The Political Economy of Aerospace Industries

The Political Economy of Aerospace Industries

A Key Driver of Growth and International Competitiveness?

Keith Hartley

The Political Economy of Aerospace Industries will appeal to undergraduate and graduate students in industrial and defence economics, public choice and policy courses. It will also be of interest to researchers, policy-makers and those involved in the industry in various different capacities.

Chapter 4: The economics of the aerospace industry

Keith Hartley

Subjects: economics and finance, industrial economics, political economy, public choice theory, politics and public policy, political economy, public choice


Costs are central to economics and a determinant of industry structure. This chapter outlines various cost concepts used in the aerospace industry. These include acquisition and life-cycle costs, cost growth and cost escalation. Aerospace is also regarded as a decreasing cost industry where learning economies are a major influence on unit production costs. Typically, decreasing cost industries are monopolies. The typical life-cycle for an aircraft involves four stages, comprising development, production, operational service and disposal. Development involves basic research, concept analysis, design, development and the flight testing of prototypes. During development, the prototype aircraft are tested, modified and re-tested until the required performance and reliability are achieved. For military aircraft, the end result of development is the acceptance of the aircraft for operational service. For civil aircraft, the equivalent is the award of a certificate of airworthiness (CoA) by the national aviation agency confirming that the aircraft is safe to use for commercial operations. Such certificates are issued by, for example, the US Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA which certified the Airbus A380 airliner). Development is costly; it takes considerable time; and it involves highly skilled scientists, engineers and technologists. Development costs are fixed costs which are incurred regardless of the number of aircraft produced (i.e. non-recurring costs). The larger the output of an aircraft, the more can such fixed costs be spread over a larger output so reducing unit development costs.

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