. "Appendix A: The Importance of the U.S. Aircraft Industry." High-Stakes Aviation: U.S.-Japan Technology Linkages in Transport Aircraft. Washington, DC: The National Academies Press, 1994.
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High-Stakes Aviation: U.S.-Japan Technology Linkages in Transport Aircraft
Appendix A The Importance of the U.S. Aircraft Industry
The track record of the U.S. aircraft industry over the past fifty years constitutes one of the outstanding success stories of global competition. This success and the importance of the aircraft industry to America's economic wellbeing, national security, and technological leadership are testified to by numerous reports and experts.1 The economic importance of the industry can be seen clearly in the relevant statistics. The U.S. aerospace industry holds more than half of the world market and ranks sixth among U.S. industries in total sales. 2 In 1992, U.S. aircraft sales were $72.8 billion, and the combined trade surplus for civil transports, engines, and parts was $23.7 billion.3Table A-1 contains a
1
See National Research Council Aeronautics and Space Engineering Board, Aeronautical Technologies for the 21st Century, (Washington, D.C.: National Academy Press, 1992), p. 1; Council on Competitiveness, Gaining New Ground: Technology Priorities for America's Future, (Washington, D.C.: Council on Competitiveness, March 1991), pp. 55–56; Michael L. Dertouzos, Richard K. Lester and Robert M. Solow, Made in America: Regaining the Productive Edge (Cambridge, Mass.: MIT Press, 1989) pp. 201–216; and U.S. Congress, Office of Technology Assessment (OTA), Competing Economies—America, Europe and the Pacific Rim (Washington, D.C.: U.S. Government Printing Office, 1991), pp. 341–358.
2
The aerospace market is divided into several segments, including aircraft, missiles, space, and related products and services. U.S. Department of Commerce, U.S. Industrial Outlook 1993 (Washington, D.C.: U.S. Government Printing Office, 1992), pp. 20/1–20/3.
3
Aerospace Industries Association (AIA), "1992 Year-End Review and Forecast—An Analysis," December 1992. Note that AIA figures are somewhat different from the Department of Commerce statistics appearing in Table A-2.
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Appendix A
The Importance of the U.S. Aircraft Industry
The track record of the U.S. aircraft industry over the past fifty years constitutes one of the outstanding success stories of global competition. This success and the importance of the aircraft industry to America's economic wellbeing, national security, and technological leadership are testified to by numerous reports and experts.1 The economic importance of the industry can be seen clearly in the relevant statistics. The U.S. aerospace industry holds more than half of the world market and ranks sixth among U.S. industries in total sales. 2 In 1992, U.S. aircraft sales were $72.8 billion, and the combined trade surplus for civil transports, engines, and parts was $23.7 billion.3 Table A-1 contains a
1
See National Research Council Aeronautics and Space Engineering Board, Aeronautical Technologies for the 21st Century, (Washington, D.C.: National Academy Press, 1992), p. 1; Council on Competitiveness, Gaining New Ground: Technology Priorities for America's Future, (Washington, D.C.: Council on Competitiveness, March 1991), pp. 55–56; Michael L. Dertouzos, Richard K. Lester and Robert M. Solow, Made in America: Regaining the Productive Edge (Cambridge, Mass.: MIT Press, 1989) pp. 201–216; and U.S. Congress, Office of Technology Assessment (OTA), Competing Economies—America, Europe and the Pacific Rim (Washington, D.C.: U.S. Government Printing Office, 1991), pp. 341–358.
2
The aerospace market is divided into several segments, including aircraft, missiles, space, and related products and services. U.S. Department of Commerce, U.S. Industrial Outlook 1993 (Washington, D.C.: U.S. Government Printing Office, 1992), pp. 20/1–20/3.
3
Aerospace Industries Association (AIA), "1992 Year-End Review and Forecast—An Analysis," December 1992. Note that AIA figures are somewhat different from the Department of Commerce statistics appearing in Table A-2.
