France ASD Industry

The French industry is highly focused on the Defense sector, with the country being the only self-sufficient Defense market in Europe

French ASD industry overview

2012-17 CAGR

The French ASD industry grew by 8,2%/ year, reflecting an increase of 0,8 pp in % GDP (2012-17)

French ASD consolidated revenues [€bn, 2012-17]

The ASD industry weight in the countries’ GDP has been increasing, largely due to growth in Defense and Aeronautics
However, the percentage of R&D investment over total industry revenues is decreasing, which may result in future loss of competitiveness

Increasing air traffic and pressure from NATO to meet the 2% GDP target are the main drivers for continuing growth

Aeronautics

France increasing vertical specialization in Aeronautics has already led the sector to have a 130% higher weight in total exports than the average (1) of peer markets
The sector has benefited from strong growth in air traffic, resulting in higher sales of civilian aircrafts and airlines’ maintenance

Space

The Space industry has been growing steadily, also leveraging the integration of Ariane 6 (a Spacecraft launcher) in the Airbus Safran Launchers supply chain
Positive outlook with more contracts to develop satellites parts with EU markets (e.g., multi-million Airbus deal with Eutelsat in 2018)

Defense

Expected growth in Defense expenditures with NATO’s 2,0% GDP target is leading to an increase manufacturing capacity and military personnel
With €4,1bn military sales in 2017, France plans to invest €1bn per year in R&D until 2022 as part of government’s drive to encourage innovation

Note: (1) Comparative analysis between France, US, United Kingdom, German, Canada, and Italy
Sources: Ministry of France and Foreign Affairs, Statista, AIN Online, Safran, Oliver Wyman, Mergent, GIFAS, EY analysis

Tier 1 players key system exports, while lower Tiers focus on supplying the domestic market

French ASD industry: market breakdown

More than half of total ASD revenues come from Tier 1 companies, which reflects a market focused on high value-added activities

French ASD sales breakdown by value chain segment, destination market and employment [€bn, %, 2017]

Over 80% of Tier 1 players manufacturing products is exported, which reveals potential for supply chain improvement in this segment
Tiers 2 and 3 focus in domestic market since most of its activities feed the local demand of OEMs and Tier 1 players

The French ASD industry is mostly focused on exports, despite strong domestic demand

French ASD market mix as % of consolidated revenues [%, 2017]

In 2017, French exports accounted for the greatest proportion of unconsolidated revenues (69,1%) mainly due to increasing aircraft orders
More than half of French ASD exports are for European and North American markets

Sources: GIFAS, EY analysis

The French aerospace industry is particularly strong in ecosystem cooperation and end-to-end manufacturing capabilities

France ASD industry: SWOT

Internal Factors

Strengths

Ecosystem characterized by high levels of cooperation, particularly in R&D activities: coordinated approach by CORAC (1), virtually all stakeholders are members of GIFAS (2)
World-leading anchor companiesacross value chain segments (e.g., Airbus, Thales)
Best-in-class Aerospace cluster supporting the local industry
High collaboration between prime contractors and their suppliers allows for enhanced innovation potential
End-to-end manufacturing and integration capabilities

Weaknesses

Military segment facing cuts in defense budget(e.g., fighter planes) under the Military Programming Law
Labour shortage of qualified technical manual workers
High government influence in privately-owned players (4):Government frequently resorts to public subsidies and procurement procedures
Heavy local taxation schemes limit profitability of domestic players and reduces global competitiveness
Limited local demand and high dependence on exports

External Factors

Opportunities

BoostAerospace platform, focusingon improving collaboration across the supply chain
High order backlog will continue to drive demand from OEM and Tier 1 players
Large orders and heterogeneous customer base absorb the cyclical effects
Rising demand for commercial aircraft from Asia among worsening US-Asia trade relations

Threats

Aircraft OEMs moving into the MRO segment due to LCCs (3)closing down for financial reasons or leasing contacts
Increasing competition from emerging countries with lower labour costs for MRO and lower-tier subcontracting (e.g., Brazil, China, India)
Airbus looking to insource production of some systems (e.g., nacelle) to increase aircraft performance
Protectionist measures and developing domestic industries in emerging countries(e.g., Russia, China)

Notes: (1) French civil aviation research council; (2) French aerospace industries association; (3) low-cost carriers; (4) French government holds “golden shares” in Airbus
Sources: Ecorys, Marketline, Mordor Intelligence, EY analysis

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