2 The growth of aircraft manufacturing in low-wage economies 2005-2009 The growth of aircraft manufacturing in low-wage economies 2005-2009 New challenges to, and opportunities for, industries in the global aerospace supply chain PMI Media Limited www.pmi-media.com 61 Davigdor Road, Hove BN3 1RA UK Tel: +44 1273 724 238 Fax: +44 1273 720 735 December 2009 All right reserved. No part or parts of this study may be reproduced, stored in retrieval systems or transmitted in any form or by any means without the prior permission of the publisher. Infringement of any of the above rights will be liable to prosecution under UK civil or criminal law. While ever care has been taken in the compilation of this publication to ensure its accuracy at the time of going to press the publisher cannot be held responsible for any errors or omissions or any loss arising therefrom. 3 The growth of aircraft manufacturing in low-wage economies 2005-2009 Contents Introductions, definitions, methodology and author details …………………….……………....... 5 Executive summary ……………………………………………………………………………………………………. 9 Part one – Trends in outsourcing aircraft systems, components and equipment work to low-wage economies 1.1 The growing value of aerospace manufacturing work in low-wage economies ………… 13 1.2 North American/European manufacturers are retaining their technical and market dominance of supply chain integration ……………………………………………………………………………. 16 1.3 The impact of wage differentials and currency fluctuations ……………………………………… 18 1.4 Sector by sector analysis: airliners, rotorcraft, business aircraft, fast jets and military transports ………………………………………………………………………………………………………………….. 23 Part two - current capabilities and relationships 2. Africa and the Middle East 2.1 Introduction …………………………………………………………………………………………………………….. 27 2.2 Egypt ………………………………………………………………………………………………………………………. 27 2.3 Morocco …………………………………………………………………………………………………………………… 27 2.4 South Africa ………………………………………………………………………………………………………………. 27 2.5 Tunisia …………………………………………………………………………………………………………………….. 29 3. Central and Eastern Europe 3.1 Czech Republic …………………………………………………………………………………………………………… 30 3.2 Hungary ……………………………………………………………………………………………………………………. 33 3.3 Poland ……………………………………………………………………………………………………………………… 33 3.4 Romania ……………………………………………………………………………………………………………………. 36 3.5 Russia ……………………………………………………………………………………………………………………….. 37 3.6 Turkey ………………………………………………………………………………………………………………………. 40 4. Far East 4.1 China ……………………………………………………………………………………………………………………….. 44 4.2 India ………………………………………………………………………………………………………………………… 52 4.3 Indonesia ………………………………………………………………………………………………………………… 53 4.4 Korea ……………………………………………………………………………………………………………………….. 54 4.5 Malaysia ……………………………………………………………………………………………………………………. 57 4.6 Pakistan ……………………………………………………………………………………………………………………. 58 4.7 Taiwan …………………………………………………………………………………………………………………….. 58 4.8 Thailand ……………………………………………………………………………………………………………………. 61 4.9 Vietnam …………………………………………………………………………………………………………………… 62 5. Latin America 5.1 Argentina …………………………………………………………………………………………………………………. 63 5.2 Brazil ………………………………………………………………………………………………………………………….. 63 5.3 Mexico ………………………………………………………………………………………………………………………… 65 4 The growth of aircraft manufacturing in low-wage economies 2005-2009 Part three – aircraft programmes within low-wage aerospace economies 6.1 Argentina 6.1.1 Lockheed Martin AT-63 Pampa …………………………………………………………………………………… 72 6.2 Brazil 6.2.1 Embraer 170-175/190-195 ………………………………………………………………………………………… 72 6.2.2 Embraer Phenom 100/300 ………………………………………………………………………………………… 75 6.2.3 Embraer MSJ/MLJ ……………………………………………………………………………………………………… 80 6.2.4 Embraer Legacy 450/500/600/Shuttle ………………………………………………………………………. 81 6.3 China 6.3.1 Eurocopter/CATIC/ST Aerospace EC 120B Colibri ……………………………………………………… 84 6.3.2 Eurocopter EC175/ HAIG Z15 …………………………………………………………………………………… 84 6.3.3 AVIC/Commercial Aircraft Corporation of China (ACACC) ARJ21-700 ……………………… 86 6.3.4 COMAC C919 …………………………………………………………………………………………………………… 90 6.4 Czech Republic 6.4.1 Aero Vodochody L-159 T1 ……………………………………………………………………………………….. 91 6.5 India 6.5.1 ADA Light Combat Aircraft-Tejas ……………………………………………………………………………. 93 6.6 Korea 6.6.1 Korea Aerospace Industries T-50/A-50 Golden Eagle ……………………………………………. 96 6.7 Russia 6.7.1 Sukhoi SU 35/SU 30-MKI ……………………………………………………………………………………… 99 6.7.2 Antonov AN-148 ………………………………………………………………………………………………….. 101 6.7.3 Irkut Corporation MC-21 ………………………………………………………………………………………. 103 6.7.4 Sukhoi Superjet 100 ………………………………………………………………………………………………. 104 6.7.5 Mil Mi-38 …………………………………………………………………………………………………………….. 108 6.7.6 Russian Helicopters Sapsan (Mi-34S2) ……………………………………………………………………. 109 Appendix one – major airframe and engine contract wins, 2005-2009 ………………………….. 