SIC 3721
AIRCRAFT



This category includes establishments primarily engaged in manufacturing or assembling complete aircraft. This industry also includes establishments owned by aircraft manufacturers and primarily engaged in research and development on aircraft, whether from enterprise funds or on a contract or fee basis. Also included are establishments engaged in repairing and rebuilding aircraft on a factory basis. Establishments primarily engaged in manufacturing engines and other aircraft parts and auxiliary equipment are classified in SIC 3724: Aircraft Engines and Engine Parts and SIC 3728: Aircraft Parts and Auxiliary Equipment, Not Elsewhere Classified. Establishments primarily engaged in the repair of aircraft, except on a factory basis, are classified in SIC 4581: Airports, Flying Fields, and Airport Terminal Services; and research and development on aircraft by establishments not owned by aircraft manufacturers are classified in SIC 8731: Commercial Physical and Biological Research.

NAICS Code(s)

336411 (Aircraft Manufacturing)

Industry Snapshot

The aerospace industry consists of space vehicles, space propulsion parts, guided missiles, aircraft, aircraft engines, and aircraft parts. The value of all products and services of the aircraft industry alone was more than 85 percent of the aerospace industry total in the early 2000s. The production and sale of aircraft further constitutes about 57 percent of the total aircraft industry's value.

By 2003, the aircraft industry was in the midst of a downturn. Negative conditions within the air transportation sector, due in part to a decrease in travel following the terrorist attacks against the United Sates on September 11, 2001, were affecting aircraft manufacturing. According to Standard & Poor's Industry Surveys , Avitas, Inc. estimated that net aircraft orders fell from 1,803 in 2000 to 816 in 2001 and were forecast to reach 561 units in 2002. In addition to a decrease in aircraft orders and falling profits, this drop affected industry employment. The Aerospace Industries Association (AIA) revealed that, according to figures from the U.S. Department of Labor, employment within the aerospace industry reached an all-time low in 2002.

Industry earnings celebrated a milestone in 1997 when commercial and foreign customer sales matched sales to the U.S. military, the first time since 1934. By the late 1990s, there were three major manufacturers in the United States because of mergers and acquisitions—Boeing Company, Lockheed Martin Corporation, and Raytheon Company, in size respectively. In July 1998 Lockheed Martin announced the termination of a proposed merger with Northrop Grumman because the U.S. Department of Justice questioned the merger giving too much market leverage to the merged company in the defense industry. In 2002, Boeing led the world industry in aircraft deliveries with a 56 percent share. However, in terms of net aircraft orders (units), Airbus led with the market with a 57 percent share.

Organization and Structure

American aircraft companies provide airplanes for three distinct markets: the military, commercial aviation, and general aviation, which includes business aviation. From the end of World War II until the collapse of the Soviet threat in 1989, the American military services had a voracious appetite for sophisticated aircraft, which American firms sought to satisfy. This 49-year boom in military spending guaranteed the health of many manufacturers and allowed those manufacturers to devote resources to research and development, ensuring that American aircraft would be the most technologically advanced in the world. The end of the cold war, which reduced military spending in the United States and around the world, provided the greatest challenge for American aircraft manufacturers, who had grown accustomed to lucrative Department of Defense contracts.

The development of commercial aircraft posed far greater risks than that of military aircraft. The development process for a passenger airliner capable of carrying several hundred people was both lengthy and costly, requiring manufacturers to anticipate the needs of airlines far in advance and to gamble vast amounts of money on the product's success. For this reason Boeing canceled its development of the super jumbo aircraft. Manufacturers usually designed new or modified aircraft in response to the demands of carriers, who typically asked for more fuel efficiency and more seating rather than major redesigns. The Economist estimated that a new medium-sized airliner cost more than $2 billion to develop, with engines costing another $1.5 billion.

As a result of the risks involved, commercial aircraft manufacturers were rather conservative, pursuing modifications on existing airframes rather than reinventing complete aircraft, and most existing commercial airliners changed little in the last half of the twentieth century. However, some exciting new aircraft developments occurred in the areas of speed, range, capacity, and efficiency. Given the tremendous financial risks associated with developing new aircraft, many manufacturers by the early 2000s worked cooperatively, jointly developing a design and dividing work among partners if the design was successful. The development of a new aircraft might involve many dozens of companies, each contributing some portion of a plane that it had perfected. The merger of two leading aircraft companies, Boeing Company of Seattle, Washington, and the McDonnell Douglas Company of St. Louis, Missouri, resulted in economies of operation in a number of areas. In a calculated risk, Boeing canceled its plans to develop a super jumbo jet and concentrated instead on long range, fuel-efficient planes with a modestly higher passenger capacity, citing the ratio of development costs to demand as justification. Airbus continued to pursue the super jumbo concept.

Though military and commercial aircraft manufacturers dominate the industry in the early 2000s, American companies also produced a number of aircraft for the general aviation and the helicopter market segments, which included fixed wing aircraft and rotorcraft for business transportation, regional airline service, recreation, specialized uses such as ambulance service and agricultural spraying, and training. American manufacturers historically produced about 60 percent of the world's general aviation aircraft and 30 percent of the helicopters. The major U.S. manufacturers of general aviation aircraft are the Beech Aircraft Corp., Fairchild Aircraft Inc., the Cessna Aircraft Co., Gulfstream Aerospace, and Learjet Inc.

Most aircraft manufacturers derive a significant proportion of their profits from the production of replacement and upgrade parts for their airplanes. Since large commercial jets represent such a large investment—a new twin-engine passenger jet may cost several hundred million dollars—airlines try to keep them in the air for many years. Moreover, the Federal Aviation Administration (FAA) sets stringent guidelines on repair and replacement procedures for passenger aircraft. Manufacturers provide parts through a network of suppliers and subcontractors, which comprise SIC 3728: Aircraft Parts, Not Elsewhere Classified.

