United States Aerospace Corporations and the Changing Nature of Global Markets


During the period between the 1960s and the 1990s the share of the market enjoyed by American aerospace manufacturers fell sharply as foreign corporations—either private or state-run—gained greater portions of the market. In 1986, for example, United States high‑technology imports exceeded exports for the first time. The aerospace industry was one of the only remaining fields with a trade surplus, 90 percent of which was attributable to the sale of aircraft and aircraft parts on the international market.

Compared to an overall U.S. trade deficit in manufactured goods of $136 billion in 1986, the aerospace industry had a surplus of $11.8 billion. But the U.S. lead in aerospace was shrinking rapidly. In 1980, the U.S. market share of large civil transport sales was 90 percent. By 1992, that percentage had dropped to 70 percent and was seemingly in freefall. This was taking place at the same time that projections for ever increasing air travel and the need for more airliners seemed unquenchable. The lead in the commuter aircraft market had already been lost. During the 1990s the U.S. lost its lead in the space launch market as well. It has been in the doldrums for at least the last 25 years.

Air Travel

Airbus Projections of Air Travel Increases.

 

The reasons for this loss of market share are complex. From my perspective the aerospace community is in the doldrums for five key reasons:

First, there are the inherent difficulties of the aerospace marketplace. As aerospace technology became more complex and expensive, it was also more difficult for individual companies to shoulder the entire financial burden for researching and developing new technology and products themselves. It has always been a marginal economic enterprise in all its myriad permutations. Aerospace manufacturers literally bet the company on a new design because of the enormous cost associated with developing an aircraft or rocket. Malcolm Stamper, former president of Boeing Aircraft Corporation, remarked that “Locating the break-even point is like finding a will-o’-the-wisp.”

Knowledgeable individuals have concluded that it is not until 20 to 35 production aircraft have actually been manufactured that production costs become predictable. For rockets and other space technology, which does not have large production runs, the economics of manufacturing are even more problematic.

Second, American aerospace executives were too often complacent in maintaining their competitive technological edge. Aerospace corporations, like a lot of other organizations, have a decided “not invented here” syndrome. Ideas emanating from beyond the recognized corporate structure too often get short shrift. I can cite numerous examples ranging from Northrop Aircraft Corporation’s hesitancy to embrace retractable landing gear in the 1920s to Boeing’s hesitancy in adopting the so-called “glass cockpit” technology emerging in the 1980s.

While the “glass cockpit” offered cutting-edge avionics displays, this American-made technology found its first use at Airbus Industrie in Europe. Airbus made it a centerpiece of its newest generation of transports, in the process helping itself compete more effectively in the marketplace. Losing market share, U.S. manufacturers then raced to adopt the new technology into its own designs.

The "Glass Cockpit" in a Boeing 737.

The “Glass Cockpit” in a Boeing 737.

Third, there has been a lack—indeed a celebration of that lack—of coherent industrial policy in the United States. Because of the nature of our republic and citizenry, Americans have been loath to adopt anything approaching a centralized, rational, long-term industrial policy because of its inherently undemocratic and remarkably technocratic and elitist characteristics.

Such a policy would recognize that the health of the American aerospace industry—and perhaps other industries—were important both for national security and economic competitiveness. Accordingly, it is something of a truism to suggest that anything other than what has passed for aerospace policy in this nation, a sub-unit of that largely non-existent industrial policy, has been both ad hoc and expeditious.

Fourth, there has been the success of industrial policy by other nations aimed at securing greater market share for non-U.S. aerospace companies. Their governments, especially in command economies such as the communist bloc during the Cold War, often directly subsidized their national manufacturers. There is no question but that one of the major reasons for the European community to invest in aerospace technology has been to wrest economic market share from the United States.

European policy has aimed at gaining market share in aerospace capability, and it has been quite successful. The Japanese, in addition, have long pursued policies, and directly subsidized key industries, to help move the fruits of basic research into the marketplace for the purpose of gaining economic advantage vis-à-vis the United States.

Finally, a major problem of the aircraft business has been its cyclic nature, leading to boom and bust periods. Complicated by the enormous infrastructure necessary to support the design and manufacture of aircraft, these firms were exceptionally limited as to their markets and their capabilities. President Ronald Reagan’s science advisor noted in 1982 that “aircraft are now the dominant common carrier for inter‑city travel, and the safety and control of that travel are a federal responsibility.” He recommended pressing hard for government support of basic research that could then be transferred to American private firms. Those ideas were not adopted.

The cyclical nature of Aircraft production.

The cyclical nature of Aircraft production.

So how do we get out of the current state of the doldrums? There are many things I could suggest but let me concentrate on one, that of ensuring the technical superiority of American aerospace technology. There is a direct correlation between R&D investment and excellence in technology. Since the 1960s the percentage of investment by the United States in aerospace technology has stabilized at about one percent of the Federal budget.

The aerospace corporations and some universities invest in R&D as well, but that is a decidedly small amount and at least in the case of the private sector limited to almost entirely short term research. So let’s do one thing that will yield a positive result. The American nation should decide to double this investment in aerospace R&D during the coming decade. This is fully within the bounds of our capability, and it will help assure American economic, military, and cultural competitiveness. Not to do so would be to turn our backs, as we did in the early 1900s on the legacy of the Wrights and their enormously significant invention.

Let me close with a comment made famous by Tom Hanks in the baseball film A League of Her Own—and no it’s not “There’s no crying in baseball”—but it is one that is equally insightful. He told the Geena Davis character that what they were doing was hard, and of course it had to be because otherwise “everyone would do it.” Like baseball, flying is hard and flying with the latest technology is harder still. If it weren’t everyone would do it.

The United States is a nation with the high quality of economic, political, social, and knowledge base necessary to bring forward the next generation of aerospace technology. All it takes is will. All we have to do is make the decision to do so and follow that with the investment necessary to further the frontiers of flight. No one knows where that might lead but I believe it will lead to a hypersonic plane, jumbojets like we have never seen before, and trips beyond this planet. And we could do so in a safe and environmentally friendly manner.

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One Response to United States Aerospace Corporations and the Changing Nature of Global Markets

  1. mike shupp says:

    We’ve got three problems with R&D funding in the US.

    1. Since the 1970’s, most R&D has been industry financed, and with the continual budget problems of the US government, sentiment for greatly increasing federal research funding is small.

    2. Computers and the internet have mesmerized most folks into thinking IT is the only worthwhile area for R&D investment, or indeed the only possible area for R&D investment.

    3. Modern day economists, geared to macroeconomics, simply don’t see R&D expenditures as a subject of any interest. Technological progress is just something that happens in their view — it’s a “residual” left over industries do their thing, no where near as exciting about debates about the Federal Reserve and the size of federal deficits, which really determine how the American economy grows.

    Like

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