Aviationtoday.com: Muted Celebration

This year’s award for "Most Overheard Statement" at an aerospace trade show in the first quarter of 2008 goes to: "What do you mean I can’t come into the chalet for a drink? I’m a journalist!"

Second place goes to: "Will the recession end aviation’s historic growth?"

Everywhere I travel lately, the corridors are abuzz with concerns about aviation’s prospects in a slowing global economy. However, two well-respected analysts expressed a bullish outlook for the aviation business — with a few caveats.

According to Richard Aboulafia, vice president of analysis at the Teal Group, and Michel Merluzeau, principal at G2 Solutions, aviation will continue its winning streak this year, regardless of the economic slowdown that afflicts the rest of the general economy. The bulk of this growth will be propelled by increasing demand for new aircraft orders — and the concomitant demand for avionics.

But take note: while the aviation sector is likely to remain buoyant in the coming months, its growth in 2008 won’t equal the breakneck pace it posted last year. And all bets are off if there’s any unexpected trauma, such as an oil price spike, worsening violence in the Middle East or a terrorist attack on American soil.

From now until 2015, Aboulafia forecast production of roughly 41,107 aircraft worth $1.163 trillion. The military component of this market is worth $321.1 billion, while the civil sector is worth $841.4 billion. The Bush administration’s proposed 2009 defense budget of $515.4 billion would further fill aerospace coffers.

Teal’s numbers exclude uninhabited aircraft, non-turbine aircraft, maintenance, overhaul, upgrades and research. If all of these sectors were included, the industry would be worth well in excess of $3 trillion to the world’s economy over the next decade.

Aboulafia said Boeing’s all-composite 787 Dreamliner and the rejuvenation of the company’s jetliner product line are lifting the aerospace giant to market primacy.

"U.S. primes are gaining global market share, largely due to their successful embrace of globalization," he said.

He said Europe looks set to retain its market share during Teal’s forecast period, although European industrial restructuring has not achieved its complete fulfillment.

Moreover, he pointed out that Europe’s share could erode, if Boeing’s already impressive lead increases or if the F-35 achieves its greatest expectations.

Merluzeau emphasized this global growth in aviation will spur continued demand for maintenance and avionics. However, Merluzeau was a bit more skeptical than Aboulafia about the aviation industry’s ability to continue in 2008 its record-breaking level of growth.

Merluzeau also examined the North American GPS avionics retrofit market. He pointed out that Garmin commands a dominant share of this market, reaching about 85 percent in 2007. He also asserted there is a shrinking addressable market for avionics retrofits in both business and general aviation, because of market saturation, high costs for equipment and installation and the adverse economics of upgrading aging platforms.

Merluzeau is sanguine about aviation’s overall prospects in 2008, but he’s on guard against any "irrational exuberance."

"While 2007 was a milestone year for commercial aviation, it likely will not be followed by a repeat in 2008," he said. "With the U.S. economy now feeling the pain of the credit crisis, high energy costs and a weakened dollar, the domino effect we had feared would ensue is beginning to show signs of strength in other areas. With the European and some Asian economies also exposed to a U.S. downturn, 2008 likely will be a year of economic correction; this is our best-case scenario."

From these predictions, it appears there’s still reason to celebrate aviation’s prospects, but maybe with beer instead of champagne. Grab your show ID and join the party.