Large Civil Aircraft

To learn about the global market for civil aircraft and regulations that impact exports, view the market brief below.

Large Civil Aircraft

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Overview

According to the U.S. International Trade Commission, large civil aircraft have traditionally been defined as an aircraft with over 100 seats and weighing over 33,000 pounds (15,000 kilograms). However, the U.S. Federal Aviation Administration (FAA) defines large civil aircraft as an aircraft with a maximum certificated takeoff weight of more than 12,500 pounds. For the purposes of this webpage, we will discuss aircraft covered under both definitions.
Civil aviation is categorized into two major groups representing all non-military aviation, both private and commercial. These categories are:

Scheduled air transport, including all passenger and cargo flights operating on regularly scheduled routes; and
General aviation (GA), including all other civil flights, private or commercial.

Large civil aircraft are predominantly used in scheduled air transport. Most countries are members of the International Civil Aviation Organization (ICAO) and work together to establish common standards and recommended practices for civil aviation through that agency.

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Market Outlook

The large civil aircraft industry has been among the hardest hit from the COVID-19 crisis. The market is not expected to return to pre-pandemic demand for several years, which will have impacts on a everything from passenger numbers and aircraft orders to technology development and customer preferences. Since each aspect of the industry has been impacted differently by the COVID-19 crisis and market outlooks vary, we discuss the various facets of the large civil aircraft market separately.

Airlines & Air Travel Demand

Year-over-year air passenger traffic growth, the biggest driver of large civil aircraft demand, was steady throughout the past decade, until air travel demand plummeted amid the COVID-19 outbreak. Credit ratings agency S&P forecasts global air passenger numbers, the largest driver of large civil aircraft demand, will drop by about 50-55 percent in 2020 and remain below pre-pandemic levels through 2023.[1] This will force airlines to cut costs, including cancelling new aircraft orders, deferring deliveries, and retiring older plane models earlier than planned. These retirements, however, may spark demand for new aircraft, particularly more fuel-efficient designs, if demand recovers sooner than expected.[2]

Data Source: World Bank, International Civil Aviation Organization, Civil Aviation Statistics of the World, and S&P Global forecasts

Aircraft Leasing Companies

The COVID-19 crisis has also put aircraft leasing companies under intense pressure, though the leasing industry should fare better than airlines. The crisis has forced leasing companies to ground their fleets, cancel new aircraft orders, and cope with requests from their airline customers to defer lease rentals.[3] Leasing companies also face big risks if their airline customers enter bankruptcy since they would have to repossess their planes and re-lease them at lower rates in a weak market, if they can find a new leasing customer at all. Nonetheless, leasing companies should fare better than airlines because the leasing companies’ revenues and cash flows are less directly impacted from the air travel decline. In the past, many leasing companies have mitigated potential risks by having diverse customer bases, collecting security deposits, and matching the terms of their leases with the aircraft’s debt funding.[4]

Freighter Aircraft

The COVID-19 crisis has significantly impacted how air cargo is transported. Previously, about 45 percent of global air cargo was transported in the belly hold of passenger aircraft. However, in March 2020, global air passenger travel plummeted and almost every airline in the world scaled back its flying, especially for long-haul flights. This caused global air cargo capacity to fall by about 23 percent in a few weeks due to the grounding of passenger flights.[5] In the short-run, this air cargo capacity gap has been filled by using some passenger aircraft for cargo-only trips, even using passenger cabins for storage.[6] In the long run, overall economic growth is expected to recover more quickly than air passenger travel, which will increase demand for freighter aircraft to fill this cargo capacity shortage.

Wide-Body vs. Narrow-Body

Over the past decade, the large civil aircraft market has increasingly favored smaller aircraft models. Airlines have been shifting toward single-aisle, twin-engine aircraft for long-range flights and away from double-aisle, four-engine, jumbo jets based on a growing preference for smaller planes that burn less fuel. In addition, there are only a very small number of air routes that have sufficient demand to support the use of extra-large aircraft, and the COVID-19 crisis will only accelerate this trend. As a result, wide-body aircraft such as Boeing’s 747 and Airbus’s A380 are now being phased out of production entirely.[7] Boeing will end production of the 747 in 2022, and Airbus will end production of the A380 in 2021.[8][9]

Aircraft Engines

The aircraft engine market will largely track the large civil aircraft market. The economic consequences of the COVID-19 crisis will suppress demand over the short- to medium-term as aircraft orders plummet and deliveries slow. The continuing backlog in aircraft deliveries will be a critical factor in dragging down the growth of the aircraft engine market, and the long manufacturing process of engines will prevent the market from recovering quickly.[10] If the aviation industry recovers faster than expected, it will spur new demand for aircraft engines since many airlines forced planes into early retirement in recent months. Independent of the COVID-19 crisis and recovery, increasingly strict regulations concerning carbon emissions are driving demand for new aircraft engines. Customers are increasingly seeking low maintenance innovative engine designs that are fuel-efficient, cost-effective, and lightweight. This has also encouraged R&D in alternative fuels and hybrid engines.[11]

