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Euler Hermes Economic Outlook no. 6 | 2011 - Global Sectors Review Global risk B Automotive components A winner from the crisis Overview: benefits from globalisation Faced with the divergent development of certain regional automotive markets, the presence of the major component manufacturers on all markets allowed them over 2010 to regain their pre-crisis levels of activity. This global presence also improves their bargaining power with their clients. Lastly, their technological advances, resulting from their high level of research and development activities, especially in environmental matters, strengthens their position in the value chain and allows them to realise good profitability levels. Current situation: good financial performances After an almost 50% collapse in activity in late 2008 and early 2009, component manufacturers had no choice but to adapt their productive apparatus in order to survive one of the worst crises ever suffered by the sector. Those that stood up to the crisis emerged stronger and bigger, and took advantage of the recovery in volumes. They thus achieved levels of profitability rarely seen in the last decade. This positive trend was confirmed in H1 2011 for global operators. Indeed, after the Chinese boom of 2009 and 2010, this market is now in a phase of stabilisation. Component manufacturers now have to look elsewhere for growth: in India, in Russia, and also in North and South America. After posting operating margins of around 3% in recent years, profitability is now averaging 5% to 6% of turnover. Their improved financial performance allows them in turn to further increase their R&D investment in clean technologies, further strengthening their bargaining power. The crisis may possibly have turned the tables, with the truly global players in the automotive sector being the major component manufacturers, and they could well become the sector’s strongest players. Outlook: further strengthening R&D to become key players Environmental constraints, with the cuts imposed on CO 2 emissions, and ever increasing oil bills create new challenges: cutting vehicle weights, reducing engine capacities and reducing tyre drag. And there are other challenges: developing new micro-hybrid technology (cutting power to the engine when a vehicle has stopped), hybrid technology (thermal and electric motor combinations), all-electric systems, and other propulsion methods. At present, there are many projects underway, at various stages of advancement. Component suppliers clearly have a part to play in technological advances, and constructors are prepared to pay dearly to achieve CO 2 emission cuts of just a few grams. While the challenges are many, the outlook for the major global component suppliers is good, in terms of both volume and of profitability. _YL Major world auto component companies Rank Company Nationality Turnover 2010 Change USD billions 2010/2009 1 Bosch Germany 62.9 24% 2 Johnson Controls (1) USA 34.3 20% 3 Denso (*) Japan 35.7 5% 4 Aisin Seiki Japan 25.7 10% 5 Magna Canada 25.0 27% 6 Mobis South Korea 19.2 29% 7 Faurecia France 18.3 48% 8 TRW USA 14.4 23% 9 Delphi (2) USA 13.8 ns 10 Valéo France 12.8 28% (*) Figures for the Japanese groups are for the half year to the end of September 2010 (1) For Johnson Controls, figures are for annual accounts to the end of September 2010 (2) Non-compararable; Delphi came out of Chapter 11 on October 6, 2009 Source: companies New car registrations by region, personal vehicles 12 mos. to 31 May 12 mos. to 31 May Change Market 2011 2010 2010/2009 Europe-30 13,721,466 14,619,924 -6.1% Russia 2,272,947 1,436,305 58.2% USA 12,542,070 10,913,827 14.9% Source: OICA 12
Economic Outlook no. 6 | 2011 - Global Sectors Review Euler Hermes Global risk Aeronautics B Upwinds Overview: internationalisation underway Alongside constructors from the major manufacturing zones, the US ($48.2bn in 2010) and Europe ($33.4bn in France, $21.4bn in Germany, etc), players from Canada ($22.4bn in 2009), Japan ($6.2bn in 2009) and Brazil ($5.5bn) are positioning themselves to gain increased shares in the world civil aviation market, with also Russian and Chinese constructors now offering credible alternatives. Current situation: very different flight paths… In the business aircraft market, down by 20% in Q1 2011, an improvement will come with a more rapid absorption of stocks of used aircraft (by 2012). The market for regional aircraft remains also limited, after two years of contraction (from 218 deliveries in 2008 to 141 in 2010). A number of factors – stiffer competition (in the form of China’s ARJ-21, Japan’s MRJ and Russia’s SuperJet), the attractiveness of turboprop engines for 50-70 seat aircraft and the greater interest among airlines for larger capacity aircraft – are all encouraging the industry leaders in this sector, Bombardier and Embraer, to continue redefining their own strategies. For commercial aircraft, however, this is a time of great optimism: the conclusion of the International Paris Air Show saw orders totalling $72 bn for Airbus, $22 bn for Boeing and a revival in sales of the C-Series from Canada. But alongside this good outlook on activity for 2011, profitability, while admittedly positive, is being negatively impacted by the problems affecting certain programmes: in the case of Boeing, its B787 (an undeniable commercial success, but offset by very considerable and therefore costly delays), and, for Airbus , the problems surrounding both its A350 (R&D investments, and a six-month slippage from its original schedule) and its A380 (which will only turn profitable in 2014-2015). Outlook: awaiting answers With a steady increase in the pace of deliveries up into 2014, and, at the end, the start of production of new models, the single-aisle segment will remain the spearhead of the world aeronautics industry (70% of deliveries over 20 years, totalling around $2 trillion). Besides the growing needs of Asian airlines and low cost carriers (with a record purchase in June of 200 aircraft by Malaysian carrier AirAsia, totalling $18.2 billion), the coming updating of European and US fleets will keep the market active. The continued vitality of leasing companies may prove crucial for financing these operations. Boeing, for its part, is no doubt mindful of the successes of Airbus’s A320neo (with already more than 1,000 orders) and of the expanding competition in the market (e.g., the agreement between Comac in China and Bombardier in Canada, a herald of future collaborative operations between constructors). Boeing is expected to soon clarify its position on this very important segment. Will it re-engine its B737 or design its successor? _BG Civil aviation: major world aeronautics constructors and component manufacturers Rank Company Nationality Turnover 2010 Change USD billions 2010/2009 1 Airbus Commercial Netherlands 36.7 -0.1% 2 Boeing Comm. Airplanes USA 31.8 -6.5% 3 Bombardier Aerospace Canada 8.6 -8.5% 4 Embraer Brazil 5.4 -2.0% 5 Gulfstream (*) USA 3.9 -0.6% 6 Dassault Aviation (**) France 3.2 32.2% 7 Hawker Beechcraft USA 2.8 -12.3% 8 Cessna USA 2.6 -22.4% 9 ATR France/Italy 1.4 n/a New orders and cancellations, June 2011 Airbus Boeing Bombardier Aerospace (*) Gross orders 777 230 267 Cancellations 137 59 66 Net orders 640 171 201 Net orders,same period of previous year 117 177 11 (*) 12 months to end of 31 January 2011 Source: constructors (*) estimates (**) Falcon range Sources: constructors, Euler Hermes 13
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