After several years of the military supporting the civilian aerospace industry, the reverse is now the case — a trend likely to continue into 2013, according to the Aerospace Industries Association’s (AIA) annual year-end review and forecast.
On the whole, aerospace industry sales are up 2.6%, or $5.7 billion, all due to growth in civil sales. That growth also unexpectedly bolstered employment in the industry as a whole. The numbers jumped from 625,000 at the end of 2011 to more than 629,000 during the last quarter of this year. But that is not the case with defense specifically.
“Defense, with procurement and [research, development and engineering], is down and will continue to be for the next couple of years,” particularly if across-the-board budget cuts take place in January, says Fred Deck, AIA’s senior director of research. The decline in military sales — 2.3% in 2012 — was a more gradual drop-off than anticipated. “We thought that 2012 was going to be a tougher year,” says AIA President Marion Blakey, who presented the forecast Dec. 5.
The association projects a similar 2.5% reduction in military aerospace sales during 2013.
In addition to gains on the civil side of the business, defense aerospace sales will be spared major pain for a few reasons. The Pentagon’s strategic emphasis on the Pacific requires an array of aircraft supported by space assets.
And despite a record-setting year for the U.S. that includes $62 billion in foreign military sales, AIA will be leaning on the Obama administration to continue its commitment to exports and adopt an aggressive defense trade policy.
“Most of our companies see this downturn as shallower, and not as prolonged, as past downturns have been,” Blakey says. That is due in part to the threat environment and in part to the potential for economic recovery.
But if across-the-board budget cuts known as sequestration take place in January, as currently required by law, all of AIA’s projections will be depressed. Even though AIA will be fighting to protect dollars for R&D and procurement, cuts are likely to come the Pentagon’s way regardless, Blakey acknowledges.
Her organization has been on a crusade for more than a year to protect those accounts, particularly to ensure that the U.S. does not lose niche capabilities that cannot easily be replaced.
The loss of suppliers due to sequestration is “an area of genuine worry,” Blakey says.
While prime contractors have the “bench” and the resources to navigate the downturn, third- and fourth-tier suppliers do not. And they will not be able to rely on prime contractors for long-term contracts that can bring in steady flows of income.
President Barack Obama and congressional leaders began this week to trade proposals for solving not just sequestration, but to discuss a framework that could lead to a larger deal next year that addresses the fundamental tax and entitlement issues driving the national debt. And despite continued argument among politicians over the details, Blakey sees that as a sign that a deal might be possible, even in the limited number of days remaining for Congress to consider it.
“It’s encouraging that they’re actually beginning to put some things on the table and get serious about it,” Blakey says. “It’s good to see that they’re beginning to put some chips out there on the table.”