Aircraft Parts Executive SummaryAircraft Parts Executive Summary
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The U.S. aerospace industry, including manufacturers of aircraft parts, plays an important role in U.S. Government efforts to boost job growth through increased exports. U.S. aerospace manufacturers produce the highest trade surplus of all manufacturing sectors, account for more American jobs tied to exports than any other industry, and provide high-tech, and higher than average wages for the manufacturing sector in general. Increasing exports in the sector is therefore a priority for the U.S. Government, with several agencies supporting a broad portfolio of activities in support of export competitiveness.
The aerospace manufacturing industry is comprised of companies that produce complete aircraft and spacecraft, satellites, rockets and missiles, and parts of the aforementioned products. More broadly defined, it includes products used in air traffic control and at airports, as well as in aircraft maintenance, repair and overhaul (MRO) facilities.
This report focuses on one aspect of the aerospace industry: parts of aircraft, including both civil and military aircraft, whether fixed-wing or helicopters. Aircraft parts include, but are not limited to:
- aircraft interiors
- nose and tail sections
- aircraft wiring
- wheels and brakes
- passenger entertainment systems
- different types of fasteners
- small aircraft engines, including piston engine and turbo-propellers.
Complete jet engines are not included because the market dynamics for jet engines closely parallel those of jetliners, while the same is not true for other aircraft parts. Components of all aircraft engines, including jet engines, are included.
Why a Focus on Aircraft Parts?
Manufacturers of complete aircraft, rockets, and missiles are principally large corporations. Such companies frequently have well-staffed international marketing departments.
In contrast, most manufacturers of aircraft parts are small and medium-size enterprises (SMEs), with as few as half a dozen employees, representing an important customer base for both ITA and other export promotion agencies. By focusing on aircraft parts, this study provides helpful market information specifically related to the kinds of companies that are identified as strategically important to economic growth and export competitiveness.
Aircraft parts represent an important segment of total U.S. aerospace exports. In 2008, the last year for which detailed U.S. aerospace export data was made available, the value of U.S. exports of aircraft parts was greater than the value of U.S. exports of business jets and general aviation aircraft, military fixed aircraft, military helicopters, and civil helicopters combined. Moreover, in contrast to other aerospace industry segments, such as military and civil helicopters that experienced virtually no growth in U.S. exports, exports of U.S. aircraft parts have experienced steady and strong growth.
ITA has three active Market Development Cooperator Program (MDCP) partnerships focused on increasing aerospace exports. To varying degrees, all three partnerships involve activities aimed at boosting exports of U.S. aircraft parts. One of the three partnerships, with the Modification and Replacement Parts Association (MARPA), is focused on a specific sector of the aerospace industry, and that sector is aircraft parts. By focusing our market prioritization efforts on aircraft parts, ITA is targeting an important sector of the aerospace industry relevant to the aerospace MDCP partnerships.
Understanding the Sector
Manufacturers of aircraft parts provide products to manufacturers of complete aircraft; airlines and other private sector aircraft operators; military and civil government agencies; and aircraft MRO shops. The aircraft parts industry is tiered, with some parts passing through many hands, and national borders, before reaching an airframe manufacturer in a major subassembly.
This is also true for airlines and MRO shops, which may procure parts through distributors, from the aircraft or engine original equipment manufacturer (OEM), or from the part manufacturer directly. In the case of Foreign Military Sales, parts may be purchased through the United States Government. Devising an appropriate export promotion strategy for a particular country requires identifying how these factors affect customer demand in that market.
While other types of airframe producers, such as the regional jet manufacturers Bombardier (Canada) and Embraer (Brazil), cannot be discounted, manufacturers of large civil aircraft (LCA) are especially significant drivers for the demand of civil aircraft parts. The U.S. Department of Commerce defines LCA as jet transport aircraft of 100 seats or more or equivalent cargo capacity. The primary manufacturers are Boeing, Airbus and Bombardier (the latter of which is producing a 110-130 jet airliner yet to be delivered). While both Boeing and Airbus each produce some aircraft parts, both manufacturers emphasize their roles as integrators, seeking to reduce their production of aircraft parts, as well as shrinking the number of their direct suppliers. Boeing and Airbus increasingly rely on their first tier suppliers to assist in product design, as well as in contracting with second and third tier suppliers.
