TRANSPORT EQUIPMENT

The importance of each of the three main sectors in relation to transport equipment is quite different depending on the region of the world. While the North American aerospace industry accounts for 75% of the whole transport equipment output - against 25% for both shipbuilding and rolling stock manufacturing - it is the other way around for China and the rest of Asia. Europe is more balanced, with 55% of its transport equipment production dedicated to the aerospace industry as a whole.    

The halting of production of 737 Max jets has brought on severe headwinds for the U.S. aerospace industry since last January. It has been rippling through Boeing’s U.S. and global supply chain in spite of the strong support of U.S. defense spending and a rising likelihood of the resumption of Max production in the months ahead. On top of the additional headwind of falling global orders, most airlines are plagued by profits collapsing due to the coronavirus-induced travel disruptions - the U.S. aerospace production is expected to drop by -6% in 2020 as a result. Europe’s aerospace output might be a little bit better even if Airbus has just adopted a (much) more cautious approach to production, battered by several setbacks ranging from the EUR1.2bn charge on the A400 military transport program and the latest EUR3.6bn settlement for bribery and corruption. Besides, the halted production of the 737 Max has acted as a notable headwind for UK aerospace suppliers as most of them make airframes and high-tech components for the Boeing 737 Max. More broadly, two key drivers loom large for aerospace: global travel demand plagued by the outbreak of the coronavirus, which is poised to devastate tourism internationally and air passenger transport as a result; further policy tensions triggered by the rise of populist and anti-globalization movements already being disrupted by terrorist attacks.             

Like aircraft, long lead times between orders being placed and final products being delivered make shipbuilding and rolling stock manufacturing less cyclical than many others, with very high development costs acting as a significant barrier to new entrants. The shipping and offshore platform sub-sectors continue to face very challenging times, driven by excess capacity and low oil prices, respectively, resulting in several high-profile shipbuilding firms' restructurings. Demand for railway rolling stock is more dynamic but competition between the main global players remains intense. More long-term considerations are the rising share of households for whom air, sea and rail travel are affordable and the ongoing capacity of states to modernize their own transport infrastructures.