Evolution of Electronics in the Civil Aeronautics Market
The share of electronics in civil aircraft is rightly perceived as growing but is often overestimated in literature. The feeling that electronics are ubiquitous in the management of aeronautical systems may explain this mistake. Besides, if some electronic functions are relatively easy to identify like communications, radars, flight management systems or In-Flight Entertainment (IFE), others are less visible for example, those controlling certain traditional mechanical functions such as brakes, landing gear, flight controls, etc. Moreover, even if Electronic Control Units (ECUs) are clearly identifiable electronic sub-systems, other electronic equipment is disseminated in electronic systems (e.g. electronic equipment related to sensors and actuators). A trend reinforced with the arrival of a more electrical generation of aircraft like the Boeing 787 Dreamliner and the Airbus A350.
For 2013, we estimate the production of electronic equipment dedicated to aeronautics to represent a 9.7 billion euro market at the world level. This market should grow at 8.1% per year until 2017. An excellent performance compared with the 3.2% of growth of the total world electronic production.
There are two main factors explaining this trend:
- A robust demand for air travel, which pushes airlines to order more aircraft. Consequently deliveries are forecast to hit new records every year to satisfy the market;
- The arrival of the “more electric aircraft” (i.e. a new generation of aircraft incorporating more electronics and more electrical systems) which boosts the demand for electronic systems.
The Electronic Original Equipment Market Follows the Pace Set by Assembly Lines of Aircraft Manufacturers
In 2013, Airbus and Boeing hit a new record by delivering 1,274 aircraft (compared to 1,189 in 2012) with respective deliveries of 626 and 648 aircraft, 2013 was also an important milestone for the aeronautics industry as it broke a new record with 2,858 net orders. At the end of 2013, Airbus’ and Boeing’s combined backlog amounted to 10,360 aircraft i.e. eight years of production!
If we focus on the most dynamic market, which is the single-aisle one, Airbus delivered 493 jets (A320 range) compared to 440 B737 in 2013.
We estimate that Airbus will remain ahead until 2017, in terms of delivery due to a higher backlog of orders. In late 2013, Airbus had 4,230 aircraft of the A320 family to deliver compared to 3,570 B737. If Airbus increased its advance in 2013 by producing 493 A320 against 440 B737, the gap between the two manufacturers in this segment could narrow by the end of the period as Boeing announced it would ramp up its production to 42 per month in Q1 2014. This production level is equivalent to Airbus A320 assembly lines that have been capable of crafting 42 jets per month since Q4 2012.
Such production rates are planned to remain steady until 2017 when Boeing plans to step up its pace of production to 47. If Airbus made no announcement of such an increase, we have taken into account in our scenario that Airbus should follow its U.S. competitor.
Based on the two manufacturers production ramp up programs and our assumptions, we estimate Airbus and Boeing could deliver up to 1,130 narrow-bodies in 2017. Compared to 870 in 2012, it set the average annual growth to 5.3% till 2017.
Another trend that shall impact the end of the period is the entry into commercial operation of the modernized versions of the A320 and the B737. Respectively named A320 NEO for New Engine Option and B737 MAX, these new variants will need some redesign work (landing gear, wings, etc) and will be equipped with new engines to fulfill plane makers’ promises of 15% less fuel-consumption than for the previous generation. These new derivatives allow Airbus and Boeing to delay the launch of the successors of their most successful products (especially in terms of margins as these programs are paid off since several years) that should embed breakthrough technologies like open-rotors, new fuselage design, etc.
Unveiled in early 2011, the NEO range with 2,600 firm orders already account for more than half of the A320 backlog of orders. Becoming the most successful commercial aircraft launch in history, this situation forced Boeing to react and to unveil the B737 MAX eight months later. With 1,760 firm orders, Boeing can also claim success. The A320 NEO first deliveries are planned for October 2015 and in 2017 for the American B737 MAX. Quite interestingly, Airbus A320 (including the NEO) has encountered a true success in Asia as with 912 orders for A320, against 255 for the B737, Airbus holds for the moment 78% of the single-aisle market in Asia, which itself represents the largest piece of the aircraft market.
In terms of deliveries, in 2013, Airbus delivered 133 aircraft to Chinese customers, i.e. 20% of Airbus’ total production. A success explained by the installation of an assembly line in Tianjin (China) in 2008, which is perceived as a true advantage compared to Boeing which still continues to manufacture exclusively in the U.S. Since the opening of the Tianjin site, Airbus market share in China doubled from 25% to 50% in 2013. With 160 A320 produced out of 1,000 delivered to Chinese companies, this sales argument also boosts production of the assembly lines in Europe.
In addition to preserve their margins, the NEO and the MAX are also excellent arms to prevent emerging competitors like Bombardier with its Cseries or Sukhoi with its Superjets to tap this lucrative market and therefore to preserve their market shares.
In terms of electronics, we estimate at almost 7% of the discounted price of the aircraft, the share of embedded electronics into an A320/B737. Taking into account the aftermarket activity and driven by growth deliveries, the production of electronics dedicated to the single-aisle market went up 10% in 2012 to reach 3.6 billion euros. In 2017, this production should achieve 4.9 billion euros.
With around 7.6 billion euros in 2012, Airbus and Boeing aircraft accounted for 80% of electronic civil airborne systems.
The Arrival of the “More Electric Aircraft”
The value of electronic equipment fitted into aircraft will increase dramatically with the arrival of the generation of “more electric aircraft” (MEA) such as the B787 Dreamliner and the A350. This name defines new generation aircraft incorporating new electric and electronic technologies/equipment designed to improve the reliability and the security of the aircraft as well as reducing operational costs. One of the main developments introduced by the MEA is the replacement of mechanical (hydraulic and pneumatic) actuators by electrically-driven actuators. The amount of “hidden” electronics that already accounts for a third of the entire electronic content of aircraft will increase in the future and the management of high levels of electrical power entails the use of more and more power electronics.
If we take the case of the A320 and B737 (single-aisle aircraft which represent more than 75% of jet deliveries), which were originally designed several decades ago, the share of electronics per aircraft is around 6% of the price of an aircraft. For the new generation of aircraft designed in the 2000s like the B787 or the A350), the share of on board electronics is around 11% of the price. On this basis, there is about three million euros of on-board electronics on an A320 or a B737, whereas the figure for the B787 reached 12 million euros (i.e. more than four times more!).
The entry into commercial operation in late 2011 of the B787 had an immediate impact on the electronic equipment market dedicated to aeronautic. Deliveries boomed in 2012 from three to 46 aircraft and in spite of numerous technical problems, production continued to rise in 2013 to 65 Dreamliners. In 2014, deliveries are planned to continue to rise sharply from 65 to 115 B787 and during the last quarter, the first A350 should enter into service. While B787 deliveries should slow down in 2015, the arrival of its European competitor will sustain growth.
As concerns electronics, combined production dedicated to these two aircraft skyrocketed in 2012 to reach 732 million euros. We forecast it should overtake the embedded electronics production for the old generation of wide-bodies in 2014 and almost equal the output level for narrow-bodies by 2017.