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statistical comparison of the aircraft and aerospace industries with the chemical industry—another technology-intensive sector in which the United States is highly competitive globally. Table A-2 contains a breakdown of U.S. aircraft sales, Table A-3 lists aerospace export figures for 1992, Table A-4 indicates aerospace trade with Japan.
The aircraft and aerospace industries are also key components of America's larger technological enterprise. The aerospace industry accounts for about one-quarter of U.S. industrial R&D expenditures. Many of the technological competencies fundamental to competitiveness in transport aircraft diffuse to
TABLE A-1 1992 Industry Comparison—Aerospace and Chemicals
Aerospace (aircraft)
Chemicals
Value of shipments
125.7 (54.0)
301.9
Share of gross domestic product (%)a
2.1 (1.0)
5.0
Employmenta
695,000 (253,000)
853,000
Imports
12.7 (5.9)
25.1
Exports
42.2 (24.0)
44.2
Trade surplus
29.5 (18.1)
19.1
1989 R&D spending
20.3
11.5
1990 non-federally financed R&D spending
6.1
12.5
1990 non-federally financed R&D spending (% of sales)a
3.5
5.7
a Except for these items, all figures are current billion dollars.
SOURCE: U.S. Department of Commerce, U.S. Industrial Outlook 1993 (Washington, D.C.: U.S. Government Printing Office, 1992); National Science Board, Science and Engineering Indicators: 1991 Edition (Washington, D.C.: U.S. Government Printing Office, 1991), and National Science Board, The Competitive Strength of U.S. Industrial Science and Technology: Strategic Issues (Washington, D.C.: U.S. Government Printing Office, August 1992).
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TABLE A-2 U.S. Aerospace Exports (thousand 1992 dollars)
Product
Japan
Worldwide
New civil general aviation aircraft
13,381
580,799
New military aircraft
100,976
1,909,398
New civil heliopters
11,783
117,694
New civil passenger and cargo aircraft over 15,000 kg
2,574,413
22,378,686
Aerospace parts and equipment not elsewhere specified or included
1,089,140
10,146,951
Other civil and military aircraft, balloons, gliders
1,081
17,445
New and Used Civil and Military Piston Engines and Parts
1,777,348
315,734
New and Used Civil and Military Turbine Engines and Parts
449,172
636,220
Missiles, space vehicles, and parts
245,182
1,764,678
New and used civil and military aircraft engines and parts
466,519
6,683,953
New and used civil and military aircraft
2,703,859
26,419,249
Total
9,432,854
70,970,807
SOURCE: U.S. Department of Commerce.
other industries and contribute to the overall economy.4 U.S. strength in the development and production of transport aircraft is also an important support for the defense industrial and technology base. Technology developed for commercial transports is often utilized in military programs; the production of commercial aircraft reduces military aircraft costs in companies that manufacture both; and commercial aircraft production helps to maintain the supplier and the work skill base in times of weak military demand.5 Finally, the excellence of American-made aircraft has long played a major role in improving the safety and efficiency of the nation's air transportation system.
The aircraft industry—like many others—is regionally concentrated, so that its economic importance is felt unevenly throughout the country. 6 In
4
These technologies include "system integration in the design and manufacture of complex, high-performance equipment; project management to meet demanding targets for performance, cost, and delivery; sophisticated manufacturing techniques for fabrication, testing, and assembly; and computer-integrated manufacture, factory automation, and large-scale integrated information processing" as well as "the more obvious ones that affect aircraft performance—aerodynamics, propulsion, advanced structures, and avionics and control ..." National Research Council, The Competitive Status of the U.S. Civil Aviation Manufacturing Industry (Washington, D.C.: National Academy Press, 1985), p. 22.
5
OTA, op. cit., p. 344.
6
According to Boeing Commercial Airplane Group's brochure, "The Invisible Exporters," between 1987 and 1991 the Boeing Material Division procured an average of $10 billion per year in goods and services from suppliers in all 50 states. More than three-quarters of this amount was purchased from suppliers in four states: Ohio, California, Connecticut, and Washington. Of course, the larger first-tier suppliers in these states made purchases of their own, likely resulting in a greater geographic dispersion (including from overseas) at lower tiers.
