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Aeronautics industry: the last western stronghold but for how long?

15.03.2012
​A comparison of the geographical spread of aeronautic and shipbuilding production reveals one major difference: while Asia accounts for 2/3 of ship deliveries worldwide (38% from China, 15.5% from Japan and 14% from South Korea in 2010), the region has played only a marginal role in the production of commercial aircraft (more than 110 seats). It has in fact delivered just a few dozen aircraft over the last 3 years (Airbus assembly plant of A320s in China).
 

By Bruno Goutard, analyst sector trends

​Some specifics of the aeronautics sector could explain this relative “delay”: take for instance obstacles due to high technology requirements and the reluctance to transfer technological know-how needed to gain local contracts.
 
Nevertheless, this initial statement seems to be “short-sighted” (when we consider the long-lasting cycles which characterize the aeronautics industry). Indeed, in addition to the ramping up of the aforementioned Airbus assembly plant, in 2016, the Chinese aircraft manufacturer COMAC is scheduled to deliver its first C919, competing with the long-established players, Airbus and Boeing in the single-aisle aircrafts market (strong growth segment).
 
aeronautique_kc-panorama
 
While it is likely that the market share of Asian production will most likely remain modest until the end of the decade, this first step, albeit symbolic, will be the final step towards establishing the Asian aeronautic sector. In fact, the aeronautics supply chain, already firmly implanted in Japan (where local players are significantly involved with Boeing) and, to a lesser extent, in South Korea, will continue to expand in China (through joint ventures and the presence of most of the largest suppliers and engine manufacturers, in particular for the Western companies involved in the C919 program), as well as in India. Moreover, in the wake of the partial pull out of European banks from the international aircraft financing market, the Asian financial institutions, mostly Japanese (Sumitumo Mitsui, Bank of Tokyo-Mitsubishi UFJ) and Chinese (ICBC Financial Leasing) have proven eager to fill the gap.
 
Last but not least, Asia will be the largest growth driver for the sector in the next 20 years, accounting for more than one third of expected global deliveries, whereas North America and Europe will account for less than a quarter each.
To summarize, Asia will be able to rely on buoyant domestic demand and on powerful regional financial support in the coming decades (strengthened with a taste of nationalism in China when it comes to picking out aircrafts for its national airlines), as well as setting up an environment which will help bring its industrial expertise to maturity.  A fierce battle lies ahead!