Page last updated at 23:23 GMT, Tuesday, 27 April 2010 00:23 UK

Aerospace firms eye global shift in centre of power

By Jorn Madslien
Business reporter, BBC News

Boeing 787
Demand for planes and military hardware is growing faster outside Europe and North America than within

For decades, North American and European industry giants have dominated the aerospace and defence sector, selling weapons to their own governments or aircraft to airlines in their home markets.

But this is about to change, according to a report by the consultants PricewaterhouseCoopers (PwC).

"The next decade will bring profound change to the aerospace and defence industry," predicts Neil Hampson, PwC's global aerospace and defence leader.

"And it will define the winners and losers for a much longer period."

New markets

Strong economic growth in Asia and the Middle East will lead to a sharp growth in air travel by citizens in these regions and to a rise in defence spending by their governments, Mr Hampson says.

It's clear that in many countries, if you don't build some parts of your aircraft there, they won't buy your aircraft,
Claude Lajeunesse, president, Aerospace Industries Association of Canada

Such "rapid growth of markets outside North America and Europe" - mainly in China, India and Saudi Arabia - is forcing industry giants to invest vast sums now in order to "pursue the customers and relationships that will help drive sales growth over the next 20 years", he reasons.

Those failing to prepare the ground now stand to lose out as global competition heats up, he explains.

While companies that do get involved must focus on their "need to access new markets and new sources of supply".

Getting involved

But governments and companies in emerging markets are no longer content to buy their wares from foreign firms.

The Global Hawk, a version of the Air Force's top-of-the-line unmanned spyplane
Hi-tech military hardware sales is set to soar.

"Governments and private sector companies in emerging markets [will increasingly] seek to participate much more directly in the aerospace and defence industry" in the future, Mr Hampson predicts.

So, whereas in the past many nations would welcome foreign defence and aerospace companies with open arms, in return for investment in other sectors of their economies, these days they seem keen to become industry players themselves.

Initially, their involvement is expected to be as suppliers to or as local operators for major global manufacturers, at the expense of existing suppliers and operators in Europe or North America.

"It's clear that in many countries, if you don't build some parts of your aircraft there, they won't buy your aircraft," points out Claude Lajeunesse, president of the Aerospace Industries Association of Canada.

But many of the emerging markets are also investing heavily in the education of engineers and others with skills required by the aerospace and defence industry.

And they are charging ahead with research and development programmes that could soon rival those undertaken in the West.

Building rivals

Western aerospace and defence firms, though eager to sell to and partner with emerging market customers, are wary of activities that might speed up their rivals' growth - though many also accept that they do not have much choice.

"Investment in production overseas is necessary to achieve industry globalisation," says Marcus Bryson of GKN.

"This inevitably involves intellectual property transfer and we are acutely aware that we are creating our next competitor".

*PricewaterhouseCoopers' report Aerospace & Defence Insights: Accelerating global growth.

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