AIR TRANSIORTATIONTc nu parcnis. |cnn an! San!i. an! nu sisicr. Krisiu. Bruannc ucu ui|| nctcr |c jcrgccn nu |i|c cnc.Air TransporlalionA Managemenl IerspecliveSixlh IdilionIOHN G. WINSVIIN Prcsi!cni an! C|O. Air|inc Visicns. IICvvv.airIinevisions.com Iohn G. Wensveen 2007AIIrighlsreserved.NoparloflhispubIicalionmaybereproduced,sloredinarelrievaIsyslem orlransmiedinanyformorbyanymeans,eIeclronic,mechanicaI,pholocopying,recordingor olhervise vilhoul lhe prior permission of lhe pubIisher.Iohn G. Wensveen has asserled his moraI righl under lhe Copyrighl, Designs and Ialenls Acl, 1988, lo be idenlied as lhe aulhors of lhis vork.IubIished by Ashgale IubIishing LimiledAshgale IubIishing CompanyGover HouseSuile 420Croh Road101 Cherry SlreelAIdersholurIinglon, VT 05401-4405Hampshire GU11 3HRUSAIngIandAshgale vebsile: hp://vvv.ashgale.comBritish Library Cataloguing in Publication Data Wensveen, I. G. Air lransporlalion : a managemenl perspeclive. - 6lh ed. 1. AirIines - Managemenl 2. Aeronaulics, CommerciaI I. TilIe II. WeIIs, AIexander T. 387.7068Library of Congress Control Number: 2007930947 ISN 978-0-7546-7165-7 (hbk)ISN 978-0-7546-7171-8 (pbk)Irinled and bound in Greal rilain by TI InlernalionaI Lld, Iadslov, CornvaII.vContentsA|cui inc AuincrixPrcjaccxiAckncu|c!gncnisxxiPART ONE AN INTRODUCTION TO AIR TRANSPORT1Aviation: An Overview3Inlroduclion4The Aerospace Induslry4The Air Transporlalion Induslry212Historical Perspective29Inlroduclion31The Iormalive Ieriod: 1918193831The Grovlh Years: 1938195839MalurilyIels Arrive: 1958197842Iconomic DeveIopmenls Irior lo DereguIalion 43IederaI LegisIalion and lhe AirIines46IosldereguIalion IvoIulion60GeneraI Avialion673Air Transportation: Regulators and Associations79Inlroduclion80The Deparlmenl of Transporlalion81The IederaI Avialion Adminislralion87The Transporlalion Securily Adminislralion95The NalionaI Transporlalion Safely oard95Ma|or Avialion Associalions1004The General Aviation Industry111Inlroduclion112GeneraI Avialion Slalislics112The GeneraI Avialion Supporl Induslry127The AvaiIabIe MarkelThe Users 136A I R T R A N S P O R TAT I O N v iPART TWO STRUCTURE AND ECONOMICS OF AIRLINES5The Airline Industry147Inlroduclion148Slruclure of lhe AirIine Induslry148Ma|or and NalionaI Carriers151RegionaI Carriers154AirIine Slalislics158AirIine Cerlicalion 158Dala CoIIeclion by lhe DOT162Induslry Agreemenls163Trac and IinanciaI HighIighls: 196020051656Economic Characteristics of the Airlines175Inlroduclion176The AirIines as OIigopoIisls177Olher Unique Iconomic Characlerislics186The Signicance of AirIine Iassenger Load Iaclors191PART THREE MANAGERIAL ASPECTS OF AIRLINES7Airline Management and Organization201Inlroduclion202Managemenl202The Nev Corporale Slruclure206Iunclions of Managemenl210Organizalion213The OrganizalionaI Charl216Sla Deparlmenls 218Line Deparlmenls2238Forecasting Methods243Inlroduclion244The Iurpose of Iorecasling244Iorecasling Melhods2469Airline Passenger Marketing257Inlroduclion258DeveIopmenl of lhe Markeling Concepl 259The Markeling Mix260The Consumer-orienled Markeling Concepl269Markeling Slralegies Since DereguIalion 274C O N T E N T S v i i10Airline Pricing, Demand, and Output Determination283Inlroduclion285The Trend in Domeslic Iassenger Airfares285Iricing and Demand288No-friIIs Airfare and Survey Warfare296Types of Iassenger Iares297The Iricing Irocess298AirIine Cosls304Iricing and Oulpul Delerminalion30911Air Cargo319Inlroduclion321HisloricaI Overviev321Air Cargo Today325The Iulure328The Markel for Air Ireighl 329Types of Air Ireighl Rales331SpeciaI Air Ireighl Services333Iaclors Aecling Air Ireighl Rales 33712Principles of Airline Scheduling343Inlroduclion344The Mission of ScheduIing344Iquipmenl Mainlenance346IIighl Operalions and Crev ScheduIing349Ground Operalions and IaciIily Limilalions351ScheduIe IIanning and Coordinalion353Iquipmenl Assignmenl and Types of ScheduIes364Hub-and-Spoke ScheduIing 366Dala Limilalions in AirIine ScheduIing36913 Fleet Planning: The Aircra Selection Process373Inlroduclion374Iaclors in IIeel IIanning374Design and DeveIopmenlThe Manufaclurers Vievpoinl382The IIeel-pIanning Irocess387The Decision lo Upgrade or RepIace392Appendix: IIeel IIanning al American AirIines39614Airline Labor Relations399Inlroduclion400The RaiIvay Labor Acl and lhe AirIines401HisloricaI Overviev of AirIine Union Aclivily406Labor ReIalions Since DereguIalion412Human Resources in lhe 21sl Cenlury423A I R T R A N S P O R TAT I O N v i i i15Airline Financing427Inlroduclion428Sources of Iunds428Sources and Uses of Iunds by lhe U.S. ScheduIed AirIines437Cash Managemenl and IinanciaI IIanning450PART FOUR THE INTERNATIONAL SCENE16International Aviation459Inlroduclion460The Oueslion of Sovereignly in Airspace460InlernalionaI Air Lav463The Iormalion of IATA470The ermuda Agreemenl of 1946471Three Decades Laler: Irom ermuda lo DereguIalion472The Iursuil of Open Skies 476GIobaIizalion480Iulure ChaIIenges484Appendix A: Views of Industry Professionals489Inlroduclion490Ouoles490ArlicIe492Appendix B: Career Planning in Aviation499Inlroduclion500Choosing and Geing Your Iirsl Iob in Avialion500Cover Leers and lhe Resume 506The Inlerviev508Glossary521Index551ixAbout the AuthorDr. Iohn Wensveen is considered one of lhe avialion induslrys Ieading experls on Iov-cosl andIov-farehighvaIueairIineoperalionsandiscurrenlIyIresidenl&CIOof AirIine Visions, an advisory and fulurisl rm speciaIized in air carrier slarl-ups. HehasbeendubbedlheideafaclorybymanyofhiscoIIeaguesandhaslheabiIily lo idenlify lrends and focus on fasl resuIls. Dr. Wensveen is a Ieading experl on business andslralegicpIandeveIopmenl,markelingandbranding,diversicalionslralegies, parlnership deveIopmenl, due diIigence and M&A. ConsuIling pro|ecls incIude business pIandeveIopmenlforIov-coslcarrier(LCC)slarl-ups,formuIalionofslralegicgrovlh recommendalions,managingofcIienlsgrovlhmissionandoperalionaIob|eclives, providing vision and Ieadership lo carry oul mission, and buiIding of reIalionships. Dr. WensveensconsuIlingpracliceaIsoincIudesexperlvilnessleslimonyandadvisory services lo lhe leIevision and Im induslries. In addilion lo avialion consuIling, Dr. Wensveen advises non-avialion organizalions on slralegic sleps lo success. He is an experl in shooling hoIes lhrough exisling businesses and idenlifying a corporalions slrenglhs, veaknesses, opporlunilies and lhreals uliIizing a cuslomized pIan of aclion. UnliI March 2005, Dr. Wensveen vas Vice Iresidenl of InlernalionaI DeveIopmenl vilh Washinglon-DuIIesbasedMAX|elAirvays,lherslslarl-upUSagcarrierlooblain IAA cerlicalion lo operale on lhe lrans-AlIanlic since lhe evenls of 9/11. Dr. Wensveens invoIvemenl vilh MAX|el slarled in 2003 as one of lhe founding leam members. WhiIe al MAX|el, he Ied parlnership deveIopmenl vilh airIines, airporls, inlernalionaI governmenl bodies,groundhandIingandsecurilyorganizalionsandrepresenledlhecompanyas spokesperson. Dr. Wensveen vas responsibIe for seing up lhe Iuropean infraslruclure incIuding ground operalions and vas responsibIe for overaII I&L of Iuropean operalions andsomeaspeclsofUSoperalions.WhiIealMAX|el,hemanagedquickgrovlhand aided in lhe buiId oul of a slrong execulive leam. Irom 1999 lo 2004, Dr. Wensveen vas empIoyed as Irofessor of AirIine Managemenl and Operalions vilh lhe SchooI of usiness al Imbry-RiddIe AeronaulicaI Universily in Daylona each, IIorida inslrucling courses al lhe undergraduale, graduale and execulive IeveIs.Hevaslhepro|eclIeadonlhecrealionoflhevorIdsrslAirIineOperalions CenlerSimuIalionLaboralory(AOCSL),aninlernalionaIpro|eclinparlnershipvilh ma|oravialion/aerospacecompaniesincIudingairIines,airporls,groundhandIing organizalions, manufaclurers, academic inslilulions, and governmenl al lhe IocaI, federaI and inlernalionaI IeveIs. WhiIe al Imbry-RiddIe, Dr. Wensveen buiIl a repulalion in lhe avialioninduslryasoneoflheIeadingexperlsinhiseId.HeisveIIconnecledand recognized for his lhoughl Ieadership and sub|ecl maer experlise. A I R T R A N S P O R TAT I O N xInlheearIy1990s,Dr.WensveenvasempIoyedvilhCanada3000 AirIineshoIding supervisory posilions in ighl operalions and Ialer, passenger services. WhiIe al Canada 3000, he assisled vilh lhe managemenl of quick grovlh and vas a Ieading conlribulor lo base expansion in lhe Iacic. Dr. Wensveen is a member of a number of professionaI organizalions and is a frequenl speaker al inlernalionaI avialion evenls. He is a facuIly member of lhe InlernalionaI Air Transporl Associalion (IATA) and is aulhor of lhe Air Mercury and Slralegic Managemenl courses presenled al IATA lraining cenlers around lhe vorId. He is aIso an ad|uncl facuIly memberoflheUniversilyofMaryIandUniversilyCoIIege(UMUC),Universilyoflhe Wesl Indies (UWI) and RoyaI Roads Universily (RRU). He is aIso a facuIly member of lhe Arab Air Carriers Associalion (AACA). Dr.WensveenpubIishesfrequenlIyinma|oravialionpubIicalionsandisanavialion anaIyslforlhemediaohenseenonma|orleIevisionnelvorksandquoledinma|or nevspapers and magazines around lhe vorId. He is aulhor of Norlh Americas Ieading avialion lexlbook enlilIed, Air Transpcriaiicn. A Managcncni Pcrspcciite and is aulhor of anolher successfuI book enlilIed, Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. Irom1996lo1999,Dr.WensveenhosledanumberofIeadingradioshovsinlhe Uniled Kingdom and vas avarded esl MaIe Iresenler in 1997 al lhe C Radio One Avards. Dr. Wensveen, born and raised in Vancouver, Canada earned a Ih.D. in InlernalionaI Air Transporl Managemenl vilh a focus on usiness, Slralegy and Markeling from lhe Universily of WaIes Cardi (Uniled Kingdom) and a .A. in Geography and Transporlalion IIanning from lhe Universily of Vicloria (Canada). PrefaceIlvasonIylhreeyearsagosincelhehhedilionoflhisbookvaspubIishedandlhe gIobaIavialioninduslryhasexperiencednumerouschangeslhalinmanycases,vere nol predicled. The sixlh edilion of Air Transpcriaiicn. A Managcncni Pcrspcciitc covers lhe reasoning behind such changes and aempls lo forecasl lhe fulure lo a cerlain degree in lerms of hov air lransporlalion viII evoIve. On Seplember 11, 2001, lhe avialion induslry slarled a nev era in hislory as a resuIl oflhelerribIelerrorislaacksagainsllheUniledSlales.TheIraqicrisis,SevereAcule Respiralory Syndrome (SARS), record fueI and oiI prices, massive nanciaI Iosses, Iooming lhreals of lerrorism, and poIilicaI inslabiIily have conlribuled lo conlinued reslrucluring oflhe induslry. GeneraI avialion, incIuding business avialion, and commerciaI avialion have been impacled as have manufaclurers and aII olher parlicipanls in avialion. Al lhe lime of lhe Iasl prinling, lhe induslry vas in a period of survive, adapl and recover. Today, lhe induslry is in a period of relhink resuIling in organizalions becoming more ecienl as a resuIl of recenl lurbuIenl limes. AirIines conlinue lo faiI as viII aIvays be lhe case bul lhere are a Iol of posilive success slories al lhe same lime. Aircrah manufaclurers Iike Airbus and oeing have experienced posilive grovlh vilh lhe design of nev and ecienl aircrah vhiIe regionaI |el manufaclurers have experienced, in some cases, negalive resuIls duelolhechangingnalureofroulenelvorkdeveIopmenlandairIinereslrucluring programs. Such manufaclurers are being faced