2 big questions in the aerospace industry:

Where do you build?

- Globalizing value chains risks and opportunities
- China vs mexico vs india
o State and society
Where do you sell?
- Price elasticity
- Industry concentration
o Pricing and power
- Is China going to be as big a market as we think?
o What are the factors that can effect its growth?

- Recession and global growth?

OUTLINE

INTRO MANDATE
(agenda - approach)
Industry

INDUSTRY GROWTH:

China and India are expected to be the driving force behind growth in
the aerospace industry.
- Expenditure approach - GDP chart?
o Solow model china is investing massively shifting from labour to consumer
intensive

o Formatted: Font: (Default) Times, Font color: Black

Formatted: Normal, Indent: Left: 0.75", No bullets or
o India is growing GDP growth matched with aerospace growth cyclical? numbering

micro2 assignment
- Why are they growing/where are they coming from?
o investment
o
- What are the threats to this growth?
 o Political unrest/government stability
China is more stable
o Demographics - are they growing? Effect of one child policy?
Chinas wage people are getting richer, traveling more inequality
o I think we should have the income/capita and flight demand chart. Air demand is
not just about growth but also about being in the sweet spot of income/capita
where it meaningfully accelerates. See India and China

https://www.google.ca/search?q=ppt+income+per+capita+and+airline+demand+IAT
A+china&source=lnms&tbm=isch&sa=X&ved=0ahUKEwii2efemdnUAhVp4YMK
HaGHABkQ_AUIBygC&biw=1366&bih=589#imgrc=vEpJ9PKaC4YNoM:

INDUSTRY COMPETITION

- Concentration
o Single aisle Cseries 5% -
o Oligopoly they will try to stop bombardier increase in rivalry they will
lower price their prices to try and undercut bombardier will try to price below
marginal cost WTO
o
- Comac? Protectionism
o Subsidies

AIRCRAFT VALUE CHAIN

Global partnership model

- China
o Productivity growth
o Cheap labour, but rising in general -
o IP risk
o Labour regulations

- Mexico
 o
- India (not a focus, but a point)
- I very strongly feel that we should have a bank loss chart of India and China. There are
several reasons for this: (1) it is the banking problem that crushed the whole world
including US and EMU in 2008/09 (see Macro Vincent class); (2) both china and India
have massive banking problems -losses could cripple their banks, but govts dont want
to bail out for political reasons (this is a key china and india issue right now); (3) as we
know from 2008-09 when you have a banking crisis every industry suffers because ALL
companies borrow credit; (4) given the last point, BBDs suppliers would not be able to
get credit which would create supply chain issues (bigger risk than any we have
mentioned); demand would plummet undermining our demand story in the 1st section; Formatted: Superscript

AND MOST IMPORTANTLY (5) our profs are seeing 30 presentations, everything else
we say will be covered this will stand out
- CHART-I have data for chart

Risks of outsourcing in general

- Industry cluster
- Subsidies
- Responsibility to society - jobs
- Quality perspective

BOMBARDIER