The aerospace sector soared to new heights as the new records for deliveries were set within the UK. The value of such deliveries is estimated to be worth £13 billion to the sector. This spells great news for the UK and its manufacturing industry, as well as the people working within it.
Strong growth is predicted to continue globally throughout 2019. Fuelled, in part, by a resurgence in passenger air travel. Growing military tensions have also contributed to its current strength.
Life is good, therefore, for contracts and commercial managers currently working within the sector. But how long can it last for? Is the performance of 2018 and 2019 something for contract and commercial managers to savour in the long-run, or merely a flash-in-the-pan?
To unpick this loaded question, you must consider the drivers for today’s success.
An arms race for aerospace
First, geopolitical tensions are causing countries to increase their military budgets. This is positively affecting the aerospace industry due to the demand for military aircraft. In particular, there is a demand for light air support aircraft.
Across the world, numerous tensions are causing unease. Chemical attacks on UK soil has damaged the UK’s relationship with Russian. Meanwhile, North Korea consistently threatens its neighbours. Demand for defence and military equipment is on the rise in the Middle East, Eastern Europe, North Korea and the East and South China Seas. Other countries are locked in a tit-for-tat battle as they seek to ensure their military capabilities exceed those of potential attackers. Western Governments and NATO members are increasing their military spend to remain competitive and counter global threats.
With that said, military threats are no longer solely airborne. For contracts and commercial managers, keeping on top of current risks is a worthwhile endeavour. Cyberwarfare, specifically, has catapulted to the top of the list of concerns that military leaders have. If future battles are fought on computer screens, then the demand for military aircraft will tail off.
Growth in passenger travel
A boom in air passenger travel is boosting the aerospace sector’s performance. Commercial aircraft production is in demand, indeed with a backlog of orders. Boeing and Airbus each delivered 49 commercial aircraft in February 2019, an increase of 11 deliveries compared to the same time in 2018. This year, Boeing plans to deliver between 895 and 905 commercial aircraft. This is a 12-13% increase compared to 2018. Similarly, Airbus plans an 11% increase in aircraft delivery.
However, a significant disruption to the industry is likely after Boeing’s challenges with the 737 MAX. After the Ethiopian Airlines crash, the company has suspended all deliveries of its 737 MAX airplanes. Boeing’s woes don’t stop there, with its shareholders, crash victims’ families and airline companies all suing the manufacturer. The long-term impact of this on Boeing’s financial performance, along with the reputational damage, is yet to be determined.
The impact of Brexit
You cannot mention UK aerospace without looking at the ongoing influence of Brexit. UK aerospace leaders reported a slow-down in orders towards the end of 2018 because of uncertainty around the UK’s relationship with Europe.
As Brexit negotiations continue, loss of orders and investment in the sector may further impact growth. Although the industry, as a whole, is on the up, it may have risen more dramatically if Brexit had not affected the UK’s supply chain. Future disruption to this and a lack of consensus on trade between the EU and UK will increase costs for UK aerospace.
Many volatile influences
With external factors such as military tensions and trade agreements currently up-in-the-air, contracts and commercial managers must keep on top of all potential influences on the sector. Brexit is a big topic to remain abreast of, as is the rising tension between North Korea and the rest of the world, the continuing unrest in the Middle East and the ongoing 737 MAX crash consequences.
The sector is going through a busy period now, but this performance is subject to many volatile elements. The imperative for contract and commercial managers, therefore, is to work hard in building relationships, fulfilling orders and boosting productivity today. Whilst also keeping their eyes on an uncertain future.