According to Airbus, for the production of its jetliners, it spends 42 percent of its aircraft-related procurement in the United States – buying more parts, components, tooling and other material from the United States than any other country. Bombardier states that 53 percent of its CSeries jetliner will be sourced from U.S. suppliers.
While the LCA industry provides significant opportunities for OEM sales, the growing global aircraft fleet presents many opportunities for U.S. parts manufacturers who cater to the aftermarket. Some companies supply only to the aftermarket, particularly if they provide an equipment upgrade that was not included in the equipment offered by the OEM or if they specialize in aircraft refurbishment. Boeing estimates that the current airline fleet is made up of about 20,900 airplanes (LCA and regional jets), but there are also thousands of business aircraft, turboprops, helicopters, and military aircraft that require spare parts. Many of these aircraft may be old and/or out of production. Though LCA may be flown long distances for maintenance, many smaller aircraft must be maintained locally. Thus, an export promotion strategy for aircraft parts also requires detailed knowledge of a country’s aircraft fleet and its maintenance capability.
U.S. Domestic Factors Influencing Competitiveness
There are at least four major domestic factors contributing to the international competitiveness of U.S. manufacturers of civil aircraft parts.
Domestic Customer Base
U.S. aircraft parts manufactures benefit from a strong domestic customer base that generates demand for parts related to a wide variety of aeronautical applications. U.S. aircraft parts manufacturers therefore have the experience and technology to satisfy a broad range of demanding requirements in contrast to manufacturers in other countries with less of an aerospace legacy. Advanced manufacturing technology in the private sector will be complemented by the establishment of a U.S. network of public-private manufacturing innovation institutes, such as the Lightweight and Modern Metals Manufacturing Innovation Institute.
The FAA’s rigor in ensuring the airworthiness of U.S. aircraft and parts is second to none in the world. Whereas the quality of aircraft parts manufactured in some countries could be held in question, customers around the globe readily accept U.S. aircraft parts knowing that they have been approved by the FAA.
Certification of Aftermarket Aircraft Parts
A particular type of airworthiness design and production approval for parts manufacturers, the FAA “Parts Manufacturer Approval” (or PMA), is virtually unique to the United States. PMA parts are frequently sold in the aftermarket in competition with parts produced by or on behalf of a type certificate holder. Manufacturers of PMA parts may offer customers significant price discounts. Because other countries do not offer this type of airworthiness approval, U.S. PMA producers often have an advantage in foreign markets.
Equal Footing with Global Competition
In February 2014, the FAA issued a Notice of Proposed Rulemaking that would, if adopted, permit Production Approval Holders (PAHs) to issue export certificates of airworthiness, FAA form 8130-3. PAHs include manufacturers of aircraft parts that produce under PMAs and other types of FAA approvals.
Currently, many U.S. aircraft parts manufacturers pay a fee to an FAA designee to receive an export certificate of airworthiness. This places them at a disadvantage vis-à-vis European and Canadian manufacturers who are able to issue comparable forms on their own authority (thus avoiding the need to pay a fee to an outside inspector). Adoption of the proposed rule would put U.S. manufacturers on a more level playing field.
Challenges Facing U.S. Aircraft Parts Exporters
Overseas challenges to the competitiveness of U.S. manufacturers of civil aircraft parts include:
- "localization" requirements
- questionable airworthiness approval procedures.
In addition, aviation is an emerging industry in many countries. Even countries with world-class airlines may not have much domestic maintenance capacity. Developing countries may require a higher degree of technical assistance than is usually offered by a SME manufacturer.
Some competitors of U.S. civil aircraft parts manufacturers are subsidized. For example, the federal government of Belgium, in coordination with Belgium’s three regional governments, subsidizes Belgian manufacturers that supply parts to Airbus. The French government, through OSEO (the state-backed company that provides financial support to innovative small and medium-sized enterprises), provides “reimbursable advances” to assist French manufacturers.
In 2010, OSEO announced 80 million euros ($95 million), in reimbursable advances over two years for French SME sub-contractors and suppliers of large aerospace firms. Zodiac Aerospace received 230 million euros in reimbursable advances during the August 2008 to August 2009 period. In 2009, Latécoère received 50.4 million euros in reimbursable advances. In 2011, Figeac Aero received 10 million euros and Slicom received 1 million euros.
