Executive Summary
Market Entry
Current Market Trends and Demand
Opportunities
Trade Events
Associations
Contact
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Executive Summary
Market Entry
Current Market Trends and Demand
Opportunities
Trade Events
Associations
Contact
Executive Summary
In 2019, the German aerospace industry reported revenues of EUR 41 billion, representing a growth of 2.5% over 2018 (EUR 40 billion). At the beginning of the decade, the annual revenues were just over EUR 25 billion. From there they climbed to EUR 40 billion in 2017, remained steady in 2018, and plateaued at 41 billion last year, before the COVID-19 pandemic and the impact on the global aerospace sector. Consequentially, the German Aerospace Industries Association (BDLI) announced in July 2020 that the pandemic represents the biggest threat to the industry in decades. At the end of 2019, the number of direct employees in the German aerospace industry stood at 114,000, up 2.2% to from 111,500 in the previous year. The share of university graduates was 50%. Another 900,000 jobs were supported throughout the supply chain of the aerospace industry. Some 250,000 people worked in the air transport sector. Research spending is significantly higher than in any other industry. It amounted to EUR 3.3 billion or 8% of the overall revenues in 2019. Seven years earlier, this figure stood at EUR 4.4 or 15.7% of the overall revenues of EUR 28.4 billion. This was due to higher investments in new materials and processes related to the production ramp-up of commercial aircraft and the introduction of new aircraft models by Boeing and Airbus. Due to its technological know-how and its strong innovative capacity, the German aerospace industry also has a significant effect on other industrial sectors. In 2020, the aerospace industry will decline by 30% or more.
Market Entry
Market entry in the aerospace industry can be achieved through getting access to the suppliers of Airbus and Boeing. Around 80% of Airbus’ production activity is outsourced. The company works with more than 24,000 suppliers worldwide that provide products and services for flying and non-flying parts. In 2018, the overall external sourcing volume was valued at around EUR 52 billion and shared between divisions and commodities as follows: propulsion systems (40%), structure & airframe (14%), systems & equipment (10%), production material & parts (5%), product-related services (4%), cabin and cockpit (3%), indirect goods & services (16%), not assigned (8%). Some 27% of the sourcing occurred in the United States. Airbus’ external procurement is equivalent to over two-thirds of the company’s revenues. Global sourcing is one of the group’s leading long-term objectives. An integrated Airbus Global Sourcing Network (GSN) has been tasked with increasing the global sourcing footprint. The GSN central team is based in Toulouse, France and operates Country Sourcing Offices in three strategic countries (China, India, and the United States). Country Focal Points are Brazil, Japan, Korea, Malaysia, and Mexico. For U.S. aerospace manufacturers, the first point of contact is the joint U.S. Sourcing Office that was set up by Airbus North America in November 2010 to enhance the group’s procurement in the United States. The main sourcing tools are eProc Strategic Procurement, Click n’Buy, and AirSupply (www.airbus.com/be-an-airbus-supplier/airbus-supply-registration.html ). The major German Tier I suppliers and systems integrators, such as Diehl Aviation, Liebherr-Aerospace Lindenberg, MTU Aero Engines, and Premium AEROTEC, as well as some of the foreign Tier 1 suppliers with locations in Germany, such as Rolls-Royce Deutschland, can be approached directly. Which strategy is preferable in each case depends on the overall situation and the products of the respective supplier.
Like companies in any other industry, the German aerospace manufacturers are trying to mitigate the impact of the coronavirus crisis. On June 30, 2020, Airbus announced a reduction of its global workforce by 15,000 positions (France: 5,000, Germany: 5,100, Spain: 900, UK: 1,700, other worldwide sites: 1,300) and resized its commercial aircraft activity, which could translate into a 30 percent lower production rate. In July 2020, the company reported 49 deliveries compared to 69 deliveries in July 2019 and 77 in July 2018 (including wide-body aircraft). MTU Aero Engines feels the effects as well. The company still reported relatively good figures the first half of 2020. Revenues were EUR 2,049 million, compared to EUR 2,243 million in the first half of 2019. Operating profit was EUR 224.2 million, compared to EUR 365.2 million in the prior-year period. In March, MTU Aero Engines suspended operations at several facilities across Europe. By the end of 2021, the company aims to reduce capacity at its German and international locations by a total of around 10 to 15 percent. These are just two prominent examples. All other German aerospace companies are affected as well and have to adjust accordingly.
