U.S. Aerospace & Defense

U.S. Aerospace & Defense: bad times here again

Gone one are the days of frenzied defense spending and heavy investment in multi-faceted missile defense systems, purportedly to topple Iraq’s dictatorial regime or fight Afghan terror elements. Gone are the days of heady growth in air cargo and traffic movement. Also, gone are the years of acute shortage of airlines seats and generous order placing for wide-body, long-haul aircraft to accommodate demand.

After a six-year stint of fantastic growth (2002-07), the U.S. Aerospace and Defense (A&D) industry now finds itself in a painful transition, facing uncertainty and perhaps leaner times ahead. Much in contrast with the previous administration, the White House is now talking about troop withdrawals from Iraq, an exit strategy in Afghanistan, cuts in defense procurements, but an increase in NASA funding. That spells trouble for the defense segment that contributes a vast majority (78%) of the U.S. A&D market. On the commercial aviation front, reduced traffic, accompanied by ongoing economic stress worldwide, is leading to mass cancellation and deferral of aircraft orders placed with manufacturers. Adding to the woes, all 50 states have confirmed deaths from A/H1N1 flu, further easing demand for air travel within and into the country. The net impact: the U.S. A&D industry is set to witness tough times well into 2010. Recovery, if any, is not expected until the second half of 2010.

As of 2008, the U.S. A&D sector is a $335.9 billion industry, commanding a 49.8% share of the global A&D market. According to Datamonitor, the U.S. industry posted a 12.6% YoY growth last year. As of 2008, the defense segment had a 78.3% share of U.S. A&D market, with revenue of $263.2 billion. The commercial aviation segment made up the remaining 21.7% share with revenue of $72.8 billion.