Several governments have formal policies aimed at the creation of a vibrant, domestic aerospace manufacturing industry. When purchasing major aerospace products, such as LCA to be operated by state-owned or –controlled airlines, these governments may seek to encourage foreign airframe and aircraft engine manufacturers to establish in-country manufacturing sites, purchase aircraft and engine components from in-country suppliers, or transfer technology to in-country organizations. Such measures may or may not be explicit. The most explicit of such measures, government mandated offset requirements have been applied to military aircraft procurement for decades. It appears there may be interest by some governments to apply offset requirements to civil aircraft purchases, with the effect of requiring airframe manufacturers to source components from in-country suppliers and not U.S. suppliers.
Some manufacturers of parts approved by the FAA for airworthiness with a Supplemental Type Certificate (STC) or PMA have encountered difficulties in obtaining validation of the FAA approval from foreign civil aeronautical authorities. These difficulties include protracted periods of time to process validation applications and questionable requests for detailed design specifications. In addition, SME U.S. parts manufacturers have expressed concern with what they perceive to be unreasonably high fees charged by the European Aviation Safety Agency to validate FAA airworthiness approvals.
Exchange rates may affect U.S. manufacturers’ competitiveness positively or negatively. With respect to Airbus, likely the single largest foreign customer of U.S. civil aircraft parts, long term fluctuations in the euro/dollar exchange rate have worked to the advantage of U.S. exporters (while, admittedly, over the 12 month period ending in March 2015 the dollar has experienced a sharp appreciation, to the disadvantage of U.S. exporters).
From December 2000 to January 2015, the value of one euro in U.S. dollars increased from $0.897 to $1.182 – an appreciation of 32 percent. The appreciation of the euro vs. the U.S. dollar is particularly important for U.S. civil aircraft parts suppliers since Airbus has traditionally denominated its LCA sales in U.S. dollars. The purchase by Airbus of euro-denominated parts from European suppliers is now disadvantageous given that Airbus would have to convert weakened U.S. dollars received from the sale of its LCA to euros to do so.
The pace at which aerospace manufacturing involves transnational inputs continues unabated. Manufacturers of complete civil aircraft around the world source components and materials from suppliers representing dozens of countries. The manufacturing of some aircraft parts is placed in some countries in response to government influences, including financial support and localization pressures.
The two largest manufacturers of civil aircraft, Boeing and Airbus, are likely to continue their demand for large quantities of civil aircraft parts well into the future. At the end of 2013, the combined backlog (i.e., unfilled orders for new jetliners) for both manufacturers was 10,639 aircraft. By comparison, during 2013, both manufacturers delivered 1,273 jetliners.
U.S. producers of aircraft parts, especially those prepared to accept at least some costs in designing and developing parts for specific aircraft platforms, likely will have significant opportunities for export and domestic sales in the future. Demand for aftermarket parts will naturally follow aircraft sales, growing or shrinking accordingly as national fleets expand or contract. Based on that, recent trends indicate that the Middle East and Asia, in particular China, will be growing markets of opportunity for aftermarket/repair aerospace parts.
The essence of our methodology used in assessing priority markets for U.S. exports of aircraft parts was to (a) select factors that in our view represent favorable conditions for increased exports of aircraft parts, (b) assign a relative value to each of the factors, and (c) aggregate the weighted values of the factors to assign a single numerical score to each country market.
We identified 13 factors. While many are specific to the aerospace industry, such as whether a given foreign country has a Bilateral Aviation Safety Agreement with the United States, other factors relate to U.S. exports in general, such as the World Bank measure of ease of doing business, that includes the number of documents required for import transactions.
In some cases, we were not able to include a factor of interest to us due to lack of data. For example, one indication of the demand for aircraft parts is the extent to which MRO facilities are present in any given market. MRO facilities overseas may approved by the local civil aeronautical authority (CAA), the U.S. CAA (the FAA), the European CAA, or the CAA or other countries. Because the only data readily available about MROs is that of FAA-approved facilities, we used that as our factor (rather than the more expansive undertaking of all CAA-approved MROs).
Aircraft and Aircraft Parts Export Potential