Background and Development

The American aircraft manufacturing industry traces its origin to one of the seminal events of the twentieth century: the Wright brothers' first powered flight in 1903. While many others had flown with gliders, balloons, and dirigibles, Wilbur and Orville Wright marked a tremendous breakthrough with powered flight, because they proved the dynamics of flying a wing. In cross section, a wing is flat on the bottom but curved on top. As a wing moves through the air, air passing over the wing is forced to travel a greater distance than air passing under the wing. This difference causes a pocket of low pressure that literally sucks the wing up into the air. In order to work, the wing must be driven forward or powered. These principles were described years before the Wrights' flight by Samuel P. Langley, a luckless professor whose aviation experiments were either ignored or were failures.

The Wrights originally hoped to sell airplanes to the United States Army as battlefield reconnaissance devices. The idea of employing aircraft to attack or drop bombs had not yet occurred to anyone. One of those on hand to witness the Wright brothers' first demonstration for the Army was a young conscript named Donald Douglas. Despite several impressive flights, Army officials were unmoved. The Wrights took their show to Europe, where they flew for the German, French, and British armies. In the process, they prompted interest with such European aviation pioneers as Louis Blériot, Willy Messerschmidt, Anthony Fokker and Marcel Dassault.

Aviation was immediately embraced in Europe as a powerful new force in warfare, but it also made for good entertainment. Blériot and others such as Louis Paulhan built their own airplanes and began touring flying circuses. During 1910 and 1911, these European aviators toured the United States, flying before garage tinkerers like Glenn Martin, Clyde Cessna, Glenn Curtiss and Bill Boeing. Curtiss, a motorcycle repairman, was immediately drawn to flight, and he had access to the lightweight engines needed to power aircraft. Curtiss was one of the first to mount a propeller on the front of the aircraft in a "tractor" design. Until that time, propellers had been rear-mounted "pusher" models which are still found on some aircraft today, particularly amphibians.

After several of the Army's Wright planes crashed, killing the pilots, the Army found a new supplier in Curtiss, who escaped the enforcement of the Wrights' patents by incorporating the first ailerons. Curtiss thus emerged as the nation's leading aircraft manufacturer and the new supplier of choice to the Army.

Wilbur Wright died in 1912, leaving his brother in charge of their company. A poor manager, Orville Wright naively sold the company and its patents to a group of financiers led by William Boyce Thompson.

With the outbreak of war in Europe in 1914, Germany and France were quick to apply aviation to the battlefield, producing the world's first aces, Roland Garros and Manfred von Richtofen. The United States Army embraced air power in 1914 by creating an aviation group within the Signal Corps. One of its first members was Donald Douglas. Douglas, an engineering graduate of the Massachusetts Institute of Technology, was briefly employed by Glenn Martin, who had experimented with gliders since 1905. He built his first powered aircraft near Los Angeles about 1909, having been bankrolled by another aviation enthusiast, inventor Alexander Graham Bell. Douglas helped Martin develop his first production aircraft, the TT trainer, before he was dispatched to Washington to oversee the government's aviation program. Thompson's group later purchased Martin's company to form an aircraft combine called the Wright-Martin Company.

By 1918, the government showed its interest in aviation through expansion of an air squadron and active intervention in the industry. Having seen the effect of air power in Europe during World War I, the government resolved not to see American air power stunted by legal wrangling or patent hoarders. What emerged was a loosely policed competition for government contracts, primarily military and later airmail business. Hundreds of airplane builders emerged from garages and warehouses.

Automobile executives were chosen to head the government's ambitious 22,000-plane military aeronautics program. Favored for their ability to turn out huge quantities of a standardized product, these executives openly conspired to keep aircraft builders out of the industry. But Douglas, a member of the government board, fed information on the aeronautics program to other aircraft designers. Finally, upset with the performance of the Army's air squadron, and disgusted with government bureaucracy, Douglas resigned in 1919 and moved to Los Angeles to start his own company.

In 1919, automotive interests led by Delco persuaded Orville Wright to lend his name to another venture called Dayton-Wright. Wright was retained only for his venerable name and its ability to draw investment dollars. As an automotive venture, Dayton-Wright built only aircraft engines, and it later fell under the control of General Motors. At the close of World War I, the government canceled 90 percent of the aircraft it had ordered, forcing many airplane builders to close. An investigation later revealed criminal collusion and widespread scandal among those who were empowered to grant contracts. However, virtually all involved escaped without prosecution.

Having briefly regained the services of Donald Douglas, Glenn Martin abandoned Thompson's company and struck up an important relationship with General Billy Mitchell, the Army's most powerful advocate of air power. With Mitchell's backing, Martin won a contract to build 20 MB-2 bombers, which Mitchell subsequently used in a spectacular demonstration off the Virginia Capes, sinking the supposedly unsinkable captured German battleship Ostfriesland.

A separate aircraft concern was established in 1914 by Allan and Malcolm Loughead. The brothers built their first aircraft in a small garage in San Francisco with financial backing from Max Mamlock and his Alco Cab company. After crashing it and scaring away Mamlock and his money, the brothers began flying exhibitions and sold Curtiss airplanes to raise money. The Lougheads, intent on military applications for aircraft, embarked on the construction of a large bomber at a site near Santa Barbara. There they met a young builder with an understanding of mathematics named Jack Northrop, whom they asked to join the company as chief engineer.

President Coolidge appointed Dwight Morrow to devise a government program for measured development of the industry in 1925. The resulting Air Commerce Act of 1926 set annual procurement levels for 2,600 military aircraft. Loughead and Northrop, who had drifted for six years, suddenly regained their market and managed to secure financial backing from a Los Angeles venture capitalist named Fred Keeler. As a condition, however, Keeler demanded that Loughead change the spelling of his Scottish-Irish name to accurately match its proper pronunciation. Apparently tired of being addressed as "Mr. Lug Head," Allan relented, and the new company was called Lockheed. The company later completed an all-metal, single-skin model called the Vega. This model, based on a design by Holland's Anthony Fokker, was developed by Northrop, who then left the company to work for Donald Douglas.

