Insights from industry

Insights into the Aerospace Industry Following Q3

insights from industryJason RiggsDirector of StrategyTechnetics Group

In this interview, AZoM speaks with Jason Riggs, the Director of Strategy for the Americas at Technetics, about the state of the aerospace industry after Q3. He provides insights from conversations with companies like Heico, TransDigm, Embraer, Boeing, and Parker.

Image Credits: Shutterstock.com/Jaromir Chalabala

Could you provide a brief overview of your background, including your professional journey and current position at Technetics?

I am the Director of Sales for North America at Technetics, which includes responsibility for our global sales structure and strategy in the aerospace market.

Technetics is a global company, and I have European peers managing the sales operations there.  I support that team by ensuring a cohesive global strategy for aerospace. I started as a mechanical engineer doing design work for different aerospace companies and joined Technetics almost ten years ago. Since then, I have worked as a regional sales manager, North American sales manager, and strategy leader, and I recently moved back into a purely commercial role.

What is the significance of tracking the quarterly earnings of major aerospace companies?

The aerospace market has undergone significant fluctuations, both pre-and post-COVID. It is essential to regularly review the quarterly earnings reports of major players in the market to gain insight into the industry’s current state. Examining our peers’ and competitors’ statements and actions can provide valuable information regarding market trends.

In addition to analyzing earnings reports, it is essential to consider supply chain issues and significant companies’ actions to address them.  As we develop our inorganic growth strategy at Technetics and Enpro, it is helpful to understand the perspectives and concerns of our investors.

To stay informed about the recent trends in the industry, I regularly read forecasts and expert analyses from firms and individuals with expertise in the aerospace market. This information, along with insights gained from earnings calls and commentary from peers and competitors, allows me to make more informed predictions about market trends and allocate resources more effectively.

What are the overall trends in the industry? Are the earnings up, down, or roughly the same as last year? What does this mean for the industry?

The year-on-year increase in sales and EBITDA profitability for most companies in the aerospace industry is a positive indicator of market health.

The book-to-bill ratios for the previous quarter indicate that companies are receiving more orders than they are shipping, resulting in a backlog. This is a good sign, but it is important to note that it can also highlight supply chain and production constraints.

Boeing and Airbus could not achieve book-to-bill ratios above one during the pandemic, but the fact that it is now possible is a positive sign for the industry.

Another trend we observe is that companies seek to increase production rates and develop products more quickly. However, some supply chain and personnel constraints hinder their ability to do so.

The aerospace industry faces a capacity and manufacturing problem rather than a market or demand problem. This is a significant shift from the industry's situation during the middle of the pandemic.

What are some key aerospace companies, and what do we need to know about them?

The aerospace industry is primarily dominated by narrow-body jets and fighters. However, the market for wide-body twin-aisle jets has declined and is expected to continue in the coming years.

Companies such as Heico and TransDigm have experienced significant growth in sales and EBITDA due to their connections to growing markets and their ability to make strategic investments.

Image Credit: Shutterstock.com/Andy A. Helbling

Both companies have a well-balanced approach between original equipment manufacturing and aftermarket services. They also possess profitable maintenance, repair, and overhaul (MRO) content and have substantial product intellectual property (IP), allowing them to command a higher price in the market.

The Brazilian company Embraer has been performing well in the business jet market. Despite being up for sale and considered for acquisition by Boeing, Embraer has managed to maintain its growth and profitability.

While Boeing has been struggling for various reasons, Airbus is thriving, particularly with the success of its A-321 Neo in the middle market.

Regarding aerospace system manufacturers, Parker has seen a steady growth of around 10% in organic growth and an increase in EBITDA margins. This is a positive indicator for companies at that level of the supply chain. Overall, most companies have seen growth in the recent reporting cycle.

What are some significant problems with the wide-body aircraft market?

Wide-body aircraft are typically used for international travel. Following the outbreak of COVID-19, there was a significant decline in international travel, leading to a reduction in the wide-body market.