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TABLE A-3 U.S. Shipments of Aerospace Products (thousand dollars)
Product Description
1987
1988
1989
1990
1991
Aircraft
36,002,800
37,765,100
39,531,000
46,885,300
52,513,500
Military aircraft
16,862,300
15,044,400
14,832,900
14,108,700
15,622,000
Complete civil aircraft
12,491,743
16,019,855
17,421,046
24,864,289
29,780,098
Civil aircraft (fixed wing, powered)
12,145,669
15,453,662
17,108,080
24,608,896
29,550,713
Unladen weight not exceeding 2,000 kg
308,452
596,954
Unladen weight exceeding 2,000 kg but not exceeding 15,000 kg
802,657
Unladen weight exceeding 15,000 kg
11,837,217
29,151,102
Helicopters (rotary wing)
338,182
559,284
301,809
247,298
218,691
Other civil aircraft (nonpowered) and kits
7,892
6,909
11,157
8,095
10,694
Aircraft Engines and Engine Parts
18,821,900
18,866,700
19,903,900
21,580,200
21,314,900
Aircraft engines for military aircraft
4,205,600
3,214,200
3,342,000
3,265,800
2,967,600
Complete civil aircraft engines
2,841,150
3,753,689
4,358,246
5,335,475
5,778,444
Turbojet and turbofan
2,637,638
4,082,669
4,949,573
5,465,954
Turboshaft (turbo propeller):
203,512
275,577
385,902
312,490
Other, including auxiliary power units excluding missile and space engines
0
0
0
0
0
Aircraft Parts and Auxiliary Equipment Not Elsewhere Classified
19,528,900
20,545,400
21,294,500
23,081,800
25,288,200
Aircraft parts and auxiliary equipment, n.e.c.
15,817,800
16,331,000
18,155,900
19,618,100
22,155,100
Aircraft propellers and helicopter rotors
724,100
676,300
746,500
881,100
951,400
SOURCE: U.S. Department of Commerce.
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TABLE A-4 1991 U.S.-Japan Trade in Aerospace Products (million dollars)
U.S. exports to Japan
3,907
Japanese exports to U.S.
661
SOURCE: Aerospace Industries Association, Aerospace Facts and Figures 1992–1993 (Washington, D.C.: AIA, 1992), p. 122.
contrast to other high-technology sectors in which the globalization of markets and technological capabilities has prompted companies to multinationalize, aircraft manufacturers—at least at the level of airframe integrators and manufacturers of major subsystems such as engines and avionics—have generally not established their own offshore production and R&D sites.7 The globalization of production and design has proceeded largely through international strategic alliances, consortia, and other types of supplier-partner relationships between nationally based companies.
Although U.S. companies continue to hold global leadership overall and in most important industry segments, the transport aircraft industry—including airframe integrators, engine makers, manufacturers of major avionic and structural components, and the broad supplier base—faces a number of significant challenges that threaten this leadership (see Table A-5). Global competition is intensifying—most notably in the large transport airframe market, where the Airbus Industrie consortium has leveraged significant support from four European governments to gain a large share of the market.8 Also, as a result of declining defense budgets in the United States and elsewhere, fewer resources are available from military programs for R&D, training, and other investments—investments that have traditionally provided an indirect support to commercial product development. Further, the synergy between commercial and defense R&D has declined in recent years as military aircraft design increasingly emphasizes features such as stealth, high maneuverability, and short field landing capability. Finally, the global market for large commercial
7
"The difficulty governments face in determining what constitutes a domestic firm, and therefore which companies are eligible for public support, is not a problem in this industry. There is little foreign direct investment in the aircraft business." George Eberstadt, "Government Support of the Large Commercial Aircraft Industries of Japan, Europe, and the United States," contractor document for the Office of Technology Assessment, May 1991, p. 11.
