from Virginia Tech, a MA in International Affairs from George Mason University, and a degree certificate from St. Peter’s College at Oxford University. Mr. Chadwick can be reached at [email protected].

Bruce W. C. Ellis, MBA, Ph.D. Cantab Dr. Bruce Ellis is a Senior Aerospace Economist and Manufacturing Strategist in the Center for Aviation & Aerospace Leadership at Embry-Riddle Aeronautical University – Worldwide. He is an internationally recognized expert in aerospace and defense (A&D) strategic planning, economics, and cross border business development. Dr. Ellis conducted applied A&D research at the Georgia Tech Research Institute in Atlanta, Georgia, for six years and at the University of Cambridge, England, for three years. During this time, he provided high-level consulting for the U.S. Department of Defense, 292 Aerospace Industry Report 2011

developing strategic planning tools for its missiles and aerospace programs. He was significantly involved in the development of forward- looking aerospace manufacturing policy for 2000–2020 in the United Kingdom. He has also worked closely with A&D prime contractors, including small and medium-sized manufacturing companies around the world. Dr. Ellis co-authored Strategic Planning: High Impact Solutions and its accompanying workbook, designed to provide companies with a roadmap to growth and profitability. Dr. Ellis earned a B.S. from the University of Massachusetts; his M.B.A from Sloan School of Management at the Massachusetts Institute of Technology; and his Ph.D. in Manufacturing Engineering with a specialty in A&D International Business and Manufacturing Strategy from the University of Cambridge. His dissertation was Strategic Planning in the Global Aerostructures Industry. With dual citizenship in the U.S. and the U.K., Dr. Ellis currently resides in Atlanta, Georgia. He recently lived and worked in the Middle East and Europe, with additional projects in Asia. Dr. Ellis can be reached at [email protected].

Robert E. Mansfield, Jr., Brig. Gen., USAF (Ret.) Brig. Gen. Robert E. Mansfield, Jr., USAF (Ret.) is the Executive Director of the Center for Aviation & Aerospace Leadership at Embry-Riddle Aeronautical University – Worldwide. He served as Director of Supply for the U.S. Air Force at the Pentagon, and led the transformation of the USAF supply system. He held numerous assign- ments both at home and abroad leading major Air Force logistics and management operations. Gen. Mansfield served in a senior leadership role in the Lockheed- Martin Joint Strike Fighter program. He was the Director of the National Center for Aerospace Leadership, and principal investi- gator of the National Aerospace Leadership Initiative funded by the U.S. Congress. Gen. Mansfield holds a B.S. (cum laude) from the University of Arizona in Business Administration, and a M.S. from the Air Force Institute of Technology in Acquisition Logistics Management. He is a graduate of the Defense Systems Management College Program Manager’s Course and the Air War College. He is certified in Acquisition Logistics Management (level III) and Program Management (level II), and is a fully qualified Joint Service Officer. He has served on the Supply Chain Council’s Aerospace and Defense Special Industry Group (SIG) and chaired the Supply Chain Risk SIG. About the Authors 293

Gen. Mansfield is a member of the Clarkson University Business School’s Board of Advisors, Embry-Riddle Aeronautical University – Worldwide Board of Advisors, and the Missile Defense Agency’s Transforming Defense Supply Chains Technical Advisory Board. Mr. Mansfield is also a member of the board of the National Council for Advanced Manufacturing and for DSN Innovations. He was co-chair of the Michigan Governor’s BRAC Task Force in 2005. He was a member of the Defense Science Board 2006 Summer Study on 21st Century Strategic Technology Vectors. He is currently the chairman of the Manufacturing Committee for the Aerospace States Association. Gen. Mansfield can be reached at [email protected].