Douglas, whose business was growing on the strength of government sales, had been approached by David R. Davis, who offered to invest $40,000 for a transcontinental airliner. With Northrop's help, Douglas produced the Cloudster, of which the government ordered several hundred for military use. Davis, fearing the risk, bailed out immediately. The Cloudster, however, led Douglas to a series of successful designs, including the DT series torpedo planes and Douglas World Cruiser. Between 1921 and 1928, Douglas' annual production grew from six aircraft to more than 300.

The growing aircraft industry received a tremendous boost in 1927 when Charles Lindbergh completed the first successful trans-Atlantic flight using a modified Ryan Aeronautical tri-motor. Lindbergh's daring and nearly fatal stunt so strongly revived interest in aviation that investors began pumping millions of dollars into aircraft companies. The following year, Martin relocated to Baltimore to be closer to his customers in Washington. Building bombers, he purchased the engine business of Louis Chevrolet, whose automobile business had been acquired by General Motors.

United Aircraft was the creation of Bill Boeing, a rich Seattle forester who purchased his first plane in 1910 from Glenn Martin and took flying lessons from the builder himself. Boeing and his partner Conrad Westerveldt built a number of early floatplane models for maritime postal delivery. After producing aircraft for the military during World War I, Boeing was persuaded by a customer named Ed Hubbard to form an airline service. In 1920, Boeing won a contract to haul mail between Chicago and Seattle. For the job, he developed a new design, the Model 40, fitted with a Pratt & Whitney engine. Boeing's association with Pratt & Whitney brought him the acquaintance of that company's president, Frederick Rentschler.

The Kelly Airmail Act of 1925 returned airmail service to private bidders after a series of crashes by the government's own air service. Postmaster William Folger Brown actively encouraged the formation of large airline companies by carefully awarding profitable airmail contracts. Boeing acquired numerous private airmail companies and their lucrative contract rights and in 1928 banded them together to form the National Air Transport Company. The following year, Boeing and Rentschler merged their airframe and engine businesses to form the United Aircraft & Transportation Company. By the end of 1929 the company had taken over two propeller makers as well as Northrop's Avion company and laid out an air transportation network that later became United Air Lines.

In August of 1929, Allan Loughead (who retained his own name) and Fred Keeler sold the Lockheed Company to a group of automotive investors organized as the Detroit Aircraft company. The company drew tremendous investor interest after aviatrix Amelia Earhart crossed the Atlantic with one of the company's Vegas. Only one month later, world financial markets were buffeted by the stock market crash that plunged the nation into the Great Depression. Aviation company stocks, valued at more than $1 billion on total earnings of more than $9 billion, were decimated.

Detroit Aircraft, whose share price had tumbled from $15 to 12.5 cents, failed in 1932. The Lockheed operation was purchased out of receivership for $40,000 by Robert and Courtlandt Gross. The acquisition included an important new design, the Orion. Meanwhile, Allan Loughead had returned to his original real estate business. Jack Northrop, however, returned to Douglas, where he established yet another company as a subsidiary of the Douglas enterprise.

Douglas was associated with an aviation combine similar to Boeing's, called North American Aviation, which controlled Eastern Airlines and TWA. As a result of this relationship, Douglas, who had grown rich on military contracts, was now called upon to develop commercial airliners for his parent company. The first of these, the Douglas Commercial One, or DC-1, emerged during the worst years of the Depression. In February 1934, the government reduced its subsidy to airmail carriers, creating a sudden demand for faster, more efficient aircraft. Douglas refined his DC design to meet this demand and in 1935 produced the DC-3, an extremely versatile craft that nearly rendered obsolete competitors such as Boeing's 247. The Gross Brothers and their Lockheed Company likewise improved upon earlier designs and emerged with the Electra.

Even Glenn Martin, spurned by the War Department, was brought into the commercial market. The devout Republican was forced to mortgage his plant under a Democratic New Deal program. Desperate for business, Martin built a luxurious flying boat, called the China Clipper, for Pan American's trans-Pacific routes. But when Martin only managed to sell three Clippers, the government was forced to support his business by purchasing the company's newly developed B-10 bomber.

The Depression would have destroyed the aircraft industry were it not for government support. It became official policy to award contracts to an increasingly privileged club of manufacturers, so that their expertise could be preserved and developed for military purposes. This policy hardened the cycle of concentration promoted by Brown. American aviation was controlled by three huge vertical monopolies, each maintaining huge airframe and engine manufacturing facilities and airline services.

In 1934, Senator Hugo Black completed an investigation of improprieties in these aviation investment trusts, which included United Aircraft, North American Aviation, and a third group called the Aviation Corporation of the Americas, or Avco. Several magnates were called to testify at hearings, including Bill Boeing, Donald Douglas, and Glenn Martin. All admitted huge profiteering from aviation activities but, due to the absence of laws against these practices, no prosecution could result. Boeing, however, was so incensed by the nature of the investigation that he sold all his aviation interests and retired.

The combines were eventually dissolved on antitrust grounds, creating an enduring line of business restriction in American aviation. Airframe, engine, and airline companies could no longer be associated in any way. Boeing's conglomerate was divided into the Boeing Company in Seattle, United Aircraft in Connecticut, and United Air Lines, headquartered in Chicago. Likewise, North American Aviation lost its association with TWA and Eastern Airlines, and Avco lost American Airlines and Pan Am. Martin and Lockheed remained intact, as did Consolidated Aircraft, a company whose growth sprung from its acquisition of the defunct Dayton-Wright's designs.

By 1937, the emergence of the DC-3 and Electra enabled airlines to make money from passenger services alone, ending the reliance on airmail. The efficiency of these aircraft was recognized by belligerents in the small wars being fought in Europe and Asia. Unbeknownst to them, Lockheed, Douglas, and Martin frequently sold aircraft to fictional airline companies and other front organizations for the Japanese and German armed forces. The discovery of this led to neutrality laws, which prescribed an aircraft embargo to any belligerent. But the demand for aircraft, particularly from Britain and France, was so great that the Roosevelt administration created loopholes designed to allow the export of aircraft to American allies, thus enabling the industry to fund development of new designs from large, lucrative export orders.

