1. Introduction The aerospace industry is an important industry for the French economy. It is a high-tech and performing industry that contributes to the country’s prosperity and international reputation. The success of France’s exports demonstrates the quality and competitiveness of its products, as over 75 percent of its revenue comes from exports. This industry profile serves as a helpful tool for investors to understand the growth and impact of the French aerospace industry, examining its evolution and the influence of various factors and developments on its existence.
The French aerospace industry is divided into six market segments: civil and military aircraft, helicopters, engines, missiles and UAVS, space, and the equipment market for defense and aerospace. This report specifically focuses on the civil sector of the French aircraft industry, as it generates around 69% of total revenues. The sector report is structured as follows: it starts with an analysis of the sector based on a SWOT-analysis, followed by conclusions and recommendations, and ends with the bibliography and appendices.
The report is based on various sources, including general sources like the annual reports of Gifas (“Groupement des Industries Francaises Aeronautiques et Spatiales) and information from the Invest in France Agency. It also includes more specific sources like the Global Market Forcast developed by Airbus, news articles, and publications from McKinsey Research. Furthermore, the report conducts a SWOT analysis, specifically focusing on strengths. One of these strengths is that the aerospace industry drives economic growth and employment, with the total turnover increasing since 2002.
According to the annual report (2007-2008) of Gifas, the French aerospace industry witnessed a significant increase in unconsolidated (civil) revenues. These revenues grew from €17.7 billion in 2002 to €24.4 billion in 2007, representing a growth rate of 38.4%. In the same year, exports accounted for 75% of consolidated revenues, which included both civil and military sectors. The industry experienced a remarkable surge in orders, with approximately 80% being for export purposes. By 2008, the sector employed around 134,000 individuals – an increase of about 2,000 compared to the previous year.
The French aircraft industry is dominated by EADS (Airbus) and Dassault Aviation – two prominent leaders who enjoy global recognition. EADS holds the position as Europe’s largest aerospace company and is listed on France’s CAC40 stock market index. Airbus, a subsidiary of EADS, is particularly known for its production of civil aircrafts. According to Airbus’s annual review in 2008, the company consistently achieved growth in deliveries since 2002.
Despite facing financial difficulties in 2006 and 2007, the company experienced a remarkable year in 2008. They achieved a record number of sales, booking 777 aircraft worth $100 billion. This success gave them a market share of 54% for aircraft above 100 seats. In addition to this, EADS owns other significant subsidiaries including Eurocopter and ATR Regional Transport.
Dassault Aviation is also a global leader in the manufacturing of luxury business jets. Their Falcon range has enjoyed widespread success with over 2000 aircraft sold across more than 70 countries.
According to the 2007 annual report of Dassault Aviation, the company set new records in both orders (€5.38 billion) and deliveries (€2.35 billion), consistently maintaining profitability since its establishment in 1936.
France gained a significant advantage over Boeing through the creation and launch of the Airbus A380, also known as the giant of the sky. This enormous aircraft surpasses its closest competitor by accommodating 35% more passengers and having a range that is 10% greater. Notably, this super jumbo is highly eco-efficient with significantly reduced noise and emissions levels.
The development of the aircraft required a significant investment of approximately €12 billion. Currently, in its second year of operation, 200 orders have been received and 13 A380s have been delivered. However, this is insufficient to recover the substantial development costs, so the success of the initial A380 planes is crucial. Nevertheless, as global passenger traffic and airport congestion continue to rise annually, it is highly likely that new orders for the A380 will be placed in the near future, particularly by emerging countries like China and India. 2. 1. 4 Investment in R&D
The Invest in France Agency states that French aerospace companies invest over 16% of their turnover in R&D activities to remain competitive and secure their position in a challenging market. This percentage exceeds that of rival companies in other nations. To continue creating competitive products, the French industry has formed two significant research initiatives: Clean sky at the EU level and a partnership with the ministry of ecology and sustainable development to form a Civil Aeronautics Research Council.
Despite its various new technologies and breakthrough inventions, the A380 still has weaknesses that require attention. One such weakness is the inadequate support from the French government for aerospace companies. In contrast, the United States offers significantly more substantial government support. For instance, Airbus receives a mere €60 million in public assistance while Boeing receives €800 million. Additionally, high wages and production costs pose another challenge for the A380.
The competitiveness of French aerospace companies is limited by the 35-hour workweek, which leads to high wages and production costs, as well as a protectionist attitude that aims to keep most production within the domestic market. While there are efforts towards introducing more flexibility in the 35-hour workweek, companies should also consider expanding to low-cost countries with significantly lower production costs. Additionally, the French aerospace industry has experienced numerous delivery delays.
