In the time that air and space travel went from entertaining novelty to a ubiquitous form of travel and exploration, its importance to the manufacturing technology market has only grown. Since 2016, when it overtook automotive in annual share of manufacturing technology purchased, the aerospace industry has remained the second-largest customer except in only two years. Job shops, which are consistently the largest customer industry, have also seen a larger and larger share of their work come from the aerospace sector over that same time. With a footprint that covers as much as 5% of the U.S. economy, it would be worthwhile to observe how the aerospace industry fared over the previous few recessions, how that impacted demand for manufacturing technology, and what lessons we can draw for any coming recession.
Economic Ground Stop
Every economic downturn is triggered by a different factor, giving rise to an array of potential complications. Similarly, both the timing and speed of the recovery is affected by different characteristics. The most recent recession caused by the COVID-19 shutdowns was particularly hard on the aerospace industry. Passenger air travel nearly ceased, and the number of new planes ordered by airlines actually went negative as cancellations exceeded new orders. Despite these challenges, the impact on manufacturing technology orders was relatively mild compared to the previous two recessions. Orders began to decline in the first quarter of 2020 and did not return to pre-recession levels until the fourth quarter of 2021. Since then, they have lagged behind the growth in the overall manufacturing technology market.
Although the direct impact on air travel wasn鈥檛 as drastic in the Great Recession in 2008, the decline in manufacturing technology orders was much more dramatic. While orders roughly kept pace with pre-recession levels for three quarters, the value of machinery ordered plummeted in the second half of 2008, and the quarterly value of orders from the aerospace industry would not return to pre-recession levels for five years. The recession in 2001 brought about a much more immediate decline in capital investment from the aerospace sector. Orders were nearly cut in half between the last quarter of 2000 and the first quarter of 2001. Orders remained low and were further pushed down by the impact on the airline industry following the Sept. 11 terrorist attacks. This prompted the government to extend $15 billion in direct compensation, loans, and other credit instruments to the commercial airlines. With the exception of the third quarter of 2002, manufacturing technology orders grew by less than the overall market for the next several years. While it took quite some time for the value of orders to recover, the number of units surpassed pre-recession levels in the fourth quarter of 2004.
Peering Beyond the Horizon
While any coming recession will likely not exactly mirror the previous three, we can take a cue from certain conditions that were present to help form expectations on how a new recession will affect manufacturing technology orders. One of the consistent themes is that the value of aerospace orders tends to grow at a slower pace than the overall market for machinery following a recession, but the number of units tends to return to pre-recession levels much quicker. It may make sense to highlight middle-tier product lines to customers tied to the aerospace sector in the months following a recession.
One anomaly that may make the next recession stand out is fleet modernization. In recent years, U.S. airlines have ordered new planes at an astounding pace. One of the most-cited reasons for this push toward modernization is increased fuel efficiency. In previous recessions, massive runups in the price of oil had negative effects on economic activity, particularly for airlines. While efficiency in the automotive sector generally means electrification, that is not as attractive an option for airlines. A recent research briefing by Oxford Economics outlines how electrification would be reasonably implemented for short-haul flights by 2050. While this would mean that nearly a quarter of all flights would not be as directly reliant on oil prices, this would only actually displace about 5% of all jet fuel used.
A Galaxy (Not So) Far Away
While electrification may not be as imminent a trend in the aerospace sector as automotive, increased efficiency and new technology will continue driving both the industry and its capital investment. With its roots in science fiction, the aerospace industry has made tremendous advances, replacing timber airframes with titanium components and reaching from air travel to space travel. The manufacturing technology industry has evolved as well to meet these changing needs. Even with a projection of economic turbulence, the aerospace sector will remain an important customer for the manufacturing technology industry.
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