Aerospace Company Risks

Part
01
of three
Part
01

Aerospace Company Risks - China

While China's secrecy makes it difficult to fully pin down exactly where they stand in terms of their aerospace ambitions, they are growing rapidly on both the civilian and military front, leveraging their state-supported industrial base to compete with the US in the aerospace domain. However, they have not yet caught up on the manufacturing front, and consequently have not yet been able to pivot from importing aerospace vehicles and supplies.

Secretive Growth

  • While it is clear that China has massive aerospace ambitions — for example, the "state-owned China Aerospace Science and Technology Corporation (CASC), for example, currently employs over 170,000 workers, generates approximately $35 million in annual revenue, and currently has its eyes on innovative pursuits such as nuclear space shuttles, micro rockets, and defense technologies" — the government's penchant for secrecy makes it very difficult to judge just how advanced they are.
  • China's $70 billion civilian aerospace market, which was dominated by cargo aircraft in 2015, is shifting towards passenger aircraft as it grows at a CAGR of 9.8%, bolstered by "government-provided support for Chinese aircraft manufacturers to research, develop, and build large aircraft."
      • However, China's military has the largest share of its aerospace market, with defense aviation combat aircraft dominating, followed by special mission aircraft.

Civilian Aircraft Trends

  • China has the fastest-growing aviation market in the world, possibly requiring another "8,090 aircraft over the next 20 years, worth about US$1.3 trillion," as well as a $1.6 trillion aftermarket services sector.
  • Boeing VP of Commercial Marketing, Randy Tinseth, says, "An expanding middle class, significant investment in infrastructure, and advanced technologies that make airplanes more capable and efficient, continue to drive tremendous demand for air travel."

China is a Major Importer


Passenger Aircraft Trade Deals

  • Notably, China was one of the first countries to ground the Boeing 737 Max 8 airliner after the Ethiopian Airlines crash; this may not have been driven purely by safety concerns, as ForeignPolicy.com notes: "China’s decision to ground the Max, and more recently the threat to cut it from the settlement altogether, gives Beijing more leverage to get a better deal. After all, for Boeing, a China order right now would be a huge endorsement of the Max; having the Max excluded would spread an even darker cloud over what is currently the company’s most important product."
  • This is important because China has faced some major hiccups in its attempt to export its home-built aircraft:
    • While China is emerging as an aircraft producer, with their first production jetliner, the Comac ARJ-21, being certified by the Civil Aviation Administration of China (CAAC) in 2014, the "has few prospects of entering service outside the country" due to concerns about the CAAC's experience in evaluating aircraft safety, lack of transparency, and control by the Chinese government.
    • This led, for example, to half of all the 60 or so exported Xi'an MA-60 civil transport aircraft being withdrawn from use due to "mishaps, fatal crashes, nonairworthiness, or because countries have a perfectly legitimate fear of an unsafe aircraft."

China's Hypersonic Ventures


China's Space Programs

  • According to a May 30, 2019, report from the Air Force Research Laboratory and the Defense Innovation Unit, "China is by far the most concerning threat to US dominance in the space technology arena."
  • In particular, the report cautions of Chinese "stealth investments," backed by state-sponsored venture capital, in US companies that enable China to "obtain and further exploit US technology or to influence those companies in a direction that serves China’s domestic space priorities."
  • Another tactic China uses is to control space supply chains and engage in "predatory pricing of space capabilities."
    • For example, CASIC's Kuaizhou-1A solid-propellant launch vehicle is competing head-on with commercial launch systems in the US and elsewhere; the state-subsidized system is offering a highly-discounted rate of $5,000 per kilogram to low-earth orbit, five times less what its non-subsidized competitors can offer.
  • On a less-sinister note, China is investing in "space-based solar-power systems for planned proliferated low Earth orbit constellations," and may be in a position to dominate that market.
Part
02
of three
Part
02

Aerospace Company Risks - India

Trends in the Indian aerospace industries include the increasing attention that the country is getting from global aerospace manufacturers, the growing support that the aerospace industries are receiving from the government, the aerospace industries' deepening relationship with the French aerospace industry, the tightening of government rules as far as the Boeing 737 Max is concerned, the rise of 3D printing, and the strengthening of the aerospace startup ecosystem.