Despite the substantial penalty payments totaling around $1 billion for Airbus due to multiple delays in delivering the A380 and A400 transport plane, these setbacks have significantly affected the company’s credibility and confidence. However, amidst these challenges, there are emerging opportunities in developing nations such as Asia, India, and Africa where the rapid economic growth has resulted in a rising demand for air travel.
The Airbus Global Market Forecast (GMF 2007-2026) highlights how air travel is becoming more accessible and affordable for people across different income levels, resulting in the emergence of new airline industries and an increase in global consumers. As a result, there will be a high demand for new aircraft in these markets, providing benefits to the French aerospace industry. According to McKinsey research (2008), Western companies should seize cost-reduction opportunities presented by emerging players like China, India, and Russia.
Additionally, the GMF (2007-2026) predicts that world passenger traffic will grow annually at a rate close to 5%, leading to a tripled growth overall. This increased demand for air travel, along with concerns about airport congestion, necessitates airlines acquiring more aircraft including larger options such as the A380.
Furthermore, fuel prices rising and increased air traffic volume have prompted the aerospace industry’s focus on developing airplanes that are both fuel-efficient and eco-friendly due to environmental considerations.According to Airbus, the A380 surpasses other aircraft in terms of fuel efficiency, consuming less than 3 liters per 100 seat km. It also excels in reducing noise levels by 50%. However, Boeing is a strong rival and holds the position as the world’s largest aircraft manufacturer based on revenue.
In the global market, Airbus and Boeing are in a tight competition for the top position. From 2003 to 2005, Airbus surpassed Boeing in terms of orders and deliveries. However, since 2006, Boeing has regained its dominance and left Airbus behind. The introduction of Boeing’s new 787 poses a significant threat to Airbus, as it will directly compete with Airbus’ most profitable aircraft families, the A321 and the A330. According to Tinseth (Aerospace America, 2008), Boeing is currently ahead by more than half a cycle. Surprisingly, instead of developing a rival for the 787, Airbus is solely focusing on the A380.
The weak dollar also presents a major challenge for the French and European aerospace industry. Companies in this industry purchase in euro but sell in dollar, resulting in a significant loss of competitiveness. To mitigate exchange rate risks, European companies price contracts in dollar. The Aerospace and Defence Industries Association of Europe (Trend Capital, 2008) warns that the continuous weakness of the dollar will lead to massive relocation to dollar-priced locations where labor costs are much lower than those in the eurozone.
This forced relocation could endanger over 640,000 jobs in Europe. The financial and economic crisis has had a significant impact on the French aerospace industry. In early 2008, there was robust economic growth, but the situation has drastically changed due to the crisis, as stated by Edelstenne, president of Gifas. Traditional airline companies like Air France KLM are heavily affected by the financial crisis and consequently have to cancel a portion of their aircraft orders.
The French government has allocated €5 billion to prevent further cancellations. EADS data reveals a significant decline in its share price throughout 2008 and the early months of 2009. In 2007, the share price concluded at €21.83, while it concluded at €12.03 in 2008 and €9.45 on April 2, 2009. The rise in fuel prices in 2008 had a detrimental impact on numerous airline companies, such as Air France-KLM, which reported losses exceeding €542 million. During periods of expensive fuel, airlines often need to cancel aircraft orders to ensure survival.
The French aerospace industry is a major driver of economic growth and employment, with Gifas reporting a 38% increase in total turnover over five years. This growth largely stems from the success of two global leaders, EADS (Airbus) and Dassault Aviation. Renowned for their cutting-edge technologies and innovative breakthroughs, French aerospace companies allocate over 16% of their turnover towards research and development. Thanks to these investments and government support, the industry achieved the remarkable feat of creating the A380, a true giant in the sky.
The A380, a larger and more eco-efficient aircraft, is in demand due to the rise of emerging markets, global passenger traffic growth, and increasing environmental concerns. This presents profitable opportunities for France to expand its market share globally. Despite weaknesses and threats faced by the French aircraft industry, government and company actions are helping alleviate some of their impact. In 2007, Nicolas Sarkozy announced plans to abolish the 35-hour workweek as he believed it was harmful to the French economy. This decision would enable companies to lower wages and production costs.
