Russia’s Irkut will start building its MC-21 narrow-body aircraft next year
Rivalries make great stories. Nowhere is this more apparent than in the arena of business and industry. The tale of Airbus and Boeing has become one of the classics – an industrial head-to-head that stirs nationalistic sentiments in a way that perhaps only golf’s Ryder Cup comes close to equalling.
These two behemoths have circled each other for the past 30 years, pecking at the unfairness of government subsidies or defence research contracts and complaining to the World Trade Organisation. All the time, the two giant companies have dominated the commercial aviation market. But there is change in the air. While Boeing and Airbus have been focused on each others’ activities, aircraft makers in other parts of the world have been hatching plans to increase their share of the lucrative commercial market. Recently, evidence has been mounting that the Boeing/Airbus duopoly may dissolve.
The annual ranking of the top 100 aerospace companies compiled by PricewaterhouseCoopers (PwC) features groups from China and Russia for the first time in its 16-year history. Aircraft manufacturers such as Canada’s Bombardier and Brazil’s Embraer are also making progress in niche markets such as business and regional jets.
According to PwC’s ranking, which is based on information in the public domain such as annual reports, the Aviation Industry Corporation of China (AVIC) achieved the largest revenue increase of any aerospace company last year – 82% – entering the list at number 37. Russian aircraft manufacturer Irkut appears for the first time at number 51. The state-controlled company is aiming squarely for the narrow-body market with its forthcoming MC-21 aircraft. This sector is dominated by Boeing and Airbus. Irkut has orders for almost 200 MC-21s and is on course for assembly in 2014, and entry into service in 2017.
The arrival of Irkut and AVIC in the Top 100 shows how the industry continues to become more globalised. According to PwC, last year aerospace firms invested three times more outside their home markets than they did 10 years ago. China and India were the top targets for investments in manufacturing, followed by the US and Mexico. The top place in 2012 for aerospace R&D investments was India.
Anna Sargent, a director in PwC’s aerospace strategy team, says that the consultancy has worked with a lot of Chinese and Middle Eastern investors looking to acquire western firms, but has encountered barriers. “There is huge demand to invest in the aerospace supply chain globally, but Chinese and Middle Eastern investors’ ability to acquire tier-two and tier-three companies is severely restricted because of US import issues and defence sensitivities,” she says.
“Another major barrier is the traditional Chinese reputation for reverse engineering technology, doing it themselves cheaper and then selling it to their neighbours in the region cheaper.”
This reticence to share technology with China has slowed progress on aircraft development programmes in the country, but not prevented it. The Commercial Aircraft Corporation of China was scheduled to fly its C919 narrow-body aircraft, a direct rival to the Boeing 737 and Airbus A320 families of aircraft, in 2014. Chinese media have reported that the first flight is now set for 2015, pushing first deliveries to 2017 or 2018.
However, the potential size of the Chinese market represents a very appealing prospect to commercial aircraft manufacturers. There are reportedly hundreds of airports being built in the country and massive numbers of aircraft on order. Boeing estimates that over the next 30 years China will purchase more than 5,500 aircraft.
That’s too big a market to ignore in order to protect your technology. Airbus, which has 900 aircraft operating in China, opened its first engineering centre in Beijing in 2005. The centre became a joint venture with Chinese companies in 2008. Airbus also has a composites centre in Harbin that it shares with these partners. In contrast, Airbus only opened its US facility 18 months ago. The European group has 1,100 aircraft flying in North America. To the European eye, there is a strong similarity between the Chinese and US markets – they are equally tough to get into.
So are Airbus and Boeing executives really looking over their shoulders a bit more nervously and more frequently these days? Sargent says: “It’s doubtful that there is sufficient space for more than two companies in the large international market. Airbus and Boeing may be happy to dominate that and give the regional market to others in the long term. China will succeed if they capture their home market. Russia has tried to do that, but even their home-grown airlines don’t have enough faith in the aircraft. Nobody else has the amount of investment required to enter the market.”
Giuseppe Pagnano, coordinating project officer of the EU’s Clean Sky programme, agrees that threats to Airbus and Boeing’s dominance are far from immediate and exist only in certain sectors. He says: “The competition is most manifest in the short/medium-range civil market, the Airbus A320 and Boeing 737, which Canadian company Bombardier and Brazilian firm Embraer are entering.
“The real threat is in 15 to 20 years and comes from China,” he says. “The market is so huge and the level of investment so big. Within a certain timeframe that market can be served by EU and US aircraft, but in 15 to 20 years they will have learned and they may prefer to buy their own aircraft. With Russia, it’s not clear if it wants more aircraft to meet western certification.”
The Airbus response to competition in the short/medium-range market has been to develop more efficient aircraft, an aim that is closely aligned with the Clean Sky research project’s goals and the environmental targets of the EU.
The Clean Sky programme runs until 2017 and expects its second phase to be approved by the EU soon. Clean Sky was created to speed up technology’s transition from early-stage R&D to the final product and to reduce the environmental impact of aviation.
The programme was one of the EU’s first Joint Technology Initiatives and the first to fund research work up to technology readiness level six. That level is classed as pre-competitive R&D work, before a prototype is made.
According to Pagnano, the two most significant Clean Sky projects under development from an engineering perspective are counter-rotating open rotors and laminar wings. “The only real changes to aircraft configurations within the next 30 years will be in these two areas,” he says. “There is lots of great work going on elsewhere but, in terms of reducing environmental impact and changing the configuration of aircraft, these are the most promising areas.”