8
See Gellman Research Associates, Inc., An Economic and Financial Review of Airbus Industrie, September 4, 1990. The European Airbus consortium members and their respective governments have argued that the indirect benefits that accrue to the U.S. aircraft industry from the defense budget are equivalent to the direct government support that Airbus members have received. The U.S. position is that these indirect benefits are not really equivalent and that, in any case, European aircraft makers also enjoy defense spillovers. Although a detailed treatment of the protracted U.S.-EC conflict over this issue is beyond the scope of this report, a number of the policy issues raised by the conflict and the 1992 U.S.-EC agreement are central to the committee's charge.
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transports has experienced a significant downturn over the past several years due to sluggish demand for air travel. The impact of this cyclical slump through the aircraft supply chain has been exacerbated by structural problems afflicting the U.S. airline industry—traditionally the largest component of the aircraft industry's customer base.9
It is safe to assume that the aircraft industry will retain its economic importance into the next century, despite the current downturn in sales. The global market for air transportation and large transports is expected to grow significantly over the next several decades. Table A-6 shows that much of this growth is likely to occur in Asia. Further, in contrast to declining spillover benefits from defense to commercial markets, the importance of commercial transport manufacturing for maintenance of the defense industrial and technology base is likely to grow, both because fewer companies will be able to maintain extensive R&D operations on the basis of military work alone, and because increasing pressure for cost performance on the military side will require the incorporation of greater commercial discipline. The benefits that accrue to countries with a strong aircraft industry have always been compelling and have justified public policies of direct or indirect support in the United States and elsewhere. Europe, Japan, Russia, China, and other countries are pursuing a variety of policies to promote domestic aircraft manufacturing. The emerging environment for U.S. private and public policymakers is characterized by significant challenges, high stakes, and a complex field of players and interests.
9
See testimony of Lawrence W. Clarkson, Corporate Vice President for Planning and International Development, The Boeing Company, and testimony of Thomas M. Culligan, Corporate Vice President, McDonnell Douglas, before the Subcommittee on Aviation, Committee on Public Works and Transportation, U.S. House of Representatives, on the "Financial Condition of the Airline Industry," Washington, D.C., February 24, 1993.
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Table A-5 Aircraft Manufacturing Process and Supplier Structure
Materials
Structures
Integration
Delivery
Aluminum
Fabrication
Engines
Marketing
Composites
Subassembly
Avionics
Financing
Tooling
Other components
Certification
Machine tools
Materials
Structures
Engines
Avionics & Instruments
Other Components & Systems
Alcoa
U.S.
Pratt & Whitney
Collins (Rockwell Intl)
Hamilton Standard
Kobe Steel
Vought
GE
Allied Signal
Allied Signal
Hercules
Grumman
Rolls Royce
Honeywell
Menasco
Toray
Northrop
Sundstrand
Sundstrand
Yokahama Rubber
Rockwell International
Tokyo Aircraft Instruments
Cleveland Pneumatic
Union Carbide
Japan
Japan Aviation Electronics
Shinko Electric
Rohr
MHI
TRW
Lear Siegler
KHI
Westinghouse
Kayaba
FHI
ShinMaywa
Japan Aircraft
Manufacturing
Airbus
Deutsche Aerospace
Aerisoatuake
British Aerospace
CASA
NOTE: The list of companies under each heading is included for illustrative purposes and is not an exhaustive list.
SOURCE: National Research Council Working Group on U.S.-Japan Technology Linkages in Transport Aircraft.
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TABLE A-6 The Global Aircraft Market—Historical and Forecast Regional Shares of Average Annual Deliveries to Airlines (percent)
1972–1981
1982–1992
1993–2000
2001–2010
United States
35
38
39
31
Europe
26
28
25
25
Asia-Pacific
20
24
27
33
Africa-Middle East
10
6
5
5
Latin America
5
2
3
4
Canada
3
2
2
2
Total market (billion 1993 dollars)
14.8
26.1
40.9
48.7
NOTE: Percentages may not total 100 due to rounding.
SOURCE: Compiled from data appearing in Boeing Commercial Airplane Group, 1993 Current Market Outlook, March 1993, p. 3.5.