Much of this development was highly experimental. Northrop, whose subsidiary had been consolidated by Douglas in 1937, formed another company in 1939 with backing from LaMotte Cohu. After raiding Douglas of dozens of engineers, he resumed work on his radical flying wing project. Lockheed produced an equally strange design, a triple-hull fighter called the P-38 Lightning, while Boeing began work on its large B-17 bomber.

Several other smaller manufacturers gained admission to the defense industry club during this time. Grumman, a company established in 1929 to build naval aircraft, grew quickly after winning a contract to supply folding-wing F4F Wildcats to the Navy. By 1941 the company, established by Leroy Grumman and Leon Swirbul, had become the primary supplier to the Navy, overtaking even Martin. McDonnell Aircraft began building aircraft on a large scale in 1939, producing fighters for the Army Air Force. Meanwhile, Consolidated merged with the Vultee Company, forming a huge manufacturing operation in Texas called Convair.

While military preparations were stepped up in 1940 and 1941, the event that sparked tremendous growth in the aircraft industry was the Japanese attack on Pearl Harbor. Huge amounts of government money were poured into engineering and production facilities. President Roosevelt ordered 60,000 aircraft in 1942, and 125,000 the year after. Douglas converted its DC-3 into military cargo planes and bombers, more than 10,000 of which were built. Other manufacturers were suddenly able to complete new designs. Convair produced the B-24 Liberator, and Martin the B-26 and A-30 Baltimore bombers and 70-ton Mars freighter. North American turned out the B-25 Mitchell bomber and the P-51 Mustang, while Douglas added the A-20 Havoc and SBD Dauntless dive bomber. The newly reconstituted Curtiss company returned with its C-46 cargo craft. Grumman provided the Navy with its Widgeon, TBF Avenger and F6F Hellcat.

Boeing, which at one point turned out 16 bombers every day, went into production on its B-29 Super Fortress. Even Ford, which exited the aircraft business during the Depression, was pressed into service, building B-24s. Northrop got his flying wing, the B-49, to fly. With every surface of the craft devoted to creating lift, it was capable of tremendous payloads. The Army, however, refused to develop the boomerang-shaped bomber, fearing possible instability in flight and the use of electronic, rather than cable, controls.

Small airplane builders, such as Beech Aircraft, Cessna, and Piper, also participated in the war effort. But due to their limited manufacturing facilities and lack of advanced engineering talent, they were relegated to building support aircraft and parts for other manufacturers. Employment in the industry peaked at 1.3 million people in 1943, as every manufacturer participated in some way in the war effort.

The war completely changed the aircraft industry. In addition to demonstrating the power and strategic importance of aerial combat, it established the parallel relationship between investment and technological development. The war allowed the perfection of strategic bombing tactics, carpet bombing, dogfighting, naval attack bombing and, in the last days of the war, atomic bombing. Wars that were previously fought with tanks and battleships were now waged from above. By the end of the war, work had begun on a new generation of aircraft: jets. Larry Bell's Bell Aircraft Company, Lockheed, and McDonnell were the first to experiment with jet power, having gained volumes of captured German jet airframe research.

While the military threat from Germany and Japan had been vanquished, a new adversary emerged in the form of the Soviet Union and became the focus of continued government investment in aviation. The development that began during World War II was scaled down but concentrated in new technologies, in long-range strategic bombers for delivering nuclear bombs to targets in the Soviet Union and speedy fighters to intercept similar threats from Soviet bombers.

Transition to a peacetime economy was considerably better managed than after World War I, due to the Contract Settlement Act of 1944. Still, the entire industry was forced to choose between commercial and military manufacturing. North American, Grumman, McDonnell, Northrop, and Vought chose to develop only military craft, while Douglas pursued commercial designs. Boeing, Martin, Lockheed, and Convair elected to develop commercial as well as military designs.

The most important postwar commercial entries were the four-engine Douglas DC-4, the Boeing 377 Stratocruiser, and the triple-finned Lockheed Constellation, designed by Howard Hughes for TWA. Having emerged from the war with tremendous manufacturing capacity and engineering talent, these three companies dominated the commercial aircraft industry. Competitors, including Curtiss, Martin, and Convair, were forced to exit the market in rapid succession, taking refuge in the more secure military businesses. Hughes Aircraft, famed for its massive Spruce Goose amphibian freighter, failed to break into the production market. After building a few experimental designs, it became the plaything of its owner, the millionaire Howard Hughes. Hughes Aircraft later retreated into the missile and aviation controls business.

Boeing and Lockheed also became leading defense suppliers after the war. Lockheed extended its lead in jet fighter designs during the Korean War with its F-94 interceptor and, later, F-104 Starfighter. Boeing developed a family of huge intercontinental bombers, including the B-57, B-50, and B-52. Meanwhile, Convair introduced its B-36, with six pusher propellers, and supersonic B-58 Hustler.

On the recommendations of the Finletter Air Policy Commission, the government made air power the crux of its military establishment. While tremendous competition existed for seemingly open-ended military contracts, manufacturers found new ways to commercialize military designs. Boeing was the first to develop an entirely new passenger aircraft with technologies gained from a jet bomber. Boeing requested permission to use government-funded technologies from its successful eight-engine B-52 to develop a new four-engine jetliner called the 707. Eager to prevent a European monopoly in passenger jets—DeHavilland had just introduced its sleek Comet—the government agreed.

Soon after the 707 flew in 1954, American Airlines, a good Douglas customer, announced plans to buy 30 of Boeing's new jets. Douglas, which had put off introduction of a jet in favor of its DC-6s and DC-7s, was forced to rush a similar design into production or risk following Curtiss and Martin into oblivion. Douglas emerged the following year with highly similar jet design called the DC-8. Ironically, United Air Lines, historically associated with Boeing, placed the first order for the DC-8. Boeing, however, had eclipsed Douglas as the premier American aircraft builder.

