US aerospace and defense spending under the gun: Part 2

By Maureen Aylward

With aerospace and defense spending under pressure in the US, and a possible directive for a $400 billion cut in defense spending by 2023, how is the aeronautics and defense industry responding? In Part 2 in our series on potential budget cuts, Zintro experts explain the current thinking in the industry.

Allen Shisler, an aerospace defense strategic business development expert, says that there will be significant cuts over the next 12 years. However, the cuts well be made in modest fashion and will be aimed at old or non-performing programs. He recognizes areas that will see spending cuts. “We will see cuts in spending to Afghanistan and Iraq; however, we have been flying over Iraq since the first Gulf War,” he says. “I can not see the policy changing because the area is strategic, especially the issues with Iran. We thought the cuts would be deeper than they were this year: from $715 billion to $649 billion. There was talk about going deeper to $450 billion, but that will never happen.”

“Aerospace and defense spending around the globe is actually growing. The focus on US military foreign military sales is increasing and taking up some of the slack for the defense industry,” says Shisler. “Companies are positioning themselves to take advantage of the new technologies and future growth in strategic areas. For example, helicopters are a new growth area. The US is designing its next generation of vertical lifts that will have to replace 6,000 plus helicopters per year as the old airframes die out.”

Shisler outlines the following areas where he sees the aeronautics and defense industry growing:

  • Foreign military sales of aerospace, helicopters, and parts;
  • Aerospace, including commercial and commercial derivative aircraft;
  • Helicopters of all kinds;
  • New glass cockpit installations and upgrades;
  • Omnibus contracts;
  • New technologies that make soldiers and fliers smarter, faster, and better than the competition;
  • Government sponsored research and development;
  • Homeland security, including border security;
  • Cyber security;
  • UAV aircraft and manned aircraft; and
  • Training in the countries the US is leaving.

“I see growth in areas like UAV aircraft because General Atomics and Northrop Grumman can’t keep up with the demand right now,” says Shisler. “Smaller companies, such as Navmar, that produce small UAVs are at capacity.”

Shisler says that although there are programs that will be cut the US government does not want to end up like it was in the mid-90s, searching for potential contractors. “Key players are Northrop Grumman, Lockheed Martin, General Dynamics, Boeing, DRS Technologies, Raytheon, and others. What worries them is not that they will go broke, but what programs will be cut and where they need to place key money-making executives so as not to loose them,” says Shisler. “These companies are branching out and looking at revenue producing programs such as hand held devices.”

Doug Sayers, an expert in defense communication and a former Navy public affairs officer, thinks that Secretary of Defense Gates does not want to create a hollowed-out force through budget cuts. Instead, Gates may be forcing his successors, service chiefs, and combatant commanders to determine what the role of the United States military will be by making cuts from a place of fundamental, philosophical, and operational shifts.

“Currently, senior military officers spend countless hours creating integrated priority lists that delineate what their most pressing needs are in descending order. These lists are based on world situations and threats, both real and anticipated, and what is needed to fight and win. These lists include humanitarian assistance and disaster relief operations,” says Sayers. “Gates’ cuts will determine what programs are supported. In short, national security and diplomatic efforts will shift dramatically based on dollars.”

The changes can be seen in recent actions taken by a number of the industry’s major players: Northrop Grumman sold off its shipbuilding business; Lockheed Martin is cutting thousands of jobs; other companies are adjusting their projections and personnel to account for lower revenue. “The biggest targets are to lower costs through layoffs and divest acquisitions made over the past decade. But some companies are acquiring select companies for future growth,” says Sayers. He agrees that unmanned systems will become ascendant, and cyber security and information assurance are future growth areas.

Robert Wiebel, an aerospace and defense quality assurance expert, says with large programs sucking up a portion of the services annual budget, the planned $400 billion cuts in defense spending will have an impact on military readiness and capabilities. “I believe that major defense programs that fall behind schedule and come in over budget will be targets for elimination to reduce the deficit,” says Wiebel. “The aeronautics and defense industry has started to respond by eliminating waste in the way they do business. Cost cutting is becoming a way of life, and all levels of the weapon system procurement process must be redesigned and adapt to a more flexible weapon system delivery model where cost overruns and expanding schedules become a thing of the past.”

By Maureen Aylward

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