by Jeff Vedders

Last month I looked at trends within the food industry. Another target for a lot of communities is aerospace and defense. Often the industry is defined as commercial aircraft, the defense industry, and the space industry. This month I will look at the commercial aircraft sector. Next month I will focus on the defense and space industry.

The events of September 11 have made a long and lasting impact on the commercial aircraft industry. In addition to the terrorist attacks, the commercial aircraft sector has been hard hit by the war on terrorism, the weak economy, global epidemics (SARs), and rising oil prices. The good news is the worst of the past few years declining earnings and profits may be over. Profits may be on the upswing due to expected increases in passenger traffic and financial benefits from recent restructurings and layoffs. There has also been an increase in jet orders. However, since it takes 18 months to make a plane, higher sales and earnings will probably not be seen until mid-2005. As airlines continue to focus on short-haul routes operated by their regional subsidiaries, orders for smaller, regional jets are expected to increase. All in all, long term growth trends within the commercial aircraft industry are fairly modest. The main driver for large jet demand is airline profitability, and it is expected to remain weak for the next few years. The airline industry is mature, with high fixed-operating costs, large capital expenditure requirements, and high competition. Expansion of air-traffic is also tied to overall economic growth. The stronger the economy, the greater the likelihood businesses and consumers will use their discretionary income for air travel. Overall economic growth is predicted to be sluggish.

Source: Standard and Poor’s Industry Surveys, “Aerospace and Defense,” Robert E. Friedman, April 15, 2004