Jan 23, 2017

The aerospace and automotive industries are key sources of demand for plastics and metal component manufacturers, and fluctuations in associated economic activity often determine the outlook for investment in machine tools and moulding equipment. 2016 appears to have been a good year for the aerospace industry so far but 2017 looks equally promising, with the commercial sector expected to see continued growth in revenue and operating earnings driven by expanding passenger numbers and demand for next-generation aircraft. Figures from the International Air Transport Association (IATA) calculate that the volume of global air passenger traffic continue to increase in 2016, though at a slightly slower pace than in previous years. Nevertheless, it predicts solid growth for 2017, particularly Asia, Latin America and the Middle East, and airlines are rushing to expand their fleet capacity to handle the increasing demand for seats.

 

New aircraft orders pushing growth

Global consultancy Deloitte Touche Tohmatsu Ltd estimates that by the end of 2016 1,420 large commercial aircraft will be manufactured, with a further 1,490 expected in 2017. As of September of this year, aircraft manufacturer Airbus had recorded 380 orders for its latest passenger aircraft from global airlines including Vietjet, Quantas, Vietnam Airlines, the French Air Force, RwandAir, AirAsia, Pegasus Airlines, Emirates, China Airlines, Cathay Pacific, Finnair, Latam and Qatar Airways.

That demand is filtering down the supply chain to component makers who are upgrading their own manufacturing capacity to meet orders from Airbus and others. Spanish company Sofitec won a €45 mn deal with Germany-based Premium Aerotec to supply composite fuselage components for the A350XWB, for example, with the first items due to ship between January and March 2017. Airbus also selected Stratasys’ ULTEM 9085 3D printing material for the production of resin flight parts for the A350XWB.

UK-based supplier of fasteners, fixings and other components FSL Aerospace saw an 18 per cent increase in turnover in its last financial year after signing long-term agreements with established aerospace manufacturers expected to deliver £1 mn of additional revenue over the course of the next few years.

Investment in new machine tools, tooling technology

UK-based JJ Churchill estimates its aerospace sales have increased 60 per cent in the past 12 months and said in October that it is investing £1.5 mn in new technology, people and systems to meet growing demand from the aerospace industry for engines and next-generation aircraft in 2017 and beyond. The company plans to invest in Makino 5-axis VIPER CNC grinding capacity and Doosan 5-axis machining capacity linked to advanced information management systems to deliver precision nickel-based ally components. Moreover, it plans to increase its headcount by 20 per cent, although it admits skilled people are still hard to find.

Elsewhere, Renishaw is contributing its additive manufacturing expertise to a new £17.7 mn project led by Airbus in the UK dubbed Wind Design Methodology Validation (WINDY), partly funded by UK government investment from the Department for Business, Energy and Industrial Strategy (BEIS) and supported by the Aerospace Technology Institute (ATI).

It was estimated that the Andalusian Aerospace industry in Spain turned over €2,343 mn in 2015, creating over 1,000 new jobs and reinforcing its place as one of the three main European aerospace hubs alongside Toulouse and Hamburg. The region is responsible for almost a quarter of all aerospace sales in Spain, having tripled its turnover from €848 mn in 2006. What’s more, it expects growth to continue in 2017, driven by manufacturing requirements of the Airbus A400M and A350.

Emerging car markets driving growth

Multi-axis machining subcontract specialist HEC Precision has invested in its fourth Doosan multi-tasking turning centre from Mills CNC to help it meet what it expects to be increased demand for aerospace components over the next couple of years. Beaver Aerospace & Defense, a subsidiary of Phillips Service Industries (PSI) and specialist in the design and manufacturing of custom ball screws for commercial and military aircraft, also announced that it has upgraded its machining centre with two new 4-axis eco Mill 1100 V machines.

There is cautious optimism too for car sales, despite slowing rates of growth in the world’s biggest market in China. US analyst firm IHS Automotive has recently cut its forecast for sales of vehicles in China by 9 million units but still expects China to hit 32 mn annual sales by 2022 with a 5 per cent sales increase expected in 2017.

