Up in Smoke Case

Aerospace Industry

Overview and Update

Gregory P. Range – grange@srr.com

Aziz El-Tahch – aeltahch@srr.com

Industry Overview n n n

Recent Trends n n n

The global aerospace industry can broadly be categorized

The two sectors of the aerospace industry were moving in

into two sectors. The commercial aerospace sector consists

opposite directions during the first half of 2011.

of companies that produce large commercial aircraft, regional

aircraft, light aircraft (such as helicopters and business jets),

aircraft engines, parts and auxiliary equipment, and commercial

satellites. Dominated by Boeing in the United States and Airbus

in Europe, the primary end customer is the global airline industry.

As such, demand is generally correlated with global economic

activity, which drives spending on air travel. Fuel prices also play

a substantial role, as the airline industry is forecasted to spend

$176 billion on fuel in 2011, representing 30% of global airline

operating costs.

The defense aerospace sector is comprised of companies that

produce aircraft, engines, parts, equipment, weapons systems,

and military satellites. Major companies in the sector include

Lockheed Martin, Northrop Grumman, Raytheon, Boeing, General

Dynamics, and BAE Systems. Demand is driven by defense

spending, led globally by the United States with spending of

approximately $700 billion in 2010, more than five times that of

the second largest spender, China.

In commercial aerospace, after suffering significant contraction

in passenger volumes and massive losses in the economic meltdown of 2008 and 2009, the industry rebounded significantly in

2010 and is generating strong top-line growth in 2011. In the

first half of the year, record passenger volumes were on pace to

generate record revenues on a global basis for the airline industry.

At the same time, high fuel prices are negatively impacting airline

profitability. In June 2011, the International Air...