Edison Investment Research

China launches its first indigenous aircraft carrier

A show of force which will force the West to take notice

China celebrated the launch of its first domestically built aircraft carrier yesterday (Wednesday 26th April). Known as Type 001A, the ship is as yet unnamed and is the largest ever warship to be built by China. The televised launch comes at a time when tensions are running high in the region’s waters after the US deployed warships and a submarine to the Korean peninsula.

The MOD is open for business again

‘Accelerator’ project intended to encourage innovation but may also encourage acquisitions

Historically, defence technologies used to lead development of civilian technologies. However, military research and development (R&D) budgets have been constrained over the past five years so we have seen civilian technologies leading the way, particularly in the communications sphere. I was therefore encouraged to read about the UK MOD’s new ‘Accelerator’ programme, which funds novel, high-risk and high-potential benefit research to develop new capabilities for UK defence and security.

Airbus CEO says “he is not close to retirement”

Succession planning is proof that Airbus is a changed company

In a Reuters interview after the Airbus AGM yesterday CEO Tom Enders said he has no intention of retiring when his current term ends in 2019 and that “it is up to the board and shareholders to decide” if they want him to stay. Mr Enders’ comments yesterday are the first insight to what is likely to be fascinating succession planning at Airbus. It is interesting for two reasons; firstly the company’s history of the management team being chosen by the French and German governments and secondly what the future holds for Fabrice Bregier who currently runs Airbus Commercial Aircraft and has recently been appointed Chief Operating Officer of the newly integrated Airbus SE.

Comac C919 aircraft to fly next month, three years late

Challenges remain though to establish a Chinese aerospace manufacturing industry

The first Chinese narrowbody aircraft, the Comac C919 looks set to make its first flight next month. This is a significant milestone which will attract the attention of the aerospace industry across the globe and the event will no doubt be lauded by the Chinese government. However, this maiden flight will be nearly three years late. When the programme was launched in 2008 the target for first flight was June 2014, with the first delivery due in 2016.

Boeing comes to Sheffield

The US aerospace giant is spreading its wings into Europe

Last week, Boeing announced it would be opening its first ever manufacturing facility in Europe. Where will it be I hear you ask? Sheffield. I imagine that isn’t what you were expecting. I certainly wasn’t. The decision is significant for two reasons; what it says about Boeing’s relationship with Europe, and what it says about UK industrial capability.

All eyes on the Geared Turbofan

2017 is a make or break year for Pratt & Whitney’s beleaguered engine programme

The Geared Turbofan (GTF) engine is proof that innovating in aerospace is never an easy task. When Airbus and Boeing first introduced the concept of their new re-engined narrowbodies (A320neo and 737MAX) they were quick to reassure airlines and investors that this was a simple development proposition - a design modification rather than a clean sheet aircraft. I remember noting at the time that Airbus and Boeing were cleverly transferring the majority of engineering risk to the engine original equipment manufacturers (OEMs), and it has proved to be ever thus.

Trump soldiers on

General H.R McMaster is appointed as US National Security Advisor

There is a certain irony that the US host of the Apprentice was left scrabbling around for someone to fill the post of US National Security Advisor (NSA). However, after what appears to have been a fraught week of negotiating, President Trump has appointed General H.R.McMaster, a current Army Officer, who gained notoriety for his criticism of military leadership during the Vietnam War.

Russian Roulette

General Flynn resigns as US National Security Advisor over links to Russia

In my blog last December I described President Trump’s new security team of General Flynn and General Mattis as a ‘fiery and intriguing cocktail’. After less than a month in office, Gen Flynn has indeed set the sparks flying over his liaisons with Russian officials, and on Monday evening handed in his resignation. So what happened and where does this leave President Trump’s foreign policy now?

Airbus does it again

Record breaking 2016 for Airbus as it exceeds delivery target

At yesterday’s annual New Year press conference, Fabrice Bregier (Airbus Commercial CEO) triumphantly announced that Airbus delivered 688 aircraft last year, exceeding its target of 670. 

Trump’s new security team

Gen Flynn and Gen Mattis make a fiery and intriguing cocktail

I have resisted commenting on Mr Trump’s election victory until now, because I wanted to let the dust settle and see whom he appointed as National Security Advisor and Defense Secretary. With General (Rtd) Michael Flynn and General (Rtd) James Mattis now confirmed respectively (pending Congressional approval for Mattis), today I take a look at what these appointments signal for foreign policy, and therefore the defence industry, during Mr Trump’s tenure as President of the United States.