Airbus implemented the Power8 restructuring plan in 2007 to tackle issues like a weakened US dollar, increased competition, and financial difficulties due to A380 delays. The French aerospace sector is especially susceptible to the ongoing financial crisis, which increases the likelihood of order cancellations. Despite robust economic growth and a surge in orders, the industry has been significantly impacted by the current financial and economic turmoil.
It is recommended that investors delay their investment due to the uncertain duration of this crisis. They can contact investment companies, such as the French Investment Agency, for more detailed information on the future prospects of the French aerospace industry. Furthermore, reaching out to stock market analysts who can provide personalized advice and determine the optimal timing for investing in companies is also suggested.
5. GIFAS. (2008, July 9). Industrie Francaise Aeronautique & Spatiale, rapport annuel 2007-2008.
The following sources were consulted on various dates:
– GIFAS. “RA-GIFAS2007-08.pdf.” Consulted on the 30th of March 2009 at: http://www.gifas.asso.fr/reaxia/files/cyyydsjgw/RA-GIFAS2007-08.pdf
– GIFAS. “2008 results for the French aerospace industry.” Press release. Consulted on the 30th of March 2009 at: http://www.gifas.asso.fr/reaxia/files/bdgrjsodjkd/2009AVRIL02Communiqueanglais.pdf
– GIFAS. “French Aerospace industry 2008-2009.” Consulted on the 30th of March 2009 at: http://www.gifas.asso.fr/reaxia/files/ersvtgsv/Gifas-Digest-2008-UK-web.pdf
– Airbus. “Global Market Forecast (2007-2026).” Consulted on the 15th of March 2009 at: http://www.irbus.com/store/mm_repository/pdf/att00011423/media_object_file_GMF_2007.pdf
– Airbus. “Airbus annual review (2008).” Consulted on the 30th of March 2009 at: http://www.airbus.com/store/mm_repository/pdf/att00013220/media_object_file_Airbus-AnnualReview2008.pdf
– Chambost, G. C., Renard, J. D. R. (2005). “La grande aventure de l’airbus A380.” s.l., Editions Sud Ouest.
– Dassault Aviation (2008). “Rapport annuel 2007.” Consulted on the 17th of March 2009 at: http://www.dassaultaviation.com/fileadmin/user_upload/redacteur/finance/publications2008/RAinteractif/Dassault_ra_2007_fra/index.tm
– Invest in France Agency. “Aerospace.” Consulted on the 18th of March 2009 at: http://www.invest-in-france.org/benelux/en/Why-choose-France.html#
– Laurent, L. L. (2007, 11th of March). “Billion-dollar delay bombs Airbus.” Consulted on the 3rd of April 2009 at: http://www.forbes.com/2007/11/05/eads-airbus-boeing-markets-equity-cx_ll_1102markets05.The following links were consulted on various dates:
– De Tijd, (2008, the 1st of January), Sarkozy wil einde 35-uren werkweek. Consulted the 3rd of April 2009 at: http://www.detijd.be/artikel/Sarkozy_wil_einde_35-uren_werkweek.6048218
– Bedier, B. C., Vancauwenberghe, M. V., Van Sintern, W., (2008, April), The growing role of emerging markets in aerospace. Consulted the 8th of April 2009 at: http://www.mckinseyquarterly.com/PDFDownload.aspx?ar=2117
– Wilson, J. R. W., (2008, May), Chasing a dreamliner. Consulted the 10th of April 2009 at: http://www.aiaa.org/Aerospace/images/articleimages/pdf/Aerospace-Dreamliner_MAY2008.pdf
– Trend Capital (2008, 21st of April), Weak US dollar threatens Europe aerospace industry jobs: ASD. Consulted the 10th of April 2009 at: http://capital.trend.az/?show=news&newsid=1181586&catid=513&subcatid=471⟨=EN
The following are various statistics and sources related to the French aircraft industry and other economic indicators:
Appendices 6. 1 Total turnover of the civil sector of the French aircraft industry (in €million) [pic] Source: Gifas, annual report (2007-2008)
6. 2 Evolution of the US/Euro Foreign Exchange Rate [pic] Source: Economic research, federal reserve bank of St-Louis (2007) Live rates at 2009. 04. 26 10:56:38 UTC 1.00 EUR = 1,32790 USD
6. 3 EADS N. V- Share price [pic] Source : EADS N. V http://eads.net/1024/en/investor/Stock_information/Share_price/Share_price_chart.html
6. 4 Evolution of oil prices (1994-2008) [pic] Source: www.greatdreams.com/oil/peak_oil_consequences.htm