Robert Materna, Ph.D. CPL Dr. Materna is a Professor of Business Administration in the Center for Aviation & Aerospace Leadership at Embry-Riddle Aeronautical University Worldwide. Dr. Materna was a Command Pilot in Untied States Air Force, holds an Airline Transport Pilot rating, and served in a number of increasingly responsible positions in the areas of logistics management, acquisition logistics, and international logistics during his Air Force career. Dr Materna is also a Certified Professional Logistician (CPL). Prior to teaching for Embry-Riddle, he was an Officer Scholar and Associate Professor in the School of Systems and Logistics at the Air Force Institute of Technology. Dr. Materna’s teaching and research interests focus on logistics and supply chain management; international business; and leadership. He has been a frequent speaker at conferences all over the U.S., Europe, and Asia and has authored a number of white papers and professional articles in publications such as the Air Force Journal of Logistics, the International Society of Logistics’ Spectrum, and the Academy of International Business (SE) Journal on Research, Teaching and Practice. Most recently, he wrote a chapter on Air Transportation for a widely used college text on International Logistics. Dr. Materna was also selected as the Department of Business Administration’s Faculty of the Year in 2009. He is a graduate of the U.S. Air Force Academy and the Air Force Institute of Technology with a Ph.D. in Business Administration from Georgia State University. Dr. Materna can be reached at [email protected].

295

Acknowledgements

It is difficult to write a report like this without the encouragement and support of others – and we have many supporters to thank for their help during this project. First, we would like to thank Mr. Greg Fisher, who steadfastly assisted us during the early stages of data collection. We would also like to thank Mr. Charles Huettner, Executive Director of the Aerospace States Association, for his valuable insight into the challenges facing aerospace manufacturers from both a state and national perspective. Mr. K. Dunlop Scott, President and CEO of Columbia Partners, LLC, and two members of his staff, Ms. Ashley Rose Stumbaugh and Mr. Duncan Young, wrote significant portions of the chapter on finance and capital markets. Their comments on traditional and non-traditional lending sources and the financial obstacles facing small- to medium-size manufacturers were thoughtful, thorough, and extremely well done. We would also like to acknowledge the outstanding support provided by the Aviation Team in Manufacturing and Services at the International Trade Administration, U.S. Department of Commerce. Jonathan Chesboro, Ronald Green, Fred Elliot, Kit Rudd and Maureen Smith spent numerous hours checking data and reviewing drafts until we finally got it right. Special thanks also goes to Dr. Donald Hicks, Special Assistant, Office of the President, University of Texas at Dallas who, more than once, provided much needed encouragement; and to Mr. Joe Lubenstein, Marcum Cronus Partners, LLC who expanded our understanding of how investment banks can assist small- to middle-market firms in meeting their cash and capital investment needs. Finally, the authors would like to thank Ms. Marion Blakey, President and CEO of the Aerospace Industries Association and Dr. John Watret, Executive Vice President of Embry-Riddle Aeronautical University– Worldwide, for the encouragement they provided throughout every phase of this project. Without their support, this report would not have been possible.

Photo Credits:

Chap. 1: F-35 fighters (Credit: Lockheed Martin Corporation)

Chap. 2: Boeing 787 Dreamliner in flight (Credit: The Boeing Company)

Chap. 3: C-130J production line in Marietta, Ga. (Credit: Lockheed Martin Corporation)

Chap. 4: The flightline at the Paris Airshow (Credit: Lockheed Martin Corporation)

Chap. 8: Embraer 175 in flight (Credit: Embraer)

Chap. 9: SpaceX Falcon 9 First Flight Liftoff (Credit: Chris Thompson, SpaceX)

Acronyms: Raytheon SM3 launch (Credit: U.S. Navy)

Glossary: Global Hawk (Credit: Northrop Grumman Corporation)

Appendices: Bell 206L (Credit: Bell Helicopter) Aerospace 2011 Industry Report Aerospace Industry Facts, Figures & Outlook for the Aviation and Aerospace Report 2011 Manufacturing Industry Facts, Figures & Outlook for the Aviation and Aerospace Manufacturing Industry

Published by the Aerospace Industries Association of America and the Center for Aviation & Aerospace Leadership at Embry-Riddle Aeronautical University – Worldwide