Transportation Manufacturing Report & Analysis

Flying on the order books

Sector
Value

1,300bn USD

M

MEDIUM RISK for entreprises

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • Aircraft sector enjoying a luring situation of duopoly
  • Most of sector’s main companies to appear to be profitable enough
  • Global mobility expected as a strong trend looking ahead that the upstream transport equipment sector may shortly benefit from
  • Skyrocketing costs in developing new aircraft models
  • New technologies in composite materials more difficult to implement into transport equipment
  • Public funding of transport infrastructures to be not that easy to get nowadays

What to Watch?

  • Variation in feedstock costs (i.e. metal raw materials, especially steel and aluminum)
  • Soaring environmental constraints requiring extensive investments 
  • Level of demand of its main outlet (i.e. the downstream transportation industry)
  • Share of the government spending devoted to defense (in aerospace and shipping) products

Aerospace broadly accounts for 60% of transport equipment output while shipbuilding and rolling stock do 40%. Dominated by Airbus and Boeing, the aircraft sector enjoys large order books that should keep their production lines still busy for a decade.

Shipbuilding continues to cope with excess capacity and low steel prices enabling small players to come through. It resulted in a few high-profile shipbuilding groups’ restructurings aimed at cutting structuring costs, particularly across South (East) Asia.

Rolling stock equipment depends on countries’ infrastructure investments. But these latter depend too on the share of public funding that less-favored regions (or states) are ready to put in.      

The surge in global mobility and the demand from clients in transportation account for the growth rate of 9% for transport equipment expected in 2018. More middle-term considerations are the rising share of households for whom air, sea and rail travels are affordable and the evolution of geopolitical tensions from today’s high-threat levels. The trouble is, this growing demand has been putting pressure on the upstream sector’s global supply chain in terms of capability to delivering or not supplying equipment at the right time.

 

Aircraft manufacturers: Ability to anticipate overcapacities in downstream airline industry 

Shipbuilding: Dependency on variations in green taxation and in world trade growth 

Rail equipment: Suffering from difficulties in public funding of infrastructure facilities

Key players

Country Role Sector risk
United States

#1 producer

#1 exporter

#2 importer

A

Low risk

China

#3 importer

#2 producer

#6 exoirter

B

Medium risk

Japan

#3 producer

#3 exporter

#4 importer

B

Medium risk

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DISCLAIMER

These assessments are, as always, subject to the disclaimer provided below.

 

This material is published by Euler Hermes SA, a Company of Allianz, for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by Euler Hermes and Euler Hermes makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the Euler Hermes Economics Department, as of this date and are subject to change without notice. Euler Hermes SA is authorised and regulated by the Financial Markets Authority of France. 

 

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