F
R

6
-
2
0
0
0

EUROPEAN AEROSPACE INDUSTRY - ACHIEVEMENTS AND CHALLENGES

This summer the European aerospace industry, which has been remarkably successful in recent years and has enhanced its competitiveness through restructuring and consolidation, presents a new shape to both the market and to the public. It is also optimistic about the future.

However, although the sector continues to provide significant positive contribution to balance of trade, action has to be taken by both the industry and the political framework - at a national and a European level - to meet the challenges of the future.

Return to Growth and Profitability

Following the severe downturn of the industry in the first half of the 1990s the upturn for the aerospace industry in Europe began in 1996 and is still continuing, producing remarkable figures each year.

Industry turnover has increased by 50% in only four years up to 1999. In addition, the productivity of the industry has also improved - from an annual rate of around Euro100,000 per employee in the 1989 to about Euro150,000 per employee in 1999. This has led to a sustainable level of profitability, with margins of 6% to 7% of turnover.

Business focus has also changed in the sector: European government contracts, which used to dominate the industry, have been reduced to a quarter of the turnover, and military activities now account for slightly more than one third of the business.

Today, major aerospace products in Europe are developed, produced, marketed and supported through single integrated trans-national operations. These had started with companies like Eurocopter, Matra Marconi Space and Matra BAe Dynamics and led to the major trans-national mergers, particularly the European Aeronautics Defence and Space Company (EADS), formed by Aerospatiale Matra, DASA and CASA, and Astrium, the joint venture of Matra Marconi Space and DASA. Today, two-thirds of European turnover is made up of products emanating from transnational arrangements.

Successful Products and World-Leading Processes

European flagship products such as Airbus, Ariane and the Trent family of engines are outstandingly successful, demonstrating impressive performances in global markets. European products have won a reputation of leading in transforming cutting-edge technology into commercial success.

There are many other examples of flagship products. In the helicopter sector, hingeless rotors and fenestrons (encased tail rotors) were pioneered in Europe.

The European engine sector can boast growing market shares and very successful transatlantic and global co-operative arrangements, offering highly environmentally-friendly products with cutting-edge performance, particularly through the use of wide chord fan technology and advanced materials.

The equipment sector, of course, contributes much to the success of European final products, such as with hardware and software for digital flight control systems for Airbus. Equipment sales to aircraft manufacturers outside Europe are also impressive.

Many areas of e-business originated from the European aerospace sector, which continues to develop its use significantly. Analysts believe aerospace will take a leading role in the establishment of Business-to-Business (B2B) trading exchanges.

The performance of the European aerospace industry is world-class. It has the capability to compete successfully on a global scale in all segments of the industry. The fact that for some applications in the defence and space area European products are currently not available is a consequence of programmes not having been developed and funded by European governments to the same extent as those of the US. Recent experience in peace-keeping operations have emphasised the need for improvements in European capabilities. These shortfalls must be addressed by the European industry.

Challenges for the Industry

The aerospace industry features very long product lifecycles, with complex systems taking between 20 and 40 years from the start of development to the phasing out of final products. Thus, current success is building on technologies developed, programmes launched and industrial capacities structured many years ago. Today the foundations have to be laid for performance in future decades.

The process of restructuring will remain a challenge. The formation of new trans-national companies has reshaped the European landscape of mainly the prime contractors, i.e. those focusing on aircraft and other aerospace systems. But the aerospace industry comprises about 750 companies with a further 80,000 in the supply chain, many of which are Small and Medium-sized Enterprises.

Restructuring is likely to preoccupy the industry for some time yet. The first steps towards mergers at a prime contractor level now have to be followed by the integration of trans-national management, policies, structures, procedures and standards - and major progress has been made in recent months.

Another challenge is to provide a truly integrated regulatory and trans-national framework in Europe. This is largely a political task through governments and the European Union.

The most obvious area for improvement is in the key area of armaments. Aerospace accounts for 60% of European armaments activity and as I have mentioned earlier defence represents slightly more than one third of aerospace business. In many European countries, budgets for projects developing new defence technology have been reduced in recent years. Furthermore there are still no effective overall European organisations for harmonising defence requirements although OCCAR (Organisme Conjoint de co-operation en Metiere d'Armament) is an attempt to address this.