Two new jet designs emerged from Europe during the early 1960s, the Sud Aviation Caravelle and Hawker Siddeley Trident. These jetliners featured engines tucked onto the rear of the fuselage, rather than under the wings. At the request of Eastern Airlines, Boeing pursued a three-engine 727, delivered in 1964, while Douglas built a more economical two-engine DC-9, delivered in 1965. Boeing introduced a smaller twin-engine jetliner, the 737, in 1967.

Tremendous consolidation occurred in the aircraft industry during this period. Convair was acquired by General Dynamics in 1952. Martin, which had abandoned aircraft production during the 1950s to concentrate on missiles and aircraft parts, was acquired by the American Marietta Corporation in 1961. North American, a builder of Air Force fighters, was thrown into deep disarray in 1967 after a fire destroyed one of its Apollo space capsules, killing three astronauts. The company was taken over that year by the machinery manufacturer Rockwell Standard. Also that year, financial difficulties resulting from the DC-8 and DC-9 finally caught up with Douglas. Unable to keep up with the demand for its aircraft, Douglas neared bankruptcy. Eventually, McDonnell Aircraft, a manufacturer of fighter jets and space capsules, prevailed in its bid to acquire Douglas.

The 1960s was a decade of feverish development in military aviation, due to continued investments by the Defense Department in new technologies and academic programs and the creation of the National Aeronautics and Space Administration (NASA). Some of the major accomplishments of this period were in the development of supersonic and rocket-powered aircraft. North American built a six-engine, triple sonic delta wing bomber called the B-70. Obsolete before its first flight, this aircraft evolved into the B-1 Bomber a dozen years later. Lockheed marked two great achievements, with its ultra high-altitude U-2 and triplesonic SR-71 spy planes. Developed in 1964 at Lockheed's super-secret "skunk works," this aircraft remained as of the early 2000s the fastest jet ever to fly in the American arsenal.

After abandoning research on a revolutionary nuclear-powered bomber, General Dynamics' Convair group became involved in the development of a multi-use fighter/bomber called the F-111 and the F-16 fighter. During the 1960s, McDonnell, Douglas, Martin, Boeing, Grumman, and Convair became major participants in the space program. Other manufacturers were reduced to production of single-mission aircraft, such as Vought, with its A-7 Corsair, and Fairchild, with its A-10 Warthog. Northrop began work mainly as a subcontractor to McDonnell Douglas, building the F-18.

A postwar boom in private aviation greatly expanded the fortunes of small aircraft manufacturers such as Cessna, Beech, and Piper. General aviation accounted for 17,811 or 90 percent of all U.S. aircraft by 1978. A wave of personal injury law suits precipitated by one pilot's suit against Piper Aircraft severely set back general aviation aircraft manufacturers. Manufacture of the most popular single-engine propeller plane in the world was halted in 1986.

In 1969 aviation engineer Bill Lear introduced the first private jet, which Cessna and Beech later imitated. Fairchild and Beech Aircraft became active in the small airliner market, defined as nineteen seats or less. Fairchild, which built the Fokker 27 under contract, developed the Metro airliner. Beech introduced its King Air, followed some years later by its Model 1900. These craft were operated on small airline "feeder" routes.

In commercial circles, a new market was emerging for larger 300- to 400-passenger jumbo jets. Boeing and McDonnell Douglas, eager to maintain their passenger jet franchises, began the extremely costly development of their 747 and DC-10, respectively. Surprisingly, Lockheed re-entered the market after 20 years, building a three-engine jumbo called the L-1011 Tristar. Boeing was nearly ruined by its four-engine behemoth and at one point was forced to lay off two-thirds of its workforce. McDonnell Douglas fared little better, and Lockheed, mired in huge cost overruns from its massive C-5 Galaxy military cargo plane, required a federal loan guarantee to remain solvent.

The 747 and Tristar hit the market in 1970, and the DC-10 followed in 1971. These aircraft revolutionized air travel by offering airlines the capability to move as many as 400 passengers over distances of up to 5,000 miles. While sales of the DC-10 gained slowly, the 747 soon dominated the skies.

The Airline Deregulation Act, meanwhile, was signed in 1978. This legislation had a tremendous impact on airlines across the country, and plane manufacturers soon felt its repercussions as well. Major national carriers were unprepared for the newly competitive environment created by the act and found themselves with fleets of Boeing 707s and McDonnell Douglas DC-8s that, because of fuel costs, become prohibitively expensive. In the meantime, new regional carriers utilized fuel-efficient aircraft that fit their needs. The national trunks were forced to examine their fleet configurations and make significant new purchases. Even then, however, analysts charged that the carriers were sluggish in responding. In many cases orders for new aircraft were not made to Boeing or McDonnell Douglas or any other manufacturers until well into the 1980s. The backlog of orders subsequently reached all-time high levels, with waiting periods for delivery of new aircraft ranging as long as seven years by 1986.

Efforts to build a supersonic transport, or SST, were abandoned by Lockheed and Boeing in 1970 after the market evaporated and the government refused to cover skyrocketing development costs. A European consortium succeeded in building a jet capable of breaking the speed of sound, but the plane proved so costly to build and operate, and its sonic boom so disruptive, that flights were severely curtailed and the planes operated at a loss.

On the success of its F-4 Phantom in Vietnam, McDonnell Douglas developed a family of new military aircraft during the 1970s, including the F-15 Eagle and A-4 Skyhawk. Boeing developed its venerable 707 into tankers and powerful AWACs airborne radar platforms, while Lockheed built large new military cargo craft, such as the C-130 and the Galaxy. Northrop remained a strong player in the military market with aging entries, such as its F-5, and failed designs such as the export-intended F-20 Tigershark. Grumman did extremely well in the 1970s with its F-14 Tomcat and a smaller version of the AWACs, the E-2C Hawkeye.

