Aerospace Industry

Aerospace Market Research Agenda • Global Aviation • Trends in Regional Aviation • Challenges • Opportunities

Aerospace Market Research Civilian aerospace • Civilian Aerospace 1)Passenger air traffic demand to grow 4.9%/yr. 2) World fleet of both passenger and Freighter aircraft to grow from 14980 @ end of 2006 to nearly 33000 by 2026 3) The worlds airline will require more than 6000 smaller aircraft(30to100 seats) to serve regional demands. 4) Passenger traffic to grow in developing countries like India and China. Asia pacific region to witness 7.2% growth Y-o-Y during 2007-16. 5) Freight carriers to increase by six fold during 2006-26 period.

6) People want and need to fly.

Military aerospace 1)The U.S military aircraft industry evolving continuously for almost a century. With number of prime contractors peeking at 16 in 1945. 2) Changes in the industry structure particularly the numbers of dominant firms are closely associated with revolutionary changes in technology e.g. Jet engines, low obeservability. 3) Current military aircraft fleet around 39000. With 62% fleet in North America and Europe.F-16s the largest fleet accounting 8.5% of the total.

4) Innovation the key .

US aviation industry Scenario After enjoying a brisk demand in mid 1990 to 2000, the us avaition industry faced a sharp deterioration in earning post sept 11. Six major network carriers posted massive operating deficit of $19.1 billion form 2001-02 Us aviation industry recovered significantly in 2004 with growth in regional carriers.

Opportunities

1) Restructuring Restructuring can provide scope for increased cost cutting. Major airlines in like United airlines and Delta has been on restructuring spree after U.S commercial aviation industry went in Tail spin post sep11. 2) Airlines liquidating assets :To improve on the efficiencies many major airlines have gone for liquidation. Thereby reducing excess assets that had been created

Challenges Large airlines faces increased competition from LCCs. High and fluctuating fuel prices pose a threat to operating margins. overcapacity in the industry

UK aviation industry • •

UK aviation contributed directly 11.4 billion pounds to GDP in 2004.1.15% of overall economy of UK. 520000 jobs in UK dependent on the aviation industry.

Opportunities Tourism makes a major contribution to UK economy. With 3.9% of GDP, 46.8 billion pounds ¾ th of the international visitors to UK arrive by air Increased trade form countries outside UK provide immense opportunity 1) 55% of the UK’s Export of manufactured goods transported by air 2) 60% of imports of machinery, mechanical appliance and electric equipment outside EU carried by air Challenges 11)Poor infrastructure to support the aviation Industry. passenger travelling by air have risen faster than the transport system to handle them. 12)Congestion cost to passenger and airlines is estimated to be 1.7 Billion pounds and expected to be excess of 5 billion pound by 2015 13)Increased global terrorism has impacted the UK avaition industry

China Aviation industry Scenario 2) China will be the fourth largest international market for leisure travelers by 2020, with 100 million outbound Chinese tourists. 3) Total routes served by Chinese airlines 1200 Domestic-975 (reaching 136 cities) International-225( reaching38 countries) Opportunities 7) Demand for regional airlines and small aircraft with 50-100 seats for regional flights. 8) Western region (Tibet, inner Mongolia etc) covering 71% of total Chinese territories still largely untapped Challenges • • •

Weak aircraft component supply Lack of skilled labor Structural weakness

Indian Aviation industry Scenario 2) Indian domestic passenger air traffic is bound to grow at 7.5% CAGR from 2001-10 3) International passenger traffic to grow at 5.7% CAGR during same

Opportunities 5) Regional air connectivity still untapped .providing a vast scope for expansion of civil aviation in the country. 6) Foreign equity participation up to 49% and investment by NRIs and Overseas corporate bodies up to 100%. 7) Open sky policies for cargo services.

Challenges 9) Technology up gradation at snails pace. 10)Metro cities airport unable to meet the current passenger flow.

Passenger air traffic  In future civilian aerospace will demand greater emphasis on the hub travel destinations.  In 2015, 60% of Europe to Asia travel will be hub-to-hub. creating an additional requirement of 15mn seats.  Hub based traveling connects global hub cities like London-New York, Mumbai-New Delhi etc. this cities are large center of business operation and trade.  Advantages of traveling in Hub based destination Improves connectivity fewer flights, less fuel consumption and less carbon emission.  A large pool of first generation travelers. As income in the emerging markets rise spending pattern shifts from basic need to more discretionary like recreation, education and travel.  Due to increased demand from the people of Asia for domestic and inter-regional flying has prompted government to take necessary steps such as more green field airport developments and going for a change in role or dual use of some military airfields for commercial activities.

Freight air traffic Air cargo traffic to increase by an average of 5.8% y-o-y between 2007-26

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Chinese freight air traffic overview.

India freight air traffic overview.

Growth to be largely driven by two international flows. Between China to North America, and Europe both anticipated to grow by as much as 9%. Chinese domestic Freight to reach current US levels within next 20 years. With 10% growth yoy, flow from china to North America to become almost twice the size of domestic market by 2026. Domestic market around the world expected to triple over the next 20 years due to emerging freight demand within china

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Chinese freight growth

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Domestic market in India to grow in similar manner to that of China, in terms of growth. But will differ in the types of goods carried. General cargo to continued in the merger with passenger aircraft. Still a large of India’s domestic growth to come from express cargo, the market to be driven by strengthening economy. Express market to require 140 small or regional freighters by 2026 from the current levels of 45.

Indian freight growth

Military aerospace Scenario Nearly than 39,000 military aircraft generate almost of $60 billion in MRO activity in 2007, the defense segment provides a unique opportunity for industry players cope up with depressed commercial passenger aircraft market after September 11 and the continued recession that griped the entire America and Europe. • Post-Gulf War decline in Reset combined with a smaller fleet and an increase due to ageing aircraft will result in less than 1% growth through 2017 • with the increased need of the defense forces to have striking capabilities beyond their own national territories like in Iraq and Afghanistan the need for logistics and transport capabilities have increased manifold. • This has led to increased demand of aircrafts like 263 tonne C-17, which U.S air force planning to buy around 180 in next 10 year period. • Several critical trends continue to shape the MRO(maintenance repair&overhaul) market –Performance oriented contracts –Lean transformation –Civil / military market convergence –Prognostics and diagnostics

Results of interpretation

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There is a vast opportunity of growth in the commercial (passenger/freight) sector of aerospace. With the Asia-pacific region and mainly the Indian Sub continent the growth stimulator, many manufacturers keen to focus on the needs of these region. Many new entrants in the industry to survive on the race with their innovative capability. The market could see many new joint ventures like Lockheed-Martins, that will change the equations in the market. Major players in the industry like Airbus and Boeing to focus jointly on both civilian and military needs of the aerospace industry to cope with market depression and maintain the sales and profit margins. Diversification of the products will ensure better market positioning.