Increasing Attention from Global Aerospace Manufacturers

  • Global aerospace manufacturers are increasingly recognizing India's attractiveness as a strategic resource hub and, as a result, are paying more attention to what the country has to offer. Encouraged by the country's low production cost and "Make in India" government initiative, they are increasingly growing their relationship with the Indian aerospace industry by sourcing talent and parts from the country, and building facilities in the country.
  • By 2030, India's aerospace and defense industry is expected to grow to approximately $70 billion. In 2017, India was the tenth largest aerospace market in the world.
  • Anand Stanley, president and managing director of Airbus in South Asia, notes that India is not only a huge and fast-growing market but an attractive hub for research and development as well.
  • Airbus, which accounts for 70% of India's new aircraft order share, reports that it supports 6,500 jobs in the country and has recently opened a pilot and maintenance training center in Delhi. Over 2,000 maintenance engineers and 8,000 pilots can be trained in this center over the next decade.
  • It has also has an engineering center in Bengaluru where some of Airbus's most talented engineers are working to contribute to the company's product portfolio. Over 80% of Airbus's employees in the country are in engineering roles.
  • Jim Jackalone, sales and marketing director of Cobham Aerospace Communications, a global manufacturer of aerospace communications equipment, says their company is keen on collaborating further with the Indian aerospace industry.
  • Global aircraft manufacturer Boeing has also expressed interest in building a state-of-the-art aerospace ecosystem in India for the co-development of the F/A-18 Super Hornet combat aircraft. It has also disclosed plans to grow its engineering footprint in India in the next few years from 3,000 engineers to 5,000 engineers. Boeing expanded its Boeing India Engineering and Technology Center in Bengaluru from 160,000 square feet to 310,000 square feet for this purpose.
  • Eaton, a global power management product manufacturer, has recently built its first manufacturing plant in Bengaluru in response to Boeing and Airbus's demand for locally-made fluid conveyance products.

Growing Support from the Government

  • The Indian government, nationally and regionally, is taking concrete steps to promote the growth of the Indian aerospace industry. Apart from its "Make in India" initiative, which encourages global manufacturers to manufacture products in India, it has recently put forward a strategic partnership model that facilitates partnerships or joint ventures with global original equipment manufacturers (OEMs) and other overseas companies.
  • More and more aerospace and defense economic zones or hubs are being developed as a result. Such hubs are reportedly being built in Karnataka.
  • Telangana, India's first aerospace hub, is also planning to build three additional aerospace and defense parks around Hyderabad over the following four years. The amount it plans to invest is Rs 2,500 crore.
  • The Department of Telecommunication's recent approval of in-flight connectivity has also opened up growth opportunities for aerospace product and service providers. Honeywell Aerospace, for example, sees this recent development as an opportunity for it to promote its Connected Aircraft solution.
  • Other government initiatives to support the aerospace industry include tax incentives, capital subsidies, and quality certification or patent cost reimbursements.

Deepening Relationship with the French Aerospace Industry

  • India is strengthening its relationship with France as far as the aerospace industry is concerned. The French Aerospace Industries Association's recent visit to India, which happened immediately after French President Emmanuel Macron's state visit, is a clear evidence of this trend.
  • The French Aerospace Industries Association's recent four-day visit proved impressive because of the size of the delegation. Eighty senior executives from 60 companies, which were a combination of OEMs, mid-cap companies, and micro small and medium enterprises (MSMEs), made up the delegation. These senior executives represented 85% of the French aerospace industry's revenue.
  • Seminars and meetings between the French delegation and their Indian counterpart were held in Bangalore and Delhi, and an agreement to support the French and Indian relationship was signed.
  • In less than a year, the agreement has already produced several positive results. Fifteen French companies have already expanded their footprint in India, and the French association itself has also set up its own office in New Delhi.
  • Additionally, France was reportedly the biggest non-Indian participant in the recently held Aero India airshow.

Tightening of Rules in Relation to Boeing 737 Max

  • The Indian government is considering the establishment of an experience threshold for pilots flying Boeing 737 Max aircraft once the aircraft is permitted to return to service.
  • The Boeing 737 Max was grounded globally since March 2019 as a result of the two plane crashes that happened recently. These two crashes, which took place in just a span of five months, resulted in 346 deaths,
  • Boeing is currently developing a software update and a pilot training plan to make the Boeing 737 Max flight-worthy again.
  • Airlines with the 737 Max in their fleet will certainly be affected, as they need to ensure that their pilots are well-trained before they fly the updated 737 Max. The country's Directorate General of Civil Aviation or DGCA may require comprehensive pilot training and plane inspections.
  • One example of an Indian carrier that is expected to be greatly affected by this development is SpiceJet. SpiceJet has 12 Max's in its fleet and 155 Max's on order.