One man’s gift is another man’s bribe

How has the 2010 Bribery Act impacted Aerospace & Defence?

The recent BBC Panorama entitled ‘How Rolls-Royce bribed its way around the world” prompted me to revisit the 2010 Bribery Act. Crucially I wanted to understand whether Rolls-Royce’s business activities prior to the Act becoming law in July 2011 could be looked at retrospectively? And what punishments does the SFO have in its arsenal? In answering these questions, it is interesting to look at how the Aerospace & Defence industry is adapting in order to operate within the law. 

China shows its air power

Stealth fighters take to the skies at Zhuhai air show

On Tuesday, China showcased its long awaited J-20 stealth fighter jet for the first time in public at the Zhuhai air show. Yet again an impeccably timed show of force with the US Presidential Election next week. The first test flight of the aircraft in 2011 coincided with the then US Defense Secretary Robert Gates’ visit to Beijing. With other new military aircraft expected to be unveiled throughout the week we look at the changing shape of China’s military arsenal, and question how does Chinese defence spending affect Western budgets.

It pays to be civil in the long run

Backlog execution should enable improved investor returns

By the end of September, Boeing and Airbus had surpassed an aggregate of 1,000 aircraft deliveries as previously announced product introductions and rate increases continue to drive up demand across the aerospace supply chain. By the year end the two companies are expected to deliver an aggregate of around 1425 aircraft, slightly higher than in 2015.

Consolidation in the Cyber market

Who will benefit from the super nomal levels of forecast growth?

The global Cyber attack last Friday is the latest stark reminder of how the defence and security market is changing. Attacks do not have to be physical in order to cause harm. Cyber attacks have the potential to be fatal or economically disastrous in just the same way as conventional warfare. As President Obama said on Monday “One of the biggest challenges for the next President, and the President after that is going to be how do we continue to get all the benefits of cyberspace but protect our finances, protect our privacy”. In a world where growth is hard to come by, new forecasts see the Cyber Security market growing 12-15% year on year until 2021. But is it clear what the products of the future will look like? And can we discern which protagonists will win market share?

Innovation in the defence industry

Is it industry or the the MOD that is too old to innovate?

There is uproar in the upper echelons of the defence industry. Last month Tony Douglas, CEO of the government’s Defence Equipment and Support group (DE&S) reportedly berated senior defence industry executives for all being over forty-five, implying that they are too old to be innovative. Ironically, in my previous blog ‘Brave new world for defence industry’ I highlighted that it is the Government’s cost cutting that is jeopardising long term innovation. So is Mr Douglas’ criticism fair? 

Brave new world for defence manufacturing

Hundreds of jobs at risk at GKN Yeovil

Last Friday GKN announced that it may have to “close or significantly downsize” its Yeovil site which employs 227 people. A statement from the company blamed the decision by Leonardo Helicopters to relocate all future A159 Wild Cat helicopter assembly away from the GKN Yeovil site to one of their own facilities. However, the story is more complicated than that and it raises the emotive debate of how much the Government is willing to invest in order to preserve the UK defence industry?

Are airlines weathering the impact of Brexit and terrorism?

Passenger traffic growth analysis

In my 27 July blog ‘The Summer of Hate’ I espoused that summer 2016 could be a defining moment for the aerospace industry. I questioned whether the new wave of terrorism on mainland Europe would lower our propensity to travel by air and therefore encourage more people to holiday closer to home. The IATA passenger data is now in for July so what does it show?

Do tanks have a future?

A look at how armour is evolving

Last month the British Army caused traffic chaos in London by driving a replica First World War tank and a modern Challenger tank around Trafalgar Square. This impressive, yet slightly anti-social display was to commemorate one hundred years of tank service. Seeing these two goliaths of warfare side by side, it struck me that whilst major technological advances have been made over the past century, a modern tank still looks remarkably similar to its predecessor. It made me question whether tanks one hundred years on will still look so similar? Or whether in fact modern warfare no longer needs tanks? These are questions that are likely to be preoccupying the military vehicle manufacturers such as General Dynamics, BAE Systems and Nexter.