Some of the most promising technologies include electric- and hydrogen-powered aircraft. Hydrogen has some notable advantages over electric-power in aviation, most notably its power-to-weight ratio. This makes hydrogen viable for commercial operations at a much larger scale and in a shorter time frame. Regional, short-haul, and medium-haul flights are ideal candidates for hydrogen-powered aircraft, but long-haul flights would need significant and costly plane redesigns, as fuel tanks would necessitate longer fuselages.[12] According to a recent study, hydrogen could become a staple of the aviation industry within 15 years given the proper conditions.[13] Electric-powered engines have also had notable development success in recent years but still must overcome challenges caused by the size and weight of the batteries needed to power them.[14]

Composites

Another method of increasing fuel-efficiency and complying with environmental regulations is by reducing aircraft weight. Aircraft manufacturers have increasingly replaced metal with composites, which are especially appealing to the aerospace industry due to their high strength, low weight and durability. Composite materials have been called “the shape of aerospace’s future.” Large civil aircraft utilize advanced composites in everything from the engines to the airframe. Some modern large civil aircraft, such as the A350 XWB, use composites for more than half of the aircraft’s structure. Composites not only make the airframe stronger, but the reduction in weight also enables it to carry more passengers, burn less fuel, fly farther, or combinations of the three. While initially more expensive to produce than traditional metallic parts, composite components can save aircraft operators money on future maintenance costs since the material doesn’t rust or corrode.[15]

Industry Strategy

Specific strategies and operational efficiency remain some of the largest unknowns for the large civil aircraft industry as states and countries come out of quarantine. The long-term plans of airports, airlines, and regulators regarding COVID-19 protective measures (such as health screenings, middle-seat usage, and barriers between seats) are still developing and will have significant effects on air travel demand, capacity, and operational needs.[16]

For additional analysis, many large civil aircraft manufacturers and industry organizations produce their own market outlooks. See below for links:

Notes:

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Trade Events

We support U.S. exporters at a number of key aerospace events in this sector providing on-site counseling and matchmaking programs. A list of our featured events can be found here.

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Policy Points

Liberalizing market regulations around the world has long been a key driver of air passenger travel, as it allows easier market entry, increases competition, and encourages innovation. Such liberalization efforts include removing constraints on route entry, pricing, service capacity, and airline cooperative arrangements. These developments have decreased prices for customers in real terms, increased choices, and diversified routes by creating market friendly conditions for new airlines and business models, such as low-cost carriers, that would not have flourished otherwise. [17]

Safety and certification are key policy considerations in the large civil aircraft market and often depend on international partnerships between aviation regulators and Bilateral Aviation Safety Agreements (BASA). For a full list of Federal Aviation Administration (FAA) international agreements, please visit their website.

The Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA) work together to establish international aircraft certification standards and have had a long-standing aviation safety agreement. The agreement requires that the FAA and EASA develop and adopt procedures for regulatory cooperation and promote mutual rulemaking to maintain and further improve the harmonization of their rules. [18] According to the FAA, “Typically, the FAA and EASA do not completely duplicate each other’s certification of aircraft products, instead each entity performs a “validation” of certification activities.” The agreement strives to give both the FAA and EASA the opportunity to have even greater reliance on the regulatory capabilities and the technical competencies of one another’s aircraft certification systems. [19] Nonetheless, key policy differences remain. For large civil aircraft, there are numerous airworthiness certification differences between the FAA and EASA. The EASA website has a list of specifications where compliance with FAA standards would not be sufficient to comply with EASA requirements. These lists are intended for EASA validations of FAA products.

Environmental standards will increasingly drive demand for new, more fuel-efficient aircraft in the medium to long term as airlines look to comply with new regulations and reduce fuel costs. The aviation industry has already made commitments to contain rising emissions in the short- and medium-term and decrease emissions in the long term. [20] This new demand has spurred innovation in new aviation technologies and alternative fuel. For example, hydrogen- and electric-powered aircraft engines are some of the most promising technologies for environmentally friendly aviation. Hydrogen has massive potential in aviation, but significant research and development, investments, and accompanying regulation are needed to make it successful. [21] Electric aircraft, on the other hand, are already seeing regulatory success. In June 2020, the EASA announced the first type certification world-wide of a fully electric aircraft, the Pipistrel Velis Electro. [22] While this is the first certification of its kind, it will certainly not be the last as the aviation industry continues to pursue new technologies to improve the sustainability of aviation. Some industry estimates state that aviation firms could produce 20-seater electric planes within three years and configurations of up to 100 seats could be in service by the end of the decade. [23] Government policy will need to keep up with the rapid pace of innovation in order to allow a smooth market entrance for these new technologies.

