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THE PRESENT ENVIRONMENT 67 FINANCIAL PERFORMANCE OF THE INDUSTRY Analysis of financial performance of civil aircraft manufacture is very difficult because most of the important participants are also involved in military aircraft and other aerospace businesses as well. Data on civil aircraft manufacture are not developed on a continuing basis and current data are not available. The U.S. Department of Defense (DOD) made a hurried analysis for the period 1970 to 1975, but it is out of date and careful corroboration has never been carried out. DOD was expanding its procurement of military aircraft during that same period, and this too would affect profitability. Data on the entire aerospace industry suggest a level of performance inconsistent with its image of leadership in high technology and its critical contribution to economic strength and national security. Charts A, B, and C in Figure 2-11 indicate a return on sales and on assets (a widely used measure of financial performance) that is significantly below that for all manufacturing. The crossover on return on equity in 1977 reflects in part the increase in debt financing that occurred during that period. The aerospace companies are more highly leveraged than formerly. As can be seen, aerospace financial performance has narrowed the gap with all manufacturing since about 1979. Inability to disaggregate data limits analysis, but it is known that many key industries, such as automobiles, steel, and machine tools, had disastrous performance that adversely affected overall profitability in manufacturing at the same time that military procurement was vacillating. Consequently, although the data are not conclusive, the panel concludes that profitability in civil aircraft manufacture has not been consistent with the picture of an industry that is technologically dynamic and has world dominance. The anecdotal evidence on profitability is still more discouraging, even when allowing for the caveats about difficulties in disentangling the costs of a very long term project. The life cycle of a jet aircraft program is approximately 40 years (7 to 10 years of precursor R&D and design for the aircraft and the engine, 15 to 20 years of production, followed by another 15 years of continuing application of the last aircraft produced). During that time, as we have seen, the aircraft company may have invested $4 to $6 billion (exclusive of engine development) and have waited 10 to 15 years or more before it recovers the investmentâeven for successful aircraft (Figure 2-11). Evidence on the profitability of individual jet transport families such as the B707 or the DC-9 is not entirely consistent. One author having intimate contact with the industry states that out of 22 commercial jet aircraft developed, only 2 âthe Boeing 707 and 727âhave been profitable.13 (The widely regarded Economist adds the DC-8 to the list.14) All others have been