The American military aircraft arsenal gained a huge boost in 1980. The industry, starved for investment since Vietnam, was the primary beneficiary of a massive armament program started by President Carter and trebled by President Reagan. Reagan resurrected Rockwell's $200 million B-1 bomber, canceled by Carter in 1977, and ordered development of a range of new radar-evading aircraft. Pentagon funding poured into these super secret "black projects." One of the beneficiaries was Lockheed, whose success with the SR-71 won it the right to develop the tiny diamond-shaped F-117 Stealth Fighter. Another was not revealed until 1988, when Northrop unveiled its sinister-looking B-2 Stealth Bomber. A flying wing, the B-2 represented the culmination of the late Jack Northrop's life-long dream. It also emerged, along with the B-1, as the replacement for the elderly but still devastating B-52 and the versatile F-111.

The flood of investment into military aircraft resulted in a series of scandals unrivaled since World War I. Several companies were investigated for vastly overcharging the Pentagon and misappropriating funds. In response, the government began shifting contracts away from offenders and forcing them to compete for business they had earlier taken for granted. In one of the few signs of growth, a consortium of Lockheed, Boeing, and General Dynamics was chosen to develop the Advanced Tactical Fighter. In a period of decline for the defense industry, the ATF was one of the few large military projects remaining.

Significant activity also occurred in the commercial airliner market during the 1980s. Boeing introduced several upgraded versions of its hugely profitable 747, and a new series of economical, large twin-engine aircraft, the 757 and wide-body 767. These aircraft finished off Lockheed's otherwise excellent L-1011 which, with three engines and a larger crew, was discontinued in 1981. Unable to design entirely new aircraft, McDonnell Douglas upgraded its DC-9 into the MD-80 series and offered a similarly improved DC-10, called the MD-11.

The late 1980s and early 1990s saw manufacturers seeking partnerships to develop commercial aircraft. McDonnell Douglas failed to establish a limited merger with Taiwan Aerospace in 1990 and was seeking a partner to share development costs of a new four-engine MD-12 jetliner. Boeing, meanwhile, investigated a partnership with Deutsche Airbus, the disaffected German member of Boeing's archrival, Airbus. Similarly, Boeing was seeking a partner for a planned 1,000-passenger super jumbo craft. Boeing eventually dropped this project due to the billions of dollars necessary to develop a new jet. Airbus remained committed to this questionable project.

The combination of the long-term impact of the hub concept, the increasing concerns of passengers, greater concern for reduced operating costs on the part of the airlines, and rapid technological developments especially in the area of Global Position Satellite (GPS) are affecting the industry. GPS navigational devices allow more direct flights from airport to airport. Historically, pilots relied on Omnidirectional Range VOR (VHF) transmitters that emitted a distinct radio signal for each degree of the 360 degrees from magnetic North. For tracking purposes, pilots routinely flew from one VOR at a fixed location to another via established routes, which at lower altitudes was not necessarily a straight line. Pilots using GPS navigational systems could fly in a straight line from airport to airport and even fly an instrument approach using GPS navigational systems (precise within 50 feet), thus reducing actual mileage necessitated by the fixed location of VORs. This change could reduce both travel time and fuel costs, especially for regional airlines. The growing number of regional jets had the potential for allowing for the return of more direct flights. Newer, more fuel-efficient planes with longer ranges, such as the Boeing 777, were also expected to impact the airlines.

Aircraft industry analysts expected that the 1990s would see a period of great change in aircraft manufacturing. For years the industry had been propelled by everincreasing military budgets and ever-increasing numbers of commercial airline passengers, but both of those stimuli changed in the 1990s. Government military expenditures peaked in 1987, when aircraft manufacturers supplied over 1,200 planes. In 1994, U.S. manufacturers shipped only 755 military aircraft or $7.9 billion in sales, approximately two-thirds the number shipped in 1987. By 1995 the number of military aircraft had dropped to 410 although the value had risen to $11 billion, generally reflecting budget cuts with corresponding reductions in employment by military aircraft manufacturers. During 1992, McDonnell Douglas, General Dynamics, Northrop, Lockheed, Rockwell, and Grumman cut over 29,000 jobs and were expected to cut another 20,000 jobs during the following two years. The increased competition for scarce military dollars was expected to reduce the number of military aircraft providers or possibly force industry consolidation.

In 1993, the Clinton administration took steps to protect the U.S. aerospace industry's long-held technological superiority, increasing NASA's research and development budget, maintaining the DOD's research and development budget, and creating the National Commission to Ensure a Strong, Competitive Airline Industry, which attempted to challenge the subsidies provided by European Community countries to their aircraft manufacturers. Such efforts were expected to maintain the technological superiority of the American aircraft manufacturing base even while the number of manufacturers shrunk.

Much of the ordering activity for new planes was from leasing companies. British Aerospace Asset Management's jet and turboprop divisions managed and leased more than 500 planes with $700 million in revenues. Another leader was GE Capital Aviation Services, which ordered 45 Airbus jet transports with options on another 45, with delivery beginning in 1997 and continuing at the rate of 15 to 20 per year until the order was complete. Leasing was the primary means by which the global air industry would acquire new aircraft between 1997 and 1999 and beyond.

While military aircraft manufacturers struggled to adjust to changing military budgets, commercial aircraft manufacturers had to adjust to declining demand for aircraft by major carriers, production overcapacity, and government-supported foreign competition in the first half of the 1990s. These challenges were made all the more pressing in 1991, when for the first time in history, the number of passengers riding on commercial airlines declined. This drop in air travel prompted many airlines to cancel or postpone orders for aircraft, leaving manufacturers with excess inventory. U.S. manufacturers shipped 408 large transport aircraft valued at $26 billion in 1993, down from their peak of 610 aircraft valued at $30 billion in 1992. Both Boeing and McDonnell Douglas had to reduce production and lay off nearly 10,000 employees each. Fortunately, by 1996 the industry had begun to recover.

