Marketing in the International Aerospace Industry

Wesley E. Spreen

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781351919784
• Topic: Technology & Engineering
• Subtopic: Business General
• Index: Technology & Engineering

The aerospace industry has a unique business culture and business practices. It is also subject to unique regulatory requirements and financing conventions. Aerospace products are unlike anything else. Pricing arrangements are arcane, and large-scale cooperative alliances among industry players are commonplace. The market is dichotomized into parts, civil and military, of approximately equal value, and is further divided into dozens of major product segments. The complexity of the aerospace market is commensurate with its size. It is a leading exporter among industrialized nations, employing millions of highly-skilled workers and serving as a technology incubator, while developing nations target the aerospace industry for development within their own economies. Yet, in spite of the importance and uniqueness of the aerospace industry, there has been no serious comprehensive guidance about how the industry's markets function. Marketing in the International Aerospace Industry provides that much-needed overview and best-practice guidance. It analyses the distinctive environment and practices of the aerospace industry, and provides specific, practical guidance for marketing professionals. The content is presented in clearly-defined chapters that relate directly to the professional challenges facing the marketer in the industry. It is written for these professionals and also students of aviation and aerospace management. The book has a fundamentally international optic of the aerospace industry. It consistently examines universal management issues from the point of view of the aerospace industries in the United States, the UK, France, Germany, and Japan, comparing and contrasting national practices in these countries and elsewhere.

Part 1
The Aerospace Market and its Basic Elements

Chapter 1
The Aerospace Market: Supply, Demand, and Segmentation

The market for aerospace goods and services consists of buyers and sellers who create the basic market forces of supply and demand. Marketing, a function of the supply side of the market, is a discipline that attempts to influence buying decisions by the demand side.

In any industry, an effective marketing professional must have a comprehensive understanding of the market in which he or she is working. The purpose of this initial chapter is to provide a brief overview of the aerospace marketplace, by identifying the principal categories of products and customers in the industry, and by identifying some of the major players on the supply side.

Principal Product Segments and Customer Categories

As is the case in any marketplace, the aerospace industry and marketplace are diverse, multi-dimensional spaces. They are by no means compartmentalized, and do not readily lend themselves to classification in well-defined segments.

Part of the problem with defining segments is that the market can be stratified or defined in so many ways. We can identify segments based upon the size of the aircraft, such as airliners, commuter transports, business jets, and general aviation airplanes. Alternatively, we can divide the market into two broad categories of civil products and military products, or by the technological nature of the products, such as avionics, propulsion systems, structural components, hydraulic systems, and flying vehicles. We can divide the market into products intended for outer space and products that operate within the earth's atmosphere. The choices are endless.

One of the issues with any arbitrary system of classification is that most delineations between the categories tend to be ambiguous, and that many products fit into several categories. Obvious examples are that much equipment is used on both military and civil aircraft, and that some equipment is used for space applications as well as conventional aerospace.

Regardless of these limitations, it is evident that the aerospace industry and marketplace is divided into natural major segments. The firms in these segments share common affinities, and governments and economic observers use the segments as practical means of classifying firms and measuring market activity.

The US Department of Commerce (US DoC) uses Standard Industrial Classification (SIC) codes to categorize the industrial activity of all firms in the United States. In this system, the SIC codes are four-digit classifications that are sub-categories of three-digit industry groups of a broader nature. The DoC considers most aerospace activity to fall with industry groups 372, Aircraft and Parts, and 376, Guided Missiles and Space Vehicles and Parts. The specific SIC codes are shown below. Also shown are corresponding North American Industrial Classification System (NAICS) codes that have recently come into use by the US Office of Management and Budget.

Table 1.1 Aerospace classification codes

SIC	Industry Segment	NAICS
3721	Aircraft	336411
3724	Aircraft Engines	336412
3728	Aircraft Parts	336413
3761	Guided Missiles and Space Vehicles	226414
3764	Space Vehicle propulsion units	336415
3769	Guided Missile and space Vehicle parts	336419

These broad categories are further refined in other systems of classification, notably by the industry itself. The following breakdown by major product categories and subcategories is typical.

