The Competitive Status of the U.S. Civil Aviation Manufacturing Industry: A Study of the Influences of Technology in Determining International Industrial Competitive Advantage (1985)

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SUMMARY 1 Summary Civil aircraft manufacture is experiencing profound change, created by a combination of domestic and international circumstances. The industry, comprising large commercial transports, rotorcraft, regional transports, business aircraft, and light piston aircraft, holds a unique position in the nation's industrial structure—in its contribution to trade, its coupling with national security, and its symbolism of U.S. technological strength. Consequently, the implications of the change that is occurring are of national importance. BACKGROUND Civil aircraft (including engines and parts) are an important component of manufactured durable goods (sales—including exports of military aircraft—of $17 billion in 1982 represent 1.88 percent of all durables) and a major source of employment for skilled production workers, scientists, engineers, and technicians. Large transports are the dominant element in sales of civil aircraft, and export sales now represent 60 percent of large transport sales. Exports will become even more important, due to the more rapid growth of air transport in foreign countries. These export sales are vital to the economies of scale that help give cost leadership to the United States. Aircraft manufacture plays a unique role in national security. The teams that could help develop design and production technology for new military aircraft are kept in a state of increased readiness by the requirements of the civil market. The competitions and requirements of the civil market stimulate technological and product advances that contribute to these associated industries. The production base is also available in an emergency surge capacity. This base comprises not only the aircraft companies, 

SUMMARY 2 but also a massive specialized infrastructure of some 15,000 firms that supply sophisticated components, materials, and equipment. The U.S. aviation industry has dominated world markets since the end of World War II. This success, of course, was in part a legacy of the technology and production base created for that war. Additional factors include: • A generally healthy domestic economy that encouraged an aggressive and effective program of technology development, aircraft design, manufacture, service, and operations. • A continuing productive relationship among government, the airlines, and the manufacturer. • An aggressive effort on the part of the airlines and aircraft manufacturers to continually improve surface transportation, resulting in significant passenger advantages in trip time, trip cost, and trip safety. • The resulting rapid growth in domestic and international air transport. The history of success began to change in the mid-1970s and has altered the outlook for the United States in all classes of aircraft. These changes include the impact of deregulation on domestic air transport, the emergence of foreign competition, internationalization of aircraft manufacture, and growing involvement of foreign governments in the industry. United States air transport had grown and matured as an industry in which regulation of routes and fares encouraged focus on passenger amenities and political lobbying for routes rather than on competition in fares and efficiency of operations. Service to smaller communities was of lower priority, and experimentation with fares and service to probe customer preferences was virtually nonexistent. Deregulation of fares and routes in 1978 has led to greatly increased competition for routes, the appearance of many new carriers, and unprecedented competition and diversity in fares and services. Airlines have responded by seeking to protect or improve their share in markets where they were strongest by emphasizing hub-and-spoke feeder systems. Many new commuter airlines have arisen to serve smaller communities. Evaluation of the effects depends on the use made of air transport. Many frequent travelers experience increased inconvenience in point-to-point service, deterioration in service in many instances, and chaotic fares on many routes, but they can also benefit from frequent-traveler bonuses if they are prepared to accept some inconvenience. Travelers can also obtain dramatically lower fares on many routes and in scheduling benefit from lower fares on some flights and new classes of service on some routes. Service to smaller