The continuous growth in demand for air transport emphasises the urgency of a systematic approach for Air Traffic Management (ATM) activities to increasing global capacity. In this respect, within Europe, the Single Sky initiative of Commissioner de Palacio is most welcome. A balanced combination is required of institutional action by the EU with Member States and the development of the next generation ATM systems by industry. Together, these can achieve the objective of zero delays due to ATM restrictions. Such improvements in ATM will also result in significant and much needed, short term, reductions in environmental emissions. The proposal by the European Space Agency and the EU to create GALILEO, a European global navigation system, will be key in achieving this result.

Although air travel is one of the safest means of transport, initiatives have been launched to further reduce the accident rate. Significant progress has been made but the creation of a single European Aviation Safety Authority (EASA) with executive and regulatory power is yet to be realised. The need for such an authority is becoming ever more urgent.

Aerospace has gained a prominent place in the current EU Framework Programme for Research and Technology Development (R&TD), as is appropriate for such a technology-driven sector that leads in terms of levels of R&TD investment. The larger projects at present supported by the EU programme are"Autonomous aircraft in the future air traffic management system", "Efficient and environmentally friendly aero-engine" and "Low-cost, low-weight primary structures". Furthermore, a number of smaller scale projects are also receiving EU funding. These programmes also integrate the vital role of academia and research establishments. In total, around one-third of EU civil aircraft R&TD work is carried out in joint-funded EU projects.

Competition for Europe's aerospace industry comes, primarily, from the US industry, which is roughly twice its size in terms of employment and turnover. The scale of effort required to remain leading-edge in the growing global market is beyond the capacity of any single European company or nation. Therefore, it seems increasingly likely that products will be developed and marketed by trans-national companies.

Operating Globally

It is worth emphasising that, in addition to natural industry competition, the European industry has always been open to international co-operation. European restructuring is not building a "Fortress Europe", it is forming the pillar of a transatlantic bridge and laying the foundation for further links to all other aerospace players in the world. Global operation goes hand in hand with global co-operation. For example, around 8 Billion Euro of business flows each way between the EU and the US industry much of it, no doubt, for re-export.

Through AECMA the European aerospace industry contributes actively to the development of an appropriate framework of standards for global business. AECMA co-operate wherever possible with the US Aerospace Industries Association (AIA) to support the setting of standards at an International level.

Substantial progress has been made in the harmonisation of airworthiness and certification regulatory activities between the US Federal Aviation Administration (FAA) and the EU Joint Aviation Authorities (JAA). This has been achieved through the substantial involvement of the aerospace industries from both sides of the Atlantic.

Progress has also been made in the continuous pursuit of quality, with the formation by Europe, the US and Japan, of the International Aerospace Quality Group (IAQG). The aim of this group, to be open to companies throughout the global aerospace industry, is to establish common standards, methods and processes to realise significant improvements in quality and reductions in cost throughout the supply chain.

At the beginning of the year AECMA launched an international initiative to harmonise product standards in order to reduce costs and increase efficiency for prime contractors and suppliers.

Product support and areas of the wider air transport system (such as air traffic management) may provide additional opportunity for industry to work in concert.

The European aerospace industry operates in global markets, with sustained, steady growth and rapidly-changing structures. It faces strong competition, in addition to the technical challenges of providing the most advanced products. The pressure to reduce the environmental impact of our products will also continue.

These challenges set the agenda for today and tomorrow. I am convinced that the European industry, by working together and with the help of the EU and national governments, will be able to rise to these challenges successfully.

From FLUG REVUE 6/2000

AECMA

AECMA - European Association of Aerospace IndustriesMembers of AECMA are the national aerospace associations of all 15 EU Member States (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom) and of the Czech Republic, as well as the largest European aerospace companies, which form the Council of AECMA (Aerospatiale Matra, Airbus Industrie, Alenia Aerospazio, BAE SYSTEMS, CASA, DaimlerChrysler Aerospace, Dassault Aviation, Liebherr Aerospace, Rolls-Royce, SAAB, Sextant Avionique, Smiths Industries, SNECMA).

The objective of AECMA is to enhancing the competitive development of the sector. Through its working bodies, AECMA generates a common industry view on a range of subjects, defining solutions to economic, financial, legal and technical problems including a common approach to European research programmes. It has been making strong contribution to the creation of a common European aerospace operations framework, by developing standards for products, quality systems and product support. It also supports the interaction of industry with the civil aviation administration bodies in the areas of environment, aircraft product and process certification and air traffic management.

The aerospace industry in Europe employs some 420,000 people directly and about 1.2 million including indirect employees, with an annual turnover of more than Euro60 billion.

More information on the AECMA web-site www.aecma.org.