Airlines and operators replacing older fleets with new fuel-efficient aircraft coupled with increased air passenger demand in the Middle East and Asia Pacific markets is expected to make 2014 another "record year" for the commercial aerospace industry, according to Deloitte's 2014 Global Aerospace and Defense Industry outlook.
Boeing's 787-9 is among several new commercial aircraft scheduled to enter service in 2014. Photo, courtesy of Boeing.
The report projects revenue growth for the overall global aerospace and defense industry to be in the 5 percent range, which would be similar to the growth experienced in 2012 and likely in 2013 when year-end earnings reports are finalized. That growth will be driven by the commercial aerospace sector, as the report projects continued declines in revenue and earnings for defense products due primarily to the "cessation of a prolonged period of armed conflict in Iraq and Afghanistan."
Commercial aircraft production is expected to increase by 25 percent by 2023, as manufacturers seek to keep pace with demand for new aircraft. Rising fuel costs are the primary driver of demand for new aircraft, as the report states fuel costs as a total percentage of operating expenses for airlines have increased from an average of 13.6 percent in 2001 to 31 percent in 2013.
Boeing and Airbus are promising to deliver up to 15 percent better fuel burn rates with some of their next generation aircraft. The two longstanding commercial air framers are also facing increased competition in terms of their regional transport jets, with Bombardier prepared to enter its C Series airliner into service later this year; and Embraer's E2 jets and COMAC's C919 family scheduled to enter service over the next five years. However, Deloitte expects new aircraft production programs from non-U.S. and European countries to face challenges due to a lack of their track record.
Going forward, Deloitte predicts at least one additional competitor will successfully enter the commercial airframe market and compete with Boeing and Airbus on a global scale over the next two decades. Technology innovation is the key to creating demand in markets that "have yet to be discovered,” states the report.
"This is expected to impact the pace of technology innovation, replacement cycles and aircraft pricing. In turn, airline operators may have more product choices, requiring Original Equipment Manufacturers (OEMs) and their suppliers to meet new pricing expectations," the report states.