Overview

Total market size = (total local production + imports) – exports

Aerospace & Defense Market in USD millions (The security market is not reflected in the table but in the written paragraph below.)

U.S. aerospace & defense manufacturers produce the highest trade surplus, year after year, of all manufacturing sectors.  According to TradeStats Express, a U.S. Department of Commerce-furnished database showing the latest global patterns of U.S. merchandise trade, 2021 U.S. aerospace exports to Germany amounted to USD 8.24 billion.  The trade surplus was USD 6.47 billion, representing a 1.4 percent increase from 2020 (USD 6.38 billion).  These figures are in stark contrast to the European statistics stating U.S. aerospace imports of USD 2.55 billion.  This is due to a different approach in calculating the sale of sub-systems and components.  Aerospace & defense is complemented by homeland security & public safety, an industry spanning across 15 vertical markets with a projected global turnover of more than USD 550 billion in 2022 (according to Grand View Research, Inc.).  Both industries are grappling with the impact of the coronavirus pandemic but, according to BNP Media’s SDM Magazine, the “security segment fared much better than originally expected.”  This is true for the German market as well where some of the companies had their best year ever.  In the aviation segment, it was a different story.  Perhaps no other industry has been harder hit overall than aviation, particularly the airline industry.  In April 2022, German air traffic was down by 35.8 percent compared to April 2019 and up 499.1 percent compared to April 2021.  Domestic air traffic was down 58.1 percent from 2019 and up 372.7 percent from 2021; European traffic was down 28.7 percent from 2019 and up 555.3 percent from 2021; intercontinental traffic was down 38.4 percent from 2019 and up 423.7 percent from 2021.  Due to the long order cycles and a significant backlog in aircraft production, aerospace manufacturing suffered a lot less than aviation.  In April 2021, the German Aerospace Industries Association (BDLI) reported that the revenues only declined by 24.4 percent, from EUR 41 billion or USD 45,900 billion in 2019 to EUR 31 billion or USD 35.4 billion in 2020.  It is noteworthy, that some 8,200 aerospace manufacturing jobs were lost through April 2021 because of COVID-19.  In the second half of 2021, the industry was able to initiate a trend reversal and started hiring again. However, the impact of the coronavirus pandemic is ongoing.  In July 2022, BDLI reported that the “aerospace industry in Germany again suffered the consequences of the coronavirus crisis in 2021.”  With sales of EUR 31.4 billion or USD 37.1 billion in the past year, the industry remained at the previous year’s low level.  Growth expectations did not materialize.  A slight rebound is expected in 2022.  Another aspect raised by BDLI is the environmental impact of civil aviation.  This German association regards the current crisis as a seminal opportunity to advance climate-neutral flying.  U.S. manufacturers should be well-positioned to benefit from the trend towards more sustainable aviation and gradual market growth in Western Europe, especially Germany.

Trade shows are significant for making first inroads into the market and Germany has plenty of them.  It hosts the world’s third-largest trade show for aerospace & defense (ILA Berlin), the world’s largest trade show for aircraft cabin interiors (Aircraft Interiors Expo / AIX), and Europe’s largest trade show for general aviation (AERO).  The major safety & security shows that are relevant for the German market are held in Essen (Security Essen) and Düsseldorf (A+A), but also in London (DSEI) and Paris (Milipol). 

All of these are ideal platforms for U.S. companies to meet with potential buyers and partners, either virtually or in person.

Leading Sub-Sectors

Germany has the third-largest aerospace & defense market in Europe, with 2020 revenues at USD 35.4 billion, following the UK at GBP 79 or USD 90.2 billion (including land defense systems) and France at EUR 50.9 billion or USD 58.1 billion.  Some three quarters or USD 26.2 billion of German production is exported.  France received a fourth of these exports with USD 6.7 billion.  To a large degree, these exports are attributable to Airbus intra-company trade as part of their geographically dispersed production model with several major sites in Germany and France.  The security market represents a key subsector.  According to the Federal Association of the German Security Industry (BDSW), the German homeland security & public safety market amounted to EUR 15.18 billion or USD 17.96 billion in 2021, compared to EUR 17.20 or USD 20.43 billion in 2017 (based on the 2017 EUR-USD annual average exchange of 1.1297). 