Current Market Trends and Demand According to the BDLI, the German aerospace industry generated revenues of EUR 41 billion or USD 45.90 billion in 2019 (based on the European Central Bank’s EUR-USD average exchange rate of 1.195). The revenues break down as follows: aviation = USD 35.82 billion or 78%; defense & security = USD 7.50 billion or 18.3%; space = USD 3.02 billion or 6.6%. The exports reported by the 200+ BDLI member companies amounted to 77% or USD 35.34 billion of the overall revenues, a slight increase from 76% in 2018. Imports from the United States to Germany reached EUR 2.69 billion or USD 3 billion, marking a 47% growth over 2018 due to higher aircraft deliveries. The overall extra-EU28 imports to Germany were EUR 4.47 billion or USD 5 billion, boosting the U.S. share from 45% in 2018 to 60% in 2019. The intra-EU28 imports to Germany amounted to EUR 12.39 billion or USD 13.88 billion. The trade data were pulled from the statistics page of the European Union Trade Helpdesk (EUTH) based on the product code for aircraft, spacecraft and parts thereof (HS 88).
With the structure of the European aerospace industry in mind, mainly the flow and aircraft parts between the Airbus sites in Germany, France, Spain, and the UK, it is easy understand that the intra-EU28 imports to Germany were almost three times higher than the extra-EU28 imports and averaged at 30% of the local production. Without France (EUR 6.42 billion or USD 7.19 billion), Spain (EUR 1.39 billion or USD 1.56 billion) and the UK (EUR 2.66 billion or USD 2.98 billion), the intra-EU28 imports to Germany were only EUR 1.92 billion or USD 2.15 billion in 2019.
The structure of the German aerospace market becomes clear by looking at the size and revenue distribution of businesses. There are under 10 large companies with over 2,000 employees but they employ 60% of the workforce and generate over 60% of the revenues. The following 15 companies with 501 to 2,000 employees employ 20% of the workforce and generate 15% of the revenues. Thus, some 20% of the companies make up 80% of the market. Among these companies are the above-mentioned original equipment manufacturers (OEMs), Tier I suppliers and systems integrators. They are also the companies with sufficient purchasing power to buy from U.S. aerospace manufacturers. Obviously, smaller manufacturers also buy U.S.-made aerospace technology, yet in smaller quantities. The German aerospace market is mostly driven by civilian aircraft orders. That means the orders first go to Airbus and then feed the entire inter-connected supply chain. The U.S. content in Airbus’ aircraft is already high. For some models, it is arguably higher than 50%. The A380 with the Engine Alliance GP7200 turbofans by General Electric and Pratt & Whitney was such an example. The A350 XWB also boasts a high U.S. content. For example, the center fuselage sections and wing spars are made by Spirit AeroSystems in North Carolina. The forward and the rear fuselage sections are added at the Airbus facility in Hamburg. Through Airbus and its suppliers, the German aerospace industry is buying a vast array of aircraft parts from U.S. aerospace manufacturers, including structural parts, raw material, avionics, and equipment. Among the more than two dozen U.S. Tier I suppliers are such major firms as Alcoa Mill Products, Coast Composites, Fairchild Controls, Honeywell, Teledyne, and Vought Aircraft Industries. Several hundred other suppliers are spread across 40+ States. The trend towards U.S. procurement has increased steadily over the last decade and it was not limited to the OEM-level. German Tier I suppliers also had a vested interest to improve their costs by purchasing from the dollar zone. However, the COVID-19 pandemic has a severe impact, especially on the aerospace industry. The ripple effect will be felt all along the German aerospace supply chain only later this year once the OEMs and the systems integrators have made the necessary adjustments. Most of the early consequences after the spread of the virus in March were compensated by the German short-time working compensation until now. Even when the economic rebound sets in, getting access to the German aerospace supply chain will be challenging and depend on a variety of factors.
Looking at this year’s development so far, it is safe to assume that the German aerospace industry will decrease between 25% and 35% in 2020, resulting in annual revenues of EUR 26.65 billion or USD 30.38 billion based on a EUR-USD exchange rate of 1.14. With the imports accounting for some 35% of the market, we would arrive at a figure EUR 10.97 billion or USD 12.5 billion. With the exports accounting for some 75% of the market, we would arrive at a figure of EUR 19.99 billion or USD 22.79 billion. The difference between exports and imports would be EUR 9.02 billion or USD 10.09 billion and translate into a market size of EUR 17.63 billion or USD 20.1 billion (total production plus total imports less total exports).