vilh lhe chaIIenge of delermining vhal lhe nexl slage in aircrah lechnoIogy is. The previous edilion of lhis book said 2005 vouId be lhe year in vhich lhe gIobaI air lransporlalion induslry vouId be back al normaI IeveIs. Ior lhe mosl parl, lhis is lrue. SomeregionsoflhevorIdveresomevhalisoIaledfromlheevenlsof9/11andmore recenl evenls and air carriers of dierenl lypes and sizes are exceIIing. In olher regions of lhe vorId, lhere are dislinclive grovlh paerns ranging from sIov lo fasl. Load faclors are back up lo reguIar IeveIs and yel airIines conlinue lo slruggIe as a resuIl of annuaIIy increasing operalionaI cosls. The gIobaI air lransporlalion induslry changes on a daiIy basis and il is imporlanl lo undersland lhis change musl be examined on a regionaI basis more so lhan a gIobaI basis. As dened by lhe InlernalionaI CiviI Avialion Organizalion (ICAO), lhe vorId consisls of Norlh America, Lalin America and Caribbean, Iurope, Asia-Iacic, Africa and MiddIe Iasl. uiIding on a lesled framevork of sub|ecl areas, lhis book incorporales lhe lrends, chaIIenges and slralegies impacling aII regions of lhe vorId crealing a modern revision suilabIe for academic and induslry use for some lime lo come. The chaIIenge of an aulhor vrilinganevedilionofaveIIeslabIishedbook,isloproducesomelhingreadersare aIreadyfamiIiarvilhbulareinlroducedlonevinformalionaboveandbeyondlhe predecessor. xiA I R T R A N S P O R TAT I O N x i iThesixlhedilionremainsinlroducloryinnalureprovidinglhereadervilhasoIid foundalionoflheairlransporlalioninduslryandagrealerapprecialionoflhema|or managemenlfunclionsvilhinanairIine.Variousreferencesareprovidedallheendof each chapler encouraging lhe reader lo expIore and keep abreasl of currenl periodicaIs such as Air|inc Busincss. Air Transpcri Wcr|!. Atiaiicn Wcck an! Spacc Tccnnc|cgu. Air Cargc Wcr|!. Busincss an! Ccnncrcia| Atiaiicn. Ccnnuicr Air. |nicratia. Air Pi|ci. and Prcjcssicna| Pi|ci.ThereadershouIdgraspenoughknovIedgeloreasonaccuraleIyandob|ecliveIy aboulprobIemsfacinglheinduslryandlhedeveIopmenlofaIaslinginlereslinlhe airlransporlalioninduslry.ThebasicconceplsandprobIemsfacinglheinduslryina slraighlforvard and IogicaI fashion are presenled lhroughoul each chapler. CHANGESINTHESIXTHEDITIONCompIeleIy updaled lo reecl lhe chaIIenges facing airIines in lhe 21sl cenlury, lhis lexl provides comprehensive, sophislicaled coverage of bolh cIassic and currenl praclices in air lransporlalion managemenl. The reader is guided lhrough lhe ins and ouls of lhe air lransporlalioninduslryasveIIaslhroughlhedelaiIsofmanagemenlfunclionsvilhin airIines.ThisedilionpIacesgrealeremphasisonlhegIobaIairIineinduslry,vilhsuch lopics as airIine passenger markeling, Iabor reIalions, nancing, and heighlened securily precaulionsinlegraledlhroughoullhelexl.TabIes,gures,slalislics,keylerms,reviev queslions, and gIossary lerms have been added and updaled. OneimporlanlchangesincelheIasledilionoflhisbookislhereliremenlofDr. AIexander WeIIs vho is nov en|oying lraveIing lhe gIobe vilh his vife, Mary. I am gralefuI lo Dr. WeIIs for bringing me on board as co-aulhor of lhe hh edilion and aIIoving me lo proceed vilh lhe sixlh edilion. Dr. WeIIs conlribulions lo academia and induslry are knovnlhroughoullhevorId.Herepresenlsoneeraofavialionhavingvilnessedils grovlh decade by decade. The lorch has nov been passed Ieading lo a nev era of avialion. I vish Dr. WeIIs lhe very besl Iife has lo oer. In|oy reliremenl! TEACHINGANDLEARNINGAIDSThe subslanlive conlenl of a lexlbook is onIy parl of vhal makes il usabIe in lhe cIassroom: forlhebooklobeeeclive,ilsconlenlmuslbelaughlbyinslruclorsandIearnedby sludenls.TofaciIilalelheprocess,lhisedilionconlinueslopayparlicuIaraenlionlo leaching and Iearning aids, such as lhe foIIoving:1. Cnapicrcui|incs.IachchapleropensvilhanoulIineoflhema|orlopicslobe covered.2. Cnapicr cncck|isis. Aher lhe oulIine, each chapler incIudes a checkIisl of ob|eclives lhal sludenls shouId be abIe lo accompIish on compIeling lhe chapler.3. |c|ctancu. Mosl of lhe exampIes, appIicalions, and exlensions of lhe basic maleriaI are dravn from and appIy lo lhe air lransporlalion environmenl of lhe 1990s.P R E FA C E x i i i4. Siauing pcucr. The lexl is designed lo have slaying pover over lhe years. Il emphasizes lheunderIyingprincipIes,praclices,andpoIicieslhalviIInolchangeappreciabIy over lime. Il is recognized lhal inslruclors viII suppIemenl lhe maleriaI vilh currenl, lopicaI appIicalions and evenls.5. |igurcs an! ia||cs. Imporlanl poinls in each chapler are iIIuslraled vilh slrong visuaI maleriaIs.6. Icgica|crganizaiicnan!jrcucninca!ings.AirlransporlalioncaneasiIybecome overvheIminginilsmuIliludeoflopics,concepls,praclices,andexampIes.The maleriaI covered here has been pul in a syslemalic framevork so lhal sludenls knov vhere lhey have been, vhere lhey are, and vhere lhey are going in lhe lexl. Irequenl headings and subheadings aid organizalion and readabiIily.7. Kcu icrns. Iach chapler concIudes vilh a Iisl of key lerms used in lhe lexl.8. |cticuucsiicns.Revievqueslionsallheendofeachchapleraddressimporlanl poinls.9. Appcn!ix an! suggcsic! rca!ings. One chapler incIudes an appendix lhal is of praclicaI inlereslandlhalreinforceslhemaleriaIcovered.AIislofsuggesledreadingsis incIudedineachchaplerforsludenlsvhovishlopursuelhemaleriaIingrealer deplh.10. Carccrappcn!ix.ThisediliononceagainincIudesanappendixon|obsinlheair lransporlalion eId and vays lo gel lhem.11. G|cssarucjairiranspcriaiicnicrns.AIIkeylermsappearingallheendofeach chapler, as veII as many olher lerms used in lhe lexl and olhers of signicance in air lransporlalion, are incIuded in lhe gIossary.12. Ccnp|cicin!cx.ThebookincIudesacompIeleindexloheIpsludenlsndneeded informalion.INTENDEDAUDIENCEecause lhe aspiralions of mosl sludenls of air lransporlalion (and, for lhal maer, mosl career palhs) Iead lo lhe airIine segmenl of lhe air lransporlalion induslry, lhe ma|or focus oflhislexlisonlhemanagemenlfunclionsandorganizalionofairIines.Hovever,lhe signicance and conlribulion of generaI avialion is nol overIooked.ThisbookisinlendedforlhreesomevhaldierenlaudiencesvilhsimiIarinleresls: sludenlsenroIIedinacoursesuchasAirTransporlalionorAirIineManagemenl: sludenlsinlransporlalionandlrafcmanagemenlprogramsvhovishlogainmore insighlinlolheairlransporlalioninduslrybecausemosloflheircIassesconcenlrale onsurfacelransporlalionmodes:andindividuaIsvhovorkforanairIineandvanllo gainabeerunderslandingofmanageriaIaspecls.Tooohen,anairIineempIoyee,asa speciaIisl, sees onIy a Iimiled parl of lhe overaII operalion and has IiIe, if any, knovIedge A I R T R A N S P O R TAT I O N x i vofsuchimporlanlsub|eclsasmarkeling,pricing,scheduIing,andeelpIanning.Iven individuaIsvilhinmarkelingreservalions,forexampIehaveIiIeapprecialionof lheir companys grovlh slralegies and markel segmenlalion. These empIoyees are simpIy loo busy fuIIIing lhe funclions of lhe parlicuIar |ob descriplion.ORGANIZATIONOFTHETEXTThe foIIoving is an oulIine of Air Transpcriaiicn. A Managcncni Pcrspcciitc. sixlh edilion.PariOncAn|nirc!ucii cnicAi rTranspcriaii cnChapler 1 Avialion:AnOverviev.Chapler1inlroducessludenlslolhe characlerislics,scope,andeconomicsignicanceoflheaerospace induslryandilsma|orsegmenlslhegovernmenlmarkelandlhe commerciaImarkelforairlransporlandgeneraIavialionaircrah.The air lransporlalion induslry is cIearIy dened, and ils conlribulion lo lhe economy is discussed in deplh.Chapler 2HisloricaI Ierspeclive. This chapler provides a hisloricaI skelch of U.S. airIinesandgeneraIavialion,incIudinglhefederaIIegisIalionlhalhas aecled lheir grovlh and deveIopmenl. The AirIine DereguIalion Acl of 1978 and lhe circumslances Ieading up lo il are lhoroughIy expIored. The posldereguIalion era from 1978 lo lhe earIy 2000s is discussed, incIuding changesinlheslruclureoflheinduslryandnevairIinersenleringlhe markel (Iov-cosl carriers, virluaI carriers, and mega-carriers).Chapler 3AirTransporlalion:ReguIalorsandAssocialions.Thischapler discusseslheroIespIayedbylhefourprimaryfederaIagencieslhal inlerfacevilhbolhsegmenlsoflheairlransporlalioninduslry: lheDeparlmenlofTransporlalion(DOT),lheIederaIAvialion Adminislralion,lheTransporlalionSecurilyAdminislralion,andlhe NalionaITransporlalionSafelyoard.TheofcesallheDeparlmenl ofTransporlalionresponsibIeforcarryingoullheremainingfunclions oflheformerCiviIAeronaulicsoardarelhoroughIyexpIored.The purpose and ma|or funclions of lhe prominenl avialion lrade associalions are aIso described.Chapler 4TheGeneraIAvialionInduslry.ThischaplerconcIudesIarlOneby revievinglhegeneraIavialioninduslry,incIudingilsslalislicsanda descriplionofvideIydiversesegmenlsaccordinglolheirprimaryuse calegories. Olher lopics incIude lhe roIe of generaI avialion airporls, IAA serviceslogeneraIavialion,andlhegeneraIavialionsupporlinduslry, vhich,Iikealhree-IeggedslooI,ismadeupoflhemanufaclurers,lhe xed-base operalors, and lhe users of generaI avialion aircrah.PariTucSiruciurcan!|ccncni cscj incAi r| i ncsChapler 5 TheAirIineInduslry.Thischaplerrevievslhecurrenlslruclure oflheU.S.airIineinduslryandilscomposilenanciaIand lrafcslalislics.AcompIelediscussionoflheposldereguIalion P R E FA C E x vexpansion,consoIidalion,andconcenlralionoflheinduslryis incIuded.ThegrovingroIeofregionaIcarriersandnevlypes ofairIinesislhoroughIydiscussed.ThischapleraIsoincIudesa secliononairIinecerlicalion,incIudinglypesofandrequiremenlsfor cerlicalionandofcesvilhinlheDOTresponsibIeforlhisimporlanl funclion.Thecurrenllrendofinlra-induslryagreemenls,suchascode sharing and olher cooperalive eorls, are described in delaiI.Chapler 6IconomicCharaclerislicsoflheAirIines.ThischaplerdeaIsvilh lheeconomiccharaclerislicsofoIigopoIiesingeneraIandlheunique characlerislicsofairIinesinparlicuIar.AenlionisaIsogivenlolhe economic forces in lhe posldereguIalion period lhal have Ied lo such mega-carriers as American, Uniled, ConlinenlaI, and DeIla. The signicance of airIine passenger Ioad faclors is lhoroughIy expIored. This chapler aIso discusseshovlheinduslryhaschangedsincelheevenlsof9/11and currenl gIobaI evenls.PariTnrccManagcri a| Aspcciscj Ai r| i ncsChapler 7 AirIine Managemenl and Organizalion. The opening chapler of Iarl ThreeinlroducessludenlslolheprincipIesandpraclicesofairIine managemenlandorganizalion.ThedierenlIeveIsofmanagemenl vilhin an airIine are expIored, aIong vilh lhe funclions of managemenl pIanning,organizing,slafng,direcling,andconlroIIing.Thisis foIIovedbyacomprehensiverevievoforganizalionpIanningand adescriplionofalypicaIma|oraircarriersorganizalionaIslruclure, incIudinglhepurposeandfunclionofvariousadminislralionsand deparlmenls.DeparlmenlaIizalionandlheneedfornevdivisions vilhinlheorganizalion,suchassafelyandsecurilyandlraining,are inlroduced.Chapler 8 IorecaslingMelhods.IorecaslingisexlremeIyimporlanlinlhe managemenl of airIines. AII pIanning invoIving personneI and equipmenl needs is based on forecasls of fulure lrafc and nanciaI expeclalions. Ior lhisreason,lhischaplernaluraIIyprecedesaIIoflhechaplersreIaling lolheolhermanageriaIaspeclsofairIines.Thepurposeoflhischapler is lo expose sludenls lo lhe primary forecasling melhods used by rms engaged in air lransporlalion.Chapler 9 AirIineIassengerMarkeling.Thischaplerbeginsvilhadiscussion of hov lhe markeling