Amid industry-wide recession and the so-called "peace dividend," manufacturers were adjusting to a changed marketplace in a number of ways. Most notable was a trend toward industry consolidation and cooperation. Many of the smaller manufacturers in the industry were eliminated by the recession, and those that survived had increasingly banded together to share the risk of developing new products. For both Boeing and McDonnell Douglas, this meant teaming with Asian manufacturers in order to better penetrate the rapidly expanding Asian market. Industry analysts believed that those manufacturers best able to form working partnerships would be the ones to succeed in the 1990s. In 1996 there were many mergers, primarily precipitated by the effects of deregulation and the decline in military contracts.

In April 1997, the new F-22 Raptor single seat fighter—a joint effort of Lockheed, Boeing, and Pratt Whitney (United Technology Corp.)—was unveiled and scheduled to make its debut flight in May 1997. At $70 million per unit, this fighter was designed to secure dominance over any adversary aircraft.

Both major U.S. aircraft manufacturers, Boeing and Airbus, were affected by the Asian crisis during the late 1990s. Although net orders for that period were up 9.7 percent year to year, it was a marked deceleration from the 139 percent gain in the second quarter of 1997 for commercial jet orders. About one-fifth of Boeing's and Airbus's back orders were from Asian airlines, and many such orders were being deferred or canceled. Despite the decline, Boeing forecast the production of 550 airplanes in 1998. Airbus's planned production was set at 230, up 182 units from 1997.

The competition between Boeing and Airbus also cut into industry profits. Boeing tried to maintain its 65 percent market share while Airbus attempted to gain a 50 percent market, which caused both manufacturers to cut sale prices by as much as 30 percent.

Another factor that played a part in the decline in sales was a decline in air travel, again affected by the Asian economic crisis. The International Air Transport Association (IATA), a Geneva-based international airline industry association, reduced its forecast of Asian air traffic growth from an annualized rate of 7.7 percent down to 3.7 percent from 1999 through 2004. The publication Economist deemed the 3.7 percent forecast as optimistic. Airbus predicted U.S. air traffic growth to slow to an annualized rate of 3.5 percent from 5 percent in the first decade of the new century.

British Airways, the first commercial airline to foresee the decline in the early 1990s, trimmed its capacity growth rate from 9 percent to less than 3 percent in late 1999.

Larger, longer-range jets were expected to be in greater demand because of increased air travel. However, Boeing and Airbus disagreed on the future needs of the industry. Boeing canceled plans to develop a larger capacity 747 jumbo jet, while Airbus continued to design a new super-jumbo jet with seating to accommodate from 500 to 1,000 people.

Along with growth, many airliners faced mandatory retirement due to the noise regulations set by the International Civil Aviation Organization (ICAO), a trade association with members consisting of most of the world's air transport regulatory authorities. A deadline of 2002 was agreed upon for all aircraft with a Stage Two designation to be retired. By the year 2000, the Federal Aviation Administration (FAA) had implemented the ruling that all aircraft flying over U.S. soil must meet the more stringent Stage Three limits. Most aircraft designated Stage Two were 15 to 20 years old and thus less efficient.

In 1999 there were about 3,600 Stage Two planes in operation throughout the world, 2,090 of them in the United States. Because of the costs and reduction in efficiency, it was expected that more than 50 percent of these Stage Two aircraft would be replaced rather than retrofitted with "hushkits" on their engines. Since the cargo market was expected to more than triple in the first 20 years of 2000, it was predicted that many of these old aircraft would be used for freight transport.

Current Conditions

By 2003, the aircraft industry was struggling in the wake of downturns in the air transportation market. The leading U.S. airlines lost more than $7 billion in 2001 and more than $3 billion through the first half of 2002. A number of factors, including a slack economy, a decline in travel following the attacks of September 11, and heightened competition from discount airlines, contributed to the air transportation sector's woes. In December of 2002, United Airlines—which accounted for some 20 percent of U.S. flights—filed for bankruptcy after losing $4 billion over two years and laying off some 20,000 employees.

In February 2003, Aerospace Industries Association (AIA) president and CEO John W. Douglass commented on what this meant for the aircraft industry, explaining: "The effects of the downturn in airline activity since 9/11 have rippled through the aviation manufacturing base of the United States, resulting in lower deliveries of aircraft and related equipment. At the same time, the downturn has masked long-term system capacity problems that will re-emerge as the airlines return to long-term growth." As proof of the industry's challenging climate, Boeing saw its net income fell almost 83 percent in 2002, along with a workforce reduction of nearly 12 percent.

In November of 2002, the Commission on the Future of the U.S. Aerospace Industry issued a 300-page report to Congress that included nine recommendations that "intended to catalyze action from leaders in government, industry, labor and academia and assure this industry's continued prominence," according to Robert W. Walker, the commission's chairman. A news release issued by the commission dubbed its evaluation "the first-ever comprehensive examination of America's aerospace and aviation industries—including assessment of air transportation, civil and military equipment manufacturing, and the outlook for expansion in space endeavors." In early 2003, the AIA issued a list of what it considered to be the most pressing issues for the larger aerospace industry, including aircraft. Heading the list was the implementation of the commission's recommendations.

U.S. manufacturers shipped about 4,088 units of complete civilian aircraft (fixed wing, powered craft; helicopters; and non-powered types of civil aircraft) in 2002, valued at approximately $34.7 billion. In terms of unit shipments, this figure represented a decrease from 2001, when the industry shipped 4,541 units valued at 41.8 billion, and from 2000 when shipments numbered 5,162 civil aircraft valued at $38.6 billion.

The AIA forecast that shipments of complete civil aircraft would total 2,751 in 2003, with an estimated value of about $25 billion. Some 275 airliners were expected to account for the majority of this total ($18 billion). According to Standard & Poor's Industry Surveys , Avitas, Inc. expected aircraft orders to fall from an estimated 816 in 2001 to 561 in 2002, after which levels would steadily improve, reaching a forecasted 973 by 2005. During the same timeframe, Avitas expected aircraft deliveries to fall from an estimated 1,148 in 2001 to 941 in 2002 and 707 in 2003. After 2003, deliveries were expected to improve slowly through 2005, when levels were forecasted to reach 829.

