MEDIUM RISK for entreprises
Dominated by the duopoly of AIRBUS and BOEING, the aircraft manufacturing sector has enjoyed substantial backlogs. Air passenger growth continues to provide strong underlying demand. This has encouraged most airlines to upgrade and expand their aircraft capacity worldwide. Passenger demand is particularly buoyant in Asia, driven by its emerging middle class for whom air travel is increasingly affordable. However, 2019 should remain challenging for aerospace firms because the ramping up of aircraft deliveries in the face of supplier bottlenecks remains a (big) issue, especially since BOEING’s hardship over the grounding of its 737 MAX jets. For the defense sub-sector, increased geopolitical tensions and President Trump's insistence that other NATO members meet their commitments for the defense budget make us think that the cycle of declining global defense spending is turning round. Heightened geopolitical tensions and pledges of increased military spending by both the Trump administration and NATO members should see rising demand for military aircraft.
Shipbuilding keeps on coping with excess capacity, even if higher steel prices have made small players’ margins tumble. So shipbuilding groups continue to restructure and cut their production costs, particularly across 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 problem is many countries eventually fall short of budget, which makes their respective infrastructure investments very difficult, if not impossible, to fund.
The growth rate for transport equipment expected in the future is linked to the surge in global mobility. More middle-term considerations are: (i) the rising share of households for whom air, sea and rail travel has become affordable, (ii) the evolution of geopolitical tensions from today’s high-threat levels and (iii) the capacity of states to modernize their own transport infrastructures. This growing demand has been challenging increasingly the upstream sector’s global supply chain management in terms of its capability to deliver at the right time.
Aircraft manufacturers: Ability to build new models with reduced jet fuel consumption
Shipbuilding: Dependency on variation in green taxation and in world trade growth
Rail equipment: Public funding shortage in infrastructure facilities
Contact Euler Hermes
Economic Research Team
Sector Risk Analyst