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Germany ASD Industry

The German ASD industry shows positive growth since 2012, with the presence of a global aircraft OEM in its ecosystem a major driver

German ASD industry overview

 

2012-17 CAGR

The German ASD industry grew by 9,9%/ year, reflecting an increase of 0,4 pp in % GDP (2012-17)

 

GermanASD revenues[€bn, 2012-17]

 

  • The Aeronautics sector represents 73%of total ASD industry revenues. In contrast, the low weight of Defense revenues show that it is not a sector of focus in the German market
  • In 2017, the ASD industry spent more than 10% of its revenues in R&D (4 billion €), and the number of employees rose 30% since in 2007
Increasing aircraft backlog and defense spending are the main drivers for continuing growth

 

Aeronautics

  • The supply chain, with a growth of8,5% on 2014-15, is leading the ramp-up of civil aircraft sector, as SMEs are winning contracts with non-EU aircraft manufacturers (e.g., Boeing)
  • Besides the 35k new aircrafts forecasted for the next 20 years, German market demandis expected to grow due to the need to replace 15k units in the next years

Space

  • Increasing focus in the Space sector led by launching the Europe’s Galileo navigation system with in Germany’s currently support in the production of 12 new satellites for the 2020
  • Expected Tier 1 Space suppliers being fully responsible for complete modules instead of OEMs by 2020 due to market consolidation

Defense

  • The Defense budget has increased and is expected to grow at a 5% CAGR (2018-22) due to military-IT networks, frigates, and transport aircraft government investments
  • Forecasting €60bn in Defense funding by 2024, also due to Germany’s role as a NATO’s framework nation in its Very High Readiness Joint Task Force

Sources: USA Government, AeroDynamic Advisor, Mergent, BDLI, ITA, Federal Ministry for Economic Affairs and Energy, GTAI, Airbus, EY analysis

 

Germany is mostly an Aeronautics-focused market, with residual weight of the Defense sector

German ASD industry: market breakdown by destination, sector and value chain segment

 

In 2017, the Aeronautics sector represented 73% of the total ASD German market revenues

 

German ASD revenues breakdown by sector [%, 2017]

 

  • The Aeronautics sector represents 73%of total ASD industry revenues. In contrast, the low weight of Defense revenues show that it is not a sector of focus in the German market
  • In 2017, the ASD industry spent more than 10% of its revenues in R&D (4 billion €), and the number of employees rose 30% since in 2007
Only 12% of German ASD players supply exclusively the ASD industry, which shows a low level of specialization on the supply chain

 

Distribution of German ASD players portfolio [%, 2017]

 

  • Due to ASD being considered a niche industry in Germany, most players opt to diversify, mostly for the machine building and automotive sectors
  • Almost half of the German market is composed by Tier 2 and Tier 3 players, but the trend is for market consolidation on these segments

Sources: BDLI, ASD, EY analysis

The German aerospace industry has a best-in-class R&D ecosystem and high niche specialization

Germany ASD industry: SWOT

Internal Factors

Strengths

  • Strongly interlinked R&D environmentbetween universities, research institutions and industry
  • European leader in aircraft cabin interiors capabilities
  • Extensive and wide-ranging aeronautics ecosystemincludes airport management (e.g., Hamburg Airport)
  • Large, diversified and competitive domestic market
  • European leader in developing lean and efficient manufacturing techniques and processes
  • Innovation capabilities (e.g., technology, funding, processes)

Weaknesses

  • Labour shortage of skilled workers in the fields of technology, research and services
  • High fragmentation level: more than three quarters of aerospace players are SMEs
  • Decreasing demand from the national defense sector
  • Macroeconomic stability behind lowest interest rates in Europe
  • Growing public budget constraints reduce R&D in the defence sector
  • Low ability to form risk-sharing partnerships
External Factors

Opportunities

  • Large and highly developed aviation sector
  • Brexit poses an opportunity if Airbus UK decides to move part of the wings production supply chain to Germany
  • OEMs and Tier 1 players reducing vertical integration and shifting responsibilities into the downstream supply chain
  • Recent increase in the number of Tier 2 and reduction of Tier 3 suppliers shows movement into the upstream supply chain
  • Know how transfer through diversification (e.g., automotive)

Threats

  • Heavy dependence on importing goods from US-based aerospace industry
  • Heavy dependence on a single OEM and a few Tier 1 suppliers poses a significant exposure to risk by SMEs
  • SMEs lacking scale and internationalization capabilities lose competitive advantage versus players from emerging markets

Sources: Ecorys, Marketline, BDLI, Niedersachsen Aviation, EY analysis

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