Uncertainty for Aerospace In 2017
Unprecedented upheaval is a prospect for an industry accustomed to thinking long-term
Dec 23, 2016Graham Warwick | Aviation Week & Space Technology
Aerospace has always played a long game. Aircraft and systems can take decades to develop and serve for decades more. But the industry is having to learn to cope with short plays and unconventional tactics to hit the emerging political curveballs.
As the new year begins, it is already hard to predict how 2017 will end. The U.S. has elected a president who does not follow established protocols. The UK has voted to leave the EU after more than 40 years. Governments across Europe and elsewhere are facing similar challenges to the status quo.
President-elect Donald Trump’s attitudes toward Russia, China and NATO threaten to upend long-held defense strategies. Even before the inauguration, his attacks by tweet on costly military programs have shaken the industry’s biggest players where it matters: their share prices.
Trump’s opposition to offshoring could hobble an industry built on a global supply chain and operating in markets that demand technology transfer. His positions on trade and climate change could threaten manufacturers’ access to markets and airlines’ ability to operate under globally agreed rules. Trading partners could retaliate. Technology road maps could meet roadblocks.
Uncertainty was the winner of the votes in the U.S. and in the UK, where the government must negotiate its separation from the EU. This is raising concerns for aircraft and airline industries that have been shaped for decades by the EU’s single market, open-skies mechanisms and fundamental tenet of free movement of labor.
But the long game has momentum, or at least inertia, and while programs may wax and wane under political scrutiny, the aerospace and defense market will likely adapt only slowly. And it was already changing before Brexit and Trump: the wave of digitization and rise of drones, a resurgent Russia and advancing China, and rising defense spending and toughening acquisition rules.
U.S. defense budgets may increase even more under Trump. He may have the F-35 Joint Strike Fighter program in his sights, but procurement continues, prices are coming down, and international deliveries are underway. In 2017, the U.S. Air Force is to pick the winner of its 350-aircraft T-X trainer competition, which pits available foreign aircraft against clean-sheet U.S. designs. But selection of a new battlefield-surveillance aircraft has slipped into 2018, as has the choice of a carrier-based unmanned aerial-refueling aircraft for the U.S. Navy. The Pentagon also faces decisions on costly new nuclear ballistic and cruise missiles as well as missile-warning and secure-communications satellites.
Defense spending looks set to increase in Europe, but the market will continue to be fragmented and inefficient. Military tanker, airlifter and helicopter fleets—long viewed as inadequate—will be bolstered. Asian defense expenditures are rising as well, and China is expected to field major new military capabilities in 2017 including its first stealth fighter, the long-range J-20. The threat is shaping Japan’s thinking on its F-3 next-generation fighter.
Commercial aviation had a good 2016, with record airline profits, new fuel-efficient airliners entering service and global agreement on a carbon-offset mechanism to cap emissions. But the International Air Transport Association warns profits will decline in 2017—after six years of improvement—because of higher costs, including fuel prices. Traffic will continue to grow, although orders will stay low, as in 2016, and deliveries will increase as backlogs remain strong despite some deferrals and cancellations. New aircraft will enter service.
Not all sectors fared so well in 2016, or look so healthy for 2017. Survival may have to suffice for business aircraft and commercial helicopter manufacturers as they hope for recovery in 2018 on new models and higher oil prices. But the only brake on growth of the commercial unmanned aircraft business is regulation, and—barring any curveballs—the market will only get bigger and more diverse through the year ahead.