The latter figure was published at the “Security Essen” trade show in August 2018.  The four billion decline seems rather stark considering the strong revenue development in some of the sub-markets since the onset of the coronavirus pandemic in early 2020.  It is safe to assume that the industry saw modest but steady growth until then, mostly due to ongoing upgrades of the German internal security and migration enforcement infrastructure and an increased need for security services.  Last year, the security services market made up more than half of the overall market and grew by 6.9 percent to EUR 9.85 or USD 11.65 billion from EUR 9.21 or USD 10.52 billion in 2020.

When it comes to the strategic outlook of the German government, the Aerospace sector stands out.  The Federal Ministry of Economic Affairs and Climate Action (BMWK) lists aerospace as a key industry with high growth rates and a strong industrial core in Germany.  The revised and updated “2020 Technology Strategy of the German Aerospace Industry” builds on BMWK’s earlier “Aerospace Strategy”, underlining the particular importance of the aerospace sector for Germany as an industrial country both technologically and economically.  It was adopted by Germany’s new three-party coalition government of the Social Democrats, the Greens, and the Free Democrats in December 2021.  Besides aiming at increased competitiveness, the aerospace sector promises to make significant contributions to overarching societal goals, mainly with regards to the aspirational target of achieving climate neutrality by 2050, developing sustainable aviation fuels (SAFs), reducing the noise footprint, and improving the environmental record of aircraft.  Moreover, the BMWK has updated the Aerospace Research Program (LuFo)—a grant program for aerospace research and technology projects—and issued another call for applications in April 2022.  In the future, LuFo will put an even bigger emphasis on climate-neutral aviation.  With regards to airline subsidies, it’s noteworthy that German flag carrier Lufthansa paid back the EUR 9 billion (USD 10,26 billion) in loans and Silent Participations it received under the German government’s Economic Stabilization Fund (ESF) in November 2021.  Under this condition, ESF has committed to sell its 14.09 percent stake in Deutsche Lufthansa AG by October 2023.  Similar measures were taken in France (Air France, KLM), Ireland, Spain, and the UK (IAG: Aer Lingus, British Airways, Iberia, Level, Vueling).  These measures mainly helped to stabilize the European air transport industry.  While European aviation has been especially hard hit by the coronavirus pandemic last year, it is demonstrating impressive resilience in 2022.  According to CAPA, “the continent’s capacity recovery has more or less absorbed both the Omicron variant and the war in Ukraine.”  So far, the impact on aviation could be contained because most European economies are not significantly exposed to Russia and Ukraine.  IATA reported in March 2022 that the closure of Ukrainian airspace has put a halt to the “movements by air of roughly 3.3 percent of total air passenger traffic in Europe, and to 0.8 percent of total traffic globally, as per 2021.”  As mentioned above, aerospace manufacturing is less affected by health and humanitarian crises than aviation and continues to adapt to the compounded challenges quite well, but ultimately it relies on the return of global air transport industry to stable levels. In March 2022, Lufthansa said it could not provide a detailed outlook for 2022 due to the war in Ukraine and the pandemic.  At the same time, Lufthansa was sure that air traffic will experience a strong upswing in 2022 and expected significant improvement in operating results for the rest of the year. Best prospects for U.S. exporters exist in the following segments: commercial aircraft, business jets, turboprops, helicopters, UAVs, structures, propulsion systems, subsystems for aerospace vehicles; military aircraft, air defense systems; spacecraft, launch systems, communications systems; access control, identity management, integrated systems, security services.

The main vertical markets for homeland security & public safety in Germany are airport security, smart borders, telecommunications and critical infrastructure, and police modernization.

Policy Objectives and Challenges

U.S. suppliers should be aware of the effects of the U.S. Export Control Reform (ECR) regarding changes to the EAR and ITAR for U.S. aerospace & defense companies.  The Commercial Service will continue to support U.S. companies by conducting frequent and active outreach to the Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support (BAAINBw) in Koblenz, Rhineland-Palatinate, and following the latest aerospace, defense and security-related policy developments and discussions in Germany.  On an international level, we will gain insights from organizations, such as the Aerospace and Defense Industries Association of Europe (ASD), the U.S. Aerospace Industries Association (AIA) and Homeland Security Research (HSR) in Washington, D.C. to understand their positions on transatlantic trade issues, and communicate U.S. objectives.