Emerging markets such as Brazil, Russia and India also remain promising despite some fallout from economic recession and slowing growth. IHS Automotive forecasts that around 55 new vehicles will launch in the Brazilian market in 2017, for example, with models from Volkswagen, Fiat, Honda and Renault fuelling a slow return to growth by 2018 after a difficult couple of years. Separate forecasts from PwC’s Strategy Consulting Group also suggest that emerging markets in Brazil, Eastern Europe, South Africa, China and India will show consistent growth in light vehicle sales in 2017.

 

The picture in mature Western European markets is mixed, however. The European Automobile Manufacturers Association (ACEA) calculated that car sales across the region increased 7.7 per cent in the nine months up to and including September 2016, with Germany, Britain, France, Italy and Spain all showing growth. But there is uncertainty for 2017, partially caused by ongoing jitters around the economic impact of the UK’s exit from the European Union, whilst figures from LMC Automotive suggest sales contracted 1 per cent in October.

“European automobile demand appears to have peaked,” analysts at Moody’s Investors Service, including Bruce Clark in New York, wrote in a report published in October. “Manufacturers’ ambitious volume expectations for their new models will keep pricing pressure high and could result in discounts and incentives eroding profit margins and cash flows.”

Analyst firm LMC believes Italy will see most growth over the next few years, boosted by an improving economic outlook and the larger number of older cars on the road that need replacing. The company does predict a downturn for the UK in the next few years, however, due to the weakness of the pound and a broader economic slowdown.

Manuel Oliveira, European secretariat at the International Special Tooling & Machining Association (Istma), said tool and mould makers are optimistic about demand for their products for 2017. “Concerning Portugal, the demand from the automotive industry is high at this moment and we expect that trend to continue in 2017,” he said. “Regarding aerospace, we feel a slight increase but in our country (Portugal) this sector is still a niche market.”

US car sales set for boom

The fortunes of European tool and mould makers are also heavily dependent on what happens in the US, the second-largest passenger vehicle market of any country in the world. Sales of cars in the US are expected to peak at 18.2 mn in 2017, helped by job growth, cheaper fuel, low interest rates which make loans more affordable and a greater availability of credit, according to IHS Automotive.

Laurie Harbour is president and CEO of Harbour Results, a research firm focussing on the global automotive industry. She expects to see an unprecedented number of new vehicle launches between 2017 and 2019, all of which will create demand for a much wider range of internal trim components, albeit in lower volumes than previously.

“There are more models in the market than ever but less volume across those models with lots of mix but less volumes,” said Harbour,” That is good for the tool industry because they have to make more components so it is going to be specific to those people that make something customer interfacing an instrument or door panels, consoles, headlamps, fascias, that type of thing. If I do under body components or black plastic or things that are not visible to the consumer, you might see that spread across more platforms, more components and more years.”

 

Harbour estimates that up to 80 per cent of the companies that make tools for Volkswagen, Mercedes and BMW cars sold in the US are based in either Germany or China.

“With the market being so positive going forwards in terms of lots of European and Japanese –(new car) launches here in North America because they are building these plants in Mexico, the outlook for people making tools will be very strong for the next 18 to 24 months,” she said.

A sustained economic recovery seems likely to boost US car sales further between 2017 and 2020. There are potential stumbling blocks ahead however, particularly if interest rates rise whilst expensive technology required to meet new more stringent emissions and fuel economy standards might also increase vehicle costs and impact sales.

The big question is the extent to which slowing or flat automotive sales growth in China, Europe and elsewhere will be offset by growth in other emerging markets, and how car manufacturers will react – either by increasing or decreasing their production capacity.

Whilst any slowdown in 2017 will undoubtedly impact the bottom line of vehicle makers across the globe, this will not necessarily affect sales of tooling in the near term as component manufacturers invest to capitalise on future demand whilst improving efficiency and increasing profitability.

 

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