As described under “Market Entry”, the current demand for U.S. aerospace technology in Germany is largely dictated by the order intake from Airbus and to a much smaller degree from Boeing with its 70 to 80 suppliers in Germany. This trickles down to the German Tier 1 suppliers, such as Diehl Aviation, Liebherr-Aerospace Lindenberg, MTU Aero Engines, and Premium AEROTEC, depending on their work shares in the respective aircraft programs. In 2019, Airbus delivered 863 aircraft to 99 customers, took in 768 net orders and recorded a year-end backlog of 7,482 aircraft. The 2019 deliveries break down as follows:
A220: 48 vs. 20 in 2018
A320: 642 vs. 626 in 2018 (of these, 551 were NEO family aircraft vs. 386 in 2018)
A330: 53 vs. 49 in 2018 (of these, 41 were NEO family aircraft vs. 3 in 2018)
A350: 112 vs. 93 in 2018 (of these, 25 were A350-1000 vs. 14 in 2018)
A380: 8 vs. 12 in 2018
The A380 production was ended due to lack of market demand. The decision was made in April 2019. Until 2019, the ramp-up of production capacities had a direct influence on the current and future demand for aircraft parts to be used by Airbus and its suppliers in Germany as well as in other European countries. In 2018, Airbus aimed to achieve a monthly production rate of 60 A320 family aircraft by mid-2019. On April 2nd, 2020, the company announced that it would reduce production from 60 to 36 per month for one or two quarters to address the industrial and delivery-related challenges raised by the coronavirus pandemic. In July 2020, Airbus delivered 49 aircraft which is still pretty good considering that airlines are one of the hardest-hit industries at this time.
In December 2019, the 22 German international and 16 German regional commercial airports recorded some 16.9 million passengers. This represented a decrease of 1.9% from December 2018. In total, some 248.5 million passengers were counted at German airports from January to December. Domestic traffic was down by 1.9%, while European traffic grew by 2.3%. Intercontinental traffic saw an increase of 2.7%. The number of commercial aircraft movements fell by 4% to 154,828 departures and landings in December but remained stable overall with 2.2 million, mainly due to growth at some of the smaller international airports.
Air freight slumped for the second consecutive month to 397,377 tons, 4% less than in December 2018. Overall, air freight saw less demand, with 2.5 million tons (-4.3%) of outbound cargo and 2.3 million tons (-2.1%) of inbound cargo in 2019. The picture in 2020 is an even more drastic one. In June 2020, domestic traffic was down by 91%, the European traffic was down by 93.9% and intercontinental traffic was down by 96%. As of August 2020, with the case numbers increasing all over Europe, it seems unlikely that the situation will improve before early 2021. Air traffic figures are published by the Association of German Commercial Airports (ADV – www.adv.aero ). The annual figures for 2019 are included in the monthly report for December 2019 (www.adv.aero/wp-content/uploads/2016/02/12.2019-ADV-Monatsstatistik.pdf ). The report is only available in German but a breakdown of the passenger numbers by airport is included on pages 10 to 13. The current figures are available here: www.adv.aero/aktuelle-verkehrszahlen/
Opportunities
Under normal conditions—without a crisis of global proportion—opportunities in the German aerospace industry are relatively evenly distributed across all levels of the industry. However, while it is possible for U.S. firms to supply aerostructures on an OEM level, getting access to the supply chain on the first, second or third tier should be faster. OEMs and systems integrators constantly screen the market for capable suppliers. The overall best prospects include everything from commercial, business and GA aircraft, aircraft and engine parts, airborne equipment and systems, aircraft interiors, pilot controls and avionics, as well as composite materials, structural components, and forgings and fasteners. Potential suppliers should be AS9100-certified and/or NADCAP-accredited. Entering the market requires a long-term approach.
a. Example: Aircraft Parts A good example of fully or partly U.S.-made aircraft parts that go on European models that are assembled or outfitted at German Airbus sites are the engines for the A320neo product line. Neo stands for new engine option. The baseline A320neo has a choice of two new-generation engines, the PurePower PW1100G-JM from East Hartford, Connecticut-based Pratt and Whitney and the LEAP-1A from CFM International, a joint venture between Evendale, Ohio-based GE Aviation, a division of General Electric, and Safran Aircraft Engines, a division of Safran from France. Thousands of U.S.-parts go into these products but U.S. manufacturers of engine parts can also supply Munich-based MTU Aero Engines (www.mtu-portal.com/wps/mos ). The same is true for other aircraft parts. The road to becoming a supplier can be a long one though.
b. Example: Defense Products Other than the commercial aerospace industry, the defense sector will suffer as much this year. The German defense budget for 2020 stands at EUR 45.2 billion or USD 51.53 billion based on a EUR-USD exchange rate of 1.14. Some 23.4% or EUR 10.56 billion are set aside for procurement, an increase of 7.9% over the previous year (EUR 9.79 billion). Most of the large defense procurement projects are on track. The largest chunk will go to German or European defense firms, but U.S. companies may be awarded with contracts if local technology is not available or existing U.S.-made systems need to be replaced or upgraded.
German defense companies also stand to benefit from a EUR 10 billion cash infusion under a massive stimulus package meant to soften the economic blow of the coronavirus pandemic. Leaders of the CDU-SPD coalition government unveiled the measure in June, which provides a total of EUR 130 billion, in the hopes of mustering enough economic “oomph” to get through the crisis swiftly, as German Finance Minister Olaf Scholz put it.