In several recent tenders, the German military and some state police forces have imposed non-ITAR/EAR/PESCO clauses on prospective bidders, asking them to attest that their products do not fall under the respective regimes.  This excludes many U.S.-designed and U.S.-made defense-sector goods.

Opportunities

Opportunities include large twin-engine transport helicopters for the German Federal Police; ISR pods for Eurofighter/Typhoons; future maritime mine countermeasures for the German Navy; the Tactical Edge Networking (TEN) / Digitization of Land-based Operations (D-LBO) radio program for the German MOD; Explosives Trace Detectors (ETDs) for the German Federal Police (BPOL).  The biggest opportunity is the EUR 100 billion (USD 111 billion) Bundeswehr special fund, announced by Chancellor Scholz in February 22 and approved by the German parliament in June 2022.  The announcement was triggered by Russia’s invasion of Ukraine, which led Germany to reassess the state of its armed forces.  It comes on top of a record defense budget of EUR 50.4 billion (USD 55.9 billion) in 2022 and will be spent over the next five years, bringing Germany closer to the NATO 2% GDP spending target.  The lion’s share will go to the German Air Force, with approximately EUR 41 billion (USD 45.5 billion) slated for the procurement of H-47 Chinook heavy transport helicopters, jointly offered by Boeing and Airbus Helicopters, and F-35 Lightning II fighter jets offered by Lockheed Martin.  The F-35s will allow Germany to continue in the NATO nuclear deterrence mission without a gap when the Tornados reach the end of their service life in 2030.  They are already in service with the UK, the Netherlands, Italy, and others, and thus provide unique potential for cooperation with NATO allies.  The German MOD plans to develop a Eurofighter variant to fulfill the electronic warfare role.  The Future Combat Air System (FCAS), jointly developed by France, Germany and Spain, will replace the Eurofigher from 2040.  Another EUR 20 (USD 22.2 billion) are earmarked for ammunition.  Despite the seemingly large amount, it is already being debated if EUR 100 billion will suffice to upgrade the German armed forces or if additional funding is needed to ensure long-term readiness and fulfill assigned missions and tasks.  Munich-based ifo researcher Florian Dorn argues that “this one-time special fund will by no means be sufficient to completely make up for the funding shortfall of recent years, to eliminate all deficiencies in the short term, and to sustainably reorganize the Bundeswehr.  In addition, more efficient structures would have to be put in place for using those funds.”  At the same time, the special fund is receiving scrutiny from parts of the Social Democratic Party (SPD), who argue that some of the money should be used on civil projects, reviving the idea of a “peace dividend”.  An in-depth analysis and forecast on the allocation of the special fund until 2026 is planned for Q3 2022.

Web Resources

Trade Events

• Aviation Forum – general aviation industry, Munich, December 5-6, 2022

• Security Essen – security industry, Essen, September 20-23, 2022
• AERO – general aviation, Friedrichshafen, April 19-22, 2023
• Aircraft Interiors Expo – airline interior cabins, Hamburg, June 6-8, 2023
• DSEI – defense and security, London, September 12-15, 2023
• inter airport Europe – airport equipment, technology, design and services, Munich, October 10-13, 2023
• A+A – safety and security solutions, Düsseldorf, October 24-27, 2023
• ILA Berlin, – aerospace, Berlin, June 2024 (exact dates will be announced in Q3 2022)

Other Web Resources

German Aerospace Industries Association (BDLI)

German Airport Technology & Equipment (GATE Alliance)

HANSE-AEROSPACE e.V. (Largest independent association of aerospace suppliers and service providers in Germany)

ALROUND (Association of aerospace-oriented SMEs in Germany)

German Helicopter Association (DHV) at http://www.dhv-org.de/

Federal Association of the Security Industry (BDSW)