Rise of 3D Printing

  • 3D printing's role in Indian aerospace research and development is growing, as more and more companies recognize its potential in the production of cheaper but sturdier and lighter parts, prototypes, tools, surrogates, and training aids.
  • This trend is expected to help the Indian aerospace industry realize cost savings, optimize warehouse space, reduce material wastage, and reduce supply chain constraints.
  • Players in the Indian aerospace industry that hope to differentiate themselves from competitors through outstanding aerodynamic design and fuel efficiency are expected to leverage 3D printing or additive manufacturing.

Strengthening of the Aerospace Startup Ecosystem

  • Large aerospace businesses are doing everything they can to foster innovation and promote startup creation in the Indian aerospace industry.
  • These businesses' initiatives are expected to aid innovators in transforming their ideas into viable products and services that, in turn, will "shape the future of aerospace and defense."
  • A case in point is Boeing, which has introduced the Boeing University Innovation Leadership Development (BUILD) program for this purpose. This program is designed for Indian early stage startups, faculty, and university students.
  • Boeing has so far teamed up with the following incubators: IIT Delhi, IIT Gandhinagar, IIT Bombay, IIT Madras, IISc Bangalore, T-Hub Hyderabad, and KIIT Bhubaneshwar.

Research Strategy

To identify trends in India's aerospace industry, we examined the top Indian news outlets' coverage of the Indian aerospace industry and read through relevant industry reports. We focused on the most recent actions of the different players in the country's aerospace industry, including the OEMs, the suppliers, the airlines, and startups, and paid attention to external factors such as government policies and intergovernmental relationships. By reading through sources covering the industry and the direction the industry players are taking, we were able to get a holistic view of ongoing trends.
Part
03
of three
Part
03

Aerospace Company Risks

Case studies of mid-sized and large U.S. based aerospace companies operating internationally include those of Firefly Aerospace and Boeing.

Firefly Aerospace

  • Based in Austin, Texas, Firefly Aerospace is an American aerospace company "that develops small and medium-sized launch vehicles for commercial launches to orbit."
  • It operates internationally and has established international offices with strategic partnerships to help it effectively serve the global market.

How the Company Has Maintained a Competitive Advantage

  • The company has maintained a competitive edge by continuously committing to its provision of economical and convenient access to space for small payloads through the design, manufacture, and operation of reliable launch vehicles.
  • It also maintains its competitive edge by having a team that addresses the market's need for flexible access to space with an approach that embraces simplicity and quick turnaround to technology selection.

The Challenges That the Company Has Faced

  • In April 2017, the company filed Chapter 7 bankruptcy effectively shutting down its Firefly Space Systems which led to them to sell off their remaining assets to pay off debts.
  • It also faced the challenge of a major European investor pulling out of a funding deal, which eventually led to the company having to furlough most of its 150 staff in October 2016.
  • The company has also suffered complaints from Virgin Galactic who accused them of stealing proprietary information through Thomas Markusic, their co-founder, when he worked for Virgin.

Boeing

  • Boeing is one of the world's largest aerospace companies and "a leading manufacturer of commercial jetliners, defense, space, and security systems, and also acts as a service provider of aftermarket support."
  • The company is also one of America’s biggest manufacturing exporters and supports airlines and U.S. and allied government customers in over 150 countries.
  • Some of Boeing's products and services are "commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training."

How the Company Has Maintained a Competitive Advantage

  • The company has continuously expanded its product line and services to meet emerging customer needs. It has also created a broad range of capabilities that includes creating new, more efficient members of its commercial airplane family.
  • Boeing has also continuously "designed, built, and integrated military platforms and defense systems; created advanced technology solutions; and arranged innovative financing and service options for customers."

The Challenges That the Company Has Faced

  • Some challenges that Boeing has faced include a 737 Max plane crash that occurred shortly after takeoff in Ethiopia, killing everyone on board. This was followed by a crash of a Lion Air-operated 737 Max in Indonesia that killed 189 people in 2018.
  • These fatal crashes led to countries and airlines around the globe grounding Boeing planes and refusing to fly 737 Max aircraft, and to new deliveries of this plane being halted worldwide.
  • Boeing has also experienced a tumbling revenue in which its commercial airplane division lost $40 million in a single quarter as its revenue tumbled 41% to $8.2 billion due to the Max grounding.
  • Other challenges Boeing has faced are delays in delivering on space projects for NASA, which sparked a lot of criticism.



Sources
Sources

From Part 02