General Aviation Manufacturing is in the Tank; Hang On It is Going to Get Worse
Change is a constant, Outsourcing Jobs, Capital flows, Emerging Markets are a given and this includes the Aviation Manufacturing Sector as we watch the current Migration pick up speed.
It appears that the technological advantage that we have here in the United States is no longer going to sustain us without further advances. Previously our work in aerodynamics (during and after WWII), our industrial capacity and our ongoing capitalization of the aerospace industry was enough to keep us ahead of the game. Currently in the US we see job losses in the aerospace mount in cities like Everett, WA and Wichita, KS. We see other areas trying to carve out a niche in the aviation manufacturing market cities like Albuquerque, NM and Centennial, CO. Yet in reality there are few niches, which do not have many competitors. One new market the mini-Business Jet, seems to be a potential as many companies are building these under 1 million dollar jets. Even so we are seeing the small business jet opening market as a long term positive in the private jet market, but a short-term problem for the small single engine turbo prop and piston markets of Beechcraft, Cessna and others. Long Term will be good because these are considered starter jets attracting new buyers to the market, however short term they will pull buyers away from the higher priced turbo cabin class singles of 4-8 seats. They may also pull buyers away from popular models such as the Beechcraft Bonanza, Cessna 210, Piper Malibu, Saratoga, etc. We will also see problems in this market as insurance carriers increase prices as less experienced pilots and single pilot mini-business jets experience a higher percentage of will occur. In fact such accidents are already causing friction in the corporate jet insurance costs, showing that certain companies are separating out the categories to keep the mini-business jets in their own realm and pricing points.
Today we see massive high paid aerospace workers out of work and much of the component manufacturing leaving our shores. Some say it is to save money in manufacturing which is a serious consideration with workmen's compensation, insurance benefits, labor unions, over regulation and lawsuits taking their toll. There is another reason too; we want to sell to other countries our aircraft, so if they build components then Boeing maybe able to beat out Airbus. Yet Airbus is doing the same thing by building component plants in China, Boeing already builds air surface aircraft components there. We still cell our aircraft all over the world, yet also entering the small airliner market is Bombardier, a market niche, which has been dominated for decades by Boeing with many famous models like the 737.
The light aircraft market in the US has been dominated by Piper, Beech, Cessna but in the last two and a half decades the finish products liability has skyrocketed as lawyers lawsuits have increased both in number and monetary awards. Many light aircraft manufacturers had stopped making aircraft and discontinued several popular lines. Many aircraft had increased in price 100% to allow for the incessant lawsuits. As the price increased new aircraft sales could not keep up and the used aircraft prices also skyrocketed. This has left the door open for foreign light aircraft manufacturers around the world. Many light utility aircraft buyers would come to the US and buy used aircraft put in long range tanks and then fly them across the pond rather than buying an inferior light aircraft from other countries, but as the prices in the used market increased and the new market skyrocketed other manufacturers in those other countries excelled and filled the gap. With all the red tape and the lawyers, fewer aircraft were sold, fewer workers needed and costs for parts went up due to economies of scale. Wichita has seen it's hay day stolen, but will it move to other US city hopefuls as the new business jet niche becomes more prevalent? Will Albuquerque really be the new private jet manufacturing hub? The governor in New Mexico has certainly spoken out as very pro economic development towards aviation sector. The economic development agency of Colorado has practically promised it. Wichita is working hard to keep what they got, while Boeing is selling buildings and Bombardier is contemplating competing in the smaller jet airliner business. In India they are saying we can build light aircraft and UAVs to start and later we will build larger aircraft? And it appears they will be doing just that and some of our companies can read the writing on the wall so they will even put up some capital to make sure they are in on it. So how ready is India to take over the light aeroplane manufacturing sector? Well they certainly have the labor supply with over 1.06 Billion population and growing. Yes of course, they are primed and ready. Yes, they have established a priority to doing this.
India is also manufacturing UAVs with large factories going up as we speak. Counties like those in Eastern Europe or China, Mexico and India will take the general aviation industry from the US, but India appears to be the emerging as the most likely winner and they know it. As cities like Albuquerque NM try to become the next American city with available labor to enjoy the economic vitality which comes with such industries try to lure those industries away, we see they attempt thru their economic development associations to no avail. Those jobs are going over seas. It is too late to stop them now, in our self-righteousness to control and over regulate business we have driven businesses away. It is of course not only the aviation sector and it is not just the US, for instance in Europe also both with Airbus and the entire auto industry. Bureaucracy is not only killing America. In the UK: BMW head says red tape and bureaucracy "drowning" motor industry. Red tape and bureaucracy are unnecessarily inhibiting business development in the United Kingdom while costing it a fortune, according to the managing director of BMW (GB), Jim O'Donnell. BMW in the US is running into similar issues as are all auto manufacturers as they use Franchised Car Dealerships as a business model. The franchising industry is completely over regulated as well:
In America we no longer mine our own raw materials, Iron Ore mines cannot stay in business due to regulations and restrictions, same goes for Gold Mines, Copper, etc. This means if we have to import raw materials to compete, we pay those shipping costs too and as the price is passed on for the over regulation in every industry we are finding we are our own worst enemy. The US has two competitors, one is ourselves and our move towards socialism and the over regulation and Political correctness it creates; the second is other countries with similar industries which are free from the minutia we have created here with all the lawyers.
One may wish to wonder how many industries are lost completely before America wakes up, some in our country who are capitalizing such industries no longer care, as their money is better spent where business conditions, labor supply and a workable government with open arms and pro business exists. The new age of innovation will not belong to the US, they have forgotten from where they came, forgotten what it takes to build, forgotten why we fought so hard to do it and forgotten why we came in the first place. See YA, aviation sector? Well, it sure was a great run. One might ask why all the doom and gloom? Well none really, merely an observation of facts and it depends on which side of the fence you are on. What is our loss, is their gain, we no longer deserve it and India is proving to the industry, capitalists and now the world that they do. We did it to ourselves with our failure to curb the lawsuits, failure to limit awards, over regulation in manufacturing, but this is hardly a new thing, these issues and lawyers have plagued the commercial and private aviation industry our country for nearly three decades. The industry obviously is making choices right now about the future direction, as are governments who want this industry for their continued growth along with the customer demand for more affordable aircraft, labor and features. Some say the labor unions have been their own worst enemy as the Lou Dobbs debate; off shoring America rages on, however customers vote with their money, companies vote with theirs and no matter what government does in the way of intervention the aviation sector is moving now.
We must also understand if we wish to sell to these countries that some of the component building may need to be in those other countries as they will be buying our Airliners and we must compete on price as well. We cannot do that here in the states any longer the costs have become too great and the system of commerce we have created and the blob of bureaucracy is more than the aviation market sector can stand.
Look at some of these purchases? That is a lot of high tech equipment and we need those sales. These foreign airlines are buying much compared to our airlines, which are canceling orders. American Airlines cancelled 54 orders for new aircraft from Boeing recently, not good, the increases in operational fuel costs, Continental postponed their large jet order.
The writing on the wall is clear, India is booming and they are rapidly securing many of the United State's top industries and with them will flow jobs and capital. World economics are always in a state of flux. Even if the aircraft manufacturing industry survives in the US it will have to share more of that world market with other countries like India and China. Just as Airbus was able to take over 50% of the market share from Boeing after the MacDonald Douglas merger, India will take it's chunk of the UAV and private plane market and eventually divide further the airliner manufacturing sector.