110 5 The growth of aircraft manufacturing in low-wage economies 2005-2009 Introductions, definitions, methodology and author details Aerospace has always been a global business but in the last few years the nature of its global manufacturing footprint seems to have changed. Airliner manufacturing is no longer confined to its traditional heartlands of North America and Europe and states of the former Communist bloc; major Boeing and Airbus structures are now increasingly made in Mexico, Brazil, Poland and China. Soon, the USA and Europe will no longer have a stranglehold on the large aircraft market (see table one below). China is rapidly becoming a formidable competitor. In November 2009, the deputy commander of Chinese People’s Liberation Air Force (PLA) Ho Weirong announced that the air force would be operating a fifth generation fighter within the next eight to ten years. This was the fifth new Chinese aerospace programme to be announced in 2009. The COMAC C919 190-seat airliner was launched in March 2009; the KJ-2000 AWACS aircraft and Xi’an ASN-207 tactical unmanned air system (UAS) were unveiled in October 2009 and a 200-tonne class military airlifter was also due to make its first appearance before the end of the year. The process of globalisation has taken some strange twists and turns over the last few months. Countries will little tradition of aircraft manufacturing is starting to become important players in the global market. Mexico's aerospace related exports have more than tripled since 2004, from $146.2 million to $683.2 million last year. Japanese companies are setting up low-wage manufacturing centres in Vietnam. Malaysia is becoming a global centre of composite manufacturing excellence. If you follow the money, all roads lead to the Middle East, the recent crisis in Dubai notwithstanding. Countries committed to diversifying industries from oil-based economies are rushing into aerospace manufacturing. Table one – large aircraft, the next generation Programme Country of origin Approximate entry in service Sukhoi SuperJet Russia 2010 Boeing 787 USA 2010 COMAC ARJ-21 China 2011 AVIC military transport China 2012 Airbus A350 XWB France, Germany, Spain, UK 2013 Embraer KC-390 Brazil 2015 COMAC C919 China 2016 Irkut MC-21 Russia 2016 Airbus A30X France, Germany, Spain, UK 2019 Boeing 737 replacement USA 2019 6 The growth of aircraft manufacturing in low-wage economies 2005-2009 The Abu Dhabi-based Strata Manufacturing aircraft composites factory is due to open in late 2010, producing advanced structures for Airbus and ATR. On 23 September 2009 Emivest Aerospace Corporation (EAC) of San Antonio, Texas, USA delivered its first seven-seat SJ30 business jet. The SJ30 is the first civil jet aircraft to be built by a company with its roots in the Middle East. The SJ30’s original developer Sino Swearingen of the USA was taken over by EAC in June 2008. EAC has its headquarters in Texas but is a subsidiary of Dubai’s Emivest, or the Emirates Investment and Development PSC. But it is the growth of aerospace manufacturing in low-wage economies – such as China and Mexico – that is perhaps the most noticeable characteristic of this new era of aerospace globalisation. Some context is required. Aerospace manufacturers in North America and Europe may be outsourcing increasing amounts of high-skilled, labour intensive manufacturing to low-wage economies but they are retaining their near-monopoly of complete systems work – engines, avionics, fuel, hydraulics, aircraft controls, landing gear – where the real value in an aircraft programme lies. The difference between the value of structures and systems is startling. Chinese companies registered around $700 million worth of component and structural work on North American and European airliner programmes in 2007. In contrast, Honeywell will earn $23 billion from supplying its HTF7500-E engine to Embraer’s new MSJ and MLJ business aircraft. Money, of course, is not the only reason for outsourcing manufacturing capabilities to other countries. “In the past, many companies have set up low-cost-country production for machining, and generally speaking, this is not an effective strategy,” said Philip Toy, Managing Director of aerospace manufacturing consultants AlixPartners, quoted recently in Aerospace America. “Machining of aerospace components is typically highly automated, and so setting up a machining operation in China or Mexico typically does not pay, once you factor in the logistics. It is possible to make savings of between 10% to 20% by moving some work to low-cost country production - if it is correctly managed,” said Toy. Spirit AeroSystems Europe chose Kuala Lumpur for its new 242,000sq ft structures manufacturing facility but Rolls-Royce decided to expand its overseas manufacturing