A specified level of export credit financing for large civil aircraft is established under the OECD’s Aircraft Sector Understanding (ASU). This is a non-enforceable, “gentleman’s agreement” between numerous aircraft-producing countries. The terms of the ASU outline maximum repayment terms, minimum interest rates, and minimum premium rates. The participants to the ASU are Australia, Brazil, Canada, the European Union, Japan, Korea, New-Zealand, Norway, Switzerland and the United States. For more information, please visit the OECD website. [24]

Notes:

[17] “Commercial Market Outlook: 2019–2038,” The Boeing Company, 2019, https://www.boeing.com/resources/boeingdotcom/commercial/market/commercial-market-outlook/assets/downloads/cmo-sept-2019-report-final.pdf
[18] “Rulemaking Cooperation Guidelines for the Federal Aviation Administration and the European Aviation Safety Agency,” FAA & EASA, 13 June 2013, https://www.faa.gov/regulations_policies/rulemaking/media/FAAandEASA.pdf
[19] “FAA and EASA Update Aviation Safety Agreement,” FAA, 19 October 2017, https://www.faa.gov/news/updates/?newsId=88965&omniRss=news_updatesAoc&cid=101_N_U
[20] “Commercial Market Outlook: 2019–2038,” The Boeing Company, 2019, https://www.boeing.com/resources/boeingdotcom/commercial/market/commercial-market-outlook/assets/downloads/cmo-sept-2019-report-final.pdf
[21] “Hydrogen-Powered Aviation,” McKinsey & Company, May 2020, https://www.euractiv.com/wp-content/uploads/sites/2/2020/06/20200507_Hydrogen-Powered-Aviation-report_FINAL-web-ID-8706035.pdf
[22] “EASA certifies electric aircraft, first type certification for fully electric plane world-wide,” EASA, 10 June 2020, https://www.easa.europa.eu/newsroom-and-events/news/easa-certifies-electric-aircraft-first-type-certification-fully-electric
[23] Sam Morgan, “Largest electric plane in Europe takes to the skies over the UK,” EURACTIV, 24 June 2020, https://www.euractiv.com/section/aviation/news/largest-electric-plane-in-europe-takes-to-the-skies-over-the-uk/
[24] “Aircraft specific rules,” OECD, 2020, https://www.oecd.org/trade/topics/export-credits/arrangement-and-sector-understandings/aircraft-specific-rules/

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Tariffs & Regulations

Tariffs on large civil aircraft were eliminated in 1980 with the World Trade Organization’s (WTO) Agreement on Trade in Civil Aircraft. This agreement requires signatories to eliminate tariffs on all civil aircraft, engines, flight simulators, and related parts and components, and provide these benefits on a nondiscriminatory basis to other signatories. A list of signatories to the agreement can be found on the Office of the U.S. Trade Representative website.

As a result of disputes over alleged illegal subsidies over the past 16 years and recent World Trade Organization (WTO) arbitration awards, the Office of the U.S. Trade Representative (USTR) in March 2020 placed a 15 percent tariff on aircraft imported from the European Union (up from a 10 percent tariff placed in October 2019), along with tariffs on a wide variety of non-aerospace related goods. These tariffs are part of an open Section 301 Investigation on large civil aircraft subsidies in the European Union. Documents related to this investigation are located on the USTR website.

For a full list of current U.S. tariff rates, the U.S. International Trade Commission (USITC) publishes and maintains the U.S. Harmonized Tariff Schedule (HTS) and provides technical information on its structure and modification.

The Federal Aviation Administration (FAA) is the U.S. governing body regulating all aspects of civil aviation. The FAA covers large civil aircraft regulations regarding registration, air worthiness certification, design approvals, flights standards, safety advisories and guidance, and a variety of technical data. For further information or to access FAA forms, please visit the FAA’s website [link: https://www.faa.gov/aircraft/].

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Standards

The International Civil Aviation Organization (ICAO) is the U.N. body that establishes the international Standards and Recommended Practices (SARPs) for global aviation. The 191 ICAO member states (listed here) and several global aviation organizations coordinate to develop the non-binding SARPs as a reference for national civil aviation regulators. These national and regional agencies – such as the Federal Aviation Administration (FAA) in the United States and the European Aviation Safety Agency (EASA) in the European Union – use the SARPs to establish aviation safety regulations, airworthiness and type certification, and technical advice which are legally enforceable in their respective domains. This has created a system where civil aviation regulations are harmonized across the globe, with only small differences based on the implementation of individual states.

Please see below for links to ICAO’s SARPs specific to aircraft as well as general safety and navigation guidelines that affect the aviation industry as a whole.

The National Aerospace Standards (NAS) are voluntary standards developed by the aerospace industry. Subject matter experts from Aerospace Industries Association (AIA) member companies participate in committees and working groups to develop and maintain the NAS library, which currently contains over 1400 active standards. These standards cover a wide variety of subject areas including:

NAS parts (bolts, rivets, washers, screws, nut plates, pins, knobs, etc.)
Safety Management Systems (NAS9927)
Nondestructive Test Personnel certification (NAS410)
Hazardous materials management (NAS411)
Foreign Object Debris (FOD) prevention (NAS412)
Cutting tools (drills, reamers, end mills)
Airport Operations (NAS3306)
Trade Compliance Standards (TCS)

For more information, please visit the AIA webpage [link: https://www.aia-aerospace.org/standards/]

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