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Aerospace Trends to Monitor in 2018's Fourth Quarter

Despite some mild to moderate setbacks in the last few years, the aerospace sector has, in the minds of most analysts, shown that it's likely to bounce back from such deficiencies and possibly even surpass previously reached highs. Increased defense spending during the past year (or further back than that, for some countries) helped galvanize the industry, but it's hardly the only factor at play. Increased growth in the complementary markets of aerospace - such as the component manufacturing segment that AMETEK EIP is important part of - has also been a boon to the field.

In preparation for the home stretch of 2018 as well as the coming new year and even further into the future, it behooves all those involved in the aerospace sector, both directly and indirectly, to take stock of the trends currently holding sway over the market: Understanding which of them have staying power and which might change sooner rather than later will carry considerable value.

Competition for talent poised to increase

Due to several factors, including the complexity involved even in its more basic design tasks, aerospace pulls from a small talent pool by comparison to many other major industries. For example, the Aerospace Industries Association credited the field for creating 845,000 direct American jobs, but that figure is a drop in the bucket compared to the rest of the U.S. workforce.

Also, in its projections for aerospace engineers and technicians, the Bureau of Labor Statistics respectively projected 6 percent and 7 percent job growth from 2016 to 2026, and 5 percent for aircraft and avionics equipment management and repair personnel. None of these figures are greater than the national average growth across all U.S. professions, meaning that the competition for existing aerospace jobs will likely be very fierce whenever they open up. McKinsey & Company supported this prediction in a recent piece on the sector, while additionally noting that retirement rates of professionals currently in the field could create as many as 25,000 job openings over the next several years.

R&D varies by segment

Any industry that sees its research and development stagnate is going to run into some problems sooner or later. This isn't happening to aerospace across the board, but has become an issue in defense: According to the PricewaterhouseCoopers report on the sector's possibilities for 2018 and 2019, R&D in commercial aerospace is progressing at a remarkable rate, while the field's defense segment hasn't had as much luck in terms of embracing innovation.

The gap between these two major halves of the sector stems in large part from the fact that the defense vertical had an advantage over its commercial counterpart for so long. PwC's report cited Pat Shanahan, current U.S. Deputy Secretary of Defense and formerly with Boeing for three decades, as one of the prominent defense community figures making a similar point: While defense could once rely on attracting the best talent to create the best technology, the private sector now holds more of an allure, and this has led to more sluggish innovation in defense aerospace while commercial firms surge ahead to embrace the newest possibilities.

Companies serving both aerospace segments will likely see no major issues as a result of this trend. On the other hand, those that lean further in one direction than another should consider adjusting accordingly: Commercial firms should maintain the pace of their strong R&D, while defense-oriented companies would do well to budget more substantively for new development so they can take advantage of the aforementioned market inefficiency.

Competition in the export market

Aerospace makes up a major share of the U.S. export market. In fact, according to the AIA, it produced a positive trade surplus of $90.3 billion in 2016, more than that of any other American exporting sector that year. In gross exports, the industry produced about $147 billion. Unsurprisingly, this makes America one of the world's preeminent aerospace and defense vendors, but signs have surfaced indicating notable competition on the horizon.

Research from Deloitte stated that Russia and China will both represent significant export competitors in the final months of 2018 and beyond. Additionally, demand for U.S. aerospace and defense products may drop as developing countries including India and various Middle Eastern nations begin to build up their own domestic A&D production.

jet production process

Trends affecting materials and components

Some of the prominent factors with a significant bearing on the aerospace market involve components and materials. According to HPM, aircraft manufacturers are increasing their reliance on composite materials and carbon fiber as opposed to steel and iron, especially in the fabrication of wide-body jet airplanes, even though there is little reduction in production costs when using these parts for narrow-body aircraft. That being said, macroeconomic factors such as the tariffs on steel and aluminum imports imposed by the White House several months ago - and the various intra-national trade conflicts that developed in their wake - could force companies' hands in terms of carbon fiber and composite use.

Most of the metals used in AMETEK EIP solder preforms and other microelectronic components for aerospace applications aren't significantly affected by such global trade disputes. As such, AMETEK's value to the sector as a manufacturer of numerous products vital to aircraft's reliable and uninterrupted operation remains unabated.



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