Table 1.2 Aerospace product categories

Category	Products
Military Fixed-Wing Aircraft	Attack
	Bombers
	Cargo/Transport/Refueling
	Early Warning
	Electronic Warfare
	Fighters
	Observation
	Patrol/ASW
	Reconnaissance
	Research/Test Bed
	Training
	Utility
Commercial Fixed-Wing Aircraft	Narrowbody turbofans
	Widebody Turbofans
	Turboprops

Rotary-Wing Aircraft	Naval
	Scout/Attack
	Tiltrotor
	Training
	Transport
	Utility
Business & General Aviation Aircraft	Turbofan
	Turboprop
	Reciprocating engine powered
Gas-Turbine Engines
Unmanned Aerial Vehicles & Drones
Space/Launch Vehicles	Manned systems
	Unmanned systems
Missiles	Air-to-Air
	Air-to-surface
	Anti-Armor
	Anti-Ballistic
	Anti-ship
	Anti-submarine
	Surface-to-Air
	Surface-to-surface

Note that this particular classification includes engines, but does not include aerospace electronics, commonly called avionics, or other items of aerospace equipment such as landing gear, hydraulics, control systems, electrical systems, environmental control systems, and aircraft interiors. The value of these product lines is a significant part of the overall aerospace market, and although the firms sometimes classify themselves as members of other industries, such as the electronics industry, they also have a strong identity as part of the aerospace market. The classification also omits aircraft maintenance, repair, and overhaul activities, which are an important segment of the market in terms of transaction value and number of people employed.

Another means of describing market segments involves stratifying the market into tiers. With this approach, the prime contractor, who contracts to deliver the completed aerospace product to the final customer, is at the top of the hierarchy. Below him are subordinate tiers of suppliers that feed intermediate products into the manufacturing process. Buying and selling activities occur at each transition from one tier to the next. This tiered structure is a widely recognized characteristic of the aerospace market, but is imprecise and of limited usefulness interns of establishing meaningful identification of market segments.

Table 1.3 Contract tiers

Contractual Tier	Characteristics
Prime Contractors	Design, develop, and assemble complete systems
Major Subcontractors	Perform assembly or manufacture of major components of systems
Second Tier Subcontractors	Manufacture subassemblies
Third Tier Subcontractors	Manufacture components
Fourth Tier Subcontractors	Manufacture parts or perform specialized processes

How do the various market segments compare in terms of size and economic importance?

In the European aerospace market, we find that in recent years approximately 45 per cent of value consisted of sales of complete aircraft, and of these complete aircraft, approximately three-quarters of the value was attributable to civil aircraft. The other segments, in declining order of importance, were maintenance, engines, equipment, space, aerostructures, and missiles.

The corresponding data for the American aerospace industry, broken down on a somewhat different basis, shows that sales of complete aircraft comprise approximately 50 per cent of the total market, and that the distribution between civil and military aircraft is roughly even over the long term, although short-term market conditions greatly affect the relative balance. Following the end of the Cold War, in the 1990s demand for military aircraft dropped precipitously, particularly in Europe and Russia. However, American purchases of defense equipment began to rise again following 2001 as American military engagements in Afghanistan and Iraq placed new emphasis on national defense. Demand for civil aircraft is notoriously cyclical, following broader movements of international economic cycles. Airline demand and profits have been affected by widely felt exogenous factors such as petroleum price shocks and terrorist activities, and declines in airline demand are quickly manifested as declines in orders for civil transports.

Figure 1.1 Breakdown of relative values of European aerospace industry segments
Source: The AeroSpace and Defence Industries Association of Europe, ASD.

Figure 1.2 Comparative values of American aerospace industry segments
Source: Aerospace Industries Association.

Probably the most visible aerospace segment is the civil passenger airliner category. ...

Table of contents

• Cover
• Half Title
• Dedication
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• Introduction
• PART 1: THE AEROSPACE MARKET AND ITS BASIC ELEMENTS
• PART 2: MARKETING TOOLS, TECHNIQUES, AND RESOURCES
• PART 3: MANAGING THE MARKETING AND SALES PROCESS
• PART 4: THE GOVERNMENTAL AND ADMINISTRATIVE FRAMEWORK
• Index