Current Market Trends
Subsector Focus: Helicopters
Population: 61.0 million
GDP USD: USD 2.0 trillion
With a turnover of 20 billion USD and a workforce of over 50,000, the Italian aerospace industry ranks 7th in the world and 4th in Europe and represents the largest manufacturing sector in Italy in the field of high-tech integrated systems. Five regional players and over 300 SMEs stand out at the national and international level, both in civil and military fields. The key players are Finmeccanica, its subsidiaries, a wide network of small- and medium-sized enterprises (SMEs), research centers and universities. Italy is well integrated in international projects and has primarily fostered relationships with non-European partners.
The Finmeccanica Group (30 percent ownership by the Italian Government) has a leading role in the aerospace, defense and security sectors. Finmeccanica holds a 50 percent share in Agusta Westland (AW), the world’s second biggest producer of civil helicopters, and controls Alenia Aermacchi. Alenia, which restructured in 2012 to streamline its business, manufactures products for military and commercial aircraft, military trainers, turboprops, aero structures, advanced mission systems, unmanned aerial systems (UAS), parts, subassemblies and provides maintenance services. Avio Aero – founded by Fiat and now owned by GE Aviation – is one of the oldest companies operating in the aerospace industry worldwide, a leading manufacturer of aircraft and naval engines and a leader in space propulsion. Another important player is Piaggio Aero Industries that designs, develops, constructs and maintains aircraft, engines and aircraft structural components.
According to the Italian Aerospace Industry Federation (AIAD), 75 percent of its members are SMEs and about half of these have fewer than 100 employees. These firms are concentrated in several clusters located in Piedmont, Lombardy, Lazio, Puglia, Campania and Umbria. This network represents a key industry component characterized by a highly skilled workforce. About 25 percent of these firms are located in the Campania cluster (29 major companies plus 130 sub-suppliers). The Piedmont cluster is a production and scientific pole whose focus is technological innovation. Turin Polytechnic University and other specialized research centers provide design and R&D services.
Italian technological and manufacturing know-how includes: fixed wing (Alenia), rotating wing (AW), propulsion, software, fuselage components, design and assembly of parts (in aluminum, titanium and composite materials), metallurgy, mechanics, electro-mechanics, electronics, manufacturing and processing of plastics, rubber and all high-performance materials for complex applications.
The main civil industrial programs and partnerships in which the Italian industry participates include:
Boeing 787 Dreamliner: Alenia North America and the Boeing Company set up the joint venture “Global Aeronautica” to produce the 787 Dreamliner, a mid-sized, wide-body, twin-engine jet airliner. Alenia produces composite fuselage and horizontal stabilizers for the B787. Fuselage parts are integrated in the industrial complex in Grottaglie prior to shipment to the Boeing assembly facility in Everett, WA.
EADS Airbus: Alenia Aermacchi is a partner in the European Aeronautic Defense and Space Company N.V. (EADS), now known as Airbus Group. It produces aero structures for the A321, A330 and A340–500/600, and supplies fuselage parts for the A380. In an equal-share joint venture with Airbus Group, Alenia Aeronautica owns ATR that dominates the regional turboprop market.
Superjet 100: In partnership with the Russian company Sukhoi, Alenia has developed an advanced environmentally-friendly regional jet. Finmeccanica owns 25 percent of Sukhoi's civil division.
ATR: The Airbus and Alenia Aermacchi joint-venture hold four-fifths of the turboprop market worldwide. The turboprop market has gained importance due in part to rising fuel costs. Alenia is involved in the production of ATR-42 and ATR-72 tails and fuselages.
Falcon: Alenia Aermacchi produces nacelles and the rear section for the Falcon series of business airplanes.
U.S. companies remain leaders in terms of the strength of aircraft manufacturers and also in the supply of aircraft parts. In Europe, more than 70 percent of aircraft related imports originate from the United States, and 30 percent of these imports are parts and components. U.S. exports of civil aircraft, engines and parts to Italy totalled USD 885 million in 2013. U.S. suppliers should continue to benefit from this competitive advantage.
The best market entry strategy is the identification of Tier 1 companies that integrate components, assemblies and subassemblies with their own in order to provide comprehensive solutions to the most relevant players in Italy. U.S. producers should be aware that prime contractors will look for certified components before including new companies to preferred suppliers list.
