The U.S. civil aerostructures industry, which supplies fuselages, wings, and landing gear to the U.S. large civil aircraft (LCA) industry, is facing new market challenges as it competes with the aerostructures industries in Europe, Canada, and Asia, reports the U.S. International Trade Commission (ITC) in its publication Competitive Assessment of the U.S. Large Civil Aircraft Aerostructures Industry.

The ITC, an independent, nonpartisan, factfinding federal agency, recently concluded the investigation for the U.S. House of Representatives' Committee on Ways and Means. The report examines the U.S. civil aerostructures industry in its capacity as a major supplier to the LCA industry, discussing the composition of the industry and recent trends; the process of new aerostructures development; the means and trends in government support and other financial assistance; and the relative strengths and weaknesses of the aerostructures industries in the United States, Europe, Canada, and to the extent possible, Asia. The report focuses on the U.S. civil aerostructures industry's ability to compete over the short and long terms with the aerostructures industries in Europe, Canada, and Asia. Highlights of the report follow:

• Early global leadership in the aerospace industry enabled the United States to develop a highly competitive aerostructures industry to supply the LCA industry. However, the U.S. aerostructures industry has recently lost some of its competitive edge as a result of LCA industry consolidation, aging U.S. manufacturing equipment, increasing responsibilities placed on suppliers by LCA producers, and increasing foreign competition. A number of U.S. aerostructures firms are concerned that foreign firms may displace U.S. suppliers because of market access and cost considerations.

• Some U.S. firms appear to be successfully responding to the challenges of the changing LCA aerostructures market by increasing scale and range of expertise through consolidation, adopting more efficient and cost-saving measures, and taking on more supply chain management responsibilities.

• The European LCA aerostructures industry is characterized by its complex inter-relationships, the dominance of Airbus Industrie and its aerostructures subsidiaries, and varying degrees of government participation. Government-influenced consolidation is likely to increase the European aerospace industry's efficiency and, in turn, competitiveness. Airbus encourages its predominantly European supplier network to contribute research, development, and design inputs to a greater extent than Boeing, the sole U.S. LCA producer. These suppliers are then able to market themselves as design-build manufacturers, offering a value-added product for which they can theoretically command a greater premium from the airframer.

• The Canadian aerostructures industry's continued consolidation will strengthen financial resources and improve production capabilities, enabling Canadian aerostructures producers to take on greater risk, responsibilities, and supply chain management to accommodate the demands of their LCA customers. Boeing has been a long-time customer of Canadian aerostructures manufacturers; however, the industry anticipates future work from Airbus as it and its aerostructures suppliers encounter capacity limitations, prompting them to look for additional sources of supply.

• Asian aerostructures manufacturers have greatly improved their capabilities. However, gaps in technological skill and a lack of experience in systems production and integration have thus far prevented Asian firms from ascending to the upper levels of the supply chain. Conglomerate and government management of Asian aerospace industries ensure that they are somewhat insulated from the business pressures that other global firms might experience.

• NASA and U.S. Department of Defense research and development (R&D) spending for aeronautics decreased in recent years relative to other major aerostructures-producing countries, a trend paralleled by reductions in R&D expenditures by Boeing and other U.S. aerostructures manufacturers. On the other hand, competing industries in Europe and Asia increased R&D expenditures during this period, as did Canada, with the exception of 1999.

• Certain legal requirements and government policies have an effect on the competitiveness of U.S. and foreign aerostructures manufacturers. Tax benefits include the United States FSC (Foreign Sales Corporation) Repeal and Extraterritorial Income Exclusion Act of 2000; however, the lack of financial transparency by European companies prevents a comparison to various European tax incentives. Restrictive export financing regulations, combined with the United States' complicated system of export controls, put U.S. aerostructures firms at a relative disadvantage compared with European and Canadian companies, which enjoy more flexible export promotion programs. In addition, productivity gains spurred by rigid EU labor regulations appear to balance the perceived advantage U.S. companies might receive from more flexible labor laws.

The foregoing information is from Competitive Assessment of the U.S. Large Civil Aircraft Aerostructures Industry (Investigation No. 332-414, USITC Publication 3433, June 2001). The report will be available on the USITC's Internet site at www.usitc.gov. A printed copy of the report may be requested by calling 202-205-1809 or by writing the Office of the Secretary, U.S. International Trade Commission, 500 E Street, SW, Washington, DC 20436. Requests may also by made by fax to 202-205-2104.

ITC general factfinding investigations, such as this one, cover matters related to tariffs or trade, and are generally conducted at the request of the U.S. Trade Representative, the Senate Committee on Finance or the House Committee on Ways and Means. The resulting reports convey the Commission's objective findings and independent analyses on the subjects investigated. The Commission makes no recommendations on policy or other matters in its general factfinding reports. Upon completion of each investigation, the ITC submits its findings and analyses to the requestor. General factfinding investigation reports are subsequently released to the public, unless they are classified by the requestor for national security reasons.