of air lransporlalion has changed over lhe years. The markeling mix (producl, price, promolion, and pIace) is anaIyzed in deplh,andlheconsumer-orienledmarkelingconceploflheIale1990s and earIy 2000s is discussed. Various currenl airIine markeling slralegies are lhen expIored, incIuding such inlensive approaches as gaining deeper markelpenelralion,increasingproducldeveIopmenl,anddeveIoping nev largel markels. Direcl markeling, compulerized reservalion syslems (CRSs), lraveI agenls, frequenl-ier programs, business-cIass service, code sharing, hub-and-spoke service, and adverlising and saIes promolion are aII highIighled.A I R T R A N S P O R TAT I O N x v iChapler 10 AirIineIricing,Demand,andOulpulDelerminalion.Thischapler focuses on pricing, cerlainIy one of lhe mosl voIaliIe of lhe four Is of markeling since dereguIalion. Sub|ecls incIude lhe delerminanls of airIine passenger demand and eIaslicily of demand. The lypes of airIine passenger fares are discussed, foIIoved by in-deplh coverage of lhe pricing process, incIuding pricing slralegies and ob|eclives, pricing anaIysis, and lhe sleps invoIved in anaIyzing fare changes. The imporlanl roIe of invenlory, or yieId, managemenl is addressed as veII. This is foIIoved by an in-deplh discussionofairIineoperalingcosls,prolmaximizalion,andoulpul delerminalion in lhe shorl run.Chapler 11 AirCargo.Aherabriefdiscussionoflhehisloryofaircargoinlhe UniledSlales,sludenlsareinlroducedlolheimporlanceofairexpress andairfreighllodayandlolheexpeclalionsforfuluregrovlhinlhe induslry. The markel for air freighl is lhen covered, incIuding lhe lypes of air freighl rales. SpeciaI air freighl services are discussed, as are faclors aecling air freighl rales. The concepl of lhe very Iarge aircrah (VLA) is aIso discussed.Chapler 12IrincipIes of AirIine ScheduIing. UnqueslionabIy one of lhe mosl crilicaI andyelmosldifcuIllasksfacingairIinemanagemenlisscheduIing equipmenl in lhe mosl efcienl and economicaI manner. This chapler deaIs vilh lhe many inlernaI and exlernaI faclors lhal aecl scheduIe pIanning. Types of scheduIes are discussed, aIong vilh severaI exampIes of hov a carriergoesaboulpuingascheduIelogelher.ThechaplerconcIudes vilh a discussion of hub-and-spoke scheduIing and ils imporlance in lhe compelilive posldereguIalion environmenl of lhe 1980s, 1990s, and 2000s.Chapler 13 IIeel IIanning: The Aircrah SeIeclion Irocess. The decision lo purchase nev aircrah is cerlainIy one on vhich managemenl expends a greal deaI of lime and eorl. This cruciaI decision viII enlaiI miIIions of doIIars, and ils eecls viII remain vilh lhe carrier for years. Sludenls are inlroduced lo lhe aircrah seIeclion process, rsl from lhe slandpoinl of lhe manufaclurer andlhenfromlheindividuaIcarriersvievpoinl.Thelrendlovard Ieasing is lhoroughIy expIored, aIong vilh lhe groving probIem of noise reslriclions on oIder aircrah. AII of lhe inpuls lo lhe process are addressed, as are lhe crileria by vhich a carrier evaIuales a parlicuIar aircrah. The nev generalion of aircrah, incIuding lhe regionaI |el and nev Iong-range lvin-engine aircrah, are inlroduced. The chapler concIudes vilh an appendix demonslraling lhe eel-pIanning process al American AirIines.Chapler 14 AirIineLaborReIalions.Represenlingover35percenlofalypicaI carriers operaling expense, Iabor is cerlainIy one of lhe mosl imporlanl areasofconcernlomanagemenl.Thischapleropensvilhalhorough discussion and anaIysis of lhe RaiIvay Labor Acl, foIIoved by a reviev of lhe coIIeclive bargaining process under lhe acl. A hisloricaI skelch of airIine union aclivily in lhe Uniled Slales, beginning in lhe 1930s lhrough lheposldereguIalionperiod,aIsoisprovided.Thischaplereducales lhereaderonlrendsaeclingfuluredeveIopmenlofhumanresources deparlmenls.ThechaplerendsvilhanovervievoflhecoIIeclive bargaining process in recenl years and ils impacl on lhe carriers.P R E FA C E x v i iChapler 15 AirIine Iinancing. This chapler lakes up lhe probIem of airIine capilaI nancing.Thema|orsourcesoffundingareexamined,foIIovedby adiscussionoflhesourcesandlheuseoffundsoverlhelvodecades foIIoving lhe inlroduclion of |els. The naI porlion of lhis chapler deaIs vilhfundingsourcesinlhe2000sandlheimporlanlsub|eclsofcash managemenl and nanciaI pIanning.Pari|curTnc|nicrnaii cna| SccncChapler 16InlernalionaIAvialion.ThenaIchaplerroundsoullhelexl coverage of air lransporlalion by adding lhe dimension of inlernalionaI avialion.AirlransporlalionpIaysasignicanlroIeinlhemovemenl ofpassengersandcargobelveencounlries,andlhischaplerdiscusses hovlhevariousinlernalionaIconferencesandconvenlionshave shapedvorIdvideavialion.TheIaslseclionoflhechaplercoverslhe inlernalionaI avialion markel foIIoving passage of lhe InlernalionaI Air TransporlalionCompelilionAclof1979.Thesub|eclsofgIobaIizalion and inlernalionaI airIine and airporl aIIiances are lhoroughIy expIored.Appendix AThisisanevseclion,vhichquoleslhevievsofairIineinduslry professionaIs. Appendix CareerIIanninginAvialion.Thisappendixprovidesaslruclured approachlolheaII-imporlanlsub|eclofcareerpIanning.Sludenlsare laken lhrough lhe sleps of choosing and geing lheir rsl |ob in avialion, idenlifyingsourcesofcareerinformalion,deveIopingresumes,and preparing for an inlerviev. IncIuded are numerous |ob descriplions from aII segmenls of lhe avialion induslry.ANOTETOINSTRUCTORSAnyone vho has laughl courses in air lransporlalion has sureIy recognized lhe paucily oflexlsonlhesub|ecl.ThefevbookslhalareavaiIabIeeilherareloobroadinscope, resuIlinginashaIIovovervievofmosllopics,orexamineaparlicuIarsegmenloflhe induslry or phase of managemenl in deplh bul vilh very IiIe breadlh. I have aempled lo lake a baIanced approach, recognizing lhal mosl inslruclors viII have lheir ovn ideas regardinglheimporlanceoflhesub|eclmaerunderdiscussionandviIIsuppIemenl lhelexlvilhlheirovnmaleriaIsaccordingIy.SlalislicsappearinginlabIesandcharls have been dravn from easiIy accessed sources, such as Acrcspacc |acis an! |igurcs. |AA Siaiisiica| Han!|cck. and ATA annuaI reporls, so lhal lhey can be readiIy updaled by users of lhe lexl.This book is designed lo carry ils fair share of lhe burden of inslruclion. Sludenls using lhislexlshouIdnolreIyonyoufordelaiIed,repeliliveexpIanalions.LesscIasslimeis requiredlogeneralefunclionaIunderslandingoflhesub|ecl,somorelimeisavaiIabIe for cIass discussion and lhe appIicalion of lhe maleriaI lo currenl issues. In researching lhisbook,IacquiredaveaIlhofmaleriaIs,mosloflhemfree,fromnumeroussources, incIuding lhe DOT, IAA, NTS, ICAO, ATA, RAA, and Wcr|! Atiaiicn Oirccicru. The air carriers are a rich source of maleriaI lhal can be used lo suppIemenl your course: vrile A I R T R A N S P O R TAT I O N x v i i ilo lhe parlicuIar deparlmenl aboul vhich you are seeking informalion. The GAMA, AIA, ATA, and individuaI aircrah manufaclurers can aIso suppIy a hosl of maleriaIs.Anolher source lhal I have found heIpfuI in our courses is lhe Harvard usiness SchooI Case Services, Harvard usiness SchooI, oslon, Mass. 02163. Some of lhe air lransporlalion cases viII be appropriale for your courses, and lhe sludenls viII en|oy lhem.Suggcsic!Oui| i ncsj craOnc-ScncsicrCcurscCourses in air lransporlalion vary in conlenl and emphasis, and so viII lhe uses of lhis book. Some courses may cover lhe maleriaI from beginning lo end: olhers viII focus on cerlainseclionsandomillheresl.IarlsOneandTvooerabroad-basedinlroduclion lo air lransporlalion and shouId be suilabIe for mosl users. AirIine managemenl courses mighl focus on Iarls Three and Iour.These recommendalions are exibIe. Olher combinalions are possibIe.Chapler Topic Inlroduclory Air TransporlalionCourseAirIineManagemenl course1.Avialion: An Overviev 2.HisloricaI Ierspeclive 3.Air Transporlalion: ReguIalors and Associalions 4.The GeneraI Avialion Induslry 5.The AirIine Induslry 6.Iconomic Characlerislics of lhe AirIines 7.AirIine Managemenl and Organizalion 8.Iorecasling Melhods 9.AirIine Iassenger Markeling 10.AirIine Iricing, Demand, and Oulpul Delerminalion 11.Air Cargo 12.IrincipIes of AirIine ScheduIing 13.IIeel IIanning: The Aircrah SeIeclion Irocess 14.AirIine Labor ReIalions 15.AirIine Iinancing 16.InlernalionaI Avialion A.Vievs of Induslry IrofessionaIs .Career IIanning in Avialion P R E FA C E x i xANOTETOSTUDENTSI hear and I forgelI see and I rememberI do and I underslandConfuciusThe mosl eeclive and inleresling vay lo Iearn any sub|ecl is by doing il. No professor or lexlbook couId ever leach you aII aboul air lransporlalion: aII lhey can do is heIp you lo Iearn il. Much of lhe Iearning process is up lo you. This lexl has been designed lo be easy lo undersland. UsuaIIy, as you read lhe lexl, you vonl have lo slruggIe lo gel lhe meaning ofaconceplorprincipIe.ulunderslandingisonelhing:IearningsomelhingveIIand appIying il lo currenl evenls is somelhing eIse.eforeslarlingachapler,revievlhechapleroulIineandcheckIisl.Takenolesand highIighl lhe ma|or poinls as you proceed vilh your reading. Aher reading lhe chapler, see if you can accompIish lhe ob|eclives Iisled in lhe chapler checkIisl. The reviev queslions al lhe end of each chapler are aIso designed lo bring oul lhe mosl imporlanl poinls made in lhe chapler.ecome famiIiar vilh avialion lrade |ournaIs and magazines. You viII be surprised lo see hov many arlicIes lhere are reIaling lo lhe maleriaI discussed in cIass. This Iileralure viIInolonIyenhanceyourovnknovIedgeoflhesub|eclmaerbulaIsoenrichyour cIassroom experience as you discuss lhe maleriaI vilh cIassmales.ThisisprobabIyoneoflhemoslexcilingperiodsinlhebriefhisloryofourair lransporlalion induslry. Wilh lhe passage of lhe AirIine DereguIalion Acl of 1978, ve have vilnessed lhe emergence of a compIeleIy nev slruclure for air lransporlalion services in lhe Uniled Slales. The induslry slands poised for a nev surge of grovlh. Many nev career palhs viII surface in lhe nexl severaI years for lhose of you vho have prepared for lhem. Good Iuck!This page intentionally left blank xxiAcknowledgmentsMy passion for avialion began al lhe age of lhree vhen I had lo evacuale a Iarge |el aircrah vilh an engine re. I vas dressed in a piIols uniform proudIy dispIaying my vings. LiIe did I knov lhe evenls of lhal day vouId change lhe course of my Iife and y me dovn a palh lo a IifeIong career in avialion. As a smaII chiId, my dream vas lo Iearn lo y and aher a fev hours hoIding lhe slick and a fev years of malurily, I reaIized my reaI passion vas avialion business. Iovemanylhankslolhepioneersofavialionandlheenlrepreneursoflodaylhal conlinuousIyamazemevilhnevdeveIopmenls.Therearefevinduslriesinexislence vhere one can go lo sIeep al nighl and vake up lhe nexl morning faced vilh chaIIenges lhaldidnolexisllhedayprior.TheexcilemenlcrealedbylhedaiIyslressesoflhis businesskeepmegoingandslrivinglovardlhedesignoflheuIlimaleairIine.Islhis even possibIe`Many lhanks are oved lo induslry sources vho provided a greal deaI of maleriaI lhal vas exlremeIy heIpfuI in puing logelher lhis lexlbook. Thank you lo lhe Deparlmenl of Transporlalion, IederaI Avialion Adminislralion, Transporlalion Securily Adminislralion, NalionaITransporlalionSafelyoard,AirTransporlAssocialion,AircrahOvnersand IiIolsAssocialion,InlernalionaICiviIAvialionOrganizalion,andlheInlernalionaIAir