Open-rotor engine designs, he admits, have suffered a setback after Airbus opted for geared turbofan designs on the A320neo and Bombardier went for the same in its forthcoming C-Series. Open-rotors will probably not be seen until the mid-2020s now.
However, laminar-flow wing designs are due to be validated to technology readiness level six by the Clean Sky programme in 2016. The technology could therefore be available for Airbus to install on modified aircraft, if deemed worthwhile, during this decade. “But the most likely scenario is that we will only see new wing designs on a new aircraft,” says Pagnano.
A key function of Clean Sky is to provide the money that many companies, particularly small firms, need to fund research. It’s accepted that big investment in R&D pays dividends – the Aerospace Growth Partnership, a trade association set up to promote the UK’s industry, estimates that for £1 spent on R&D there is 70% return on investment. It is also widely considered that the good times being enjoyed by the British aerospace sector today are thanks to investments made in R&D 10-15 years ago.
The trend in aeronautics is for research to become increasingly expensive as the amount of funding available decreases and competitive pressure grows. Clean Sky is worth up to €1.6 billion and is funded 50/50 by the EU and industrial partners. Individual projects within the programme can be funded up to a maximum of €100 million.
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When Clean Sky’s funding is combined with money at the individual member state level of the EU, the overall amount of public funds spent on aerospace R&D in the union eclipses the investment in other sectors. Pagnano says: “European funding for aeronautics is higher than ever before in percentage terms. Nevertheless, even with Clean Sky, it is not as high as it is in China and the US.
“It’s high because the aerospace sector is so important to Europe’s social integration aspect. The growing importance of the civil market over the military one shows that. To maintain competitiveness in the world market, the European Commission saw that it was important to keep it up-to-date.”
Pagnano adds that the current level of funding in Europe is high enough for the proper demonstration of new technologies and for the sector to remain competitive. Aerospace firms need to target a global supply chain, not just a European one. So collaboration on R&D between different countries is becoming increasingly commonplace in the civil aviation sector.
Rather than seeing threats from countries such as China and Brazil, European politicians are making efforts to foster cooperation where appropriate for political and industrial reasons. These efforts at collaboration are most often at the early stages of research, or with certification, but form the building blocks of technological and business partnerships.
Collaboration can help to open up new areas of the world, such as India and South America, to the civil aviation market. Airbus has woken up to this aspect with the construction of engineering centres in places like China.
Anna Sargent of PwC says Airbus has worked with several Indian aerospace companies to set up manufacturing and to improve access to skilled graduates: “India has a good relationship with the West,” she says. “You want to be in India because of the good reputation for engineering capacity. The demand is there but is not as coherent as elsewhere.
“If you look at the end customer, the demand for air travel in India is massive. But the actual air industry is a complete mess. Air India was subsidised by the state for many years, and if you compare Indian aerospace companies they aren’t in the same league as the strongest international carriers and firms.
“The place where there is really a lot happening is Mexico. Both Bombardier and Embraer have facilities down there which are manufacturing for global customers. Mexico is attractive geographically for many companies.”
The high level of funding for aerospace R&D can also be explained by looking at where money came from in the past. For a long time, a lot of R&D funding in the commercial industry came from a crossover with the defence sector – a bone of contention between Boeing and Airbus and one of the reasons why it’s been difficult for non-western firms to acquire parts of the supply chain.
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The close connection of civilian and military aerospace is both a blessing and a curse as the industry moves inexorably forwards to a more globalised market. Sargent says: “It is very difficult to separate commercial and defence aerospace. It has long been an ambition of many in the supply chain to be separated from defence, so they can operate more easily overseas.”
However, the funding dynamic is changing. Defence budgets in most places around the world have been significantly curtailed and it’s difficult to see where future R&D money will come from, unless it is from direct government investment. Sargent is reluctant to assess the impact of reduced defence spending on the aerospace market yet.
“The problem is not what is happening today, but what happens in 10 years,” she says. “It’s not clear yet where the investment for the next generation of aircraft will come from. Those aircraft need new technologies and materials. The kind of changes to come are not things that customers would notice – it’s the building blocks of aircraft, the behind-the-scenes stuff that is changing.”
So it’s important, says Sargent, to distinguish between early-stage R&D and industrialisation. She says: “The fundamental R&D is done on a different basis than the investment that is needed to put something into production. Industrialisation of technology is something that should be considered separately to initial research and development.”
What is clear though is that whoever invests big in R&D now will reap the rewards in the global marketplace later. By the 2020s there could be some new contenders to compete with the current heavyweight champions of the sector and some fascinating new aerial fights to watch.
Aerospace engineers head to NEC
The size of the UK aerospace sector often comes as a surprise to many people.
The UK is Europe’s number one aerospace manufacturing nation. Indeed, it represents 17% of global aerospace production, with only the US having greater dominance.
Wings, engines, aircraft systems and structures are the main areas of activity. Airbus, Rolls-Royce, GKN and BAE Systems are the biggest employers, with facilities dotted across the country.
But the aerospace industry also comprises hundreds of smaller firms that make up a vibrant supply chain. And it is engineers from these companies who will be heading to the NEC on 12-13 November to attend the Aero Engineering Show.
Exhibitors at the event will display design, prototyping, modelling and simulation software; metals and metals processing equipment; precision components; and sub-contract services. There will also be an in-hall conference covering topics such as 3D printing and advanced composites.
Those attending the Aero Engineering Show can also visit sister events in adjoining halls covering the automotive and electronics industries.
- See aeroconf.com for pre-registration ticket details and opening times.