With its ability to ride economic turbulence the aerospace sector is a mainstay of European manufacturing. But is it starting to lack direction? By Sherelle Jacobs
Europe’s aerospace sector in many ways appears securely encased within the region’s industrial comfort zone. It epitomises the region’s ability to still pack a punch in the manufacturing stakes. While other forms of production have crumbled in the face of emerging Asian competitors, aerospace has remained one of the EU’s most crucial industrial sectors. It is also an area where Europe has a clear edge over much of the rest of the developed world; it maintains a solid surplus for aerospace products, which it exports worldwide. But is one of the major jewels in Europe’s manufacturing crown in danger of losing glean?
On the surface the figures associated with Europe’s aerospace industry are impressive. In 2008, the sector employed around 375,000 people and generated a formidable turnover of 128 billion euros. Employment and wage levels in aerospace have increased at a higher rate than other sectors of European economies. And encouragingly, although the industry in Europe is fairly concentrated in a small cluster of countries (namely the UK, France, Germany, Italy, Spain, Poland and Sweden), a number of other countries, including Slovenia, Czech Republic, Austria and Spain, having committed to high levels of investment in aerospace, are catching up.
Moreover, a generally positive outlook on the potential of the industry, despite the recent economic downturn, is palpable amongst those working within the industry. “We live in turbulent times but the good news is that air transport has always shown and will continue to show strong resilience to the many challenges and downturns it encounters, primarily because there’s a strong interconnection between aviation and economic growth,” says Antonio De Palmas, President of EU and NATO Relations at Boeing, commenting on the industry as a whole.
Moreover, the future certainly looks encouraging for a number of famous European companies in the sector. One is Airbus, a world-leading aircraft manufacturer based just outside of Toulouse, France. The total revenue of the firm, which now employs around 52,000 people at 16 different sites across Europe, reached nearly 30 billion euros in 2010. And the company recently announced its plans to expand its operations by recruiting 4,000 new skilled workers and investing two billion euros in environmental research and development this year with a view to improving fuel efficiency.
Another European company that is thriving in the aerospace sector is Rolls-Royce, which has a dedicated aerospace arm. The company is upbeat about the potential of the defence aerospace sector, estimating that it will be worth $160 billion over the next two decades, with demand highest in the U.S., Europe and east Asia. Moreover, Rolls-Royce’s recent achievements in the sector are impressive. They include recently winning a contract worth $275 million to provide aerospace products to the American armed forces and reaching crucial milestones in developing new engines to power Typhoons.
Nonetheless, a closer look at figures indicate that the performance of the European aerospace industry has in fact been mixed in recent years. According to a European Commission report, production levels have been inconsistent and experienced declines. Overall, over the last decade the sector has also experienced less production growth and lower levels of value added growth than other sectors. And, surprisingly perhaps, investment in aerospace has also been lower and more volatile than in other areas of manufacturing.
The cumulative effects of such a confused overall performance within the aerospace industry are beginning to emerge and those working within the sector are worried. A recent study commissioned by the European Defence Agency strongly warns of the possible repercussions: “the situation for future air systems is severe, with some important industrial capabilities and technologies already at risk,” it says. Without injecting much-needed investment and implementing a joint strategy, the state of affairs “will soon become critical.” And, according to the report, the “development of future combat aircraft (manned and unmanned) and attack helicopters” is at risk of suffering.
Competition from other nations with aerospace industries is also intensifying. Countries such as the USA, Brazil, India and South Korea, are all making heavy investments in the sector in an attempt to better Europe.
So what is the solution? There is rising consensus in the sector that better policies are key to addressing the challenges that the aerospace industry faces: “Europe is lagging behind and we need the right set of policies to maintain Europe’s competitive edge and ensure that air transport can continue to support economic growth and social progress while, at the same time, being environmentally sustainable,“ says Antonio De Palmas of Boeing.
De Palmas continues; “Experience in other regions (Asia-Pacific) has showed clearly how governments can strategically use aviation to fuel economic development. The EU is in a strong position to influence air transport but they are not always focusing on the right things.”
According to experts in the industry, the EU can address some of the industry’s challenges by pursuing a number of specific policies. They include helping aviation bio-fuels to become commercially viable, and improving the infrastructure within which the aerospace industry can flourish, for example, through increasing the number and capacity of airports in Europe.
Experts also highlight the need to address penalisation and regulation issues, which are in danger of strangling growth in the sector. As De Palmas says, “Don’t penalise European airlines with taxes or regional schemes but support a global approach to emission reduction and align with global standards [safety, aviation security etc.] rather than promoting new regional ones…”