Trends and Challenges in Aerospace Offsets (1999) / Chapter Skim
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The Effects of Offsets, Outsourcing, and Foreign Competition on Output and Employment in the U.S. Aerospace Industry
The Effects of Offsets, Outsourcing, and Foreign Competition on Output and Employment in the U.S. Aerospace Industry
Pages 133-157
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From page 133... ...
aerospace industry since 1989 for a variety of reasons, including sharp reductions in public spending for defense goods and space exploration; rising imports of aircraft, engines, and components; and increasing productivity and structural changes in the defense and commercial aerospace industries, including numerous mergers and consolidations. Furthermore, industry representatives argue that, in the absence of offsets, foreign sales of commercial and defense aerospace equipment would decline or disappear, raising questions about the appropriate counterfactual exercise that should be used to analyze the effects of offsets and related issues on total industry employment.)
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Data reviewed below suggest that one reason that employment levels remained higher in Europe was the growing share of Airbus Industrie in commercial aircraft markets. 2The EC uses a narrower definition of the aerospace industry than does the Aerospace Industries Association of America, as shown in Table 2.
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Of the five major subsectors of the aerospace industry, shown in the last five columns of Table 3, civil aircraft sales were responsible for the greatest majority of the industry's $23 billion expected increase in real sales
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138 Cq o .0 .e ·_4 Cq so Ct o oo Cq o C)
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, but productivity and related factors played a more significant role after 1995.3 Productivity growth, broadly defined as output per worker, also eliminated significant amounts of aerospace employment in this period. The unexplained employment changes (those due to forces other than increased imports and demand changes)
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For example, increased foreign competition may explain a significant portion of the observed productivity increase. In addition, the loss of foreign market shares also explains part of the decline in total sales.
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The market share of Airbus and other European aircraft producers began to rise sharply, especially after 1992, in all significant markets. In the United States their share attained a peak of 30 percent in 1994 and has declined since.
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, while controlling approximately one-third of the total world market for commercial aircraft sales. In 1995, 22 percent of European commercial aircraft sales were in their home market (European Commission, 1997:32~.
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builds vertical fins and horizontal stabilizers for the Boeing 737, trailing edge ribs for the 747, and forward access doors for the 737. · Xian also builds access doors for the Airbus A300, A310, A330, and A340 and carbon fiber fin ribs for the A320.
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It would be highly preferable if industry were to report domestic value added, rather than total sales. 5The exception to this rule would occur at later stages in the product life cycle when a foreign competitor begins to assemble finished aircraft.
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were, on average, 71 percent of total aerospace imports.6 Figure 4 shows that U.S. engines and parts imports represent a growing share of total aircraft sales.7 This share rises from about 8 percent in 1981 to over 19 percent in 1997.
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_ 147 14 12 1n 6 4 / 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1981 1983 1985 1987 1989 1991 1993 1995 1997 Year FIGURE 4 U.S. engines and parts imports as a growing share of total aircraft sales.
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The higher level of variability in parts employment suggests that employment in parts production is more heavily affected by the business cycle than is employment in the airframe sector. The secondary or sub-tier supplier base therefore appears to absorb a disproportionate share of the job losses that occur during downturns, once we control for the long-run shift of employment out of engines and airframes, as discussed above.
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and AIAA (1996, 1997~. Jobs at Risk in the Future In this section, employment effects of growing foreign competition, and also foreign outsourcing and other practices that encourage U.S.
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aerospace employment are considered. The foundations for my estimate of the number of jobs at risk in the future because offsets increase foreign competition are (1)
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Market Share Average Annual Lost Revenue 1994-1998 2.1 10.7 23,933 13,692 10,241 1999-2003 4.2 31.8 47,194 26,999 20,195 2004-2008 7.3 68.4 81,863 46,833 35,031 2009-2013 12.0 128.6 134,650 77,031 57,619 Total Jobs at Risk Due to Increased Foreign Competition 1994-1998 3.7 14.7 41,796 23,911 17,885 1999-2003 7.8 49.6 86,692 49,595 37,097 2004-2008 12.7 109.5 142,249 81,378 60,871 2009-2013 19.2 202.1 215,202 123,114 92,089 SOURCE: Economic Policy Institute analysis of DRI/McGraw-Hill (1994: 9-11) and Boeing Company (1994:Appendix C)
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of the base year, 22,596 aerospace jobs will have been eliminated by outsourcing, plus an additional 16,902 indirect jobs in industries that provide inputs to the aerospace industry, for a total loss of 39,498 jobs. Within two decades, offsets and other forms of foreign outsourcing could eliminate 46,083 aerospace jobs and 34,470 jobs in other industries for a total loss of 60,553 jobs.
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Both productivity growth and increased foreign competition will put substantial downward pressure on employment. Despite the strong upsurge in aerospace exports and revenues between 1995 and 1997, based on data in Table 3, aircraft sales and industry revenues remained 18 and 22% below their previous cyclical peaks (in constant 1987 dollars)
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as a competitive location for aerospace production, and the falling market shares of U.S.-based aircraft integrators. Expected future job losses in the aerospace industry can only be avoided or reduced through sharp improvements in the competitiveness of the U.S., and of aerospace firms based in this country.
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Foreign competition is now the most important future threat to domestic aircraft demand, as shown above. Rising imports of engines, parts, and components, in particular, are the result of offset deals that Boeing and McDonnell Douglas have made with foreign governments to trade aircraft sales for production and technology transfer.
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If the United States acts quickly, it can retain and rebuild a strong aerospace industry for the twenty-first century and the highwage, high-skills jobs that go with it. REFERENCES AIAA (Aerospace Industries Association of America, Inc.)
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1997. Strategies for success in the commercial aircraft market.
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