Market access in this industry is rooted in strong relationships with key players. Distribution practices and industrial competence play a fundamental and very delicate role in the aerospace industry. U.S. companies that do not wish to operate with a direct presence should have an agent or distributor that is well introduced and knowledgeable.
Financing and trade practices adhere to normal Italian business standards. The majority of financial transactions are handled through private agreements and banking institutions. Italian firms sometimes find U.S. supplier payment terms too rigid, leading to a loss of business to other suppliers. Financing is considered as much a competitive factor as the product itself, the delivery date, or after-sales service. While some U.S. manufacturers request payment upon receipt of the goods, more successful sellers offer terms allowing settlement of the account from 60 to 120 days following the invoice date, which is the most common practice in Italy. More information regarding the business climate can be found in the Country Commercial Guide.
The European Aviation Safety Agency (EASA) based in Cologne, Germany, has responsibility for aircraft and parts certification as well as the design and maintenance standards for aircraft and parts certification. The Italian civil aviation authority (ENAC), has oversight of civil aviation including certification and control authority.
Current Market Trends
The tendency during the last several years has been the creation of inter-regional clusters in order to streamline the supply chain to match activities with the expertise of Italy’s research centers and universities. Inter-regional clusters have been formed by the Campania and Puglia regions, and by Campania, Puglia and Piedmont.
Italian industry policy will continue to aim to strengthen its stake in the civil market, particularly since it must lessen the dependency on the defense market that has been reduced due to budget constraints. The partnership with Sukhoi is an example of Italy’s goal to become an important player in the civil aviation market. Another trend of Italian aviation companies is the establishment of production sites in North Africa and global sourcing.
The Italian airport sector underwent significant regulatory developments in 2013, and the Italian Ministry of Infrastructure is soon to present its national airport strategy whose objective is to rationalize the airport system and strengthen competitiveness by providing a development framework to reboot the sector. Increased investments are expected in Milan and Rome. A major expansion plan -- Fiumicino Due – managed by Aeroporti di Roma (ADR) S.p.A. is part of the City of Rome’s strategic growth plan to develop and implement an efficient infrastructure network. The project will run through 2044 and involves private investments of over USD 22 billion to increase airport capacity through the construction of a second terminal equipped with a new runway. Investments are also expected in the Northeast where plans are underway for the integration of the Venice and Verona airport systems.
A modernization process between 2009 and 2012 has given Alitalia (the main carrier) perhaps the youngest fleet (130 aircraft) worldwide. Long-haul routes are serviced by Boeing 777 and Airbus A330 models. On medium-haul routes, service is provided by the Airbus A321, A320 and A319. Service on the regional routes is provided by the Embraer 175 and 190. Alitalia’s low cost carrier (LCC) Air One brought its fleet of 9 Airbus A320 aircraft to the table when the airlines were merged in 2012. Alitalia’s fleet should be based on only 4 types of aircraft by the end of 2014 resulting in a more efficient use of resources, lower fuel consumption and lower CO² emissions.
The next 20 years are expected to bring additional mergers and acquisitions and increased collaboration with alliance partners around the world. Large Middle East carriers have captured significant long-haul share from European network carriers by providing one-stop service from Europe to markets such as India, Australia, and Southeast Asia. These carriers are also changing the way that they compete for European business: by entering an alliance, by acquiring an equity stake in a European carrier, or through cooperative agreements with non-European partners.
Europe’s large installed base of almost 4,400 airplanes will increase demand for replacement airplanes over the next 20 years. Major factors influencing airplane retirements include age and parking duration, airplane usage, operator’s geographical location, flight hours and cycles, and technological advancement. European airlines forecast acquisitions of 7,460 new airplanes valued at USD 530 billion. The increase of LCCs brought about by European liberalization will increase the need for intermediate twin-aisle jets, which will dominate new deliveries.
Business aviation is an important segment in point-to-point air travel and has seen rapid growth in recent years, with a concentration in 6 European countries including Italy which holds about 10 percent of the market share. The increase in demand for regional and national flights in Italy has been influenced by the dissatisfaction of many business users with the state-owned railway service.
