Aircraft Producers Expect To Make $5.5 Billion Profit
THE United States aerospace industry badly needs refueling.Skip to next paragraph
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After a dismal 1993 - aviation sales dropped 10 percent, exports fell 18 percent, and employment declined by an estimated 14 percent - the Clinton administration recently announced plans to spur the industry's revitalization.
``The aviation industry is critical to our country,'' says Federico Pena, the secretary of transportation. ``It contributes $80 billion a year to our economy. It plays a significant role in perhaps the world's largest industry ... the $3 trillion global travel and tourism industry.''
The proposals are designed to create a ``better economic environment'' and to make aviation a more lucrative investment, says Virginia Lopez, executive director of Aerospace Industries Association's (AIA) aerospace research center in Washington. The initiatives are intended to trim regulations, harmonize international safety codes, and promote competitiveness.
Last year ``was a very bad patch in the commercial sector [of the aerospace industry] because of the world economy,'' Ms. Lopez says. For the first time in nine years exports fell. Another decline is possible this year, she says. Because economic recovery in other countries is lagging behind the US, analysts do not predict an upturn in the industry until 1996.
But Sally Bath, director of the Office of Aerospace at the Department of Commerce, says orders for aircraft could begin to pick up again in 1994. A tightening of noise regulations included in the administration's proposal may spur some orders for quieter new airplanes, Ms. Bath says.
AN increase of travelers and streamlined operations have helped the aerospace industry return to profitability in 1993, Bath says. Analysts project a $5.5 billion profit for the industry after taxes. Cutting costs was accomplished partly by trimming payrolls. According to the AIA, aerospace employment (including the military aircraft sector) has fallen by one-third (422,000 jobs) since its peak in 1989.
``The most important thing that can be done to address some of the problems of the [aviation and aerospace] industries is to restore overall strength to the US economy,'' says Laura D'Andrea Tyson, head of the Council of Economic Advisers. She chaired an interagency group studying the industry.
``It is clear that there is a major cyclical component to the difficulties that the industry has confronted,'' Ms. Tyson says.
But some problems may not simply go away with an improved economy. ``The industry has always been very cyclical,'' Lopez says. ``We don't think it's going to be quite so simple this time.'' Continued defense cutbacks, coupled with slow economic recovery, have forced the industry to restructure and downsize.
``Our main hope is expansion of export sales in the reinvigorated global aerospace market we expect to see when the world economic environment improves,'' says Don Fuqua, AIA president.
Aerospace exports play a major offsetting role in the US trade balance. While the US experienced a merchandise trade deficit of $84.3 billion in 1992, aerospace exports were more than $45 billion.
A major player in the improving exports has been the Export-Import Bank in Washington, the government agency that promotes the sale of US products. Recently, Ex-Im Bank has begun to take a more active role in financing sales of aircraft to developing countries.
In 1993, Ex-Im Bank guaranteed loans for nearly $3.5 billion for the sale of more than 70 aircraft - about 20 percent of Ex-Im Bank's business, says Mary Kilty, special assistant to Ex-Im Bank Chairman Ken Brody. Previously, financing for aircraft sales involved ``only a couple deals'' a year, she says.
Ex-Im Bank financing ``helps us meet our strong competition and keep exports up,'' says Peter Little, a manager at Boeing, which recently was approved by Ex-Im Bank for financing of a $350 million sale of aircraft to Korean Air Lines.
``Exports are extremely important,'' Bath says. ``You can't talk domestic - you have to talk global market.'' Sales of aircraft to Asian countries are growing - about 1 in 6 of Boeing's sales is to China - and manufacturers are hopeful of new sales to former Soviet republics.
``Both Airbus and US [producers] are making big pushes into the former Soviet republics,'' Ms. Kilty says. ``That's seen as a future big market.''