TransporlAssocialion.AddilionaIlhanksloAirbusInduslrie,TheoeingCompany, RaylheonCorporalion,CessnaAircrahCompany,andlheNevIiperAircrahCorporalion. A lexlbook of lhis nalure cannol come logelher vilhoul lhe assislance of a leam. Thank you lo Ashgale IubIishing especiaIIy Guy Loh. IinaIIy,IvouIdIikeloshovmyapprecialionandIoveformyparenls,IohnSr.and Sandi, my sisler, Krisly, and my IiIe girI, ryanne. Your conlinued palience and supporl viII aIvays be remembered.Iohn WensveenThis page intentionally left blank PART ONEAn Introduction to Air TransportationThis page intentionally left blank 1Aviation: An OverviewIntroductionThe Aerospace IndustryThe Air Transportation IndustryChapter Checklist You Should Be Able To:Dene acrcspacc in!usiru and describe ils basic characlerislics and economic magniludeDiscuss some of lhe probIems faced by lhe governmenl markelDescribe lhe currenl economic oulIook for lhe lhree segmenls incIuded in lhe civiI avialion markelIdenlify and briey describe lhe faclors aecling commerciaI lransporl saIesDene reIaled aerospace producls and servicesDene air iranspcriaiicn in!usiru and dislinguish belveen cerlicaled air carriers and generaI avialionDescribe lhe impacl of lhe air lransporlalion induslry on lhe economy Describe hov air lransporlalion conlribules lo lhe ecienl conducling of business and aecls personaI and pIeasure lraveI paerns3INTRODUCTIONInashorlspanof100years,vehavegonefrommakingafevleslighlsloorbiling ceIesliaI bodies, from sIiding aIong sand dunes lo spanning oceans, from performing feals of isoIaled daring lo depending on avialion in our everyday Iives. Speeds have increased a lhousandfoId, as have aIlilude and range capabiIily. No Ionger is lhe sky lhe Iimil. Ahead IierisksandrevardsasvaslasspaceilseIf.WehavelhepromiseofnevairIinerslhal y vilh grealer fueI efciency, of huge air freighlers lhal move lhe nalions goods, of an expandinggeneraIavialioneel,andoflhepeacefuIusesofspaceforexpIoralionand research.THEAEROSPACEINDUSTRYTheaerospaceindustryincIudeslhosermsengagedinresearch,deveIopmenl,and manufaclure of aII of lhe foIIoving: aerospace syslems, incIuding manned and unmanned aircrah: missiIes, space-Iaunch vehicIes, and spacecrah: propuIsion, guidance, and conlroI unils for aII of lhe foregoing: and a variely of airborne and ground-based equipmenl essenliaI lo lhe lesling, operalion, and mainlenance of ighl vehicIes. VirluaIIy aII of lhe ma|or rms in lhe aerospace induslry are members of lhe Aerospace Industries Association (AIA) or lhe General Aviation Manufacturers Association (GAMA). Iounded in 1919 and based in Washinglon, D.C., lhe AIA is a lrade associalion represenling lhe nalions manufaclurers ofcommerciaI,miIilary,andbusinessaircrah,heIicoplers,aircrahengines,missiIes, spacecrah, and reIaled componenls and equipmenl. GAMA, aIso based in Washinglon, D.C., is lhe lrade associalion lhal represenls lhe inleresls of manufaclurers of Iighl aircrah and componenl parls.As lhe 21sl cenlury began, approximaleIy lvo-lhirds of lhe aerospace induslrys oulpul vas boughl by lhe federaI governmenl. During lhe pasl lvo decades, lhis gure has ranged ashighas74percenl.Allhesamelime,lheaerospaceinduslryislhevorIdsIargesl producer of civiI aircrah and equipmenl. RoughIy 6 oul of every 10 lransporls operaling vilh lhe vorIds civiI airIines are of U.S. manufaclure, and in addilion, lhe induslry lurns oul severaI lhousand civiI heIicoplers and generaI avialion pIanes yearIy.ThesefaclsunderIinelheuniqueslalusoflheaerospaceinduslry.IlsroIeas principaIdeveIoperandproducerofdefense,space,andolhergovernmenl- requiredsyslemsinIargemeasurediclaleslheinduslryssize,slruclure,andproducl Iine. ecause il operales under federaI governmenl procuremenl poIicies and praclices, lheinduslryissub|eclloconlroIsmarkedIydierenlfromlhoseoflhecommerciaI markelpIace. ul lhe aerospace induslry is aIso a commerciaI enlily, and il musl compele in lhe civiI markel for economic and human resources vilh olher induslries Iess feered by governmenl conslrainls. Ils duaI nalure as governmenl and commerciaI suppIier makes lheaerospaceinduslryparlicuIarIyimporlanllolhenalionaIinleresl.IlslechnoIogicaI capabiIiliesinuencenalionaIsecurily,foreignpoIicy,lhespaceprogram,andolher nalionaIgoaIs.AIso,lheefcacyoflhenalionaIairlransporlalionsyslemdependslo considerabIedegreeonlhequaIilyandperformanceofequipmenlproducedforlhe airIines and lhe airvays operalors.A I R T R A N S P O R TAT I O N 4NaluraIIy,suchaninduslryisvilaIlolheU.S.economy,especiaIIyinlhefoIIoving areas:1. Tra!c |a|ancc.The exceIIence of U.S. aerospace producls has crealed slrong demand abroad,vilhlheresuIllhallheinduslryconsislenlIyrecordsaIargeinlernalionaI lrade surpIus.2. |np|cuncni.Despile severaI years of decIine in number of vorkers, lhe aerospace induslry remains one of lhe nalions Iargesl manufacluring empIoyers.3. |cscarcnan!!ctc|cpncni.Theinduslryconduclsmoreresearchanddevelopment (R&D)lhananyolherinduslry,andR&Disama|orIong-lermdelerminanlof nalionaI economic grovlh.4. |npacicncincrin!usirics.Agrealmanynevaerospace-reIaledproduclsandpro-cesses have spun o from lhe iniliaI aerospace requiremenl and have provided vaIue lo olher induslries, bolh in saIes and in produclive efciency. In addilion, lhe aero-space induslry is a Iarge-scaIe user of olher induslries goods and services: il has been eslimaled lhal for every 100 aerospace |obs crealed, anolher 73 are crealed in olher induslries.Iach of lhese faclors represenls a signicanl conlribulion lo lhe U.S. economy: coIIecliveIy, lhey eIevale aerospace lo a key posilion among lhe nalions ma|or induslries.Cnaracicri sii cscj inc|n!usiruThehisloryoflheaerospaceinduslryhasbeenasagaofconlinuingad|uslmenllo changingnalionaIpoIicyandeconomiccondilions.Since1960,uclualinggovernmenl demands and a variely of inlernalionaI evenls have leamed up lo produce a roIIer-coasler-Iike saIes curve: up lo a peak, dovn lo a vaIIey. Over lhe years, lhe induslrys operalions have become increasingIy compIex, vilh each incremenl of compIexily heighlening lhe induslrysprobIemsinadaplinglochange.Today,lheinduslrysuniquecharaclerislics make lhe adaplive process exlraordinariIy difcuIl. An underslanding of lhe difcuIlies is besl promoled by an expIanalion of hov lhe induslry has been lransformed in lhe pasl quarler of a cenlury.Irior lo 1950, lhe induslry vas reIaliveIy unsophislicaled. Ils producl Iine vas enlireIy aeronaulicaIaircrah,engines,propeIIers,avioniccomponenls,andaccessories.Long-run produclion of many airpIane lypes vas lhe order of lhe day. The Iabor force, during lheposl-WorIdWarIIrelrenchmenlperiod,vasIesslhanone-hhoflheIalerpeak. Three-fourlhsoflhevorkersveremoderaleIyskiIIedproduclionvorkers.R&Dvas anessenliaIpreIudeloproduclion,bullhesubsonicaircrahlhenbeingbuiIlvereIess demandingoflechnoIogicaIadvance,andR&DrepresenledaconsiderabIyIesssigni-canl porlion of lhe lolaI vorkIoad lhan il does loday.ThelransformalionbeganinlheearIy1950svilhlheproduclionoflhe|el-povered supersonicmiIilaryairpIane,vhichbroughlaboulacross-lhe-boardchangesinlhe induslrynev lypes of engines, lolaIIy dierenl airframes, dierenl on-board equipmenl, nevlooIingandfaciIilies,and,moslofaII,avaslIygrealerdegreeofcompIexilyin produclsandlhemelhodsempIoyedinproducinglhem.Nev-airpIaneperformance diclaledlhalfargrealeremphasisbepIacedonR&D.ThecombinalionofR&Dand producl compIexily required a ma|or shih in lhe composilion of lhe vork force lo incIude ever-increasingnumbersofscienlisls,engineers,andhighIyskiIIedlechnicians.AIIof C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 5lhese changes resuIled in increased emphasis on an ever more sophislicaled manageriaI process.WhiIelheinduslryvasad|uslinglolhesechanges,ilinheriledanevresponsibiIily: deveIopmenl and produclion of guided missiIes, parlicuIarIy Iong-range baIIislic veapons. Then came anolher ma|or change: lhe appIicalion of lurbine pover lo commerciaI airIiners, vhoseresembIancelomiIilary|elsendedvilhlheirpropuIsionsyslems.Theneedlo lransporlIargenumbersofpeopIealhighsubsonicspeedsandmuIlimiIeaIliludes invoIved a furlher modicalion of lhe induslrys melhods. IinaIIy, in lhe Iale 1950s, lhe induslry vas assigned sliII anolher responsibiIily: fabricalion of equipmenl lo meel lhe nalions goaIs in space expIoralion.Iach of lhese changes compounded lhe need for change in lhe enlire induslrymore R & D, grealer producl compIexily, more personneI per unil produced, higher skiII IeveIs in lhe vork force, Ionger program deveIopmenl lime, and grealer need for nev faciIilies vilh onIy singIe-program uliIily because of lheir speciaIized nalures. Such changes conlribuled lo higher cosls of lhe endproducls, and lhe demand in lhe 1960s and 1970s for sliII more advancedaerospacesyslemsfurlherescaIaledbolhlheraleofchangeandlhecosls.In defenseoulpul,cosllogelhervilhlhegrealercapabiIilyoflheindividuaIsysleminuencedalrendavayfromvoIumeproduclionandlovardlaiIoredmanufaclureof fever lypes of veapons and fever numbers of each lype.A haIf-cenlury of evoIulion has Ieh lhe aerospace induslry vilh a sel of characlerislics unique in U.S. manufacluring:1.Ierformance demands for nev syslems require conlinuaI advancemenl of lhe lechno-IogicaI fronlier, vhich in lurn invoIves unusuaI degrees of uncerlainly and risk.2. ecauselhegovernmenlislheprincipaIcuslomer,lheproduclIineissub|ecllo revisionsinprogramIeveIsoccasionedbychangingrequiremenlsandfunding avaiIabiIily.3.Iquipmenl lhal chaIIenges lhe slale of lhe arl is necessariIy coslIy, lhe more so because requiremenlsgeneraIIydiclaleshorlproduclionruns,negalinglheeconomiesof Iarge-scaIe produclion.4. TechnoIogicaIIydemandingprogramsrequirepersonneIemphasisinlhehigher skiII IeveIs. Hence, Iabor inpul per unil of oulpul is subslanliaIIy Iarger lhan in olher manufacluring induslries.5. The combinalion of lechnoIogicaI uncerlainly and Iong Iead limes, ohen 710 years and frequenlIy Ionger, belveen program inilialion and compIelion, makes advance eslimalion of cosls parlicuIarIy dicuIl.6. ecauselherearefevcuslomersandreIaliveIyfevprograms,compelilionforlhe avaiIabIe business is inlense.7. AII of lhese characlerislics conlribule lo exceplionaI demand for induslry capilaI, yel prols as a percenlage of saIes are consislenlIy veII beIov lhe average for aII manu-facluring induslries.A I R T R A N S P O R TAT I O N 6|ccncni cPrc| ccj inc|n!usiruThe aerospace induslry is composed of aboul 60 ma|or rms operaling some 1,000 faciIilies, backedbylhousandsofsubconlraclors,vendors,andsuppIiers.TheprincipaIproducl Iineaircrah, missiIes, space syslems and reIaled engines, and parls and equipmenlis characlerized by high performance and high reIiabiIily, and hence high lechnoIogy and high unil vaIue.Aclivily, as measured by saIes voIume, focuses on aircrah, bolh civiI and miIilary, vhich accounl for aImosl 55 percenl of lhe induslrys vorkIoad. MissiIe syslems represenl aboul 6 percenl of lhe lolaI, and space fabricalion for aboul 21 percenl. In addilion, 17 percenl comes from reIaled producls and services, vhich embrace lhe induslrys groving eorls lolransferlolhenonaerospaceseclorsomeoflhelechnoIogydeveIopedinaerospace endeavors.SaIes in 2005 amounled lo $170 biIIion, broken dovn as foIIovs: aircrah, $89.1 biIIion: missiIes,$15.3biIIion:space-reIaledmaleriaIs,$37.3biIIion:andreIaledproduclsand services, $28.3 biIIion. Related products and services incIude aII nonaircrah, non-space vehicIe, and nonmissiIe producls and services produced or performed by lhose companies or eslabIishmenls vhose principaI business is lhe deveIopmenl or produclion of aircrah, aircrah engines, missiIe and spacecrah engines, missiIes, or spacecrah.The earIy 1990s vere difcuIl for U.S. aerospace companies. DecIining defense spending and a prolracled airIine recession caused U.S. aerospace saIes lo pIummel, resuIling in lhe induslrys vorsl dovnlurn in 40 years. y 1996, lhe induslry began lo lurn around (see TabIe 1-1). The 8 percenl rise belveen 1995 and 1996 vas IargeIy aribulabIe lo increased saIes of civiI aircrah, engines, and parls. SaIes of missiIes have sleadiIy increased for lhe years 20002005. This calegory shouId increase in lhe years ahead as lhe var on lerrorism conlinues around lhe gIobe.ChangesinaerospaceproduclsaIesaredrivenbylhedynamicsoflheinduslrys cuslomer base. During lhe 1980s, lhe CoId War environmenl sel lhe lone for increased U.S. defensespending,andaerospacecompaniesrespondedaccordingIy.In1987,induslry saIeslolheDeparlmenlofDefense(DOD)accounledfor56percenloflolaIaerospace business.YelfederaIspendingpriorilieshavegraduaIIychanged.TheendoflheCoId War and pressures lo baIance lhe federaI budgel Ied lo spending culs in defense programs. Aerospace saIes lo lhe DOD feII subslanliaIIy belveen 1987 and 1999 (TabIe 1-2). There vas a sIighl rise in defense spending in 2000 and 2001, IargeIy as a resuIl of lhe nalions var on lerrorism foIIoving lhe lragedy of Seplember 11, 2001. Higher procuremenl spending occurredin 2002 and beyond as lhe gIobaI var on lerrorism conlinued.AIlhoughDODpurchasesconlinuedlosIideduringlhebeerparloflhe1990s,lhe demandforcommerciaIlransporlsincreasedsignicanlIyvilhlheresurgenleconomy and lhe relurn lo prolabiIily by lhe airIine induslry. GeneraI avialion saIes aIso increased foIIoving passage of lhe GeneraI Avialion RevilaIizalion Acl in 1994. olh lhe airIine and generaIavialionseclorsveresignicanlIyaecledbylhesIovdovninlheeconomy slarling in 2000 and conlinuing lhrough 2002.TheaerospaceinduslryrepresenlsoneoflhenalionsIargeslempIoyers,vilh approximaleIy 625,000 vorkers on lhe roIIs al lhe end of 2005. Combined vilh muIlipIier eecls on olher induslries, il is eslimaled lhal lhe aerospace induslry accounls direclIy or indireclIy for cIose lo 2 miIIion U.S. |obs.A Iabor-inlensive induslry, aerospace empIoys as many saIaried as produclion vorkers, lhe highesl such ralio among comparabIe induslries. The emphasis on high-lech R & D in C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 7lhe aerospace induslry demands a grealer number of scienlisls, engineers, and lechnicians lhan are uliIized by mosl induslries. Al ils peak, lhe aerospace induslry empIoyed aImosl 30 percenl of aII U.S. scienlisls and engineers engaged in R & D. The gure has sliII averaged a reIaliveIy high 15 percenl for lhe pasl 20 years or so.Teslifying lo lhe exceIIence of U.S. aerospace producls is lhe slrong performance of lhe induslryonlheinlernalionaImarkel.TheinduslryhasasignicanlimpaclonlheU.S. baIance of lrade. ack in 1967, aerospace exporls reached lhe $2-biIIion-a-year IeveI, and in succeeding years, lhey rose sharpIy, mainIy because of deIiveries abroad of advanced-lechnoIogycommerciaI|elIiners.In1973,lheinduslryselanaII-limeexporlrecordof more lhan $5 biIIion, and in 1974, lhal gure increased by aImosl $2 biIIion. In 1981, lhere vas anolher subslanliaI increase, lo a nev record of $17.6 biIIion, and in 1986, lhe gure rose lo $19.7 biIIion, vhich represenled 9.6 percenl of lolaI U.S. exporls. In 2005, exporls lopped $65 biIIion. Al lhe same lime, aerospace imporls have lradilionaIIy amounled lo onIy a fraclion of lhe vaIue of goods exporled. Thus, aerospace has consislenlIy shovn a subslanliaI lrade surpIus.Year TolaI SaIes Aircrah MissiIesaSpaceaReIaled Iroducls & Services Tcia|Citi| Mi|iiaruaCURRINT DOLLARS1990 $134,375 $ 71,353 $31,262 $40,091 $14,180 $26,446 $22,3961991 139,248 75,918 37,443 38,475 10,970 29,152 23,2081992 138,591 73,905 39,897 34,008 11,757 29,831 23,0991993 123,183 65,829 33,116 32,713 8,451 28,372 20,5311994 110,558 57,648 25,596 32,052 7,563 26,921 18,4261995 107,782 55,048 23,965 31,082 7,386 27,385 17,9641996 116,812 60,296 26,869 33,427 8,008 29,040 19,4691997 131,582 70,804 37,428 33,376 8,037 30,811 21,9301998 147,991 83,951 49,676 34,275 7,730 31,646 24,6651999 153,707 88,731 52,931 35,800 8,825 30,533 25,6182000 144,741 81,612 47,580 34,032 9,298 29,708 24,1232001 151,632 86,470 51,256 35,215 10,391 29,499 25,2722002 r 152,349 79,486 41,340 38,147 12,847 34,624 25,3922003 r 146,625 72,844 32,441 40,402 13,488 35,857 24,4382004 155,717 79,128 32,519 46,609 14,704 35,933 25,9532005 p 170,055 89,117 39,165 49,952 15,287 37,308 28,3432006 e 183,996 100,365 49,519 50,846 14,438 38,528 30,666TABLE 1-1AerospaceIndustrySalesByProductGroup,19902006(millions of dollars) Source: Aerospace Induslries Associalion, Aerospace Iacls and Iigures, 2005.a IncIudes funding for research, deveIopmenl, lesl, and evaIualion.| Islimaler Revisedp IreIiminarye IslimaleA I R T R A N S P O R TAT I O N 8TABLE 1.2Aerospace Industry Sales by Customer, 19872006 (millions of dollars) Aerospace Iroducls and ServicesNASA an! ReIaledTolaI OcparincniOincrOincr IroduclsYearSaIesTcia| cj OcjcnscaAgcncics Cusicncrsand Services1987$110,008$91,673$61,817$6,813$23,043$18,3351988114,56295,46861,3277,89926,24219,0941989120,534100,44561,1999,60129,64520,0891990134,375111,97960,50211,09740,37922,3961991139,248116,04055,922|11,73948,37923,2081992138,591115,49352,20212,40850,88223,0991993123,183102,65347,01712,25543,38020,5311994110,55892,13243,79511,93236,40518,4261995107,78289,81842,40111,41336,00417,9641996116,81297,34442,53512,39142,41819,4691997131,582109,65143,70212,75353,19621,9301998147,991123,32642,93713,34367,04724,6651999153,707128,08945,70313,40068,98625,6182000144,741120,61747,50513,38259,73024,1232001151,632126,36050,11814,48161,76125,2722002r152,349126,95857,70116,38552,87225,3922003r146,625122,18864,00915,52242,65624,4382004155,717129,76470,08516,00043,67925,9532005p170,055141,17374,26117,38950,06328,3432006e183,996153,33074,93317,78860,60930,666Source: Aerospace Induslries Associalion, Aerospace Iacls and Iigures, 2005.aIncIudes funding for research, deveIopmenl, lesl, and evaIualion.|Islimale.r Revisedp IreIiminarye Islimale|n!usiruSupp| i crsAerospaceproduclsperformverysophislicaledfunclionsandarecompIexandcoslIy lomanufaclure.ecauseoflhis,aerospacecompaniesdonolaempllodesignand assembIe nished producls enlireIy in-house. Inslead, companies speciaIize and, vhere appropriale,conlraclvorkoulloolhercompanies. Ama|oraircrahmanufaclurermay use over 15,000 suppIiers in ils lransporl manufacluring aclivilies.Il shouId be noled lhal aerospace suppIiers are predominanlIy U.S. companies. In facl, dala from 2005 indicale lhal imporls of aircrah parls, engines, and engine parls amounled lo $27.8 miIIion or approximaleIy onIy 19 percenl of lolaI U.S. aerospace saIes. In lhe case ofoeing,Iesslhan4percenlofilssuppIierbaseisIocaledoverseas,andlheforeign conlenlofilscommerciaI|elsaverages13percenl.Inshorl,aerospaceheIpsdrivelhe domeslic economy.NaluraIIy, lhe Iargesl amounl of economic aclivily invoIved in lhe assembIy of aerospace produclsoccursamongaerospacecompanieslhemseIves.Oneaerospacermmaybe responsibIe for lhe design, assembIy, syslems inlegralion, and naI lesling of a producl, C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 9such as an aircrah. Thal company subconlracls vork lo olher aerospace manufaclurers, vho suppIy aircrah vings, laiIs, and engines. These reIalionships vary from program lo program,vilhcompaniesexchangingroIesasprimeconlraclorandsubconlraclor.The moslrecenlguressuggesllhallhisinlerchange,orinlra-induslrylrade,accounlsfor approximaleIy 34 percenl of aerospace purchasing aclivily.In addilion, much of lhe aerospace seclors impacl on lhe U.S. economy arises from lhe induslrys posilion as a ma|or consumer of goods and services suppIied by rms oulside of aerospace. These services incIude IegaI assislance, adverlising, accounling, and dala-processingaclivilies.OlherserviceinduslrieslhalareprominenlaerospacesuppIiers incIude vhoIesaIe and relaiI lrade, nance, and insurance.The imporlance and vaIue conlenl of eIeclronic componenls in aerospace endproducls have grovn signicanlIy in recenl years. Ilems such as anlennas, eIeclronic conneclors, and Iiquid cryslaI dispIays are incIuded vilhin lhis commodily calegory. Their groving share of lhe vaIue of aerospace syslems and vehicIes is due principaIIy lo lvo faclors. Iirsl, eIeclronic componenl cosls are being driven upvard by Ienlagon demands for slale-of-lhe-arl lechnoIogy. This demand, coupIed vilh lhe shorl produclion runs inherenl in mosl miIilary programs, has increased lechnoIogy unil cosls. Second, in an aempl lo reslrain miIilaryspending,lheDODhasposlponednevproduclacquisilionsandinsleadhas been upgrading exisling veapons syslems vilh improved avionics. The cosls of eIeclronic componenls are cIearIy rising reIalive lo lhose of olher inpuls.Olher imporlanl commodilies purchased by lhe aerospace induslry incIude primary, nonferrous melaIs (for exampIe, copper, aIuminum, Iead): radio, TV, and communicalions equipmenl: and scienlic and conlroIIing inslrumenls.TncGctcrnncniMarkciDespilegrovingpercenlagesofnongovernmenlandnonaerospacebusiness,induslry aclivilyissliIIdominaledbygovernmenlconlraclsvilhlheDODandlheNalionaI Aeronaulics and Space Adminislralion (NASA), a faclor lhal has imporlanl eecls on lhe induslrys economic slalus. IreIiminary saIes gures for 2006 indicale lhal approximaleIy $93 biIIion of lhe lolaI saIes vere lo lhese lvogovernmenl agencies (see TabIe 1-2).DefenseContractorsTheoplimismlhalfoIIovedlhebreakupoflheformerSoviel Union vas repIaced by lhe reaIily of lhe Iersian GuIf War in 1991 and vhal il signied: conlinued regionaI lhreals from various corners of lhe vorId. Iasl on lhe vars heeIs came lheconiclinlheaIkansandanunderslandinglhalpeacevasequaIIylhrealenedby IuropeanregionaIandelhniclensions.NonelheIess,lhemiIilaryarsenaIsoflhema|or povers cIearIy vere loo Iarge once lhe possibiIily of conicl belveen lhe Uniled Slales and lhe former Soviel Union vas grealIy diminished.The process of ad|usling lo lhe posl-CoId War era is sliII under vay. The defense forces oflheUniledSlales,ilsWeslernaIIies,andlhoseoflheformerSovielbIocnalionsare decIining in size, nucIear arsenaIs are being dismanlIed, and lhe defense induslriaI bases of ma|or CoId War pIayers are shrinking and consoIidaling.Leading up lo lhe calaslrophic evenls of 9/11, defense companies experienced decreases inbusinessasaresuIlofdvindIinggovernmenlconlracls.Companiesculcoslsby lrimming personneI al aII IeveIs. In lhe Uniled Slales, aerospace saIes lo lhe DOD decIined from a high of $61.8 biIIion in 1987 lo $47.6 biIIion in 2001. TolaI empIoymenl feII from 1.3 miIIion in 1987 lo an eslimaled 794,000 al year-end 2000, IargeIy as a resuIl of defense A I R T R A N S P O R TAT I O N 1 0culbacks. MiIilary aircrah-reIaled |obs decIined from 656,000 in 1986 lo 459,000 by year-end 2000. Despile lhe drops in business, defense companies impacled by a Iesser number of conlracls overcame lhe chaIIenge of keeping key lechnicaI leams in pIace lo mainlain lhe lechnoIogy capabiIilies on vhich lhe chances for fulure conlracls resl. In 2006, business haspickedupasaresuIlofconlinuedlerrorismlhrealsandpoIilicaIinslabiIilyinlhe MiddIe Iasl. Companies are aIso focusing on improving lheir design and manufacluring processes andprocedures,suchasconcurrenlengineeringandinvenloryconlroI,loenhance produclivilyandcompeliliveness.TheyarereslrucluringbyeIiminalingIessprolabIe Iines of business and adding nev capabiIilies. Many companies are slriving for grealer baIancebelveendefenseandcommerciaIvork,vhiIeolhersconcenlraleonlhecore defense business in vhich lhey are slrong.The induslry conlinued ils consoIidalion lhroughoul lhe 1990s. The merger of Marlin Mariea and GI Aerospace made Marlin Mariea lhe Iargesl defense eIeclronics company in lhe vorId unliI lhe mid-1990s, vhen Lockheed purchased Marlin. Lockheed venl on lopurchaselhelaclicaIaircrahbusinessfromGeneraIDynamics,vhichsignicanlIy slrenglhened lhal companys posilon as a Ieading producer of ghler aircrah. The purchase byHughes AircrahoflhemissiIedivisionfromGeneraIDynamicsenabIedHugheslo moveinloa|oinlIeadvilhRaylheoninmissiIeproduclionandsaIesunliIRaylheon acquired Hughess missiIe division. In 1998 Texas Inslrumenls became a parl of Raylheon. Laler, oeing acquired lhe Hughes saleIIile division. Olher ma|or acquisilions vere lhe purchase by LoraI of LTVs missiIe division and by lhe CarIyIe Group and Norlhrop of LTVs aircrah division.In addilion lo consoIidalion in lhe defense seclor, some companies vilh exisling civiI andmiIilaryproduclmixesarelakingslepsloexpandlheirnondefenseacliviliesorlo move inlo reIaled areas. oeing is aIIocaling resources lo ils nev 777 lransporl program. Raylheon purchased lhe corporale |el unil of rilish Aerospace lo expand ils commerciaI aircrahbusiness.TexlronpurchasedGeneraIDynamicsCessna AircrahCompany.ul lhese vere onIy lhe mosl sizabIe and nevsvorlhy of many mergers and acquisilions as aerospace and reIaled business divisions svilched hands.U.S. companies leamed up lo perform R & D and lo bid on governmenl vork. They are seing up |oinl venlures and olher arrangemenls (somelimes incIuding foreign parlners) loappIylechnoIogydeveIopedformiIilarypurposeslocommerciaIaerospaceand nonaerospacemarkels.TheanlicipaledgrovlhoflheciviIaircrahbusinessinvileslhe appIicalion of lechnoIogy lo commerciaI avionics, air lrafc conlroI syslems, and aircrah mainlenance and upgrades.Olher civiI business opporlunilies being soughl incIude highvay lrafc managemenl, lhe polenliaI eIeclric car markel, hazardous vasle and veapons disposaI, high-speed dala lransmission,environmenlaIsensing,spacesaleIIilecommunicalions,Iavenforcemenl (aircrahsurveiIIance,smarlcompuler-IinkedpoIicecars,biosensingofdrugsand bomb-making chemicaIs), Iarge-screen leIevision and home TV saleIIile service, sohvare conversion,facloryaulomalion,Iighl-raiIsyslems,andceIIuIarleIephonesyslems. AIlhough lhe range of nev business is exlensive, il viII lake lime lo deveIop markels. The amounl of nev business viII nol lolaIIy osel Iosl defense procuremenl doIIars for years lo come, if al aII.As companies deaI vilh nanciaI pressures, a smaIIer markel, and uncerlainly aboul DODacquisilions,nolsurprisingIy,R&Dspendingisdovn,asiscapilaIinveslmenl, vilh fev exceplions.C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 1Wilh lhe end of lhe procuremenl budgel decIine nol yel in sighl, defense conlraclors are more dependenl on a baIanced governmenlinduslry sharing of lhe vork performed in governmenl Iaboralories and service mainlenance depols. MiIilary exporls are aIso more imporlanl bolh as a share of lolaI defense saIes and as an aid lo preserving lhe lechnoIogy and produclion base lhal keeps dovn lhe cosl of defense syslems for U.S. laxpayers.NASA.The days of lhe ApoIIo program, vhen annuaI reaI increases in U.S. governmenl spacespendingverelhenorm,areIongpasl.TheCna||cngcrspaceshuIedisaslerof Ianuary28,1986,andreducedspendingondiscrelionaryprogramsresuIledingrealer congressionaIscrulinyofciviIspacebudgels.Inaddilion,spaceeorlshavebeen lempered by lhe diminished compelilion from lhe Russian space program and lhe end oflheideoIogicaIcompelilionbelveenlheIeadingcapilaIislandlhema|orcommunisl nalions.TheIossoflheSpaceShuIeCc|un|iaonIebruary1,2003,hasIedlofurlher examinalion of space spending.Yel many U.S. poIicymakers aIso recognize lhe imporlance of space from a lechnicaI, environmenlaI, and commerciaI slandpoinl. As defense programs shed skiIIed vorkers, aheaIlhyspaceseclorisvievedasamechanismlhalcanreabsorbsomeoflhelaIenl lhal becomes avaiIabIe. In addilion, lhe commerciaI segmenl of lhe induslry, parlicuIarIy leIecommunicalions, has been a grovlh area in an olhervise lroubIed aerospace markel. InvironmenlaI probIems are receiving grealer aenlion loday, and lhe abiIily lo monilor gIobaI varming, ozone depIelion, and cIimalic changes from space is a vaIuabIe capabiIily. A variely of space pIalforms are needed lo meel lhese needs.ThecumuIaliveeecloflheseopposingforcesisaNASAbudgellhal,vhiIenol decIining, is aIso nol shoving any signs of reaI grovlh. Since 1990, NASA spending has beenal.Inaddilion,somefundslhaloncevereearmarkedforspaceprogramsviII inslead be shihed inlo aeronaulicaI pro|ecls: lhe space slalion program viII experience lhe grealesl culbacks. ConsequenlIy, U.S. governmenl funding for civiI space aclivilies is nol expecled lo rise signicanlIy any lime soon. Companies remaining in lhis business viII have lo be very skiIIfuI al seIecling vhich space programs viII demonslrale relurns vilhin a zero-grovlh NASA budgel. This silualion may prompl U.S. companies lo seek foreign opporlunilies vilh grealer vigor.TncCi ti | Ati aii cnMarkciThe Uniled Slales lradilionaIIy has been lhe Iargesl markel oulside of lhe former Soviel UnionforcommerciaIlransporls,heIicoplers,andgeneraIavialionaircrah.CIoselies belveen U.S. manufaclurers and lheir domeslic cuslomers have provided U.S. aerospace companies vilh a soIid saIes base.AIlhough lhe domeslic markel viII remain vilaI lo U.S. aircrah programs, lhe economies of scaIe necessary for success in lodays commerciaI markel compeI manufaclurers lo lake an inlernalionaI approach. This is due lo lhe facl lhal an enormous amounl of capilaI is required lo cover lhe deveIopmenl and looIing cosls associaled vilh a nev program. Ior exampIe, lhe cosl of Iaunching a commerciaI lransporl program loday is approximaleIy $5 biIIion. Manufaclurers musl vail aboul four years before deIiveries begin and revenue is generaled from lheir iniliaI inveslmenls. Compared lo olher induslries, lhe cuslomer base for commerciaI passenger |els is Iimiled and lhe voIume of orders is Iov. GeneraIIy, belveen 400 and 600 aircrah musl be soId before a program reaches lhe break-even poinl. ThesemarkelcharaclerislicsaIsoappIyloolherciviIaircrahmanufacluringseclors. A I R T R A N S P O R TAT I O N 1 2ConsequenlIy, every saIe is imporlanl in order lo pay back lhe nonrecurring cosls of R & D and produclion looIing and lo make a prol. This is vhy exporls are an inlegraI parl of lhe producl and markeling slralegies of civiI aircrah companies. Since 1990, foreign saIes have accounled for over 70 percenl of commerciaI lransporl and civiI heIicopler saIes and aboul 40 percenl of generaI avialion aircrah saIes. TolaI civiI aerospace exporls reached more lhan $55 biIIion in 2005.CiviIaircrahmanufaclurershavehadagIobaIvievforsomelime,aslheirexporl guresindicale,bulrecenlchangesinmarkelcondilionshaveincreasedlheneedfor lhem lo remain commied lo an inlernalionaI slralegy.AirTransport. TheprincipaIciviIavialionproduclislheairIinelransporl.The lradilionaIandobviousdifcuIlyinlhisareaislhefacllhalsaIesdependonlhe nanciaI heaIlh of anolher induslrylhe vorIds airIines. The need for nev |elIiners is evidenl. The vorId lransporl eel is aging, and lhe oIder, Iess efcienl aircrah musl be repIaced. Aher reaching a high of 589 unils in 1991, lhe number of shipmenls decIined precipilousIy during lhe earIy 1990s as lhe economy venl inlo recession and lhe airIines Iosl $13 biIIion during lhe rsl four years. The economy rebounded by lhe mid-1990s, and lhe orders poured in as lhe airIine induslry relurned lo prolabiIily. The number of lransporl aircrah shipmenls reached a peak of 620 in 1999, vhen lhe induslry recorded record prols. Once again, lhe economy sIoved dovn in 2000 and feII inlo recession in 2001. The lragedy of Seplember 11, 2001, exacerbaled lhe decIine, and lhe carriers Iosl $7.7biIIionforlheyear.TransporlaircrahshipmenlsfoIIovedlhedecIineduringlhe rsl fev years of lhe 21sl cenlury (see TabIe 1-3).eforeWorIdWarII,morelhanlvodozencompaniesvereinlhebusinessof designing and buiIding Iarge commerciaI airIinersIarge al lhal lime meaning 20 seals ormoreaImoslaIIforairIinesinlheirhomecounlries.Today,lhenumberofprime manufaclurers of Iarge airIinersand lhal nov means 100-pIus sealsis dovn lo lvo: oeingandAirbus.In1997,oeingproposedamergervilhMcDonneII-DougIasfor aneslimaled$14biIIion.AIlhoughlheproposedmergerdrevseverecrilicismfrom Airbus, il vas approved.The vinnoving-oul in lhis induslry has happened for many reasons, lhe chief one being lhe cosl of deveIoping nev aircrah. As one generalion of aircrah has succeeded anolher, lhe cosls of buiIding lhe Ialesl aircrah and designing ils successor have risen exponenliaIIy. Combined vilh lhe uncerlainlies of lhe markelpIace, lhe spiraIing cosl of deveIopmenl and earIy produclion of nev aircrah has made lhe commerciaI aircrah business a risky venlure.SincedereguIalioninlheIale1970s,lhelrendhasbeenlovardIessandIess dierenlialion vilhin lhe airIine induslry as lhe airIines have compeled more and more on lhe basis of price and scheduIe and as some of lhe oIdesl and proudesl names in lhe induslry have disappeared lhrough merger or bankruplcy. In making lheir purchasing decisions, lhe airIines, in lurn, have increasingIy focused on a singIe faclor: vhich of lhe various aircrah avaiIabIe lo lhem in a fev dislincl calegories is lhe Iov-cosl soIulion lo lhe lask of carrying a cerlain number of passengers a cerlain dislance` Iach of lhe lvo ma|or compelilors slrives lo enler nev markels ahead of lhe olher by deveIoping nev and more cosl-efcienl aircrah, and each one lries lo defend ils markels in lhe absence of any naluraI barriers on lhe slrenglh of being lhe Iov-cosl producer.oeinghasbeenabIelomainlainapproximaleIy60percenloflhemarkelforIarge |ellransporlsinanincreasingIycompelilivegIobaImarkel.ThecompanyscommerciaI C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 3lransporl producls incIude lhe 737, 747, 757, and 767 modeIs: lhe Ialesl, lhe 777, enlered servicein1995.oeingsmoslformidabIecompelilorhasbeenandviIIconlinuelobe Airbus Induslrie. Airbus Iaunched ils rsl aircrah, lhe A300, |usl 30 years ago. y 1995, Airbus had caplured approximaleIy 30 percenl of lhe vorIdvide markel for commerciaI |el lransporls. Airbuss goaI is lo increase furlher ils markel share in lhe Uniled Slales and abroad: lhe companys Ialesl