Defense News commented on the fact that a defense “earmark” is included in the package as an explicit instrument for helping industry as setting a “new tone in a country where defense sector dealings are traditionally treated as a necessary evil in the business of geopolitics.” Consequentially, German Minister of Defense Annegret Kramp-Karrenbauer said in an interview as part of the Brussels Forum, an online think tank event: “Behind every equipment decision there is an industrial-policy calculus, especially nationally, that includes jobs.” This indicates that most of the money is intended to go to German defense firms. Some of it may trickle down to U.S. companies who supply to these firms.
c. Example: Rotorcraft According to the German Federal Aviation Office (LBA), there were 729 registered helicopters in 2019. In terms of production, Airbus Helicopters is the dominant player in the market. The company is headquartered Marignane, France, and has sites in Donauwörth and Kassel, Germany. Donauwörth, the German head office, is home to the final assembly process for the civilian H135 and H145 models, the Tiger attack helicopter, and the NH90 transport and naval helicopter; testing, research, and prototyping; as well as the Military Support Center for helicopter fleet of the German Federal Armed Forces, including the Sikorsky CH-53, Sea Lynx Mk88A, and Sea King Mk41. In 2019, Airbus Helicopters saw slower commercial momentum but took in 369 gross orders (310 net orders), down from 413 gross orders (381 net orders) in the previous year. Some 130 orders were for the best-seller H125. The company delivered 332 helicopters, including the 1,000th Super Puma, thus maintaining its lead in the civil and para-public sector with a 54% market share in terms of units. The revenue split was 55% civil and 45% defense. At the end of 2019, Airbus Helicopters employed just over 20,000 people worldwide, of which 5,500 were based in Donauwörth and over 100 were based in Kassel. U.S. exports into Germany in the HS customs categories for helicopters under 2,000 kg (8802.11) and over 2,000 kg amounted to USD 6.2 million in 2019, while German imports to the United States reached USD 7.1 million. Earlier in the decade, German imports to the United States were over 100 million per year. The U.S. market is now mostly served from the Airbus Helicopters’ U.S. sites which explains the sharp decline. Apart from that, the demand for new helicopters in Germany was somewhat limited in 2019, both on the civil and the defense side. This explains the moderate U.S. exports. The defense side is made up by the helicopter fleet of the Bundeswehr which currently operates the following models:
99 x NH-90 Multi-Role Transport Helicopters, Army
4 of 18 x NH-90 Naval Transport Helicopter (NTH) Sea Lion, Navy
An unspecified number of Sea King Mk41 Search and Rescue (SAR) helicopters operated by the Navy. They will be phased out and replaced with the NH-90 NTH starting in 2020.
22 x Sea Lynx Mk88A Helicopter, Navy
15 x H145M Light Utility Helicopter (LUH) – Special Operation Forces (SOF), Air Force & Army
71 x CH-53G(S) Transport Helicopter (a total of 112 CH-53 G/GS/GE/GA models were acquired since the 1960ies), Air Force
53 x Tiger Combat Helicopter, Army
19 x EC135/H135 Training Helicopter, Army
For the civil side, the German Helicopter Association (DHV) provided the following breakdown before 2015: Federal and State police (120), air rescue (110), offshore and wind farms (10-15), personal transport / two-engine VIP (70), aerial work (130). A more recent breakdown was not available at the time of this writing. The figures should still be fairly current because there has been little movement in the police and air rescue segments. The U.S. content of Airbus Helicopter models is substantial but not as high as the content on commercial aircraft. Honeywell Aerospace, for example, is listed as an engine supplier. The H135 uses collision avoidance systems from Avidyne, full authority digital controls from Goodrich Engine Control Systems, engine air filters from Pall, and rotor drives from UTC Aerospace Systems. Lastly, a quick glance at the UH-72A, Airbus Helicopter’s H145-based, American-built solution for the U.S. Army utilizes systems, components and hardware from numerous U.S. suppliers, including CAE, Goodrich, Keith Products, NORDAM and Sikorsky.
Trade Events
Aircraft Interiors Expo 2021 www.aircraftinteriorsexpo.com
AERO 2021 www.aero-expo.com
inter airport Europe 2021 www.interairport.com/europe/english
ILA Berlin 2022 www.ila-berlin.de
German Aerospace Industry Associations
German Aerospace Industries Association (BDLI) www.bdli.de German Airport Technology & Equipment www.gate-alliance.de
HANSE AEROSPACE e.V. www.hanse-aerospace.net
ALROUND (Association of Aerospace-oriented SMEs in Germany) alround.de/
German Helicopter Association (DHU) www.dhv-org.de
Contact
Moritz von HolstMoritz.Holst@trade.gov