However, it is essential to note that before COVID-19, there was already a shift toward larger single-aisle airplanes for international travel. The pandemic further accelerated this trend as international travel almost halted. Even though international travel is gradually recovering in most parts of the world, it is being serviced mainly by single-aisle platforms rather than wide-body aircraft.

What will the aerospace market look like in 2023?

The outlook for the aerospace industry in 2023 is optimistic. Business jets, a diverse category that includes everything from small regional jets to top-end models, perform exceptionally well. This is evident in forecasts such as the one by Honeywell, which predicts a 17% increase in business jet deliveries in 2023, aligning with current market trends.

Honeywell also interviews business jet operators, from private corporate pilots to fractional airline owners. These interviews indicate that 97% of respondents plan to fly as much, if not more, in 2023 than they did in 2022, further reinforcing the positive outlook for the industry.

This is excellent news for Technetics, as it has a significant presence in the business jet market, with a range of products that serve various applications on these platforms, including managing noise from APUs to small metal seals in components such as valves.

What are potential challenges that can change this current growth trajectory?

We expect the demand for aerospace products to remain strong in most major markets, except China, where demand is currently suppressed. It is essential to keep an eye on the direction in China as there are indications that the market may loosen up in the future. Most major western markets have returned or are close to returning to 2019 levels of passenger demand.

Jetliner production is a crucial aspect to consider as we move into 2023 and beyond. While production usually tracks with demand, it is also influenced by factors such as fuel and oil costs and the cost of capital.

The cost of fuel and oil plays a significant role in determining airline profitability and the justification for more efficient jets. Lower interest rates make it more favorable for jetliner production, but the ratio of fuel and oil costs to the cost of capital also plays a role.

It is important to note that geopolitical events, such as the recent Russian invasion of Ukraine, can significantly impact the supply chain and the production of raw materials, such as titanium. We should monitor these vital factors throughout the year to ensure enough raw material availability to meet the demand for jetliners.

What technologies are being developed by the aerospace sector to achieve carbon neutrality by 2050? Do you think the 2050 timeline is reasonable for this goal?

The aerospace industry is working towards achieving carbon neutrality by 2050. To achieve this goal, three leading technologies are being developed. Electrification, which involves airplanes powered by batteries, is one of these technologies.

The second option is the use of hydrogen as a fuel source. Hydrogen can be burned in a turbine or used in a fuel cell to generate electricity to power electric motors.

The last potential solution is sustainable aviation fuels (SAF), such as biofuels. SAF is considered the most viable solution over the next ten years, as it is a plug-and-play solution that can be used in modern jets in combination with kerosene.

It remains to be seen if we can achieve carbon neutrality by 2050, but there is a strong motivation to do so. In the next ten years, there will likely be significant advances in battery technology, storage solutions for hydrogen, and alternate aircraft designs that better accommodate hydrogen storage.

How would you conclude this interview?

The aerospace industry is performing well, but several challenges must be addressed. These include staffing issues, wage increases, and supply chain disruptions, which ongoing geopolitical conflicts may exacerbate. Global recessions can also have a significant impact on passenger demand.

Despite these challenges, Technetics is well-positioned in these markets, with the right products and technologies, as well as ongoing development work to help its customers achieve their future goals. The company's efforts to innovate, adapt and anticipate the market needs will continue to be the key to its success.

About Jason Riggs

Jason Riggs is the Director of Strategy for Technetics, responsible for driving organic and inorganic growth strategies. He’s an aerospace industry veteran with over 25 years of experience in strategy, business development, and engineering for various engineered product companies. Jason is an Arizona native and Arizona State University graduate with a Mechanical Engineering degree and an MBA.

This information has been sourced, reviewed, and adapted from materials provided by Technetics Group.

For more information on this source, please visit Technetics Group.

Disclaimer: The views expressed here are those of the interviewee and do not necessarily represent the views of AZoM.com Limited (T/A) AZoNetwork, the owner and operator of this website. This disclaimer forms part of the Terms and Conditions of use of this website.

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