design, lhe 555-seal A380, vhich made ils rsl ighl in 2005, aims lo see lhal lhis goaI is reached.Ixlensive IeveIs of governmenl subsidizalion by Irance, Germany, lhe Uniled Kingdom, and Spain have enabIed Airbus lo deveIop a fuII famiIy of aircrah vilhoul ever having made a prol, lo price lhese aircrah vilhoul fuII cosl recovery, and lo oer concessionary nancinglermslocuslomers.oeingandMcDonneII-DougIasob|ecledslrenuousIy lolhispraclice,cIaimingunfaircompelilion.Airbus,inlurn,cIaimedlhaloeingand McDonneII-DougIas beneled over lhe years from lhe Iarge miIilary conlracls lhal have osel a Iarge parl of lheir R & D expenses. In facl, lhe Uniled Slales has Iong had a defense budgel doubIe lhal of Weslern Iurope, vilh a Iarge inveslmenl in miIilary aircrah R & D and Iong produclion Iines.WhiIebolhoeingand AirbusvereabIelooercuslomersafuIIrangeof|elIiners, McDonneII-DougIasvasunabIelo.WilhaIimiledproduclrange,McDonneII-DougIas dropped from being number lvo in lhe commerciaI aircrah markelpIace in lhe Iale 1970s, vilhmorelhana20percenlshareoflhelolaIvorIdbackIog,lonumberlhreein1995, vilhIesslhana10percenlshare.McDonneII-DougIasvassubsequenlIypurchasedby oeing.TABLE 1-3Civil Aircraft Shipments, 19922006Number of Aircrah ShippedVaIue (miIIions)Transpcri Gcncra| Transpcri Gcncra|YearTcia|AircrahaHc|iccpicrsAtiaiicnTcia|AircrahaHc|iccpicrs Atiaiicn19921,790567324 899|30,72828,7501421,836|19931,630408258 96426,38924,1331132,14419941,545309308 92820,66618,1241852,35719951,6252562921,07718,29915,2631942,84219961,662269a2781,11520,80517,564e1933,04819972,2693743461,54931,75326,9292314,59319983,1155593632,19341,44935,6632525,53419993,4566203612,47545,16138,1711876,80320003,7804854932,80238,63730,3272708,04020013,5595264152,61842,39934,1552477,99720022,8933793182,19635,00027,5741577,26920032,9282815172,13027,52321,033r3666,12420043,4402838052,35227,68220,4845156,6832005p4,1712909252,95631,15021,9007508,5002006e4,006b400650 NA39,385b30,200685 NASource: Aerospace Induslries Associalion, based on company reporls, dala from lhe GeneraI Avialion Manufaclurers Associalion, and AIA eslimales.aIncIudes aII U.S.-manufaclured civiI |el lransporl aircrah pIus lhe lurboprop-povered Lockheed L-100.|Due lo an unavaiIabiIily of generaI avialion forecasl dala, 2006 lolaIs incIude 2005 generaI avialion gures for lhe purpose of eslimaling.e Islimale.NA Nol avaiIabIe.p IreIiminary.r Revised.A I R T R A N S P O R TAT I O N 1 4The cosl of deveIoping nev airpIanes has become slaggering. Ivery lime a company Iike oeing moves forvard vilh a nev program, il is essenliaIIy puing ils enlire nel vorlh on lhe Iine. Inormous fronl-end inveslmenls musl be made for a relurn lhal viII nol be reaIized unliI many years Ialerif al aII. oeings program lo deveIop and manufaclure lhe 350-seal 777 airpIane provided a good exampIe of lhe enormily of lhe chaIIenge. The companyspenlbiIIionslodeveIoplhenevairpIane,vhichinvoIvesseveraIlhousand suppIiers and over 800,000 dierenl parls.As Airbus and oeing conlinue lo compele, lhey are forced lo deveIop nev producls and services lhal are araclive lo an exisling and polenliaI cuslomer base. olh manufaclurers are going head-lo-head on deveIopmenl of nev aircrah lechnoIogy lhal viII revoIulionize lhe fulure of air lransporlalion. Airbus is Iaunching lhe A350 in response lo oeings 787 DreamIiner. olh aircrah are being deveIoped vilh lvin-engines capabIe of ying 250 lo 300 passengers on Iong dislance roules al cosls much Iess lhan lodays modern aircrah. olhaircrahviIIbeIighlinveighlconsislingofcomposilemaleriaIsamounlinglo signicanl decreases in fueI cosls. AIlhoughlhecoslofdeveIopingnevairpIanesisenormous,lhecoslofnolmoving ahead is even grealer. A companys abiIily lo mainlain ils posilion as a gIobaI aerospace manufaclurer depends fundamenlaIIy on ils capilaIizing on nev markel opporlunilies. In inslances in vhich lhe markel is Iimiled or lhe barriers lo enlry are prohibiliveIy high for one company, inlernalionaI coIIaboralion may be lhe vave of lhe fulure.AIlhough U.S. aerospace companies have dominaled lhe gIobaI markel for many years, lheuseofoverseassuppIiersofcomponenlsandsubassembIiesisincreasing.Thereis nolhing slrange aboul lhal, because lvo-lhirds of lhe vorId markel for Iarge airIiners exisls oulside lhe Uniled Slales. Though companies in counlries such as IlaIy and Spain have been ma|or suppIiers for many years, lhe nalions of Asia and lhe Iacic Rim coIIecliveIy have been dislinclIy minor suppIiers. Thal is bound lo change, for lvo reasons: lhose same counlries aIready accounl for a subslanliaI porlion of lhe vorId markel for commerciaI airIiners (20 percenl and groving rapidIy), and lhey pIainIy have bolh lhe desire and lhe capabiIily lo parlicipale in lhe produclion of nev aircrah.UnqueslionabIy,inlernalionaIcoIIaboralionisakeyslralegyinlhebroadereorllo remain compelilive in lhe aerospace induslry. Ioinl programs in vhich lhe parlners share cosls oer a means of generaling lhe requisile capilaI for advanced commerciaI airpIane andenginedeveIopmenlinlhefaceofhighandrisingcosls.TheyaIsogivelheU.S. companiesinvoIvedaccessloforeignmarkelslhalmighlolhervisebedeniedlolhem in viev of lhe lrend lovard direcled procuremenl. Oseing lhese advanlages lo some exlenl is lhe facl lhal |oinl U.S.-foreign venlures inevilabIy slrenglhen lhe lechnoIogicaI capabiIilies of foreign induslry. In shorl, sharing American knov-hov mighl prove coslIy in lhe Iong run, because il furlher enhances lhe compelilive poslure of foreign companies. ul sharing, il shouId be remembered, is a lvo-vay slreel.|acicrsAj j ccii ngCcnncrci a| TranspcriSa| csConlinued markel Ieadership of U.S. aircrah manufaclurers is cIoseIy lied lo lhe exislence ofheaIlhy,prolabIeU.S.airIines.ThehugesizeoflheU.S.domeslicmarkelhasbeen imporlanlloU.S.manufaclurersbyprovidinglhemvilhlhebroadbaseofdemand necessary lo Iaunch nev aircrah programs. TradilionaIIy, over 40 percenl of commerciaI |els on order from U.S. manufaclurers have been deIivered lo U.S. airIines. These aircrah makeupone-lhirdoflhevaIueoflhemanufaclurersbackIogofunIIedorders.Large C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 5order voIumes heIp manufaclurers spread cosls over a Iarger produclion run, vhich aIIovs lhemloreducelheirunilcoslsandbemorecompelilive.Novmorelhanever,aslhey seek lhe exporl saIes cruciaI lo markel Ieadership, manufaclurers need lhe foundalion of a slrong U.S. saIes base.y lhe end of 1993, lhe airIine induslry vas in a laiIspin. Iassenger and freighl lrafc vasslagnanl,aircrahbylhehundredshadbeenpIacedinslorage,induslryIossesand debls veremounling, and aircrah orders verebeing canceIed. Thedovnlurn had aIso spread lo lhe commerciaI lransporl seclor, and aircrah manufaclurers vere forced lo scaIe back produclion and Iay o lhousands of vorkers.y 1997, hovever, lhe airIine induslry vas laking o. Air lrafc and prols vere back up, and nel orders for U.S. lransporls |umped from 256 in 1995 lo 620 in 1999. The pace of lhis recovery Ieh commerciaI aircrah producers slruggIing lo keep up.CiviI avialion has a hislory of cycIes, and vilh lhe sIovdovn of lhe economy in 2000 shipmenlsbeganlolumbIe.AircrahcompaniesareimpIemenlingprogramsloreduce lhesemarkelsvings.AIso,someeconomislsaresuggeslinglhalbusinesscycIesin generaI shouId be Iess severe due lo faclors such as dereguIalion and gIobaI compelilion. NeverlheIess, severaI faclors slrongIy inuence cycIes in lhe air lransporl induslry.EconomicGrowth.IconomicgrovlhhasalremendousimpaclonlheciviIavialion markel.IlisimporlanlbecauseilbroadIyinuenceslhedemandforairlransporlalion services, vhich, in lurn, aecls aircrah orders and deIiveries. During periods of economic grovlh, companies buiId and service nev oulIels, vhich Ieads lo an increase in business lraveI.Inaddilion,famiIyincomesgeneraIIyrise,vhichresuIlsingrealerspendingon Ieisure lraveI. Yel, lhe reverse is aIso lrue: vhen economic oulpul faIIs, businesses cIose faciIilies, unempIoymenl rises, and air lrafc decIines.The correIalion belveen economic grovlh and air lraveI has been recognized by anaIysls formanyyears. AgeneraIIyaccepledruIeoflhumbhoIdslhallhereisa2.53percenl increase in vorId air lrafc for every 1 percenl increase in vorId economic grovlh.Ination. Inalionisimporlanlbecauseilinuenceseconomicgrovlh.Whenprices areslabIe,inlereslraleslendlobeIov,andlhisencouragesinveslmenlandbusiness expansion.WhenpricesrisequickIy,inlereslralesaIsocIimb.IvenluaIIy,highinleresl rales viII inhibil economic aclivily, vhich can pul a damper on air lrafc. ecause high inleresl rales raise lhe cosl of borroving, lhey can aIso make aircrah nancing prohibilive. Inaddilion,inalioncanresuIlinescaIalingIaborandfueIcosls.Whenlhishappens, airIinesarefacedvilhlheunpIeasanlchoiceofeilherabsorbinglhosehighercoslsor raising lheir fares.Inalion has grounded lhe airIine induslry on more lhan one occasion. In 1970, 1973, 1978,and1991,aircarriersfacedrisingfueIandIaborcosls.Duringlhosesameyears, inalion aIso pIunged lhe ma|or vorId economies inlo a recession, causing air lrafc and airIine prols lo decIine.During lhe recenl recessionary periods (19901994 and 20002002), air carriers suslained huge Iosses. AirIines have aempledlo conlroI lheir cosls and have made il cIear lo aircrah manufaclurers lhal lhey vanl lhe price of pIanes lo come dovn. Aircrah companies have reducedlheirpriceslhroughimpIemenlalionofIong-lermprogramsaimedalcuing cosls and improving efciencies, eorls lhal shouId benel airIines veII inlo lhe fulure.A I R T R A N S P O R TAT I O N 1 6Fleet Capacity.The passenger Ioad faclor is used lo measure airIine capacily uliIizalion. Theindicalorisexpressedasapercenlage,reIalinglhenumberofpassengersovnlo avaiIabIeseals.WhenIoadfaclorsareIov,airIineshavemoreexcessIihcapacilylhan vhenIoadfaclorsarehigh.HighIoadfaclorsandrisingairlrafcpIaceairIinesunder pressure lo buy aircrah. If Ioad faclors are rising during a business cycIe, lhis aIso suggesls lhalairIinerevenuesareimproving.ThisisimporlanlifairIinesarepIanningloorder aircrah because il enhances lheir abiIily lo purchase or Iease pIanes.The passenger Ioad faclor for vorId airIines rose during lhe Iaer haIf of lhe 1990s, and orders for nev aircrah reached record IeveIs. UnforlunaleIy, as vas lhe case in previous economic dovnlurns, air lrafc decIined in lhe earIy 2000s and Ioad faclors feII, prompling lhe air carriers lo reduce eel capacily and canceI orders. y year-end 2006, Ioad faclors vere al normaI IeveIs and in some cases higher lhan ever.ReplacementAircra. AirIinesorderaircrahloincreaselheircapacily:lheyaIso purchase nev lransporls lo repIace lheir oIder, Iess efcienl modeIs.Theadvancingage of currenl eels suggesls lhal repIacemenl orders shouId be on lhe rise lhrough lhe mid lo Iale 2000s.InareIaledissue,lheairIinesvererequiredlomeelIovslage3noiseIeveIsinlhe UniledSlalesbyDecember31,1999:lhedaleinIuropevasApriI1,2002.AIlhough many of lhe over 3,000 aircrah have been grounded, modied using engine hushkils, or soId oulside lhe Uniled Slales and Iurope, lhere is sliII a signicanl penl-up demand for repIacemenl aircrah.Airline Protability.CommerciaI lransporls are expensive assels: smaIIer modeIs slarl al approximaleIy $25 miIIion and |umbo |els cosl over $140 miIIion. To make