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U.S. Aerospace Recovery Still On-Track

Aerospace indicators often decline in the first quarter following strong fourth quarters, and 2011 was no exception. In the final quarter of 2010, most indicators were at their highest levels since the recession began in 2008. Yet even with the first quarter decline, most indicators showed strong year-over-year growth.

Industry-wide orders were up 10 percent over the first quarter of 2010, and first quarter sales outpaced pre-recessionary first quarter sales, reaching nearly $60 billion. This is an encouraging sign, and the improvement was felt not only among the large aerospace firms. Small and medium aerospace firms with assets under $25 million rebounded very well in the first quarter of 2011. After two consecutive quarters of losing more than $40 million total, they finished the first quarter with $40 million in profits.

Aerospace employment remained virtually unchanged during the first quarter of 2011, supporting hopes for industry stabilization. As the aerospace industry continues to recover, industry employment news is often a mixed-bag. For example, Boeing recently announced that while there would be some job cuts at its C-17 plant in Long Beach, Calif., the finalization of an order for 10 of the aircraft to India would sustain employment through at least 2014.

Aerospace exports have remained fairly stable over the last two years after dropping from early 2008 levels, and improvement was evident in the first quarter. Civil aviation and total aerospace exports registered gains over the same quarter in 2010. Military exports declined, however, from their 2010 levels, falling 21 percent from one year ago. The U.S. aerospace trade balance continues to be the largest of any other manufacturing industry and grew by more than $12 billion in the first quarter of 2011, slightly ahead of the $11.93 billion of first quarter 2010.

The struggling military export market spurred requests that U.S. barriers to international trade be identified, addressed and when appropriate, lessened. In March, the CEO of Cessna Aircraft testified before Congress that international sales are limited because some planes that are “functionally equivalent to commercial aircraft and do not provide a significant military or intelligence impact” cannot be sold internationally due to arms regulations. Separately, the CEO of Northrop said that some U.S. regulations meant to “protect its technological edge” have “probably done damage to its defense industrial base,” and he encouraged technology sharing between countries and an easing of restrictions on “all but the most sensitive programs.”

Aside from existing restrictions on trade, other factors contribute to the slowing of U.S. military exports. For example, China is seeking to become a bigger player in the international aerospace market and is working to establish itself as a major exporter. Already, the country is fulfilling an order of between 150 to 250 JF-17 fighter aircraft to Pakistan.