Does a smaller military present an opportunity for industry?

MOD statistics show significant troop shortfall

Last month’s UK Ministry of Defence (MOD) personnel statistics show the UK Armed Forces have a personnel deficit of 4.1%, and strikingly the number of trained soldiers in the Army is at its lowest since 1750. The doomsayers note that this recruitment crisis means the UK would struggle to respond to a major crisis. However, could this not provide an interesting opportunity for the defence industry to show how the right equipment means you do not need as many troops?

What does the future hold for NATO?

Trump and Corbyn refuse to support Article 5

9/11 was the first time that NATO’s article five – an attack on one member state is an attack all – had been invoked. It sent a powerful message about the strength of the alliance. Every member of NATO, no matter how small, provided assistance to the United States during the campaign in Afghanistan.  Fifteen years on and the alliance is arguably in its weakest position since its formation in 1949. Politicians in six major member nations have questioned the point of NATO and only five of the twenty-eight states spent the guideline 2% of GDP on defence. Could this be ‘make or break’ for NATO? And if so what could this mean for the defence industry?

Have you heard of GKN?

Making things work for more than a quarter of a millennium

Watching a BBC documentary of a behind the scenes look at the opening ceremony of the 2012 Olympic games reminded me of how the industrial revolution was a centre piece of the performance, creating the illusion of the Olympic rings being forged from steel. Had it happened back in the latter part of the 18th century as new processes changed Britain for ever, those rings may well have been forged in iron by one of the UK’s greatest global brands. GKN’s forebears have been making things happen for over 250 years and the company Guest, Keen & Nettlefolds was formed via merger in 1902. The company is one of our leading global manufacturers, and yet it is hardly a household name.

The summer of hate

The impact of terrorism on the Aerospace & Defence sector

An article in the press today described the summer of 2016 as the “summer of hate”.  The relentless pace of the attacks has invoked terror into the minds of ordinary people and politicians have been forced to make frequent declarations of their determination to protect their citizens.  It therefore seems logical to me that the summer of 2016 will be one which shapes the near term future for Aerospace and Defence companies.

Inside the White House

A guide to the US budgetary process

Last week I wrote about what Donald Trump as President of the United States might mean for the US Defence Budget and I noted that in an election year, the President’s ability to alter the budget is quite limited. Today I look at why that is the case by unpicking the rather confusing and protracted US budget process.

The end of the road for the A380?

A look at why the business case for the A380 has gone wrong

Airbus launched the A3XX aircraft (which would become the A380) in 1997 based on winning 650 orders over the next twenty years. It claimed to be in consultation with 20 leading airlines about their requirements for a new double-decker aircraft. Nineteen years on, the A380 has won just 319 orders from 18 airlines. So where has it all gone so wrong for what is Airbus’ flagship aircraft? In addition, with the announcement last week at the Farnborough Air Show that the production rate has been cut to twelve per year, what does the future hold for the programme?

The rain fell mainly on the planes

Farnborough Airshow 2016 rant, sorry round up

When considering my view on the Farnborough International Airshow 2016 it is tempting to focus on the chaos of the first couple of days at the show. Monday’s washout was spectacular, and when we were eventually cleared from the site at around 5.30pm there was hardly anybody left. Even the ice cream van had gone home!

Civil wars abating

Farnborough Airshow Preview 2016

Next Monday sees the start of the week long Farnborough Airshow which typically heralds a flurry of news in the sector. We expect the main talking points to be:

- A lack of headline grabbing aircraft orders

- Will Airbus and / or Boeing commit to a new aircraft?

- Airbus’ production issues to come under scrutiny

- F-35B to be the highlight of the flying display

- A focus on innovation

- Will Farnborough survive in a post Brexit UK

Can aerospace & defence weather Brexit

Impact of lower GDP growth on the aerospace & defence industry

I am a firm believer that GDP growth is the most important driver behind the health of the aerospace & defence sector. A strong economy increases people’s propensity to travel, and defence budgets are set as a percentage of GDP. I acknowledge that the two sides of the sector are both affected by a number of other factors (the oil price, new technologies, geopolitical tensions, etc) and both industries are global. However, the Treasury’s projection that in two years’ time UK GDP will be 3.6% lower than if we had remained in the EU forces me to pause for thought as to the possible impact of Brexit on the sector over the long term.