lhese lypes ofpurchases,aircarriersneedloraisecapilaIinlhenanciaImarkels,andlherefore, lhey need lo demonslrale lo polenliaI inveslors lhal lheir operalions are prolabIe. Aher Iosing biIIions of doIIars in lhe earIy 1990s, lhe airIines relurned lo prolabIe operalions in lhe Iaer haIf of lhe decade. AirIine slocks vere soaring and oplimism prevaiIed as lhe carriers enlered lhe nev cenlury. The economy sIoved dovn in lhe spring of 2000 and venl inlo recession in 2001, foIIoved by lhe lragedy of Seplember 11, 2001. Once again, lhe carriers experienced record Iosses in 2001 and 2002. US Airvays Ied for bankruplcy, and olher ma|or carriers vere nol faring much beer. Massive empIoyee furIoughs look pIace during lhese years. Uniled von $5.8 biIIion in vage and benel concessions from ils empIoyees lo slave o bankruplcy. y lhe end of 2002 lhe induslry vas in shambIes. Over 90 percenl of lhe passengers vere ying on discounl fares and Iov-cosl carriers vere ealing avay al markel share from lhe oId-Iine airIines.Wilh no relained earnings and slock prices al record Iovs, lhe carriers onIy source of funds in lhe foreseeabIe fulure appears lo be lhe debl markel. This viII nol be an easy lask because lhe carriers are aIready faced vilh a subslanliaI debl Ioad from lhe Iasl round of aircrah purchases.A Cyclical Industry.The civiI avialion markel is cycIicaI. This is imporlanl lo recognize lo fuIIy undersland lhe environmenl surrounding lransporl orders and deIiveries. Since 1971, orders for U.S. lransporls have peaked ve dierenl limes, and lhe average period belveen a lrough and a peak has been lhree years. The deIivery piclure shovs a simiIar paern.WorIdlransporldeIiverieshavepeakedsixdierenllimessince1960.When deIiverieshavefaIIen,lhedecIineshavebeensleep(dropsaverageover50percenl): C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 7neverlheIess,deIiverieshaveconlinuedloriseoverlheIonglerm.ThesecycIesaresel inmolionbylheunderIyingforcesofeconomicgrovlhandrecessionandarefurlher magnied by lhe nalure of aircrah manufacluring.In lhe relaiI induslry, ilems ohen sil on slore sheIves for veeks before lhey are soId, and buyers usuaIIy can lake lheir purchases home lhe day lhey are boughl. ul aircrah are loo expensive lo buiId and lhen keep in invenlory. Inslead, lhey are manufaclured onIy aher an order is pIaced. This creales a lime Iag belveen order and deIivery dales lhal can Iasl veII over a year.AIso,inlherelaiIinduslry,lherearemanysuppIiers.Ifacuslomerhaslovailfor deIiveryfromonesuppIier,lhalcuslomercangoloanolhervendoroeringamore immediale response. ul again, lhe aircrah induslry is dierenl. uiIding a commerciaI lransporllakesanenormousinveslmenl,Iimilinglhenumberofmanufaclurersinlhe business. If lhe order Iine for aircrah IIs up, cuslomers have IiIe recourse bul lo vail.Ifaircrahdemandrises,manufaclurersviIIinilialeanevprogramorincreaselheir produclion rales. UnforlunaleIy, due lo lhe looIing and suppIier Iinks lhal musl be sel up and lhe boIenecks lhal can deveIop among slralegicaIIy imporlanl suppIiers, reaching fuIIimpIemenlalionlakeslime.IorexampIe,illookoeinglvoyearslodoubIeils produclion rale for aII modeIs.ThesesilualionscancrealeanimbaIancebelveendemandandsuppIylhalcauses orders and deIiveries lo sving abruplIy. Yel lhere is aIso a behavioraI side lo lhese cycIes. AirIines and aircrah Ieasing companies vorry lhal lhey mighl miss a markel uplurn if lhey are pIaced near lhe end of an ordering Iine. Al lhe rsl sign of a markel lurnaround, lhey frequenlIy scrambIe en masse lo pIace orders. This creales a surge in orders lhal can push back deIivery dales even furlher. As a resuIl, air carriers near lhe end of lhe Iine mighl, in facl, receive lheir deIiveries years Ialer, as air lrafc is subsiding. These deIiveries lhen creale an overcapacily probIem, causing aircrah orders lo sving dovnvard. Manufaclurers vho had |usl invesled in grealer produclion capabiIily nov nd lhemseIves vilh excess capacily, and a shuldovn reverberales lhrough lhe induslry.These cycIes are disruplive, and aircrah manufaclurers are vorking lo minimize lhem. Companies have Iaunched eorls lo shorlen lhe producl deveIopmenl phase and reduce lhe lime gap belveen aircrah order and deIivery. This is being accompIished by adapling compuler-aideddesignandmanufacluringlechnoIogieslhalobvialelheneedlobuiId mock-ups. To improve program communicalion and efciency, manufaclurers are using concurrenlengineering,vhichinvoIveseslabIishingleamsofdesign,deveIopmenl, produclion,andsaIespeopIeallhebeginningofaprogram.Irimeconlraclorsare slrenglheninglheirreIalionshipsvilhlheirsuppIiersandincreasinglhelvo-vayov oflechnoIogy.oeing,specicaIIy,isoverhauIingilsproduclionandsyslemssohvare losimpIifylhevayillracksandhandIesmiIIionsofparls.oeingaIsohasreached agreemenls vilh American, DeIla, and ConlinenlaI lhal viII provide lhose airIines vilh grealer exibiIily for ordering aircrah over a 20-year period. This viII aIIeviale pressure on lhose carriers lo order aircrah during a surge period.Future Trends in Air Transport.The air lransporl seclor has shovn a slrong lendency lo recover from each dovnlurn vilh reneved vigor. Iconomic grovlh and Iov inalion have been lhe key faclors lhal have fed lhe demand for air lransporlalion. This has pushed aircrahuliIizalionlorecordIeveIs,improvedairIineprols,andfueIedprogramslo repIace oIder aircrah. Togelher, lhese faclors have conlribuled lo a rise in aircrah orders. A I R T R A N S P O R TAT I O N 1 8NeverlheIess, civiI avialion has a hislory of cycIes, and ve can expecl lhal orders and deIiveries viII faII.TransporldeIiverieshavebeenrisingforlhepasl40years.Thissuggeslslhal deIiveriesviIIconlinuelocIimbinlhefulure.Infacl,lransporlmanufaclurersand anaIysls aIike pro|ecl lhal deIiveries viII aImosl doubIe over lhe nexl lvo decades. The key assumplion here is lhal lhe inlernalionaI economy viII conlinue lo grov.Gcncra| Ati aii cnAherrecordshipmenlsof17,817unilsin1978,lhegeneralaviationsegmenloflhe aerospace induslry, vhich manufaclures Iighl aircrah and componenls, experienced a 16-year dovnvard sIide in saIes. Aher reaching a Iov of 928 unils shipped in 1994, induslry shipmenls increased for lhe remainder of lhe decade and lhrough lhe years 2000 and 2001 (see TabIe 1-3).HisloricaIIy, lhe economic cycIe of lhe generaI avialion induslry cIoseIy paraIIeIed lhal of lhe nalionaI economy. This reIalionship changed during lhe 1980s and earIy 1990s. High aircrah prices, inleresl rales, operaling expenses, and producl IiabiIily cosls aII conlribuled lo lhe dovnvard cycIe. Olher anaIysls ciled changing Iife-slyIes, lax Iavs,andforeigncompelilionasfurlherreasonsforlhesIuggishsaIesperformanceof recenl years.ThegeneraIavialioninduslryhasundergonedeepandbroadslrucluraIchanges. The ma|or independenl manufaclurers have been laken over by congIomerales. Texlron acquired Cessna from GeneraI Dynamics, and eech is nov Raylheon, laking lhe name ofilsparenlcompany.Iiperemergedfrombankruplcyandisnovoperalingaslhe Nev Iiper Aircrah Corporalion. WhiIe Raylheon and Cessna conlinue lo concenlrale on producing muIli-engine and |el equipmenl, Cessna resumed produclion of severaI singIe-enginemodeIsin1996ahera10-yearhialus.ThisvasIargeIyinresponselopassage oflheGeneraI AvialionRevilaIizalion Aclof1994,vhichIimiledproduclIiabiIilysuils invoIving oIder aircrah.usiness use of Iighl aircrah remained slrong despile lhe economic dovnlurn in lhe 1980s,forseveraIreasons.SmaIIaircraharefueI-efcienl.Infacl,lheyuseIessfueIper seal-miIelhananyolherformofairlransporlalion.Aoeing747gels40.7seal-miIes pergaIIonoffueI(mpg):asix-passengerIiperLancegels89.4mpg,lhesix-sealeech onanza 86.4 mpg, and lhe seven-seal Cessna 207 84 mpg. Iven Iighl lvin-engine aircrah perform beer in lerms of fueI usage lhan lhe exlremeIy efcienl oeing 777.Iurlhermore,airIinesrequireconsiderabIegroundsupporlfaciIilies,suchaslugs, shuIe buses, baggage lrucks, and healed and air-condilioned ofces and lerminaIs, mosl ofvhichusepelroIeum-basedenergy.RareIyisama|orairIinelerminaIascIoseloa persons uIlimale deslinalion as is a generaI avialion airporl. Irivale-use aircrah can y slraighllolheirdeslinalions,vhereasairIinesfrequenlIyuseindireclroulesvilhone ormoreslopsaIonglhevay.ThishasbeenparlicuIarIylrueinrecenlyearsvilhlhe eslabIishmenl of hub airporls by lhe ma|or carriers.The efcienl use of lime is anolher reason generaI avialion viII expand. As our energy probIems deepen and lhe airIines seek lo make more efcienl use of coslIy fueI, il viII be increasingIydifcuIlloreachmanyIocalionsviascheduIedcarriers.OnIylhoseroules lhalgeneralehighIoadfaclorsviIIconlinuelobeviabIe,vhichmeanslhallhelrend viIIbelovarddecreasedairIineservice.Ieverlhan5percenloflhenalionsairporls have airIine service nov, and lhe ma|orily of ighls serve onIy 30 ma|or cenlers. Il ohen is nol possibIe using lhe airIines lo lraveI in one day belveen such cilies as Nev York and C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 9Lexinglon, Kenlucky: Chicago and CharIeslon, Wesl Virginia: or San Irancisco and SaIem, Oregon.Inlhefulure,generaIavialionviIIbelheonIylime-eeclivemeansoflraveI belveen many of lhe pIaces business-peopIe need lo go.The upvard lurn in unils shipped and parlicuIarIy doIIar voIume has ushered in a nev vave of oplimism lo lhe generaI avialion seclor. UnqueslionabIy, generaI avialion is here lo slay, bul as in lhe air lransporl segmenl, manufaclurers viII conlinue lo experience ups and dovns vilh changes in lhe economic cycIe, |usl as lhey have in lhe pasl.To salisfy lhe need for pubIic lransporlalion, lhere viII be considerabIe grovlh in lhe lhird-IeveI, or commuler/regionaI, airIines, lhose operalors vho oer scheduIed service in Iarger generaI avialion and shorl-hauI lransporl aircrah. Commuler/regionaI carriers viII Iink a number of smaII cilies vilh Iov passenger voIumes as lhe Iarger carriers concenlrale lheir services in lhe high-densily markels.Helicopters.SaIes of U.S.-manufaclured civiI heIicoplers conlinued lo faII during lhe earIy 1990s(seeTabIe1-3).TheheIicoplerinduslryslradebaIance,posilivelhroughlhe1980s, vas negalive lhrough lhe earIy 1990s. (Il shouId be noled lhal much of U.S. manufaclurer eII HeIicoplers produclion is based in Canada and lhus is nol counled as a U.S. exporl vhen shipped abroad.) Today, Iighlveighl, singIe-engine modeIs dominale U.S. rolorcrah shipmenls, vhiIe Irench/German-ovned Iurocopler is lhe Iargesl manufaclurer of Iarger, more expensive modeIs. OveraII, foreign manufaclurers shouId conlinue lo increase lheir share of lhe lolaI vorId markel even as U.S. manufaclurers gain ground, as evidenced by lhe uplurn in shipmenls since 1996.|c| aic!Prc!ucisan!Scrti ccsTechnoIogy is simpIy knovIedge, and il has a high degree of lransferabiIily: lhe knov-hov acquired in expIoring aerospace fronliers can be pul lo vork lo provide nev producls and services of a nonaerospace nalure, vilh resuIlanl benels lo lhe economy as a vhoIe.Ior many years, lhe aerospace induslry has pursued a program of lechnoIogy lransfer inaneorllomakebroaderuseofilsveaIlhofknov-hov.Thelransferprocesshas been hampered by lhe Iack of an aggregaled markel such as lhal provided by lhe federaI governmenlorlheairIinesinaerospacevork.Innonaerospa