Industry Leaders

The Boeing Company acquired the defense and space units of Rockwell International in 1996 and merged with McDonnell Douglas in 1997, making Boeing the world's largest manufacturer of commercial jetliners, military aircraft, and NASA's leading contractor. The company employed more than 200,000 people in 1999 in more than 60 countries worldwide. However, by 2002 it had reduced its workforce to 166,000. Company revenues were $54.1 billion in 2002. That year, Boeing saw its net income fall nearly 83 percent. During the late 1990s, production problems plagued Boeing and resulted in lost orders for aircraft from large companies such as British Airways, United Parcel Service, and Boulhoun Aviation Services to Airbus Industries. This drop cost Boeing millions of dollars and threatened its standing as the number one manufacturer.

Because of Boeing's production problems, Airbus S.A.S. was able to move ahead of Boeing in orders in 2001 and 2002. According to Air Transport World , Airbus reported net orders of 233 planes in 2002, compared to Boeing's 176. However, Boeing was still the market leader in deliveries, with 56 percent. Airbus began as a five-nation European consortium named Airbus Industrie. It was conceived as a European answer to America's domination of the large commercial transport market. By the early 2000s Airbus was restructured into a corporation named Airbus S.A.S. The company's majority shareholder (80 percent) is the European Aeronautic Defense & Space Co. BAE SYSTEMS of the United Kingdom holds the remaining 20 percent interest. The company's main aircraft assembly plant is located in France. Subsidiary Airbus of North America, Inc., is located in Herndon, Virginia.

Lockheed Martin, the leading U.S. defense contractor during the early 2000s, reported 2002 sales of $26.6 billion, up nearly 11 percent from 2001. Based in Bethesda, Maryland, the company employed about 125,000 workers.

Northrop Grumman Corp., based in Los Angeles, California, employed 96,800 people in 2001. The company is responsible for the design, development, and manufacture of aircraft (including the Stealth Bomber), aircraft sub-assemblies, and electronic systems for the military. In addition to building ships, the company also designs, develops, operates, and supports computer systems. Sales totaled $17.2 billion in 2002. That year, Northrop Grumman saw its net income fall 85 percent, reaching $64 million.

Montreal-based Bombardier ranks third among the world's aircraft manufacturers, behind Boeing and Airbus. Bombardier fought and won a World Trade lawsuit against Brazilian Embraer, a rival company, because Embraer was benefiting from government subsidies allowing them to sell planes abroad at artificially low prices. The company also manufactures railroad cars and recreational vehicles. In 2002, Bombardier employed an estimated 10,800 workers and reported sales of $13.6 billion.

Helicopter manufacturer Eurocopter S.A. has four plants, two in France and two in Germany, and many offices worldwide. Eurocopter employs a workforce of 10,822 people producing 57 percent of the civil market and 25 percent of the military market. Eurocopter reported revenues of $2.6 billion in 2002.

Workforce

Total aircraft industry employment was 184,698 in 2000, including 88,200 production workers. This represented a decline from 202,491 workers (including 97,742 production workers) in 1997. In 2000, the average production worker's wage was $23.86 per hour, up from roughly $21.31 per hour in 1997. By 2002 the larger aerospace industry was suffering its largest downturn in 50 years, and leading aircraft manufacturers were reducing their employee counts.

Further Reading

"Airbus Claims 57 Percent Share of 2002 Orders." Air Transport World, February 2003.

Aerospace Industries Association. "Aerospace Employment Hits 50-Year Low." 4 March 2003. Available from http://www.aia-aerospace.org .

——. "AIA Releases Top Ten Issues for 2003." 26 February 2003. Available from http://www.aia-aerospace.org .

——. "Year-End Review and Forecast." 7 March 2003. Available from http://www.aia-aerospace.org .

The Boeing Company. "Company History." 19 November 1999. Available from http://www.boeing.com .

Byrne, Harlan S. "Gaining Altitude." Barron's 1999, 3 May 1999.

Carpenter, Dave. "United Airlines Files for Bankruptcy." Associated Press. 9 December 2002.

Commission on the Future of the U.S. Aerospace Industry. "Commission on Aerospace Delivers Final Report and Findings to President Bush and Congressional Leaders Concerning Air Transportation, Homeland Defense, and Space Sector Health." 18 November 2002. Available from http://www.aerospacecommission.gov .

InterPlane. "Airline Fleet Management News." 19 November 1999. Available from http://www.inter-plane.com .

Lockheed Martin Corporation. "Company History." 19 November 1999. Available from http://www.lockheedmartin.com .

Napier, David H. "2002 Year-End Review and 2003 Forecast—An Analysis. Aerospace Research Center. 7 March 2003. Available from http://www.aia-aerospace.org .

Northrop Grumman. "Company Statistics." 19 November 1999. Available from http://www.biz.yahoo.com .

Nundy, Julian. "Orders for Airplanes Dive Mainly Because of Asia." USA Today, 14 June 1999.

Standard & Poor's Industry Surveys: Aerospace & Defense. New York: Standard & Poor's Corporation, 31 October 2002.

U.S. Census Bureau. U.S. Department of Commerce, Economics and Statistics Administration. Annual Survey of Manufacturers, February 2002. Available from http://www.census.gov .

——. "Civil Aircraft and Aircraft Engines: 2001." Current Industrial Reports, September 2002. Available from http://www.census.gov .

——. "Civil Aircraft and Aircraft Engines: December 2002.". Current Industrial Reports, February 2003. Available from http://www.census.gov .

Zuckerman, Lawrence. "An Order for Airbus Hits Its Rival, Boeing, Close to Home." New York Times, 7 January 1999.



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