The Right Stuff

August 21, 2007

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Apathy, budget cuts and growing global competition ... despite a number of concerns, the worldwide aerospace and defense market is on track to grow by more than 19 percent by 2011.

The global aerospace and defense (A&D) market grew by 5.8 percent last year to reach a value of $918.1 billion, according to Datamonitor's Aerospace & Defense: Global Industry Guide earlier this month. In 2011, the global A&D market — distinguished by Datamonitor as Europe, Asia-Pacific and the Americas — is forecast to have a value of $1,096.3 billion, an increase of 19.4 percent since 2006. The defense sector of the global market, the most lucrative, accounts for 86.8 percent of the market by value.

Datamonitor says that the Americas account for 57.3 percent of the global market by value.

The United States aerospace industry is an integral part of the U.S. economy. More important, the aerospace industry is the primary exporter of the country and produces the largest trade glut of any industry in the country. The industry, with over a quarter share in the total research and development (R&D) expenditures in the country, has been one of the most flourishing industries recently.

It was particularly successful in 2006. And total deliveries are projected to exceed US$183.5 billion, up by nearly 8.15 percent from last year's US$169.8 billion, estimates the authors of the recent RNCOS report US Aerospace Industry Analysis. The U.S. aerospace industry continues to have a major trade surplus primarily due to flat imports and rising exports, according to the report released in April.

Yet now the industry faces significant challenges.

The three main issues that the aerospace industry is facing: 1) rising competition at the international level, 2) continuing reductions in defense budget and 3) a poor worldwide economy.

Several foreign governments "have emulations for developing competitive aerospace sectors and have given their full support with subsidies for product innovation and production," according to industry research firm RNCOS, which further notes:

Historically, around half of the revenues of the aerospace industry were generated from the military sector. Reductions in defense budgets for aerospace industry, both in U.S. and other nations of the developed world, have decreased the needs for missiles, military aircraft and other related machinery from U.S. suppliers.

According to the RNCOS report, since the onset of the 20th century, the U.S. has been the largest manufacturer and market for aviation and aerospace in the world. Today the country allots most of its budget to its military.

In fact, as per U.S. aerospace estimates, sales will rise by around 5.8 percent in 2007 to surpass US$194.8 billion as the purchases by the Department of Defense and space sector "will record a slight increment while commercial aircraft, engines and components deliveries will post rapid growth."

And "as airline profitability improves, OEMs steadily raise delivery schedules and supply chain businesses see strong levels of shipments to Airbus and Boeing," the outlook for the A&D sector "remains extremely attractive thus far in 2007," investment firm RSM EquiCo Capital Markets noted in April.

RSM EquiCo. continued:

The current industry consensus is that growth will continue at least through 2009, supported by a six-year backlog of large-aircraft orders combined with growth in emerging business jet markets.

Meanwhile, merger and acquisition (M&A) activity in the A&D sector continues to rise, as "strategic and financial players gain confidence in the long-term stability of the commercial build-cycle and bipartisan defense spending," according to RSM EquiCo's Q2 Aerospace & Defense Review.

RNCOS confirms that the Boeing Company, United Technologies Corporation, Lockheed Martin Corporation, Northrop Grumman Corporation, Honeywell International and Raytheon Company continue to be the key players in the U.S. aerospace space. And according to Datamonitor's Aerospace & Defense Global Industry Guide, Boeing is the leading company in the global market, with a 6 percent share of the market value.

One issue that industry representatives are anxious to address is the workforce.

In addition to declining funding and an efficiency gap, losing technical talent as compared to other major global aerospace markets remains a major concern for the U.S. aerospace industry, the recent RNCOS report says.

Aerospace engineers — who design, develop and test aircraft, spacecraft and missiles, and supervise the manufacture of these products — are developing the new technologies for use in aviation, defense systems and space exploration (as covered in the rest of this IMT issue). Those working specifically with spacecraft are astronautical engineers.

Lisa Janicki, whose family runs Janicki Industries, recently told Washington newspaper The Herald (article no long available online) that she sees both a short-term and long-term shortage of qualified employees. Her company is expanding and will need 300 people working in production at its new facility within the next two years.

"Students need to be introduced to math and science, as well as career opportunities, at a young age," Janicki told The Herald.

Yet NASA is failing to sell the final frontier to today's youth. Eighty percent of 18-25 year olds are apathetic towards a manned mission to Mars, despite the general high support for space exploration amongst the American public, according to surveys conducted by Dittmar Associates in 2004 and 2006.

The Vision for Space Exploration program — outlined by President Bush in January 2004 — proposes a permanent presence on the Moon and using it as a stepping-off point for further space exploration of space with Mars as the initial destination. Yet tomorrow's workforce is asking, "Why bother?"

Other major space-faring countries include China, Japan, Russia and India.

Resources

US Aerospace Industry Analysis RNCOS April 1, 2007

US Aerospace Industry - Moved But Still Going Strong RNCOS, May 19, 2007

Aerospace & Defense: Global Industry Guide Datamonitor, Aug. 2, 2007

Q2 Aerospace & Defense Review RSM EquiCo Capital Markets, 2007

Q1 Aerospace & Defense Review RSM EquiCo Capital Markets, 2007

More Aerospace Aid Sought by Michelle Dunlop The Herald, June 6, 2007

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