Environmental impact is a key industry issue. New lighter, more aerodynamic planes using satellite-linked avionics will reduce fuel consumption and noise. The ambitious goals involve materials, power, fuel, “smart wings”, cockpit advances and independent energy sources for equipment. In Europe, the EU Emissions Trading System (EU ETS) regulates emissions control. In March 2014, the Council of the EU and European Parliament reached an agreement to limit aviation coverage of the EU ETS to emissions from flights within the European Economic Area (EEA) for the period from 2013 to 2016. The EU will review the scope of the EU ETS in 2017 following the ICAO assembly scheduled for 2016.
Developments in the area of unmanned aerial vehicles (UAV) are making this a promising sector with multiple applications. In Italy the first commercial permit was authorized in April 2012. Civil drones are increasingly being used in Europe, in countries such as Sweden, France and the UK, in different sectors, but under a fragmented regulatory framework. In December 2013, the European Council asked the Commission to develop a regulatory framework for safely introducing RPAS into European civil airspace beginning in 2016.
The European aerospace industry is more integrated than any other industry by cross-border ownerships and manufacturing networks. European companies have been quite successful during the last decade and gained market share globally in large civil aircraft and helicopter markets. Europe has a considerable market for turboprop aircraft, and Piaggio Aero is an important market player. Piaggio plans to move all production – including the Avanti II twin turboprop -- to its new industrial plant in Villanova d’Albenga.
Europe leads in the civil helicopter market with Eurocopter and AW. AW’s international network of collaborations has allowed the Anglo-Italian Group to broaden its product range thus opening up new markets. The Group has developed a holistic approach from product definition, to the sales process, to aircraft delivery, training, maintenance and spare parts support. AW develops all avionics resulting in added flexibility and cost containment.
Business and General Aviation, the segment with the smallest aircraft, is dominated by U.S. and other North American manufacturers. However, the French firm Dassault plays a relevant role with about 20 percent market share. In General Aviation, Europe holds about a third of the relevant market with 3 firms; Piaggio Aero (Italy), Pilatus Aircraft (Switzerland), and SOCATA (France).
Avio Aero is the prime producer for the engines market. Smaller, technology driven firms that currently contribute to European excellence in the market sometimes face competition from emerging countries. For the Italian aerospace industry, this means North African manufacturers that are becoming prominent on the lower end of the supply chain.
U.S. manufacturers have virtually abandoned the market for small, single engine aircraft, leaving the French to dominate this sector of the market, with the Germans specializing in turbo engines. However, U.S. know-how remains unparalleled, and there is still a broad range and a fairly large number of U.S. aircraft in use. U.S. companies producing light aircraft, jet engines and piston and turboprop engines of innovative design have good opportunities in this expanding market. Key factors that drive success are after-sale service (possibly in Italy) and the medium to long term financing (generally 36 to 60 months) at competitive rates. Aeronautical financial services companies can provide leasing terms that respond to the needs of the market.
The main segments offering the best prospects for U.S. manufacturers include aircraft and engine parts, airport and ground support equipment, pilots and navaids, composite materials, maintenance and spare parts.
Subsector Focus: Helicopters
As mentioned, AW is a global player in the helicopter market with a wide range of commercial and military rotorcraft. It operates globally in the vertical lift market through a number of joint ventures and collaborative programs with major European and American helicopter manufacturers such as Boeing and CAE. Its latest research project, Project Zero, is an unmanned, all-electric rotorcraft designed to hover like a helicopter and convert to a fixed wing aircraft in forward flight that was unveiled at the Paris Air Show last year. The project brought together several partners including Wind River, a wholly owned subsidiary of Intel Corporation headquartered in Alameda, CA, and world leader in embedded software for intelligent connected systems.
The main issue that U.S. components manufacturers face in Italy (and Europe as a whole) is strong competition due to the competence of Italian industrial players. Nevertheless, as mentioned previously the U.S. benefits from its leading position in the industry and openness by Italian SMEs to U.S. solutions. The key lies in forming strategic partnerships with Italian companies that are well-introduced.
Aerospace & Defense Meetings Torino
November 18-19, 2015 | Turin, Italy
Federazione Aziende Italiane per l’Aerospazio, la Difesa e la Sicurezza (AIAD)
(Italian Federation of Aerospace, Defense and Security Industries)
Torino Piemonte Aerospace
Lombardy Aerospace District
Lazio Aerospace Technology District
Apuglia Aerospace District
ENAC, Italian civil aviation authority
U.S. Commercial Service Contact Information:
Ms. Maria Calabria
+39 06 4674 2427
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